REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 9023 OF 2018

Parsa Kente Collieries Limited ..Appellant

Versus

Rajasthan Rajya Vidyut Utpadan Nigam Limited ..Respondent

J U D G M E N T

M.R. SHAH, J.

Feeling aggrieved and dissatisfied with the impugned

judgment and order dated 28.02.2018 passed by the Commercial

Appellate Court/Division Bench of the High Court of Judicature

for Rajasthan, Bench at Jaipur in D.B. Civil Miscellaneous

Appeal No. 3785 of 2017, by which the High Court has allowed

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the said appeal preferred by the respondent herein – Rajasthan

Rajya Vidyut Utpadan Nigam Limited and has quashed and set

aside the award passed by the learned Arbitrator, confirmed by

the Commercial Appellate Court at Jaipur, the appellant – the

original claimant – Parsa Kente Collieries Limited has preferred

the present appeal.

2. That in the month of March, 2006, the respondent floated a

tender for joint venture to  undertake coal  block  development,

mining and transportation of coal and delivery.   That one Adani

Enterprises Limited (AEL) submitted a bid which was accepted on

12.05.2006.   A Letter of Intent was issued to AEL by the

respondent on 23.10.2006.  Respondent and AEL entered into a

joint venture, namely, Parsa Kente Collieries Limited, the

appellant herein.  A Coal Mining Service Agreement was entered

into between the said Parsa Kente Collieries Limited and AEL.

That a Coal Mining and Delivery Agreement (hereinafter referred

to as ‘CMDA’) was executed between the appellant and the

respondent on 16.07.2008 for supply of coal.   

2.1 As per CMDA, the date of commencement of the contract

was 25.06.2011.   As per CMDA between the appellant and the

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respondent, the coal supply  was to commence  at the earliest

within 42 months, or within 48 months from the date of

allotment of coal blocks, i.e., by 25.06.2011. CMDA also provided

a clause for extending the date of commencement.  Clause 3.2.1

of the CMDA provided for scope of work; Clause 4.1.3 and 4.1.4

provided for responsibility of the respondent to inform the

appellant as regards the requirement of coal in advance.  Clause

4.5 provided for commencement of the date; clause 5.1 provided

for contract of price; clause  5.2.2. provided for calculation  of

basic price; clause 5.4.3 provided for escalation in price; clause

7.1 provided for force majeure and clause 7.3 provided for effect

of force majeure.   There was a delay of 21 months in obtaining

the forest clearance and environmental clearance.  The appellant

started supply of coal to the respondent with effect from

25.3.2013, i.e., after a delay of 21 months.   It appears that the

date of commencement was extended by mutual agreement from

25.6.2011 to 25.3.2013.   However, certain disputes arose

between the parties, more particularly the escalation price, fixed

costs, amount lying in Escrow account and cost of construction

of railway siding.  Therefore, the appellant invoked clause 10.2 of

the CMDA and sought arbitration.  A retired Hon’ble Judge of the

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Rajasthan High Court was appointed as the sole arbitrator.  The

appellant submitted the statement of claim and thereafter filed

another statement of claim.   

2.2 Before the learned Arbitrator, the claim was bifurcated into

four  heads,  namely, (1)  Price  Adjustment; (2)  Fixed  Costs; (3)

Escrow Account;  and  (4)  Construction of  Railway Siding.  The

learned Arbitrator passed an award dated 27.05.2015 allowing

the claims under the heads of  ‘Price Adjustment’,  ‘Fixed Costs’

and ‘Escrow  Account’ and rejected the claim  under the  head

‘Construction of Railway Siding’.  While allowing the claim under

the head ‘Price Adjustment’, the learned Arbitrator held that the

date of commencement of the first operating year for the

purposes of clauses 5.2.2 read with 5.4.3 would be 25.06.2011.

