Anglo American Metallurgical … vs Mmtc Ltd. on 17 December, 2020


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Supreme Court of India

Anglo American Metallurgical … vs Mmtc Ltd. on 17 December, 2020

Author: Rohinton Fali Nariman

Bench: Rohinton Fali Nariman, Navin Sinha

                                                                                    REPORTABLE

                                        IN THE SUPREME COURT OF INDIA

                                         CIVIL APPELLATE JURISDICTION

                                     CIVIL APPEAL NO.__4083__ OF 2020
                             (@ SPECIAL LEAVE PETITION (CIVIL) NO. 11431 OF 2020)



                         ANGLO AMERICAN METALLURGICAL COAL PTY LTD.

                                                                              … APPELLANT

                                                    VERSUS


                         MMTC LTD.                                           … RESPONDENT


                                                  JUDGMENT

R.F. Nariman, J.

1. Leave granted.

2. This appeal is at the instance of an Australian company, Anglo

American Metallurgical Coal Pty. Ltd. [“Appellant”], which produces

and exports certain types of coal. By a Long Term Agreement dated

07.03.2007 [“LTA”], between the Appellant and MMTC Ltd.

[“Respondent”], the Appellant, referred to as the “seller” in the LTA,

agreed to supply certain quantities of freshly mined and washed
Signature Not Verified

“German Creek”, “Isaac” (Blend of 65% Moranbah North and 35%
Digitally signed by R
Natarajan
Date: 2020.12.17
16:42:10 IST
Reason:

German Creek coking coals) and “Moranbah North” coking coal to the

Respondent. Clause 1 of this LTA is material and states as follows:

1

“CLAUSE 1: MATERIAL, QUANTITY, QUALITY AND
DELIVERY PERIOD:

The SELLER shall sell and the PURCHASER shall buy,

a) The base quantity during the currency of the contract
shall be 466,000 (Four hundred Sixty Six thousand) metric
tons (of one thousand kilograms each) firm.

b) During the First Delivery Period (1st July, 2004 to 30th
June, 2005), a quantity of 464,374 (Four Hundred Sixty
Four Thousand, Three Hundred and Seventy Four) metric
tons (of one thousand Kilograms each) firm quantity of
freshly mined and washed “Isaac”, “Moranbah North” and
“German Creek” coking coals.

c) During the Second Delivery Period (1st July, 2005 to 30
June, 2006) a quantity of 382,769 (Three Hundred Eighty
Two Thousand, Seven Hundred and Sixty Nine) metric tons
(of one thousand kilograms each) firm quantity of freshly
mined and washed “Isaac”, “Moranbah North” and
“German Creek” cooking coals.

d) During the Third Delivery Period (1st July, 2006 to 30th
June, 2007) a quantity of 466,000 (Four Hundred Sixty Six
Thousand) metric tons (of one thousand Kilograms each)
firm quantity of freshly mined and washed “Isaac”,
“Moranbah North” and “German Creek” coking coals.

e) During the subsequent Delivery Periods, in case of the
PURCHASER exercising the option to extend the duration
of the Agreement by two more years, at its sole discretion,
as indicated at Para 1.3 herein below, a quantity of 466,000
(Four Hundred Sixty Thousand) metric tons (of one
thousand kilograms each) of freshly mined and washed
“Isaac”, “Moranbah North” and “German Creek” coking
coals hereinafter referred to as the MATERIALS, in
conformity with the Technical Specifications incorporated in
Annexure – IIB (applicable for “Moranbah North” coking
coal) and Annexure IIC (applicable for “German Creek”
coking coal) to this Agreement and which shall constitute
an integral part of this Agreement, for use of imported
coking coals in the coke ovens in its integrated iron and
2
steel works for production of metallurgical coke. The quality
of the prime washed coking coals to be supplied under this
Agreement shall under no circumstances be inferior to the
Technical Specifications as contained in Annexure IIA,
Annexure IIB and Annexure IIC to this Agreement as
applicable.

1.1.1 Annual base quantity from 1st July, 2007 to 30 June,
2009, in case Purchaser exercises its option to extend the
Agreement by 2 years, shall be 466,000 metric tonnes,
subject to further discussions at the time of contract
extension and the logical contract specification
modifications to reflect the changing nature of existing
reserves at the Moranbah North and German Creek mining
operations will be mutually agreed.

1.2 For the purpose of this Agreement, the Delivery Period
shall be reckoned as follows:

First Delivery Period 1st July 2004 to 30th June 2005
Second Delivery Period 1st July 2005 to 30th June
2006
Third Delivery Period 1st July 2006 to 30th June
2007

The shipments will be evenly spread during each Delivery
Period. The PURCHASER reserves the right to prepone
shipments against any Delivery Period based on its
requirement and subject to availability with the SELLER.

The Purchaser reserved the right to postpone the deliveries
to be effected under each Delivery Period by upto 3
months i.e. the month of September following each
Delivery Period, without any additional financial liability to
the PURCHASER.

1.3 The PURCHASER had the option to extend the
duration of the Agreement by two more years, at its sole
discretion and the Purchaser to exercise its option for
extending the Agreement by two more years or otherwise
by 31st January, 2007. In case the PURCHASER decides
to exercise such option, at its sole discretion, the
Agreement shall have two more Delivery Periods as
follows:

3

Fourth Delivery Period: 1st July 2007 to 30th June
2008
Fifth Delivery Period: 1st July 2008 to 30th June
2009”

3. Under clause 2 of the LTA, which refers to “Price”, for subsequent

Delivery Periods, including the “Fifth Delivery Period”, with which we

are directly concerned, it is undisputed that when read with Annexure I

of the LTA and a letter dated 14.08.2008, setting out the terms of the

Fifth Delivery Period, the price was fixed at $300 per metric tonne.

Clause 2.2 is important and states as follows:

“CLAUSE 2: PRICE

xxx xxx xxx

2.2 The Price for the Delivery of AGREEMENT quantity for
subsequent Delivery Periods shall be fixed in accordance
with Para I of Annexure-1 and shall be firm and shall not be
subject to any escalation for any reason, whatsoever, until
the completion of delivery of the AGREEMENT quantity
due for delivery in the relevant Delivery Period with such
extensions as might be mutually agreed upon between the
PURCHASER and the SELLER.”

4. Disputes arose between the Appellant and the Respondent as to

shipments or “stems” that were to be covered by the Fifth Delivery

Period, which ranged from 01.07.2008 to 30.06.2009, the parties

mutually extending this period to 30.09.2009. A number of emails and

letters were exchanged between the parties from August 2008 to

December 2009, which were examined in detail by a panel of

4
arbitrators consisting of Mr. Peter Leaver (Queen’s Counsel), Justice

V.K. Gupta (Retd.) and Mr. Anthony Houghton (Senior Counsel)

[“Arbitral Tribunal”] who sat at New Delhi and delivered their

international arbitral award in New Delhi on 12.05.2014. It may be

stated at the outset that the award is a majority award of Mr. Peter

Leaver and Mr. Anthony Houghton [“Majority Award”], in favour of the

Claimant, being the Appellant before us, a dissenting award being

delivered by Justice V.K. Gupta [“Dissenting Award”], in which the

claim of the Appellant was dismissed in its entirety.

5. The Majority Award was challenged under section 34 of the Arbitration

and Conciliation Act, 1996 [“Arbitration Act”] before a learned Single

Judge of the High Court of Delhi [“Single Judge”], who upheld the

Majority Award by a judgment dated 10.07.2015. However, by the

impugned judgment dated 02.03.2020, a Division Bench of the High

Court of Delhi [“Division Bench”] set aside the judgment of the Single

Judge and allowed an appeal filed under section 37 of the Arbitration

Act by the Respondent, setting aside the Majority Award.

6. The Majority Award contains detailed reasons, and since it is the

subject matter of intense debate between the parties, it is important to

set out the facts found by the Majority Award, together with the

material findings and ultimate award.

5

5a. Under the heading, “I. Common Grounds and Issues in Dispute”,

the Majority Award set out what it describes as the undisputed facts,

as follows:

“I. Common Ground and Issues in Dispute

34. Before setting out the List of Issues to be decided by
the Tribunal, some of the undisputed facts are summarised
by way of background. These matters, of what the Tribunal
understands to be common ground, are summarised also
in the Claimant’s Opening Submission dated 16th
September 2013.

35. By a Long Term Agreement dated 7th March 2007
under which the Respondent contracted to purchase
freshly mined and washed coking coal from the Claimant
on FOB (trimmed) basis from DBCT Gladstone in Australia.
The Long Term Agreement they signed was extended by
agreement and is to be read along with Addendum No.2
dated 20th November 2008. As referred to at paragraph 5
above, the Long Term Agreement as extended by
Addendum No. 2 is referred to herein as “the Agreement”.

36. Prior to Addendum No.2, the Agreement encompassed
three Delivery Periods of one year each commencing on
1st July 2004 and concluding on 30th June 2007. The Long
Term Agreement included a provision (at Clause 1.3) that
gave the Respondent an option to extend the Long Term
Agreement for two more Delivery Periods, and this option
was exercised such that purchases and deliveries were
also to be made in a Fourth Delivery Period (between 1st
July 2007 and 30th June 2008); and a Fifth Delivery Period
(1st July 2008 to 30th June 2009).

38. In regard to these two additional Delivery Periods it was
provided that the Respondent would purchase 466,000 MT
of coking coal during each Delivery Period (Clause 1.1.1).

39. The matters which are in dispute arise out of the Fifth
Delivery Period. This was to have run to 30th June 2009,
but was extended by agreement between the parties so as
6
to expire on 30th September 2009 as confirmed in the
Claimant’s letter to the Respondent dated 14th August
2008. The coking coal to be supplied was of two types
(Isaac Coking Coal blend and Dawson Valley blend) and
the agreed price for each for the Fifth Delivery Period was
US$300 per MT. That price was agreed by the parties in
accordance with the Agreement, and was confirmed by
letter from the Respondent to the claimant dated the 20th
November 2008.

40. It is not in dispute that the Respondent lifted only two
shipments at the agreed price of US$300 per MT during
the Fifth Delivery Period. The first was on 30th October
2008, and was a quantity of 2,366 MT, and the second on
5th August 2009, when the Respondent lifted another
9,600 MT.

41. The first of these shipments was via the ‘Furness
Hartlepool’ and was part of a larger shipment under which
48,655 MT was lifted in respect of balance quantities under
the Fourth Delivery Period (at the agreed rate for that
period of US$96.40 per MT). The Fifth Delivery Period
component of this delivery was 2,366 MT and this was
transacted at the agreed price of US$300 per MT.

42. The second of these shipments was an ad hoc
agreement made in a meeting on 15th July 2009 and
confirmed in writing by the Respondent on 22nd July 2009.
That ad-hoc agreement (“the Sea Venus agreement”) was
for 50,000 MT of coal under which 9,600 MT was to be
purchased at the contractual price of US$300 per MT, but
the balance 40,400 MT was to be sold at an ad hoc price of
US$128.25 per MT.

43. Even after these two deliveries were made there was a
considerable shortfall in deliveries against the contracted
quantity for the Fifth Delivery Period. The total quantity
actually lifted in respect of the Fifth Delivery Period was
11,966 MT (2,366 + 9,600MT) as compared to the
contracted quantity of 466,000MT. Accordingly, the quantity
not lifted by MMTC amounts to 454,034 MT.