The learned Arbitrator further held that thus the Zero year for

the purpose of price escalation has to be 2011­2012.  The learned

Arbitrator accordingly held that because the date of

commencement of the agreement for the purpose of price

escalation is 25.06.2011, the appellant shall  be entitled to the

enhanced amount as applicable in 2013­2014.   Accordingly, the

learned Arbitrator held that the appellant is entitled to the coal

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price at Rs.837/­ PMT in F.Y. 2013­14 and thereafter the

escalated price in the subsequent years as per the relevant

clauses of the contract – CMDA.   

2.3 That while allowing the claim with respect to ‘Fixed Costs’,

the learned Arbitrator held that the respondent could not take

the required delivery of the coal from the appellant, thus causing

loss to the appellant. The learned Arbitrator held that therefore

the appellant  is entitled to compensation as claimed for Rs.78

crores.

2.4 That while allowing the claim with respect to ‘Escrow

Account’, the learned Arbitrator held that the undertaking given

by the appellant was limited to a contingency where on account

of failure of completion of mine closure activity by the appellant

led to the forfeiture of any amount deposited in the escrow

account, the respondent would be entitled to recover the same

from the monthly  running bills  of the  appellant.  The  learned

Arbitrator observed,  however,  as no such occasion has arisen,

the question of any deduction on the said count does not arise.

Consequently, the learned Arbitrator directed the respondent to

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return that amount which was lying in the escrow account which

was deducted from the monthly running bills of the appellant.

2.5 As observed hereinabove, the learned Arbitrator rejected

claim  no.4, namely, under the  head ‘Construction of  Railway

Siding’.   The award declared by the learned Arbitrator came to be

confirmed by the learned Commercial Court, Jaipur in an

application under section 34 of the Arbitration and Conciliation

Act.

3. Feeling aggrieved, the respondent preferred an appeal under

Section 37 of the Arbitration Act before the Commercial Appellate

Court/Division Bench of the High Court of Rajasthan at Jaipur.

By the impugned judgment and order dated 28.02.2018, the High

Court has allowed the said appeal and has set aside the award

passed by the learned Arbitrator and confirmed by the

Commercial Court, Jaipur.

4. Feeling aggrieved by the impugned judgment and order

passed  by the  Division  Bench of the  High Court, the  original

claimant – the appellant has preferred the present appeal.

5. Shri Ranjit Kumar, learned Senior Advocate has appeared

on behalf of the appellant and Shri Tushar Mehta, learned

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Solicitor General of India has appeared on behalf of the

respondent.

5.1 Shri Ranjit  Kumar,  learned Senior Advocate appearing on

behalf of the  appellant  has vehemently  submitted that in the

facts and circumstances of the case, the High Court ought not to

have interfered with the concurrent findings of the learned sole

Arbitrator and the learned Commercial Court under Section 34 of

the  Arbitration  Act  by  giving  an  alternate construction to the

CMDA.  It is vehemently submitted that by passing the impugned

judgment and order, the High Court has exceeded in its

jurisdiction in interfering with the award passed by the learned

Arbitrator, confirmed  by the learned  Commercial  Court,  while

exercising the powers under Section 37 of the Arbitration Act.

5.2 It is further submitted by the learned Senior Advocate

appearing on behalf of the appellant that under Section 37 of the

Arbitration Act, the scope of judicial inquiry is narrow and does

not entail giving own construction to the contract.   It is

submitted by disturbing the findings, the High Court has gone

beyond the limited scope of inquiry contemplated under Section

37 of the Arbitration Act.  

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5.3 It is further submitted by the learned Senior Advocate

appearing on behalf of the appellant that the Division Bench of

the High Court has failed to appreciate that the interpretation

made by the learned sole Arbitrator on the clauses of CMDA was

plausible construction/interpretation and therefore the same

could not have been substituted by the High Court in exercise of

powers under Section 37 of the Arbitration Act.

In support  of  his  above submissions,  Shri  Ranjit  Kumar,

learned Senior Advocate has heavily relied upon the decisions of

this Court in the cases of Associate Builders v. Delhi Development

Authority, reported in  (2015) 3 SCC 49; Steel Authority of India

Limited v. Gupta Brother Steel Tubes Limited, reported in (2009)

10 SCC 63  and the recent decision of this Court in the case of

Ssangyong  Engineering  &  Construction  Co. Limited v.  National

Highways Authority of India  (NHAI),  rendered on 08.05.2019 in

Civil Appeal No. 4779 of 2019, reported in 2019 SCC Online SC

677.

5.3.1 It is further submitted by the learned Senior Advocate

appearing on behalf of the appellant that admittedly there was a

delay of 21 months in supply of coal, which was due to the force

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majeure  as there was a delay in obtaining the forest clearance

and environmental clearance.   It is submitted that the price

which was agreed by the appellant in the year 2008 to be paid in

the year 2011 would never remain the same in the year 2013­14.

It is submitted that therefore though the commencement date as

per CMDA was extended due to an admitted fact of force majeure

to 25.3.2013, the commencement date would remain as the date

defined under the CMDA, i.e., 25.06.2011 and therefore the price

escalation ought to be considered from that date.

5.3.2 It is further submitted by the learned Senior Advocate

appearing on behalf of the appellant that though by  mutual

agreement the commencement date was extended due to an

admitted fact of  force majeure  to 25.03.2013, there was no

agreement to supply the coal at the same price which was to be

supplied in the year 2011.  It is submitted that there is a specific

clause – clause 4.5.2 which allows extension of commencement

date in cases of  force majeure, however, no such corresponding

clause has been provided in clause 5.4.3, which is a clause for

price escalation.  It is submitted that the intention of parties was

never to unilaterally extend the first operating year referred to in

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clause 5.2.2.   It is submitted that therefore the price escalation

has to be necessarily applied from the contractually stipulated

date, i., 25.06.2011.

5.3.3 It is submitted that in any case the interpretation by

the learned Arbitrator was plausible and as such was equitable

also.  Merely because some other view was possible, the High

Court is not justified in interfering with the

interpretations/findings recorded by the learned sole Arbitrator

and that too in exercise of powers under Section 37 of the

Arbitration Act.   It is  submitted  that the interpretation of the

relevant  clauses  of the  CMDA with  respect to  claim no.1  was

actually in consonance with the relevant clauses of the CMDA.  It

is  submitted  therefore the High Court  has  erred  in  interfering

with the award passed by the learned Arbitrator, confirmed by

the learned Commercial Court.   

5.4 Now so far as claim no.2 under the head ‘Fixed Costs’  is

concerned, Shri Ranjit Kumar, learned Senior Advocate has

heavily relied upon clause 8.2(iii) of the CMDA.   It is submitted

that due to the lapse on the part of the respondent, the

respondent was unable to take delivery of the coal for the

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financial year 2013­14.  It is submitted that there was an event of

default by the respondent as contemplated in clause 8.2(iii) of the

CMDA.

5.4.1 It is submitted that due to inability of the respondent

to take coal as per the stipulated delivery schedule, the appellant

had to operate its plant at a sub­optimal level which resulted in

incurring fixed costs.   It is submitted that it was mandatory for

the coal  to be  lifted within 3 months of production to prevent

spontaneous combustion and to ensure that there is no hazard to

the plant.  It is submitted that despite this, the respondent failed

to take delivery.

5.4.2 It is further submitted by the learned Senior Advocate

appearing on behalf  of the  appellant that the  High Court  has

committed an error by not granting the said claim on the ground

that the loss was incurred by AMPL (sub­contractor) under Coal

Mining Services Agreement to which the respondent was not a

party and secondly that loss of Rs.78 crores is not substantiated

beyond the Chartered Accountant’s certificate. It is further

submitted by the learned Senior Advocate appearing on behalf of

the appellant that CMDA does not prohibit appointment of AMPL

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as a sub­contractor and in fact any such appointment was

approved by the appellant and therefore AMPL cannot be said to

be a complete third party to  the CMDA.  It is  submitted that

therefore when the respondent failed to lift the fixed quantity of

the coal and there was a delay in taking the delivery of the coal

for the F.Y. 2013­14, the appellant shall be entitled to the loss

suffered to the extent of Rs.78 crores.   It is submitted therefore

the High Court has committed a grave error in disallowing the

said claim.