44. This quantity not lifted underpins the Claimant’s claim,
which is for damages arising out of an alleged breach on
7
the part of the Respondent in not lifting the contracted
quantity. The loss claimed by the Claimant is the difference
between what is said to have been the market price, and
the contract price.

45. For its part the Respondent denies any breach on its
part in not having lifted the contracted quantity. This is
because, according to the Respondent, the Claimant did
not in fact have the goods available for delivery to the
Respondent. The Respondent’s contention is that the
Claimant’s marketing manager expressed an inability to
supply cargo under the Fifth Delivery Period, and the
Respondent says that this was a simple refusal to perform
the obligation to supply coal under the Agreement.
Correspondingly, the Respondent contends that it was the
Claimant which was in breach of the Agreement.

46. The detailed issues which arise, as defined in the
Terms of Reference and, as these were supplemented, are
as follows:

A. Whether the Respondent committed breach of
contract in not lifting 454,034 MT of coking coal in
terms of Agreement and if so, the consequences
thereof? If yes, what is the date of such breach?

B. Whether the Claimant was in breach of contract
in failing to supply goods to the Respondent during
the Fifth Delivery Period? If yes, what is the date of
such breach?

In considering this issue, and so far as relevant, was
the Claimant in a position to perform its obligations
by making available the requisite quantities in a
timely manner as per the stipulations under the
Contract?

C. Whether the Claimant’s claims are barred by
limitation?

Whether there was a failure on the part of any party
to perform the obligations cast upon it under the
Contract, in a timely manner, or at all and if so, the
effect thereof.

8

D. Whether the Claimant is entitled to any damages
and if so to what amount?

E. Whether the Claimant is entitled to interest on any
damages to be awarded and if so, at what rate and
for what period?

F. Whether the Claimant is entitled to interest
pendente lite and post pendente lite, and if so at what
rate.

G. Costs of the arbitration, and interest, if any, on the
costs awarded.”

5b. Under the heading, “M. The Correspondence Regarding

Deliveries”, the Majority Award referred to the various emails and

letters exchanged between the parties, as follows:

“M. The Correspondence Regarding Deliveries

56. The correspondence directly concerning deliveries in
mid 2009 comprises only a few documents. Firstly, on 11th
March 2009 the Claimant wrote to the Respondent:

“We refer to discussions in New Delhi on 24th
February 2009 between Mr Suresh Babu and
our Mr John Wilcox at your office. Anglo remains
very concerned that deliveries for the Fifth
Delivery Period of the Agreement remain
unperformed by MMTC, and that to date MMTC
has not intimated arrangements for performance
of obligations arising under the Agreement.

Accordingly, kindly send MMTC’s proposed
Delivery Schedule for the Fifth Delivery Period,
as referred to in Clause 4 of Annexure IV of the
Agreement, for our consideration. Under the
circumstances, we seek your response by close
of business Brisbane time on Friday 20th March
2009.”

9

57. On 2nd July 2009 the Respondent wrote to the
Claimant, requesting, the Respondent submits, the
Claimant to indicate stem availability for two deliveries, one
each in August and September 2009. The Respondent
said:

“Transchart has already entered the market on
behalf of MMTC for the vessel against July 09
stem.

Keeping the huge backlogs in mind we would
like to avail two stems in August 09 and one in
September 09. Please confirm availability and
convey the laycans.”

58. On 3rd July 2009 the Claimant wrote to Mr. Babu of the
Respondent seeking time to respond to the request.
However there was no follow up from the Claimant. On
21st July 2009 the Respondent again requested
confirmation of stem availability:

“We are awaiting stem confirmation from Anglo
for August 2009. Please note we have given our
Indent well in advance. The flexibility of laycan
vested with you completely. We look forward to
hear from you…”

59. On 22nd July 2009 the Claimant responded, stating:

“Unfortunately, at this stage we are unable to
confirm a stem in Aug/Sep for MMTC due to
cargo availability.

We are continuing to review our position and will
advise our preferred schedule for Oct-Dec 2009
as soon as possible”

60. The Respondent submits that this means what it
literally says; the Claimant refused to confirm stem
availability for August and September 2009 due to a lack of
availability. Correspondingly, the Claimant failed to supply
the contracted material within the Fifth Delivery Period.

10

61. On 4th September 2009, the Respondent wrote to the
Claimant stating that:

“Our cokery has increased the pushing’s with
the result, requirements of coking coal has gone
upto 90,000t/month. After Anglo has not given
any stem to MMTC. Seavenus [sic] Please give
US’ one stem of 50,000MT each in October and
November 09.”

62. Once again the Claimant (through Mr Wilcox)
expressed itself to be unable to supply the coal under the
Fifth Delivery Period because of non availability for the
remainder of the year 2009 (e-mail of 7th September,
2009). Mr. Wilcox stated:

“Dear Suresh,

….Unfortunately at this stage we do not have
any coal availability for the remainder of the
year.

We will continue to monitor the situation and let
you know if the position changes. ”

63. On 21st September 2009 the Claimant wrote as
follows:

“We refer to our letter of 11 March 2009 to which
we have not yet received a response.

The Fifth Delivery Period of the Agreement has
now finished bringing the terms of the
Agreement to an end. However, to date, MMTC
has only taken delivery of 11,966 tonnes of coal
out of a total contracted tonnage of 466,000
tonnes for the Fifth Delivery Period.

Despite our repeated requests MMTC has not
provided Anglo with a schedule for taking
delivery of the remaining 454,034 tonnes of coal
from the Fifth Delivery Period (‘Carryover’), other
than to say that it will agree to the same
arrangements made between Anglo and SAIL
11
and RINL with regards delivery of 2008
carryover tonnes.”

64. The author of the letter (Mr. Elliott, the General
Manager, Marketing and Transportation of the Claimant)
then set out the terms which had been agreed with
SAIL/RINL and set out a proposal for delivery of the
“carryover” quantity and for renewal of the agreement with
the Respondent.

65. On 25th September 2009 the Respondent (Mr. Babu)
responded to that letter. The response stated that the
proposal was “near to impossible” in that it envisaged the
Respondent lifting a very substantial quantity of the
carryover quantity by end March 2010. The letter then
stated:

“In this connection, It may please be appreciated
that RINL is basically a producer of LAM coke
and pig Iron where the value addition is
negligible or negative sometimes. The industry
is yet to come out of the shock of recession.
Lifting even 18.7% carry over tonnage implies a
loss of USD 25/1 coke produced. Keeping these
Issues in mind, we had approached Anglo Coal
for a reduction in price via our letter dated
20.11.2008. Lifting another 38% implies a further
increase in loss by another USD 80/1. For the
sake of negotiation, we hope you will not ignore
the economic realities completely, Steel Melting
Shop of NNL is under implementation and the
commissioning is expected sometime in end
2010. Economy will also come out of recession
gradually.

In short we are not denying our obligation. The
request is only for staggering the time frame for
lifting as explained in para. 1 & 2 above. Please
review and reconsider our request for allotting at
least one shipment of 50,000MT each from
October 09 onwards instead of zero stem till end
of 2009.” ”

12
5c. After setting out summaries of the Claimant’s case and the

Respondent’s case, under the sub-heading, “Availability of Coal”, the

Majority Award accepted the evidence of Mr. John B. Wilcox,

Marketing Manager, on behalf of the Appellant, reading the same with

the Respondent’s letter dated 20.11.2008, as follows:

“Availability of Coal

118. The first element to be considered is the assertion
advanced on behalf of the Respondent that the Claimant
did not have the contracted goods to deliver. This depends
entirely upon two e-mails, one dated 22nd July 2009 and
the other dated 7th September, 2009. The first of these
stated that the Claimant was unable to confirm the stem in
August/September “due to cargo availability” and was
reviewing the position in regard to October December2009.
In the 2nd the Claimant stated that “unfortunately at this
stage we do not have any coal availability for the
remainder of the year”.

119. The Claimant’s case, which we accept, is that there
was no shortage of supply at the relevant time. The e-mails
have to be read in context, and as we explain below, the
context is that the Respondent was seeking further
deliveries of coal at below the contract price.

120. Mr. Wilcox in his Additional Affidavit informed the
Tribunal that the Claimant was not a trader in coal but
owned coal mines in Australia and had a railway system in
place to ensure smooth shipments. He stated that at the
relevant time the market was affected by the global
financial crisis which brought about a crash in the demand
for steel and, consequently, for the relevant type of coking
coal. He said that, at the relevant time, the Claimant had a
large quantity of surplus production, some of which was
sold off by way of “distress sales” during the Fifth Delivery
Period.

13

121. Mr. Wilcox was challenged in cross examination (Q40)
as to the availability of cargo to supply to the Respondent
between July 2009 and 21st September 2009. He
disagreed that the Claimant had no supply, stating that the
Claimant was producing around 1,000,000 tonnes per
month during this period. He said that it would have been
very easy for the Claimant to produce coal for the
Respondent had they been willing to pay the contract price.

Subsequently (Q43-Q45) he was challenged about the
alleged distress sales. He confirmed that such distress
sales were made. His affidavit indicated such sales
amounted to approximately 712,000 MT, and that these
sales were made at between US$83 and US$113 per MT,
far below the price agreed with the Respondent.

122. The Tribunal accepts Mr. Wilcox’s evidence. It is
entirely consistent with the Respondent’s own letter dated
20th November 2008 which reads:

“As you are aware, due to worldwide crisis in
financial markets, there has been
unprecedented fall in prices of major
commodities including steel…

The prices of iron and steel products in the
international market has nosedived in the month
of September and October 2008 and pig iron, …
is not getting customer on date even at US$300
FOB. Same is the situation in the domestic
market and we are not able to sell our product.
Under the circumstances, you will appreciate it
has become absolutely unreliable to produce
and sell pig iron based on the imported coking
coal having prices US$300 per tonne FOB for
hard coking coal… The substantial depreciation
of Indian rupees to the US dollars is further
added to our woes …. In view of unprecedented
recessionary trends in the economy and
consequent abnormal low realisation on pig iron,
we request price reduction of coal for quantities
finalised for delivery during 1 July, 2008 to 30 of
June 2009 period to a level that was settled for
delivery period 1 July, 2007 to 30 of June 2008.”

14

123. It appears to us that the evidence is all one way, to the
effect that demand for coking coal was substantially
reduced during the last few months of 2008 and in, at least,
the first half of 2009, and it follows, it seems to us, that this
strongly corroborates Mr. Wilcox’s evidence as to the
availability of coking coal for supply to the Respondent.

124. Accordingly we reject the Respondent’s assertion that
the Claimant did not have the contract goods to deliver.
The Tribunal makes one further observation: the Fifth
Delivery Period price was agreed just over two months
after the global financial crisis which started at about the
time of the collapse of Lehman Brothers on the 15th
September 2008. The price agreed by the parties for that
period was significantly higher than the price for any of the
preceding periods. That is in itself extraordinary, but what is
even more extraordinary is that the Respondent’s request
for a price reduction was made on the very same day on
which the Fifth Delivery Period price was agreed.”

5d. Under the sub-heading, “Failure to Offer Stem?”, the finding of the

Majority Award was as follows:

“Failure to Offer Stem?

xxx xxx xxx

133. Accordingly we do not accept that the Agreement
required the Claimant to take the initiative and offer stem
wholly without reference to any obligation on the part of the
Respondent. Viewed overall, it is clear to us that the
Agreement envisaged and required the parties to
coordinate supply and delivery. The primary document for
this was intended to be the Delivery Schedule. Indications
of stem availability and nomination of vessels were steps to
be taken in the implementation of the Delivery Schedule,
not preparatory to it. It follows from this, it appears to us,
that there is no contractual basis on which the Respondent
can contend that the Claimant was in breach in failing to
offer stem to the Respondent. Absent an agreed Delivery
Schedule there was no obligation to do so.”
15
5e. Under the sub-heading, “Offer of Supply”, the Appellant’s letter

dated 11.03.2009 was set out in which the Appellant demanded that

the Respondent propose a Delivery Schedule for the coal in question.

The Respondent denied the receipt of this letter. However, the

Majority Award found as follows:

“Offer of Supply

xxx xxx xxx

139. Mr. Babu does not rebut the existence of the meeting
in April. Nor does he deny having received the 2nd e-mail
transmission on 12th March. He merely said in his
evidence that there was no need for him to be concerned
with the attachments to that e-mail. That does not amount
to evidence that the letter was not received.

140. Moreover, the Claimant referred to its letter of 11th
March in a letter sent on 21st September 2009 (Vol.2, page

21) which opened with the sentence “We refer to our letter
of 11th March 2009 to which we have not yet received a
response.”. The Claimant did receive a response to the
letter of 21st September (Vol.2, page 23) sent on behalf of
Mr. Babu, but that response expressed no surprise
regarding the reference to a letter of 11th March 2009, nor
did it state that no such letter had been received.

141. In summary therefore there is much in the
contemporaneous correspondence to support the
Claimant’s assertion that this letter was sent, and nothing
to rebut that assertion. So far as the witness evidence is
concerned, not least because it is corroborated by the
documents, the Tribunal prefers and accepts the evidence
of Mr. Wilcox that supply of coal was offered by the
Claimant to the Respondent, including by the letter of 11th
March 2009.”

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5f. Under the further sub-heading, “What Was the Respondent

Seeking in its emails in June/July 2009?”, the Majority Award found

as follows:

“What Was the Respondent Seeking in its emails in June/
July 2009?

142. It appears to the Tribunal that the stage was set for
the dealings between the two parties in regard to the Fifth
Delivery Period at the time that they agreed the rates for
that delivery period. As referred to above, there does not
seem to be any dispute that contemporaneously with the
agreement of the rates for the Fifth Delivery Period the
market price of coal fell markedly, and the Respondent
immediately came back to the Claimant to ask for some
reconsideration of the agreed rate for deliveries.

143. As the Tribunal has found to be the case above, when
the Claimant wrote to the Respondent on 11th March 2009
seeking a delivery schedule for the then outstanding
quantities under the Fifth Delivery Period, it met with no
response. It is common ground that only a very small
quantity of the total due under the Fifth Delivery Period was
in fact uplifted by the Respondent; one delivery of 2,366
MT on 30th October 2008 via the ‘Furness Hartlepool’ was
added to balance quantities under the Fourth Delivery
Period, and one delivery on 5th August 2009, when the
Respondent lifted another 9,600 MT. The second of these
shipments was the ad hoc Sea Venus agreement for
delivery between 10th and 20th July 2009 (Vol. 2, pages 9-

12).

144. The ad-hoc Sea Venus agreement was for 50,000 MT
of coal under which 9,600 MT, or thereabouts was
transacted at the price of US$300 per MT, with the balance
40,400 metric tonnes sold at an ad hoc price of US$128.25
per MT. This was said to have been a “goodwill gesture”
(Vol.2, page 9).

145. The market price remained low throughout the Fifth
Delivery Period (see for example the agreement made by
the Claimant with SAIL/RINL on 15th July 2009 (Vol.2,
17
pages 13-20) agreeing rates at below US$129.00 per MT)
and, viewed commercially there was little incentive for the
Respondent to continue to purchase from the Claimant at
the agreed rates.

146. The Tribunal’s view of the correspondence is that the
Respondent saw matters similarly, and was seeking to
purchase further quantities of coal at the lower rate
obtained in the Sea Venus agreement. In the e-mail of 2nd
July 2009 Mr. Babu referred to the Respondent having
progressed the chartering of a vessel for the Sea Venus
agreement, and asked, without apparent distinction about
the availability of 2 further stems for August and
September. Receiving no substantive response to the
enquiry regarding such further stems Mr. Babu followed up
by e-mail on 21st July 2009. He did not, as might have
been expected if this was part of the usual contractual
arrangements point out that the Claimant was obliged to
fulfil this order, nor did he make any complaint that the
Claimant had failed to comply with the “prerequisite” of
indicating stem availability before the Respondent was
required to act.

147. It was in this context that Claimant wrote on 22nd July
2009 referring to an inability to confirm stem in
August/September due to cargo availability. Seen in the
context of the exchanges between the parties, and seen
against the background of the evidence given by Mr.
Wilcox to the effect that prices had slumped and the
Claimant was “dumping” coal in China, the only possible
understanding of this e-mail is that the Claimant was
declining to supply further coal at below the contract rate
as had been done in the ad hoc Sea Venus agreement.

148. On 4th September 2009 the Respondent wrote again
seeking stem (for delivery beyond the contract period),
noting that there had been no delivery since the Sea Venus
agreement. Once again the response received by the
Respondent was that there was a lack of availability.

149. None of these exchanges refer specifically to the price
at which the coal was being sought, or at which it might be
available. Mr. Wilcox’s evidence was however clear that the
contemporaneous discussions between the parties were on
18
the basis that the Respondent was seeking further
discounted supplies, and indeed his understanding was
that the Respondent was purchasing from other suppliers
at rates lower than those to which it was bound under the
Fifth Delivery Period.

150. The Respondent’s letter of 25th September 2009 is
consistent only with the Respondent having sought
discounted price supply in the July/August period. The
letter described the difficulty the Respondent would face in
incurring losses by purchasing proportions of the “carry
over quantity”, that is the unfulfilled part of the quantities
under the Fifth Delivery Period. The Respondent had
proposed, in line with an agreement made by the Claimant
with SAIL/RlNL, to purchase only 18.7% of the carry over
quantity, and was, in the correspondence, balking at the
suggestion made on behalf of the Claimant that 56.7% of
that quantity be lifted by 31st March 2010. This was
described by the Respondent as “near to impossible”, and
the Respondent asked the Claimant not to ignore the
economic realities completely.

151. Thus, the first relevant letter written by the
Respondent during the Fifth Delivery Period [C-5] on 20th
November 2008 sought a reduction in the price of coal to
be delivered under the Fifth Delivery Period as did the last
such letter, that of 25th September 2009. Following the
conclusion of the Fifth Delivery Period the Claimant made a
further offer of supply (on 25th November 2009) which the
Respondent was prepared to accept only at a price
reduced from the contractual rate (Respondent’s letter of
27th November 200[9]). The Respondent’s arguments now
are predicated on there having been a temporary change
of stance during the course of the year such that, in June
and July 2009 it was seeking no more than to avail itself of
supplies of coal at the contract rate. Seen in context, the
correspondence relied on does not begin to support that
contention, and the Tribunal rejects it. The Respondent
was seeking coal at below the contract rate and the
Claimant was refusing to supply on those terms. The
Respondent failed to fulfil its contractual obligation to lift the
contracted quantities of coal at the contract rate.”

5g. Under the sub-heading, “Limitation”, the Majority Award held:

19

“155. It follows that the Claimant’s notice of arbitration,
which was issued on 24th September 2012 and received by
the Secretariat on the same day was issued and the
arbitration commenced within the three-year limitation
period.”

5h. Under the sub-heading, “Proof of Damage?”, the Majority Award

found:

“Proof of Damage?

156. It appears to the Tribunal, with respect to the
Respondent, that this is a hopeless line of argument. There
is ample evidence of the market price for coal in 2009 both
in the Affidavit and Additional Affidavit of Mr. Wilcox (which
details the prices at which the Claimant was selling coal to
Chinese parties during the Fifth Delivery Period), but also
in the contemporaneous correspondence, including the
Respondent’s letter of 3rd December 2009 and the
agreement reached between the Claimant and SAIL/ RlNL.
The Respondent was itself purchasing coal from BHP
Mitsui at about US$128 per MT at about this time.

157. There is no dispute as to the relevant quantity of
coking coal which was not lifted, and the Tribunal accepts
(this not being a matter of dispute) that the difference
between the market rate and the contracted rate
represents the correct measure of damages. That is the
basis upon which the Claimant’s claim has been evaluated
in its claim documents. Accordingly the Tribunal accepts
the Claimant’s evidence as to the quantum of its loss.”

5i. Finally, therefore, in a useful summary, the Majority Award held:

“Summary

180. Having read heard and considered the evidence and
submissions of the parties and for the reasons given above
the Tribunal finds, and holds, unanimously save where
indicated, as follows:

20

(a) The Respondent committed a breach of contract
by not lifting 454,034 MT of coking coal within the
Fifth Delivery Period, which expired on 30th
September 2009.

(b) The Claimant was not in breach of contract in
failing to supply goods to the Respondent during the
Fifth Delivery Period.

(c) The Claimant was, at all material times in a
position to perform its obligations under the
Agreement by supplying the requisite quantities in a
timely manner in accordance with the Agreement.

(d) The Claimant’s claims are not barred by
limitation.”

5j. The award, therefore, in favour of the Appellant, was then stated as

follows:

“Dispositive Section

181. For the above reasons the Tribunal Orders and
Directs that:

(1) By a majority, the Claimant is entitled to damages
from the Respondent in the sum of
US$78,720,414.92.

(2) By a majority the Tribunal concludes that the
Claimant is entitled to simple interest on such
damages in the sum of US$27,239,420.29 in respect
of interest up to the date of this Award, and at a rate
of 15% p.a. on the principal sum from the date of this
Award until payment.

(3) The Claimant is entitled to its costs of the
arbitration which, by a majority we assess in the
amount of US$977,395.00.

(4) The sums set out above as being due to the
Claimant are due as at the date of this Award and are
to be paid by the Respondent.

(5) This Award is final as to the matters in dispute
between the parties and referred to arbitration before
us. All other requests and claims by the parties are
dismissed.”

21

7. Justice V.K. Gupta (Retd.), in his Dissenting Award found as follows:

“4. Analysis

xxx xxx xxx

(k) In the totality of circumstances and after appreciating
the contractual provisions and the conduct and evidence
led by the Claimant I find apart from one request for the
delivery schedule from the Respondent vide letter dated
11th March 2009 there is no evidence on record to show
that the claimant had the contracted material ready to
supply. Even the chart showing supplies to the third parties
filed by the Claimant along with the additional evidence of
Mr. John Wilcox indicates that the supplies of the entire
quantity of the material available with the Claimant had
already been made to all the other Buyers and it appears
that the Claimant did not have the material to supply under
the Contract at least for the period between July to
September 2009 which was the contracted period.

(l) It is incomprehensible that a party which was ready with
such huge quantity of coal would not send follow up
communications to the Respondent urging them to lift the
contracted goods if such goods were ready at the load port.
Not a single document has been produced in terms of
which the Claimant could show that it had written to the
Respondent that so much quantity of material was sitting at
the load port and that MMTC has failed to nominate the
vessel. After the 11th March 2009 letter there is no other
communication addressed by the Claimant to the
Respondent requesting the Respondent to provide the
delivery schedule. On the contrary in their emails they
expressed their inability to supply any cargo within the
delivery period. It appears that there were several Buyers
between July and September 2009 on account of shortage
of coking coal and that there was sudden increase in
demand of coal and during the month of July and
September 2009 and that the Claimant had over committed
the supply and had supplied the contracted quantity to the
third parties.