5.5 Now so far as claim no.3 under the head ‘Escrow Account’ is

concerned, it is submitted by the learned Senior Advocate

appearing on behalf  of the  appellant that the  High Court  has

erroneously held that the respondent was entitled to make

deductions from the appellant’s bills for payments made in the

escrow account.   It is submitted that as such the learned sole

Arbitrator rightly came to a conclusion that the stage of closing of

mines had not been arrived at and therefore the deductions to

make the payments into escrow account were premature.   It is

submitted that the issue of deduction would arise only after a

passage of 30 years at the time of closure of the mining plant.  It

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is  further submitted that the deposit of  amount  in the escrow

account had arisen due to the guidelines issued by the Ministry

of Coal, which was subsequent to the execution of the CMDA.  It

is submitted that therefore the said circular issued by the

Ministry of Coal would not bind the parties to the CMDA.   It is

submitted therefore the High Court has committed a grave error

in rejecting claim no.3.

5.6 Making the above submissions and relying upon the above

decisions, it is prayed to allow the present appeal.

6. Shri Tushar Mehta, learned Solicitor General of India, while

opposing the present appeal, has vehemently submitted that in

the facts and circumstances of the case and having found that

the claims allowed by the learned sole Arbitrator, confirmed by

the learned Commercial Court, were just contrary to the relevant

clauses of the CMDA, the High Court is justified in reversing the

award passed by the learned Arbitrator, confirmed by the learned

Commercial Court.

6.1 It is vehemently submitted by the learned Solicitor General

that as per the settled proposition of law, the learned Arbitrator

cannot substitute the terms of the contract and/or interpret the

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relevant clauses of the contract, which would make the relevant

clauses of the contract nugatory.  It is submitted that the award,

by standing in complete contravention of clear and express

provisions of the CMDA, is in conflict with the public policy of

India.  It is submitted that in the present case, according to the

respondent, regarding the “commencement date”, there was only

one possible interpretation that could have been accepted by the

learned arbitrator.   It is submitted that however the

interpretation  that  has  been upheld  by the learned  arbitrator,

apart from being devoid of any reasoning in its support, is wholly

incompatible with the terms of the CMDA and the conduct of the

parties.  It is submitted that any award, by standing in complete

contravention of clear and express provisions of the CMDA, is in

conflict with the public policy of India and therefore is liable to be

set aside.  It is submitted therefore the High Court has rightly set

aside the award in exercise of powers under Section 37 of the

Arbitration Act.   In support of his above submissions, Shri

Tushar  Mehta, learned Solicitor  General of India has heavily

relied upon the decision of this Court in the case of ONGC v. Saw

Pipes Limited, reported in (2003) 5 SCC 705; Hindustan Zinc

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Limited v. Friends Coal Carbonisation, reported in (2006) 4 SCC

445 and Associate Builders v. DDA, reported in  (2015) 3 SCC 49.

6.2 Now so far as claim no.1, namely, price escalation is

concerned, it is vehemently  submitted  by  Shri  Tushar  Mehta,

learned Solicitor General that the term “commencement date” has

been defined in the agreement to have the same meaning as given

to it in clause 4.5.1. It is submitted that as per clause 4.5.3 the

date of commencement is the essence to the contract.   It is

submitted that  as  per the relevant  clauses  of the  CMDA, the

commencement date was extendable and in fact with the mutual

agreement the same was extended to 25.03.2013.  It is submitted

that the term “commencement date” is defined to be the date on

which the actual supply of coal begins.   It is submitted that in

the present case,  admittedly,  the date of  supply of the coal is

25.03.2013, and therefore, the appellant shall be entitled to

escalation in price only after the completion of 12 months from

the commencement date, i.e., 25.03.2013.  It is submitted under

the CMDA, the appellant is entitled to the escalation in price in

each operating year provided that the first escalation shall occur

only after completion of 12  months from the commencement

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date, i.e., 25.03.2013.  It is submitted that thus any escalation in

price is linked to the date of commencement of coal supply.  It is

submitted that thus if the coal supply is commenced as planned

on 25.06.2011, the first operating year would have been

25.06.2011 to 31.03.2012.   However, since coal supply only

commenced on 25.03.2013, the first operating year ought to have

been 25.03.2013 to 31.03.2013.   It is submitted therefore that

when the commencement date is 25.06.2011, the first price

escalation would be applicable for the F.Y. 2013­14.   It is

submitted that however if the commencement date is held to be

25.03.2013 (which in fact was extended by mutual agreement),

the first price escalation  would occur in  F.Y. 2014­15.   It is

submitted that it is evident from clause 5.4.3 of the CMDA that

an escalation in price was to be made only after the delivery of

coal had commenced and it is an admitted fact that actual supply

of coal started  on 25.03.2013.   It is submitted therefore that

there is no question of price escalation for F.Y. 2013­14.   It is

submitted that therefore the award passed by the learned

Arbitrator was just contrary to the relevant clauses of the CMDA

and therefore the same is rightly set aside by the High Court.   

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6.3 It is further submitted by the learned Solicitor General of

India that in fact the respondent lifted the full quantity of  the

fixed quantity and therefore there was no loss and in fact the

appellant failed to adduce any evidence with respect to the actual

loss either due to delay in lifting the coal and/or lifting the loss

quantity of the coal than they agreed.   The same is rightly set

aside by the High Court.

6.4 It is further submitted by the learned Solicitor General

appearing on behalf  of the  respondent that  similarly the  High

Court  has rightly set  aside the claim with respect to “escrow

account”.  It is submitted that as such the “escrow account” was

required to be opened as per the circular issued by the Ministry

of Coal.  It is submitted that, in fact, the appellant consented to

open the escrow account  which as such  was required to be

opened as per the guidelines issued by the Ministry of Coal.  It is

submitted that therefore in fact the appellant consented that the

money is being recovered from its running bills to be deposited in

the escrow account.  It is submitted that even the same is  in

consonance  with clause  3.2.1 of the  CMDA.   It is submitted

17

therefore the High Court has rightly  disallowed the said claim

made in escrow account.

6.5 Making the above submissions and relying upon the above

decisions, it is prayed to dismiss the present appeal.  

7. We have heard the learned counsel for the respective parties

at length.

8. At the outset, it is required to be noted that by the

impugned judgment and order, the Division Bench of the High

Court in exercise of its powers under Section 37 of the

Arbitration Act has set aside the award passed by the learned

Arbitrator, confirmed by the learned Commercial Court.   

Therefore, the short question which is posed for

consideration before this Court is, whether in the facts and

circumstances of the case, the  Division  of the  High  Court is

justified in interfering  with the award passed  by the learned

Arbitrator, confirmed by the learned Commercial  Court, in  an

appeal under Section 37 of the Arbitration Act?

9. While answering the aforesaid question, certain decisions of

this Court and the law declared on the jurisdiction of the

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appellate Court while considering the award passed by the

learned Arbitrator are required to be considered.

9.1 In the case of Associate Builders (supra), this Court had an

occasion  to  consider in  detail the jurisdiction  of the  Court to

interfere with the award passed by the Arbitrator in exercise of

powers under Section 34 of the Arbitration Act.  In the aforesaid

decision, this  Court  has considered the limits  of  power of the

Court to interfere with the arbitral award.  It is observed and held

that only when the award is in conflict with the public policy in

India, the Court would be justified in interfering with the arbitral

award.  In the aforesaid decision, this Court considered different

heads of “public policy in India” which, inter alia, includes patent

illegality.  After referring Section 28(3) of the Arbitration Act and

after considering the decisions of this Court in the cases of

McDermott International Inc. v. Burn Standard Co. Ltd., reported in

(2006) 11 SCC 181 (paras 112­113) and Rashtriya Ispat Nigam

Limited v.  Dewan Chand Ram Saran, reported in (2012) 5 SCC

306 (paras 43­45), it is observed and held that an arbitral

tribunal must decide in accordance with the terms of the

contract, but if an arbitrator construes a term of the contract in a

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reasonable manner, it will not mean that the award can be set