22

(m) In my view the claimant did not have the contracted
material or it diverted the contracted material to a third
party and therefore was unable to make the contracted
material available under the Contract. The Claimant was
therefore unable to supply the contracted material and was
in breach itself.

(n) The Claimant being itself in breach is not entitled to
claim any damages.”

The Dissenting Award also found that the Appellant had failed in

discharging its burden of proving the quantum of damages as on the

date of breach of the LTA.

8. The learned Single Judge, by a judgment dated 10.07.2015, after

setting out the relevant facts, dismissed the Respondent’s plea of

limitation and then found:

“45. The majority Award concluded that there was in fact no
repudiation of the contract by Anglo and that in any event
no acceptance of such repudiation by MMTC. The Court is
required to examine whether such conclusion is perverse
or patently illegal as contended by MMTC. In the first place
it appears that it was not the case of MMTC earlier that the
letter dated 21st September, 2009 constituted repudiation
by Anglo of the contract. In its reply dated 25th September,
2009, MMTC did not suggest that Anglo had repudiated the
contract. It viewed the said letter dated 21st September,
2009 as a request from Anglo to start lifting the contractual
quantities. This explains why MMTC in the said reply
expressed inability to lift 2,25,174 MT by 31st March, 2010
since it seemed “near to impossible as it worked out to
56.7% of the carryover tonnage.” It sought a reduction in
prices hoping that Anglo would “not ignore the economic
realities completely”. MMTC stated that “In short, we are
not denying our obligation. The request is only for
staggering the time frame for lifting…” In its letter dated 3rd
December, 2009 MMTC sought Anglo’s help in the matter
“so that somehow we are able to run the plant by having a
23
mixture of costly coal which we are committed to lift vis-a-

vis the coal at new contract prices.” The letter dated 21st
September, 2009 when read as a whole and in the context
of the above correspondence reflects what the majority
Award has rightly understood, viz., that Anglo, far from
repudiating the contract or bringing it to an end, was
offering MMTC a way to spread out its obligation to lift the
carry over quantity over the subsequent period.”

A plea of bias levelled against one of the arbitrators, namely, Mr. Peter

Leaver, was also rejected. It was found, after copious references to

both oral and documentary evidence, that the view of the Majority

Award, being a possible view on the Respondent being in breach and

the Appellant having proven quantum of damages, that no ground

under section 34 of the Arbitration Act for interfering with the Majority

Award was made out.

9. The impugned judgment of the Division Bench dated 02.03.2020, after

setting out the facts, the Majority Award and the Single Judge’s

conclusions, based its decision on an appreciation of three emails

between the parties, which were picked out of the entire

correspondence, namely, emails dated 02.07.2009, 22.07.2009 and

07.09.2009. The Division Bench referred to these as “critical emails”,

finding:

“25. It is extremely important to note that in these three
critical e-mails, upon which the decision of the Arbitral
Tribunal as well as single Judge hinges, there is no
reference whatsoever to the price of coal to be supplied.
Furthermore, nowhere does the respondent say that it does
not have coal available at any specified price. In the e-

24

mails, the respondent simply says that it does not have any
coal available for the remaining part of the year 2009
period. However, what has not been said or even reflected
in the aforesaid e-mails, is read into the said e-mails by the
majority of the Arbitral Tribunal; and accepted by the single
Judge. The aforesaid e-mail communication is taken to
mean that the respondent had coal available at USD-300
per metric tonne ; and that the respondent meant that it did
not have coal available at USD 128 per metric tonne. The
majority of the Arbitral Tribunal as well as the single Judge
therefore read the aforesaid emails to mean that the
appellant was requesting supply of coal only at USD 128
per metric tonne, which is something that has nowhere
been said in any of these e-mails.”

As a result, the Division Bench concluded:

“29. We are aware that a court seized of proceedings
under section 37 of the A&C Act is not to re-appreciate
evidence, muchless in a case where the Arbitral Tribunal as
well as the single Judge under Section 34 have agreed
with a certain view on the facts of the case. However, it is
also the law that where a factual inference is based on no
evidence, the court may interfere with such inference even
under section 37. In our reading of the legal position, a
factual inference that is based on what is not stated in a
document or what may be called ‘imaginary evidence’, is
the same as an inference based on ‘no evidence’ ; or an
inference derived ignoring vital evidence. A decision based
on such inference would necessarily be perverse. If the
majority of the Arbitral Tribunal ignores what is plainly
stated in commercial correspondence and reads into e-

mails words that do not exist, or ignores words that are
contained in e-mails, this can only pave the way for
complete injustice. It is not the purport of any of the
precedents that inferences drawn from thin air would
become sustainable, hiding behind the shield of an arbitral
award. As we see it, this is exactly the position in the
present case. There is no evidence to support the
conclusion that the appellant was demanding consignment
of coal at any reduced rate vis-à-vis the contractually
agreed price. There is also no evidence to support the
conclusion that the respondent had coal available to supply
25
to the appellant, when the appellant demanded it. If
anything, there is a straight forward acknowledgement by
the respondent that it had no coal available till the end of
the year 2009, without any qualification or reservation that
coal was available at the contracted rate but not at a
discounted rate.

30. What is more is that there is also no basis to the
calculation of damages. The Tribunal has calculated
damages by taking the difference in the agreed price of
coal and the assumed ‘market price’ at the relevant time.
However there is no evidence to prove the market price of
coal at that time. The question of mitigation of damages by
the respondent has not even been alluded to.”

After setting out in some detail, the judgment in Associate Builders v.

DDA, (2015) 3 SCC 49 [“Associate Builders”], the Division Bench

held as follows:

33. … In the present case however, we find that the view
taken by the majority of arbitrators is not a possible view
since it is not a question of the ‘quantity’ or ‘quality’ of
evidence or of ‘little evidence’ or of ‘evidence which does
not measure-up in quality to a trained legal mind’ but this is
a case where the inferences drawn are a non-sequitur to
the plain and simple words of the e-mails/communications
read in evidence, which were before the Tribunal and which
do not support the inferences drawn. In this view of the
matter, clearly the approach of the majority of arbitrators is
arbitrary and capricious; and therefore cannot pass judicial
muster.

34. In the passing, we may also refer to the observations of
a three-Judge Bench of the Supreme Court in Smt.
Kamala Devi vs. Seth Takhatmal & Anr
.: (1964) 2 SCR
152, in which the court observed as follows:-

“8. … Sections 94 to 98 of the Indian Evidence.

Act afford guidance in the construction of
documents; they also indicate when and under
what circumstances extrinsic evidence could be
26
relied upon in construing the terms of a
document. Section 94 of the Evidence Act lays
down a rule of interpretation of the language of a
document when it is plain and applies accurately
to existing facts. It says that evidence may be
given to show that it was not meant to apply to
such facts. When a Court is asked to interpret a
document, it looks at its language. If the
language is clear and unambiguous and applies
accurately to existing facts, it shall accept the
ordinary meaning, for the duty of the Court is not
to delve deep into the intricacies of the human
mind to a certain one’s undisclosed intention,
but only to take the meaning of the words used
by him, that is to say his expressed intentions.
Sometimes when it is said that a Court should
look into all the circumstances to find an author’s
intention, it is only for the purpose of finding out
whether the words apply, accurately to existing
facts. But if the words are clear in the context of
the surrounding circumstances, the Court cannot
rely on them to attribute to the author an
intention contrary to the plain meaning of the
words used in the document. The other sections
in the said group of sections deal with
ambiguities, peculiarities in expression and the
inconsistencies between the written words and
the existing facts. In the instant case, no such
ambiguity or inconsistency exists as we shall
demonstrate presently. The Privy Council’s case
was one of ambiguity and the surrounding
circumstances gave the clue to find out the real
intention of the parties expressed by them.”

In the present case, we find no reason to look for the
‘undisclosed intention’ of the respondent since the clear
and express words of the respondent, as contained in the
afore-cited e-mails/communications, are perfectly in accord
with and apply squarely to existing facts. We must
therefore accept the ordinary meaning of what is stated in
those emails/communications, namely that the respondent
did not have any coal available till the end of the year 2009
for supplying to the appellant.

27

35. Proceeding on this basis, by a majority, the Tribunal
has awarded USD 78,720,414.92 as damages along with
interest of USD 27,239,420.29 calculated upto the date of
the award, along with 15% p.a. future interest on the
principal sum, in addition to USD 977,395.00 as costs. This
amount, calculated at the ballpark prevailing exchange rate
of approximately USD 1 = INR 70 translates to INR
7,48,56,06,115 that is to approximately INR 748 crores. In
our view, such an award must rest on surer factual and
legal footing than only to say that it has been rendered by
an arbitral tribunal; and is therefore sacrosanct. In the
above view of the matter, the award of damages, interest
and costs is a travesty of justice and the award suffers from
perversity.

36. In our consideration, the single Judge has also not
appreciated the aforesaid basic aspects, upon which the
decision of the majority of the Tribunal turns. While doing
so the single Judge has therefore committed error in the
proceedings under section 34, which are amenable to be
corrected in the present proceedings under section 37.

37. In view of the above discussion, we set-aside the
majority award dated 12.05.2014 as also order dated
10.07.2015 of the single Judge made under section 34 of
the A&C Act”

10. Shri Kapil Sibal, learned Senior Advocate appearing on behalf of the

Appellant, painstakingly took us through the LTA and the entire

correspondence that ensued between the parties. He argued that all

the findings given by the Majority Award were findings of fact, there

having been little dispute on the construction of any term of the LTA;

no dispute as to the contracted quantity of coal that was to be supplied

in the Fifth Delivery Period, i.e., 466,000 metric tonnes; no dispute as

to the price at which such coal was to be supplied, i.e., at the rate of

$300 per metric tonne; and no dispute as to the quantity of coal that
28
remained unlifted, i.e., 454,034 metric tonnes. The only issue before

the Arbitral Tribunal was whether the Appellant was unable to supply

the contracted quantity of coal at the contractual price, or whether the

Respondent was unwilling to lift the quantity of coal at the contractual

price, both being purely questions of fact as to the performance of

contractual obligations stemming from the LTA.

11. Shri Sibal then argued that a crucial letter dated 11.03.2009, by which

the Appellant requested the Respondent to propose a Delivery

Schedule under the LTA, remained unanswered, the Majority Award

having found as a matter of fact that the said letter was received by the

Respondent. In any event, he argued that the Appellant’s letter dated

21.09.2009, which referred to the letter dated 11.03.2009, would clinch

the case in the Appellant’s favour, as this letter clearly referred to the

delivery of the balance quantity of coal, giving a without prejudice offer,

open and capable of acceptance until 30.09.2009. The Respondent’s

only response to this was by a letter dated 25.09.2009, in which the

obligation to lift coal at the contractual price was admitted, the

Respondent asking for a reduction in price, without ever stating that it

had not received the letter dated 11.03.2009. This, he argued, showed

the Appellant’s willingness to perform the deliveries as per the LTA, by

demanding a Delivery Schedule from the Respondent. His argument,

therefore, was that the Majority Award and the learned Single Judge,

29
after referring to the entirety of the correspondence, arrived at the

conclusion that the Respondent was in breach of the LTA, whereas the

Division Bench arbitrarily picked out three emails out of the welter of

correspondence between the parties, ignoring what was

communicated before and after those three emails, thereby arriving at

a faulty conclusion on facts, as if it were a court of appeal.