aside on this ground.   It is further observed and held that

construction of the terms of a contract is primarily for an

arbitrator to decide unless the arbitrator construes the contract

in such a way that it could be said to be something that no fair

minded or reasonable person could do.  It is further observed by

this Court in the aforesaid decision in paragraph 33 that when a

court is applying the “public policy” test to an arbitration award,

it does not act as a court of appeal and consequently errors of

fact cannot be corrected.   A possible view by the arbitrator on

facts  has  necessarily to  pass  muster as the arbitrator is the

ultimate  master  of the  quantity  and quality  of evidence to  be

relied upon when he delivers his arbitral  award.   It is further

observed that thus an award based on little evidence or on

evidence which does not measure up in quality to a trained legal

mind would not be held to be invalid on this score.

9.2 Similar is the view taken  by this  Court in the cases of

National  Highways Authority  of India v. ITD Cementation  India

Limited, reported in (2015) 14 SCC 21(para 25) and Steel Authority

20

of India Limited v. Gupta Brother Steel Tubes Limited, reported in

(2009) 10 SCC 63 (para 29).

10. Applying the law laid down by this Court, we have to

examine whether the Division Bench of the High Court has

exceeded  in  its jurisdiction  in setting aside  the  arbitral  award

impugned before it.

11. For convenience, we shall deal with the impugned judgment

and order passed by the High Court claim­wise.  The first claim is

with respect to “price adjustment/escalation”; the second claim is

with respect to “fixed costs” and the third claim is with respect to

“escrow account”.

11.1 Now so far as the claim with respect to “price

adjustment/escalation” is concerned, the learned arbitrator held

that the date of commencement of the first operating year for the

purposes of clauses 5.2.2 read with 5.4.3 would be 25.06.2011

and therefore zero year for the purpose of price escalation has to

be 2011­12.   Accordingly, the learned arbitrator considered the

escalated price in F.Y. 2013­14 at Rs.895/­ per MT.   However,

according to the respondent, as the date of commencement was

changed from 25.06.2011 to 25.03.2013, the zero year for  the

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purpose of price escalation would be 2013­14.   It is required to

be noted that it is not in dispute that price escalation is

permissible under the contract/agreement itself and there shall

be price escalation every year as per the formulae mentioned in

the  agreement, commencing from  the  date  of commencement.

However, it  is true that the initial date of commencement, i.e.,

25.06.2011 came to be extended to 25.03.2013 by mutual

agreement. However, the same was due to force majeure as there

was a delay of 21 months in obtaining the forest clearance and

environmental clearance.  The price was quoted in the year 2007­

08, applicable from 2011. However, there was a delay in

obtaining the forest clearance and environmental clearance and

therefore the date of commencement of supply came to be

changed.    In between there would be hike in  labour charges,

transportation charges, etc.  Though the date of commencement

of supply was extended, there was no corresponding amendment

in  the relevant  clauses of the agreement with respect  to price

escalation.  There  was  no  specific  agreement that in the  year

2013, the  appellant  would supply the  coal  at the  same price,

without any price escalation.   Therefore, considering the overall

facts and circumstances of the case and by giving cogent

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reasons, the learned arbitrator interpreted the relevant clauses of

the contract and specifically held that the date of commencement

of the first operating year for the purposes of clauses 5.2.2 read

with 5.4.3 would be 25.06.2011 and accordingly the zero year for

the purpose of price escalation would be 2011­12 and therefore

the  appellant shall  be entitled to the enhanced  amount  as is

applicable in the  year  2013­14  (the  price escalation).  Having

considered the reasoning given by the learned arbitrator, we are

of the opinion that the interpretation by the learned arbitrator

was both possible as well as plausible.   Therefore, merely

because some other view could have been taken, the High Court

is not justified in interfering with the interpretation made by the

arbitrator which as observed was possible and plausible.

Therefore, in the facts and circumstances of the case, we are of

the opinion that the  High Court has clearly exceeded in its

jurisdiction in interfering with the award passed by the learned

arbitrator with respect to claim no.1 – price

adjustment/escalation.   At this stage, it is required to be noted

that though the High Court has observed that the award passed

by the learned arbitrator with respect to claim no.1 was against

the  public  policy,  with respect,  we do  not  see  any element  of

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public policy.  It was pure and simple case of interpretation of the

relevant  clauses  of the  agreement  which does  not involve  any

public policy.  Therefore, we are of the opinion that the impugned

judgment and order passed by the High Court for quashing and

setting  aside the  award passed by the learned arbitrator  with

respect to claim no.1 –  price adjustment/escalation cannot be

sustained and the same deserves to be quashed and set aside.

11.2 Now so far as claim no.2 – “fixed costs” and an amount

of Rs.78 crores awarded by the learned arbitrator with respect to

compensation of loss is concerned, having gone through the

relevant material on record, we are of the opinion that the High

Court has rightly set aside the  award  passed  by the learned

arbitrator with respect to claim no.2.  Except the CA’s certificate,

no further  evidence  had been led  with respect to  actual loss.

Considering the material on record, it is on the contrary found

that  in the relevant year the quantity of  the coal lifted by the

respondent was much above the fixed quantity.  Thus, the award

passed by the learned arbitrator with respect to claim no.2 was

contrary to the evidence on record and therefore  is  rightly set

aside by the High Court.

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11.3 Similarly,  even with respect to claim no.3 – “Escrow

Account” is concerned, the High Court has rightly interfered with

the award passed by the learned arbitrator with respect to claim

no.3.   It is  required to be noted that  the escrow account was

required to be opened as per the guidelines issued by the

Ministry of Coal, Government of India for the preparation of mine

closure  plant.  The  guidelines required, inter  alia, the  mining

company to open an escrow account with any schedule bank.

Accordingly, the respondent opened an escrow account and

executed an escrow agreement.   From the correspondence

between the parties, it appears that even the appellant consented

for opening the escrow account.   The appellant also agreed that

the amount to be deposited in the escrow account will be

recovered by the respondent from immediate next payment of the

coal  bills  of  the  joint venture company – PKCL raised towards

dispatches of coal from appellant’s coal blocks. Thus, thereafter it

was not open for the appellant to claim the amount lying in the

escrow account.   If  the amount lying in the escrow account is

returned to the appellant, the purpose and object of opening the

escrow account which was as per the guidelines of the Ministry of

Coal would be frustrated.  The object and purpose of opening the

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escrow account was to see that the appellant company fulfils the

contract  as per the agreement  and till the closure of the coal

blocks.  Therefore, the High Court has rightly interfered with the

award passed by the learned arbitrator with respect to claim no.3

– escrow account by observing that the reasoning is perverse or

so irrational that no reasonable person could have arrived at on

the material/evidence on record.  We are in complete agreement

with the view taken by the learned Division Bench of the High

Court.

12. In view of the above and for the reasons stated above,

the present appeal succeeds in part. The impugned judgment and

order passed by the High Court insofar as quashing and setting

aside the award passed by the learned sole arbitrator, confirmed

by the learned Commercial Court, insofar as claim no. 1 – price

adjustment/escalation is hereby quashed and set aside and the

award passed by the learned arbitrator with respect to claim no.1

is hereby restored.

The impugned judgment and order passed by the High

Court insofar as quashing and setting aside the award passed by

the learned arbitrator with respect to rest of the claims, namely,

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claim  no.2 – fixed costs and claim  no.3 – escrow  account is

hereby confirmed.   The present appeal is partly allowed to the

aforesaid extent only.  However, in the facts and circumstances of

the case, there shall be no order as to costs.

………………………….J. [ARUN MISHRA]

NEW DELHI; ………………………….J. MAY 27, 2019. [M.R. SHAH]

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