12. Shri Sibal also argued that to get over the parameters of judicial review

of arbitral awards laid down in Associate Builders (supra), the

Division Bench wrongly stated that there is “no evidence” to support

the conclusion that the Respondent was seeking stems of coal at a

reduced rate, below the contractual price, and pointed out several

letters and emails showing this to be entirely incorrect. It was also

entirely incorrect for the Division Bench to have concluded that there

was “no evidence” to support the conclusion that the Appellant had

coal available to supply to the Respondent, which would amount to

ignoring the evidence of Mr. Wilcox, as well as the documentary

evidence of the correspondence between the parties. Equally, he

argued that the market price of coal at the relevant period was clearly

proven by the figures supplied by Mr. Wilcox and therefore, for the

Division Bench to state that there is “no evidence” to prove the market

price of coal at the time of breach, was also completely incorrect.

30

13. Shri Neeraj Kishan Kaul, learned Senior Advocate, supplemented the

submissions of Shri Sibal and stated that the overall context of the

correspondence showed that the Respondent repeatedly asked for

supplies to be made at a price lower than the contractual price

throughout the Fifth Delivery Period, since it was clearly unable to lift

coal at the price of $300 per metric tonne. Even when only two months

in the Fifth Delivery Period were left, a maximum of 50,000 metric

tonnes of “mixed” supply was asked for, at a “mixed” rate of $300 per

metric tonne and at a rate much lower than that. He also referred to

Mr. Wilcox’s testimony to argue that the Appellant was a major

producer of coal and huge quantities of coal were produced at the time

of the Fifth Delivery Period, in July 2009, which could have easily been

supplied, had the Respondent demanded the balance unlifted quantity

of 454,034 metric tonnes at the price of $300 per metric tonne.

14. Shri Mukul Rohatgi, learned Senior Advocate appearing on behalf of

the Respondent, supported the impugned judgment of the Division

Bench and took us through the correspondence between the parties,

the Majority Award, the Dissenting Award, and the judgments of the

learned Single Judge and the Division Bench. According to him, this

Court ought not to interfere under Article 136 of the Constitution of

India, given the fact that the Division Bench had not acted as a court of

appeal, but had specifically followed the judgment in Associate

31
Builders (supra), in that, it found the present case to be a case in

which “no evidence” was led on the crucial issues of breach, as well as

quantum of damages. According to him, the three crucial emails that

were relied upon by the Division Bench were correctly relied upon, as

these emails would unequivocally show that the Appellant was not in a

position to supply coal, and that the Respondent was in a position to

take supplies, and did in fact demand that supplies of coal be made in

accordance with the LTA.

15. Shri Rohatgi then referred to clause 7.2 and annexure IV of the LTA,

dealing with the intimation of a Delivery Schedule, and stated that

under the LTA, it was first incumbent upon the Appellant, as the seller,

to ensure that sufficient quantities of coal were available, subsequent

to which, the nomination of a vessel was to take place before a

Delivery Schedule would be agreed upon between the parties. He

argued, based on the emails and letters exchanged between the

parties, that in point of fact, only one ad hoc shipment took place at a

“mixed” rate, partially at the contractual price of $300 per metric tonne

and partially at the rate of $128.25 per metric tonne, under which an

ad hoc quantity of 50,000 metric tonnes was supplied in August 2008.

It was thus clear that when the Appellant stated that it was “unable to

confirm a stem in Aug/Sep” and that it did not have “any coal

availability for the remainder of the year”, the Appellant breached and

32
repudiated the LTA. According to Shri Rohatgi, the three critical emails

referred to by the Division Bench were crystal clear and unequivocal,

and could not be contradicted by oral evidence, the Majority Award,

therefore, being wholly incorrect in arbitrarily and capriciously relying

upon statements by Mr. Wilcox, to attempt to explain what was

unequivocally stated in these emails. He also added that the Division

Bench’s conclusion of there being no evidence as to the market price

of coal as on the date of breach was correct, and cited a number of

judgments to buttress his submissions.

16. Having heard the learned counsel appearing for the parties, there can

be no doubt whatsoever that the Majority Award is a detailed award,

which goes into the facts in great detail, outlines the issues to be

answered, and then answers all the issues, with due regard to the oral

and documentary evidence given in the case.

17. The first and most important point, therefore, to be noted is that this is

a case in which there is a finding of fact by the Majority Award that the

Appellant was able to supply the contracted quantity of coal for the

Fifth Delivery Period, at the contractual price, and that it was the

Respondent who was unwilling to lift the coal, owing to a slump in the

market, the Respondent being conscious of the fact that mere

commercial difficulty in performing a contract would not amount to

frustration of the contract. It was for this reason that the Respondent
33
decided, as an afterthought, in reply to the Appellant’s legal notice

dated 04.03.2010, to attack the Appellant on the ground that it was the

Appellant that was unable to supply the contracted quantity in the Fifth

Delivery Period. Once this becomes clear, it is obvious that the

Majority Award, after reading the entire correspondence between the

parties and examining the oral evidence, has come to a possible view,

both on the Respondent being in breach, and on the quantum of

damages.

18. We may hasten to add that the entire approach of the Division Bench

is flawed. First and foremost, to cherry-pick three emails out of the

entire correspondence and to rest a judgment on those three emails

alone, without having regard to the context of the LTA and the

correspondence, both before and after those three emails, would

render the judgment of the Division Bench fundamentally flawed.

Further, the finding that there was “no evidence” that the Respondent

demanded stems of coal at a reduced rate vis-à-vis the contractual

rate, flies in the face of at least three different exchanges between the

parties, being the Respondent’s letters dated 20.11.2008, 27.11.2009

and 03.12.2009.

34

19. Equally, the finding of the Division Bench that no evidence had been

led to show that the Appellant had availability of the balance quantity of

454,034 metric tonnes of coal to supply to the Respondent during the

Fifth Delivery Period, again completely fails to appreciate Mr. Wilcox’s

evidence given by way of an Additional Affidavit dated 03.09.2013 and

in response to questions in cross-examination before the Arbitral

Tribunal on 23.09.2013, together with two letters exchanged between

the parties on 21.09.2009 and 25.09.2009. All of these aspects were

considered in the Majority Award of the Arbitral Tribunal.

20. The finding that there is “no evidence” to prove market price of coal at

the time of breach, and that therefore, quantum of damages could not

be fixed, again completely ignores Mr. Wilcox’s evidence in chief and

cross examination; the Respondent’s letters dated 25.09.2009,

27.11.2009 and 03.12.2009; as also the Appellant’s re-negotiated

contracts with SAIL/RINL. All these aspects have been considered by

the Majority Award in great detail.

21. However, Shri Rohatgi invited us to look at the unequivocal language

contained in the three emails relied upon by the Division Bench,

namely the emails dated 02.07.2007, 22.07.2009 and 07.09.2009,

which stated that not only were no stems available for

August/September 2009, but that also there was no coal left for the

remainder of the year, making it clear that this was an admission on
35
the part of the Appellant that it was unable to supply the contracted

quantity of coal during the remainder of the Fifth Delivery Period.

However, what is missed by Shri Rohatgi is the crucial fact that no

price for the coal to be lifted was stated in any of the emails or letters

exchanged during this period. This is in fact what the Majority Award

adverts to and fills up by having recourse to the evidence given by Mr.

Wilcox, stating that the ambiguity qua price was resolved by the fact

that no coal was available for lifting at a price lower than the

contractual price. The Majority Award found, relying upon Mr. Wilcox’s

evidence, that the supplies that were sought to be made in August and

September, 2009 were therefore, also in the nature of “mixed”

supplies, i.e., coal at the contractual price, as well as coal at a much

lower price. This is a finding of fact that cannot be characterised as

perverse, as it is clear from the evidence led, the factual matrix of the

setting of there being a slump in the market, in which the performance

of the contract took place, as well as the ambiguity as to whether the

correspondence referred to contractual price or “mixed” price, and

thus, is a possible view to take.

22. The Division Bench also relied upon Smt. Kamala Devi v. Takhatmal

and Anr., (1964) 2 SCR 152, [“Smt. Kamala Devi”] which in turn,

relied upon section 94 of the Indian Evidence Act, 1872 [“Evidence

Act”], by which the Division Bench concluded that it found no reason

36
to look for the undisclosed intention of the parties, since the clear and

express words contained in the three “crucial” emails were perfectly in

accord with and applied squarely to the existing facts. Therefore, the

ordinary meaning of what was stated in those emails must be

accepted, without more, which led to the conclusion that the Appellant

did not have any coal available till the end of the year (i.e., 2009) to

supply to the Respondent.

23. The judgment in Smt. Kamala Devi (supra) dealt with the

interpretation of a surety bond which was executed by the appellant in

favour of the Court. A judgment of the Privy Council reported as

Raghunandan v. Kirtyanand, AIR 1932 PC 131 was referred to, in

which Lord Tomlin referred to an ambiguous surety bond which was to

be considered in the surrounding circumstances of the facts in that

case, i.e., in light of the order directing the security to be given. After

setting out the judgment of the Privy Council, this Court then held:

“These observations only apply the well settled rule of
construction of documents to a surety bond. Sections 94 to
98 of the Indian Evidence. Act afford guidance in the
construction of documents; they also indicate when and
under what circumstances extrinsic-evidence could be
relied upon in construing the terms of a document. Section
94
of the Evidence Act lays down a rule of interpretation of
the language of a document when it is plain and applies
accurately to existing facts. It says that evidence may be
given to show that it was not meant to apply to such facts.

When a court is asked to interpret a document, it looks at
its language. If the language is clear and unambiguous and
applies accurately to existing facts, it shall accept the
37
ordinary meaning, for the duty of the Court is not to delve
deep into the intricacies of the human mind to a certain
one’s undisclosed intention, but only to take the meaning of
the words used by him, that is to say his expressed
intentions. Sometimes when it is said that a Court should
look into all the circumstances to find an author’s intention,
it is only for the purpose of finding out whether the words
apply accurately to existing facts. But if the words are clear
in the context of the surrounding circumstances, the Court
cannot rely on them to attribute to the author an intention
contrary to the plain meaning of the words used in the
document. The other sections in the said group of sections
deal with ambiguities, peculiarities in expression and the
inconsistencies between the written words and the existing
facts. In the instant case, no such ambiguity or
inconsistency exists as we shall demonstrate presently.
The Privy Council’s case was one of ambiguity and the
surrounding circumstances gave the clue to find out the
real intention of the parties as expressed by them.”
(page 162)

Having so held, the Court then found that the surety bond did not need

to be qualified by adding words to it when the words used in the bond

were otherwise clear. Importantly, the words “in default of his doing so”

were held by the Court to make it absolutely clear that the surety

comes into effect only if the judgment debtor makes a default when

required to produce the document. Adding that the surety bond has to

be strictly construed, the Court held that a demand of the Court on the

judgment debtor, and default made by him in so doing, were necessary

pre-conditions for the enforcement of the bond against the appellant.

24. Section 1 of the Evidence Act states as follows:

“1. Short title. –– This Act may be called the Indian
Evidence Act
, 1872.

38

Extent. –– It extends to the whole of India except the State
of Jammu and Kashmir and applies to all judicial
proceedings in or before any Court, including Courts-
martial, other than Courts-martial convened under the Army
Act
, the Naval Discipline Act or the Indian Navy (Discipline)
Act, 1934, or the Air Force Act but not to affidavits
presented to any Court or officer, nor to proceedings before
an arbitrator;”

25. This would be sufficient to keep the application of section 94 of the

Evidence Act out of harm’s way. However, on the footing that the

principle contained in section 94 of the Evidence Act, as to extrinsic

evidence being inadmissible in cases of “patent ambiguity”, is

fundamental to Indian jurisprudence, we proceed to examine whether

section 94 of the Evidence Act has been correctly applied by the

Division Bench to non-suit the Appellant.

26. Section 94 appears in Chapter VI of the Evidence Act titled, “OF THE

EXCLUSION OF ORAL BY DOCUMENTARY EVIDENCE”. In this

regard, proviso (6) to section 92 of the Evidence Act is important and

states as follows:

“92. Exclusion of evidence of oral agreement. –– When
the terms of any such contract, grant or other disposition of
property, or any matter required by law to be reduced to the
form of a document, have been proved according to the
last section, no evidence of any oral agreement or
statement shall be admitted, as between the parties to any
such instrument or their representatives in interest, for the
purpose of contradicting, varying, adding to, or subtracting
from, its terms:

xxx xxx xxx

39
Proviso (6). –– Any fact may be proved which shows in
what manner the language of a document is related to
existing facts.”

Illustration (f), then states:

“Illustrations
xxx xxx xxx

(f) A orders goods of B by a letter in which nothing is said
as to the time of payment, and accepts the goods on
delivery. B sues A for the price. A may show that the goods
were supplied on credit for a term still unexpired.”

Followed by this, are sections 94 and 95 of the Evidence Act, which

state:

“94. Exclusion of evidence against application of
document to existing facts. –– When language used in a
document is plain in itself, and when it applies accurately to
existing facts, evidence may not be given to show that it
was not meant to apply to such facts.”

95. Evidence as to document unmeaning in reference
to existing facts. –– When language used in a document
is plain in itself, but is unmeaning in reference to existing
facts, evidence may be given to show that it was used in a
peculiar sense.”

27. Importantly, section 92 of the Evidence Act refers to the terms of a

“contract, grant or other disposition of property or any matter required

by law to be reduced to the form of a document”. In all these cases,

under proviso (6) read with illustration (f), any fact may be proven

which shows in what manner the language of a document is related to

existing facts. Illustration (f) of section 92 of the Evidence Act indicates

that facts, which may on the face of it, be ambiguous and vague, can
40
be made certain in the contextual setting of the contract, grant or other

disposition of property. Section 94 of the Evidence Act, then speaks of

language being used in a document being “plain in itself”. It is only

when such document “applies accurately to existing facts”, that

evidence may not be given to show that it was not meant to apply to

such facts. Likewise, the obverse situation is contained in section 95 of

the Evidence Act, which then states that when the language used in a

document is plain in itself, but is “unmeaning in reference to existing

facts”, only then may evidence be given to show that it was used in a

peculiar sense.

28. When sections 92, 94 and 95 of the Evidence Act are applied to a

string of correspondence between parties, it is important to remember

that each document must be taken to be part of a coherent whole,

which happens only when the “plain” language of the document is first

applied accurately to existing facts.

29. In Woodroffe and Ali’s Law of Evidence,1 the learned authors opine

that whereas sections 93 and 94 of the Evidence Act deal with cases

of patent ambiguity, sections 95 to 97 of the Evidence Act deal with

cases of latent ambiguity (see pages 3119-3120). A “patent ambiguity”

is explained in the following terms in Starkie on Evidence2:
1 Woodroffe, J. and Ali, A., Law of Evidence, 19th Edition (Volume 3), 2013,
Butterworths Wadhwa, Nagpur.

2 Starkie, T., A Treatise on the Law of Evidence, 7th Edition, 1829, William Benning,
London.

41

“By patent ambiguity must be understood an ambiguity
inherent in the words, and incapable of being dispelled,
either by any legal rules of construction applied to the
instrument itself, or by evidence showing that terms in
themselves unmeaning or unintelligible are capable of
receiving a known conventional meaning, the great
principle on which the rule is founded is that the intention of
parties, should be construed, not by vague evidence of
their intentions independently of the expressions which
they have thought fit to use, but by the expression
themselves. Now, those expressions which are incapable
of any legal construction and interpretation by the rules of
art are either so because they are in themselves
unintelligible, or because, being intelligible, they exhibit a
plain and obvious uncertainty. In the first instance, the case
admits of two varieties; the terms though at first sight
unintelligible, may yet be capable of having a meaning
annexed to them by extrinsic evidence, just as if they were
written in a foreign language, as when mercantile terms are
used which amongst mercantile men bear a distinct and
definite meaning, although others do not comprehend
them; the terms used may, on the other hand, be capable
of no distinct and definite interpretation. Now, it is evident
that to give effect to an instrument, the terms of which,
though apparently ambiguous are capable of having a
distinct and definite meaning annexed to them is no
violation of the general principle, for, in such a case, effect
is given, not to any loose conjecture as to the intent and
meaning of the party, but to the expressed meaning and
that, on the other hand, where either the terms used are
incapable of any certain and definite meaning, or, being in
themselves intelligible, exhibit plain and obvious
uncertainty, and are equally capable of different
applications, to give an effect to them by extrinsic evidence
as to the intention of the party would be to make the
supposed intention operate independently of any definite
expression of such intention. By patent ambiguity,
therefore, must be understood an inherent ambiguity, which
cannot be removed, either by the ordinary rules of legal
construction or by the application of extrinsic and
explanatory evidence, showing that expressions, prima
facie, unintelligible, are yet capable of conveying a certain
and definite meaning.”
42
(page 653)

On the other hand, a “latent ambiguity” is described in Woodroffe and

Ali’s Law of Evidence, as follows:

“Latent ambiguity, in the more ordinary application, arises
from the existence of facts external to the instrument, and
the creation by these facts of a question not solved by the
document itself. A latent ambiguity arises when the words
of the instrument are clear, but their application to the
circumstances is doubtful; here the ambiguity, being raised
solely by extrinsic evidence, is allowed to be removed by
the same means. In strictness of definition, such cases, as
those in which peculiar usage may afford a construction to
a term different from its natural one as can be seen in s 98,
would be instances of latent ambiguity, since the double
use of the term would leave it open to the doubt in which of
its two senses it was to be taken. It is not, however, to this
class of cases that reference is now made, but to those in
which the ambiguity is rather that of description, either
equivocal itself from the existence of two subject matter, or
two persons, both falling within its terms as can be seen in
s 96, or imperfect when brought to bear on any given
person or thing as per ss 95 and 97.”
(pages 3132-3133)

30. At this stage, it is also important to advert to the definition of “fact” in

section 3 of the Evidence Act, which is set out hereinbelow:

“3. Interpretation-clause.––In this Act the following words
and expressions are used in the following senses, unless a
contrary intention appears from the context: ––

xxx xxx xxx

“Fact”.–– “Fact” means and includes –– (1) anything, state
of things, or relation of things, capable of being perceived
by the senses;

(2) any mental condition of which any person is conscious.

43

Illustrations

(a) That there are certain objects arranged in a certain
order in a certain place, is a fact.

(b) That a man heard or saw something, is a fact.

(c) That a man said certain words, is a fact.

(d) That a man holds a certain opinion, has a certain
intention, acts in good faith or fraudulently, or uses a
particular word in a particular sense, or is or was at a
specified time conscious of a particular sensation, is a fact.

(e) That a man has a certain reputation, is a fact.”

31. The picture that emerges, therefore, is that a “patent ambiguity”

provision, as contained in section 94 of the Evidence Act, is only

applicable when a document applies accurately to existing facts, which

includes how a particular word is used in a particular sense. Given

that, in the facts of the present case, there was no mention of the price

at which coal was to be supplied in the three “crucial” emails, these

emails must be read as part of the entirety of the correspondence

between the parties, which would then make the so-called

“admissions” in the aforementioned emails apply to existing facts.

Once this is done, it is clear that there is no scope for the further

application of the “patent ambiguity” principle contained in section 94

of the Evidence Act, to the facts of the present case.

32. However, section 95 of the Evidence Act, dealing with latent ambiguity,

when read with proviso (6) and illustration (f) to section 92 of the

Evidence Act, could apply to the facts of the present case, as when the

44
plain language of a document is otherwise unmeaning in reference to

how particular words are used in a particular sense, given the entirety

of the correspondence, evidence may be led to show the peculiar

sense of such language. Thus, if this provision is applied, the Majority

Award cannot be faulted as it has accepted the evidence given by Mr.

Wilcox, wherein he explained that the three emails would only be

meaningful if they were taken to refer to “mixed” supplies of coal, and

not supplies of coal at the contractual price.

33. A judgment of the Court of Appeal in Singapore, in Zurich Insurance

(Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte

Ltd, [2008] SGCA 27, discussed section 96 of the Evidence Act of

Singapore, which is the equivalent of section 94 of the Indian Evidence

Act. The Singapore Court of Appeal, after setting out the section, held:

“77 … The somewhat narrow wording of s 96, which refers
to the specific situation where the language in a document
“applies accurately to existing facts”, is probably
attributable to its provenance as a rule of interpretation
pertaining to wills. This section should therefore not be
read too restrictively. Like s 95 of the Evidence Act, s 96
should be viewed as prescribing a common-sense limit on
the use of extrinsic evidence which has been admitted
under proviso (f) to s 94. In Butterworths’ Annotated
Statutes, it is stated (at p 275) that:

The earlier section [ie, s. 95] and the present
section [ie, s 96] lay down the outer limits of
interpretation in the sense that they mark the
place where the language used by the writer must
prevail over any extrinsic evidence and the place
where extrinsic evidence may prevail over the
45
language. So just as where the language is
patently ambiguous it cannot be cured by extrinsic
evidence, so where the language used is plain on
its face, it must be given effect to, although it can
be shown that the writer has made a mistake.

Similarly, in Woodroffe at p 3510, the explanation of s 94 of
the Indian Act (which is in pari materia with s 96 of the
Evidence Act) makes clear that:

When a court is asked to interpret a document, it
looks at its language. If the language is clear and
unambiguous and applies accurately to existing
facts, the court accepts the plain and ordinary
meaning … When it is said that a court should
look into all the circumstances to find an author’s
intention, it is only for the purpose of finding out
whether the words apply accurately to existing
facts. If, however, the words are clear in the
context of the surrounding circumstances, the
court cannot rely on them to attribute to the author
an intention contrary to the plain meanings of the
words used in the document.””
(emphasis supplied)

“108 It is evident from the Court of Appeal’s reasoning in
Sandar Aung [2007] 2 SLR 89 that in Singapore, the parol
evidence rule (as statutorily embedded in s 94 of the
Evidence Act) still operates as a restriction on the use of
extrinsic material to affect a contract. However, extrinsic
material is admissible for the purpose of interpreting the
language of the contract. In this respect, Sandar Aung
acknowledges that extrinsic material is admissible even if
no ambiguity is present in the plain language of the
contract. However, ambiguity still plays an important role, in
that the court can only place on the relevant contractual
word, phrase or term an interpretation which is different
from that to be ascribed by its plain language if a
consideration of the context of the contract leads to the
conclusion that the word, phrase or term in question may
take on two or more possible meanings, ie, if there is latent
ambiguity. In Sandar Aung, after the Estimate was taken
into account, the phrase “all charges, expenses and
liabilities incurred by and on behalf of the Patient” could
46
plausibly be taken to mean all charges, expenses and
liabilities incurred by and on behalf of the Patient in respect
of the envisaged angioplasty. Thus, the court had a
legitimate basis to place a narrower interpretation on the
contractual term (or, in more informal parlance, to “read
down” that term) which would not otherwise have been
warranted by its broad and general language. It may be
possible to argue that what the court did in Sandar Aung in
fact constituted variation of the relevant contractual terms
in contravention of s 94 of the Evidence Act. This issue
shall be addressed in greater detail at [122]–[123] below. It
remains to be noted that proviso (f) to s 94 was not
discussed in Sandar Aung. Thus, the issue of whether
ambiguity was a prerequisite for the application of this
proviso and its relationship with the common law contextual
approach to contractual interpretation was left open.”

“(B) THE PAROL EVIDENCE RULE

111 As mentioned earlier, in Singapore, the parol evidence
rule lives on in s 94 of the Evidence Act and has been
applied assiduously by the courts in case law. The
Singapore courts have always been mindful of the need for
contractual certainty, especially in commercial agreements
(such as the Policy in the present case). In Forefront
Medical Technology (Pte) Ltd v Modern-Pak Pte Ltd [2006]
1 SLR 927, the High Court emphasised that not only is
“sanctity of contract … vital to certainty and predictability in
commercial transactions”, but also:

The perception of the importance of commercial
certainty and predictability is deeply entrenched
within the commercial legal landscape in general
and in the individual psyches of commercial
parties (and even non-commercial parties, for that
matter) in particular.

112 However, the parol evidence rule only operates where
the contract was intended by the parties to contain all the
terms of their agreement. Where the contractual terms are
ambiguous on their face, it is likely that the contract does
not contain all the terms intended by the parties.

Furthermore, in order to ascertain whether the parties
intended to embody their entire agreement in the contract,
47
the court may take cognisance of extrinsic evidence or the
surrounding circumstances of the contract.

113 Assuming that the contract is one to which the parol
evidence rule applies, no extrinsic evidence is admissible
to contradict, vary, add to or subtract from its terms (see s
94 of the Evidence Act).”
(emphasis supplied)

Finally, in a synopsis at the end, the Court of Appeal held:

“132 To summarise, the approach adopted in Singapore to
the admissibility of extrinsic evidence to affect written
contracts is a pragmatic and principled one. The main
features of this approach are as follows:

(a) A court should take into account the essence and
attributes of the document being examined. The court’s
treatment of extrinsic evidence at various stages of the
analytical process may differ depending on the nature of
the document. In general, the court ought to be more
reluctant to allow extrinsic evidence to affect standard form
contracts and commercial documents.

(b) If the court is satisfied that the parties intended to
embody their entire agreement in a written contract, no
extrinsic evidence is admissible to contradict, vary, add to,
or subtract from its terms (see ss 93–94 of the Evidence
Act
). In determining whether the parties so intended, our
courts may look at extrinsic evidence and apply the normal
objective test, subject to a rebuttable presumption that a
contract which is complete on its face was intended to
contain all the terms of the parties’ agreement. In other
words, where a contract is complete on its face, the
language of the contract constitutes prima facie proof of the
parties’ intentions.

(c) Extrinsic evidence is admissible under proviso (f) to s
94 to aid in the interpretation of the written words. Our
courts now adopt, via this proviso, the modern contextual
approach to interpretation, in line with the developments in
England in this area of the law to date. Crucially, ambiguity

48
is not a prerequisite for the admissibility of extrinsic
evidence under proviso (f) to s 94.

(d) The extrinsic evidence in question is admissible so long
as it is relevant, reasonably available to all the contracting
parties and relates to a clear or obvious context. However,
the principle of objectively ascertaining contractual
intention(s) remains paramount. Thus, the extrinsic
evidence must always go towards proof of what the parties,
from an objective viewpoint, ultimately agreed upon.
Further, where extrinsic evidence in the form of prior
negotiations and subsequent conduct is concerned, we find
the views expressed in McMeel’s article and Nicholls’
article persuasive. For this reason, there should be no
absolute or rigid prohibition against evidence of previous
negotiations or subsequent conduct, although, in the
normal case, such evidence is likely to be inadmissible for
non-compliance with the requirements set out at [125] and
[128]–[129] above. (We should add that the relevance of
subsequent conduct remains a controversial and evolving
topic that will require more extensive scrutiny by this court
at a more appropriate juncture.) Declarations of subjective
intent remain inadmissible except for the purpose of giving
meaning to terms which have been determined to be
latently ambiguous.

(e) In some cases, the extrinsic evidence in question leads
to possible alternative interpretations of the written words
(ie, the court determines that latent ambiguity exists). A
court may give effect to these alternative interpretations,
always bearing in mind s 94 of the Evidence Act. In arriving
at the ultimate interpretation of the words to be construed,
the court may take into account subjective declarations of
intent. Furthermore, the normal canons of interpretation
apply in conjunction with the relevant provisions of the
Evidence Act, ie, ss 95–100.

(f) A court should always be careful to ensure that extrinsic
evidence is used to explain and illuminate the written
words, and not to contradict or vary them. Where the court
concludes that the parties have used the wrong words,
rectification may be a more appropriate remedy.”
(emphasis supplied)

49

34. The approach of the Singapore Court of Appeal has our broad

approval, being in line with the modern contextual approach to the

interpretation of contracts. When proviso (6) and illustration (f) to

section 92, section 94 and section 95 of the Evidence Act are read

together, the picture that emerges is that when there are a number of

documents exchanged between the parties in the performance of a

contract, all of them must be read as a connected whole, relating each

particular document to “existing facts”, which include how particular

words are used in a particular sense, given the entirety of

correspondence between the parties. Thus, after the application of

proviso (6) to section 92 of the Evidence Act, the adjudicating authority

must be very careful when it applies provisions dealing with patent

ambiguity, as it must first ascertain whether the plain language of a

particular document applies accurately to existing facts. If, however, it

is ambiguous or unmeaning in reference to existing facts, evidence

may then be given to show that the words used in a particular

document were used in a sense that would make the aforesaid words

meaningful in the context of the entirety of the correspondence

between the parties.

35. This approach is also reflected in a recent judgment of this Court in

Transmission Corpn. of Andhra Pradesh Ltd. v. GMR Vemagiri

Power Generation Ltd., (2018) 3 SCC 716, as follows:

50

“21. In the event of any ambiguity arising, the terms of the
contract will have to be interpreted by taking into
consideration all surrounding facts and circumstances,
including correspondence exchanged, to arrive at the real
intendment of the parties, and not what one of the parties
may contend subsequently to have been the intendment or
to say as included afterwards, as observed in Bank of India
v. K. Mohandas [Bank of India
v. K. Mohandas, (2009) 5
SCC 313] : (SCC p. 328, para 28)

“28. The true construction of a contract must
depend upon the import of the words used and
not upon what the parties choose to say
afterwards. Nor does subsequent conduct of the
parties in the performance of the contract affect
the true effect of the clear and unambiguous
words used in the contract. The intention of the
parties must be ascertained from the language
they have used, considered in the light of the
surrounding circumstances and the object of the
contract. The nature and purpose of the contract
is an important guide in ascertaining the intention
of the parties.””
(page 727)

36. The Division Bench’s reliance upon Smt. Kamala Devi (supra) to set

aside the Majority Award is wholly misplaced. The ratio in Smt.

Kamala Devi (supra) is contained in the words:

“… Sometimes when it is said that a Court should look into
all the circumstances to find an author’s intention, it is only
for the purpose of finding out whether the words apply
accurately to existing facts. But if the words are clear in the
context of the surrounding circumstances, the Court cannot
rely on them to attribute to the author an intention contrary
to the plain meaning of the words used in the document… ”
(page 162)

51

37. So read, the judgment in Smt. Kamala Devi (supra) accords with what

has been held hereinabove. It is clear that the three critical emails

have to be read in the surrounding circumstances of the entirety of the

LTA and the correspondence which ensued between the parties. Once

that exercise is undertaken, as was undertaken by the Majority Award,

it is impossible to hold that the Majority Award is not a possible view on

the facts of this case. The reliance of the Majority Award upon the

correspondence between the parties pre-July and in September to

December 2009, buttressed by Mr. Wilcox’s evidence, cannot

therefore be said to be flawed.

38. Shri Rohatgi’s argument in support of the impugned judgment of the

Division Bench that there is no evidence to demonstrate proof of

damage suffered as on the date of breach, is also factually incorrect. It

is well established that the arbitral tribunal is the final judge of the

quality, as well as the quantity of evidence before it (see Sudarsan

Trading Co. v. Govt. of Kerala, (1989) 2 SCC 38 at page 53). As was

correctly pointed out by Shri Sibal, the Majority Award has taken into

account Mr. Wilcox’s Affidavit dated 10.07.2013 and Additional Affidavit

dated 03.09.2013 detailing the prices at which sales of coal were

made to Chinese purchasers during the Fifth Delivery Period, which

ended on 30.09.2009, being the date of breach as found by the

Majority Award. In addition, contemporaneous correspondence,

52
including letters dated 27.11.2009 and 03.12.2009 were also relied

upon to show that the Respondent was itself seeking coal at roughly

the price of $128 per metric tonne, at around the same time. Hence,

the difference between the contractual price and market price was

arrived at as $173.383 per metric tonne, in accordance with the law

laid down by this Court in Murlidhar Chiranjilal v. Harishchandra

Dwarkadas and Anr., (1962) 1 SCR 653, as follows:

“We may in this connection refer to the following
observations in Chao v. British Traders and Shippers Ltd.
[(1954) 1 All ER 779, 797] which are apposite to the facts
of the present case:

“It is true that the defendants knew that the
plaintiffs were merchants and, therefore, had
bought for re-sale, but every one who sells to a
merchant knows that he has bought for re-sale,
and it does not, as I understand it, make any
difference to the ordinary measure of damages
where there is a market. What is contemplated is
that the merchant buys for res-ale, but, if the
goods are not delivered to him, he will go out into
the market and buy similar goods and honour his
contract in that way. If the market has fallen he
has not suffered any damage, if the market has
risen the measure of damages is the difference in
the market price.”

In these circumstances this is not a case where it can be
said that the parties when they made the contract knew
that the likely result of breach would be that the buyer
would not be able to make profit in Calcutta. This is a
simple case of purchase of goods for re-sale anywhere and
therefore the measure of damages has to be calculated as
they would naturally arise in the usual course of things from
such breach. That means that the respondent had to prove
the market rate at Kanpur on the date of breach for similar
goods and that would fix the amount of damages, in case
53
that rate had gone above the contract rate on the date of
breach. We are therefore of opinion that this is not a case
of the special type to which the words “which the parties
knew, when they made the contract, to be likely to result
from the breach of it” appearing in s. 73 of the Contract Act
apply. This is an ordinary case of contract between traders
which is covered by the words “which naturally arose in the
usual course of things from such breach” appearing in s.

73. As the respondent had failed to prove the rate for
similar canvas in Kanpur on the date of breach it is not
entitled to any damages in the circumstances.”
(pages 660-661)

39. The Single Judge correctly appreciated this part of the case when he

stated as follows:

“86. MMTC’s submission is belied by what it has itself
stated in the correspondence exchanged with Anglo. In its
letter dated 25th September, 2009, MMTC describes USD
128 as the ‘2009’ rate. In its letter dated 27th November,
2009 it refers to “the 2009 price level of US$ 128/125
PMT.” In its letter dated 3rd December, 2009 MMTC
referred to “coal being purchased at current price of US$
128.25 PMT.” Further the re-negotiated contracts with SAIL
and RINL acknowledge the slump in coal prices to USD
128 during the period from April, 2009 to March 2010. The
date of 30th September, 2009 fell between the said dates
and was the date to be reckoned for determining the
prevalent market price.

87. The majority Award has based its conclusion as
regards the prevalent market price of coal as on 30th
September, 2009 on the basis of the above evidence. It
was a view that was possible to be taken on the evidence
made available to the AT. The Court is not persuaded to
hold the said finding to be perverse or patently illegal.”

40. This being the case, it is not possible to accept Shri Rohatgi’s

argument that the letters dated 27.11.2009 or 03.12.2009 do not

reflect the market price of coal as on the date of breach or that the

54
market price of coal cannot be established from the special long-term

contracts operating at around the same time as the date of breach.

This argument must therefore be rejected.

41. The present case is that of an international commercial arbitration, the

Majority Award being delivered in New Delhi on 12.05.2014.

Resultantly, this case has been argued on the basis of the law as it

stood before the Arbitration and Conciliation (Amendment) Act, 2015

[“Amendment”] added two explanations to section 34(1) and sub-

section (2A) to section 34 of the Arbitration Act, in which it was made

clear that the ground of “patent illegality appearing on the face of the

award” is not a ground which could be taken to challenge an

international commercial award made in India after 23.10.2015, when

the Amendment was brought into force. We, therefore, proceed to

consider this case on the pre-existing law, which is contained in the

seminal decision of Associate Builders (supra).

42. The judgment in Associate Builders (supra) examined each of the

heads set out in Renusagar Power Co. Ltd. v. General Electric Co.,

1994 Supp (1) SCC 644, together with the addition of the fourth head

of “patent illegality” laid down in ONGC Ltd. v. Saw Pipes Ltd., (2003)

55
5 SCC 705. Since we are concerned with the “perversity principle”, the

relevant paragraphs of this judgment are set out as follows:

“29. It is clear that the juristic principle of a “judicial
approach” demands that a decision be fair, reasonable and
objective. On the obverse side, anything arbitrary and
whimsical would obviously not be a determination which
would either be fair, reasonable or objective.”
(page 75)

“31. The third juristic principle is that a decision which is
perverse or so irrational that no reasonable person would
have arrived at the same is important and requires some
degree of explanation. It is settled law that where:

(i) a finding is based on no evidence, or

(ii) an Arbitral Tribunal takes into account something
irrelevant to the decision which it arrives at; or

(iii) ignores vital evidence in arriving at its decision,

such decision would necessarily be perverse.

32. A good working test of perversity is contained in two
judgments. In Excise and Taxation Officer-cum-Assessing
Authority v. Gopi Nath & Sons [1992 Supp (2) SCC 312], it
was held: (SCC p. 317, para 7)

“7. … It is, no doubt, true that if a finding of fact is
arrived at by ignoring or excluding relevant
material or by taking into consideration irrelevant
material or if the finding so outrageously defies
logic as to suffer from the vice of irrationality
incurring the blame of being perverse, then, the
finding is rendered infirm in law.”

In Kuldeep Singh v. Commr. of Police [(1999) 2 SCC 10] , it
was held: (SCC p. 14, para 10)

“10. A broad distinction has, therefore, to be
maintained between the decisions which are
perverse and those which are not. If a decision is
arrived at on no evidence or evidence which is
56
thoroughly unreliable and no reasonable person
would act upon it, the order would be perverse.
But if there is some evidence on record which is
acceptable and which could be relied upon,
howsoever compendious it may be, the
conclusions would not be treated as perverse and
the findings would not be interfered with.”

33. It must clearly be understood 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. 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.
Once it is found that the arbitrators approach is not
arbitrary or capricious, then he is the last word on facts. In
P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H.
Securities (P) Ltd
. [(2012) 1 SCC 594], this Court held:
(SCC pp. 601-02, para 21)

“21. A court does not sit in appeal over the award
of an Arbitral Tribunal by reassessing or
reappreciating the evidence. An award can be
challenged only under the grounds mentioned in
Section 34(2) of the Act. The Arbitral Tribunal has
examined the facts and held that both the second
respondent and the appellant are liable. The case
as put forward by the first respondent has been
accepted. Even the minority view was that the
second respondent was liable as claimed by the
first respondent, but the appellant was not liable
only on the ground that the arbitrators appointed
by the Stock Exchange under Bye-law 248, in a
claim against a non-member, had no jurisdiction
to decide a claim against another member. The
finding of the majority is that the appellant did the
transaction in the name of the second respondent
and is therefore, liable along with the second
respondent. Therefore, in the absence of any
ground under Section 34(2) of the Act, it is not
57
possible to re-examine the facts to find out
whether a different decision can be arrived at.”

34. It is with this very important caveat that the two
fundamental principles which form part of the fundamental
policy of Indian law (that the arbitrator must have a judicial
approach and that he must not act perversely) are to be
understood.”
(pages 75-77)

“42. In the 1996 Act, this principle is substituted by the
“patent illegality” principle which, in turn, contains three
subheads:

42.1. (a) A contravention of the substantive law of India
would result in the death knell of an arbitral award. This
must be understood in the sense that such illegality must
go to the root of the matter and cannot be of a trivial
nature. This again is really a contravention of Section 28(1)

(a) of the Act, which reads as under:

“28. Rules applicable to substance of dispute.

—(1) Where the place of arbitration is situated in
India—

(a) in an arbitration other than an international
commercial arbitration, the Arbitral Tribunal shall
decide the dispute submitted to arbitration in
accordance with the substantive law for the time
being in force in India;”

42.2. (b) A contravention of the Arbitration Act itself would
be regarded as a patent illegality — for example if an
arbitrator gives no reasons for an award in contravention of
Section 31(3) of the Act, such award will be liable to be set
aside.

42.3. (c) Equally, the third subhead of patent illegality is
really a contravention of Section 28(3) of the Arbitration
Act, which reads as under:

“28. Rules applicable to substance of dispute.

—(1)-(2)***
(3) In all cases, the Arbitral Tribunal shall decide
in accordance with the terms of the contract and
58
shall take into account the usages of the trade
applicable to the transaction.”

This last contravention must be understood with a caveat.
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 reasonable manner, it will not mean that
the award can be set aside on this ground. 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.”
(page 81)

43. This judgment has been consistently followed in a plethora of

subsequent judgments, including:

a. National Highways Authority of India v. ITD Cementation

India Ltd., (2015) 14 SCC 21 at paragraph 24 (page 38);

b. Centrotrade Minerals & Metal Inc. v. Hindustan Copper

Ltd., (2017) 2 SCC 228 at paragraph 45 (page 252);

c. Venture Global Engg. LLC v. Tech Mahindra Ltd., (2018) 1

SCC 656 at paragraph 85 (page 687);

d. Sutlej Construction Ltd. v. State (UT of Chandigarh),

(2018) 1 SCC 718 at paragraph 11 (page 722);

e. Maharashtra State Electricity Distribution Co. Ltd. v.

Datar Switchgear Ltd., (2018) 3 SCC 133 at paragraph 51

(page 169);

f. HRD Corpn. v. GAIL (India) Ltd., (2018) 12 SCC 471 at

paragraphs 18-19 (page 493);

59

g. M.P. Power Generation Co. Ltd. v. ANSALDO Energia

SpA, (2018) 16 SCC 661 at paragraph 25 (page 679);

h. Shriram EPC Ltd. v. Rioglass Solar Sa, (2018) 18 SCC 313

at paragraph 34 (page 328);

i. State of Jharkhand v. HSS Integrated Sdn, (2019) 9 SCC

798 at paragraph 7 (page 804); and

j. Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019)

15 SCC 131 at paragraphs 20, 34-36 (pages 154, 169-170).

44. Given the parameters of judicial review laid down in Associate

Builders (supra), it is obvious that neither the ground of fundamental

policy of Indian law, nor the ground of patent illegality, have been

made out in the facts of this case, given the fact that the Majority

Award is certainly a possible view based on the oral and documentary

evidence led in the case, which cannot be characterized as being

either perverse or being based on no evidence.

45. However, Shri Rohatgi relied upon a number of recent judgments,

which according to him, throw further light upon the elucidation of law

in Associate Builders (supra). Thus, in MMTC Ltd. v. Vedanta Ltd.,

(2019) 4 SCC 163, this Court held:

“11. As far as Section 34 is concerned, the position is well-

settled by now that the Court does not sit in appeal over
the arbitral award and may interfere on merits on the
limited ground provided under Section 34(2)(b)(ii) i.e. if the
60
award is against the public policy of India. As per the legal
position clarified through decisions of this Court prior to the
amendments to the 1996 Act in 2015, a violation of Indian
public policy, in turn, includes a violation of the fundamental
policy of Indian law, a violation of the interest of India,
conflict with justice or morality, and the existence of patent
illegality in the arbitral award. Additionally, the concept of
the “fundamental policy of Indian law” would cover
compliance with statutes and judicial precedents, adopting
a judicial approach, compliance with the principles of
natural justice, and Wednesbury [Associated Provincial
Picture Houses v. Wednesbury Corpn., (1948) 1 KB 223
(CA)] reasonableness. Furthermore, “patent illegality” itself
has been held to mean contravention of the substantive
law of India, contravention of the 1996 Act, and
contravention of the terms of the contract.

12. It is only if one of these conditions is met that the Court
may interfere with an arbitral award in terms of Section
34(2)(b)(ii)
, but such interference does not entail a review
of the merits of the dispute, and is limited to situations
where the findings of the arbitrator are arbitrary, capricious
or perverse, or when the conscience of the Court is
shocked, or when the illegality is not trivial but goes to the
root of the matter. An arbitral award may not be interfered
with if the view taken by the arbitrator is a possible view
based on facts. (See Associate Builders v. DDA, (2015) 3
SCC 49. Also see ONGC Ltd. v. Saw Pipes Ltd., (2003) 5
SCC 705; Hindustan Zinc Ltd. v. Friends Coal
Carbonisation, (2006) 4 SCC 445; and McDermott
International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC

181)

13. It is relevant to note that after the 2015 Amendment to
Section 34, the above position stands somewhat modified.
Pursuant to the insertion of Explanation 1 to Section 34(2),
the scope of contravention of Indian public policy has been
modified to the extent that it now means fraud or corruption
in the making of the award, violation of Section 75 or
Section 81 of the Act, contravention of the fundamental
policy of Indian law, and conflict with the most basic notions
of justice or morality. Additionally, sub-section (2-A) has
been inserted in Section 34, which provides that in case of
domestic arbitrations, violation of Indian public policy also
61
includes patent illegality appearing on the face of the
award. The proviso to the same states that an award shall
not be set aside merely on the ground of an erroneous
application of the law or by reappreciation of evidence.

14. As far as interference with an order made under
Section 34, as per Section 37, is concerned, it cannot be
disputed that such interference under Section 37 cannot
travel beyond the restrictions laid down under Section 34.
In other words, the court cannot undertake an independent
assessment of the merits of the award, and must only
ascertain that the exercise of power by the court under
Section 34 has not exceeded the scope of the provision.
Thus, it is evident that in case an arbitral award has been
confirmed by the court under Section 34 and by the court in
an appeal under Section 37, this Court must be extremely
cautious and slow to disturb such concurrent findings.

15. Having noted the above grounds for interference with
an arbitral award, it must now be noted that the instant
question pertains to determining whether the arbitral award
deals with a dispute not contemplated by or not falling
within the terms of the submission to arbitration, or
contains decisions on matters beyond the scope of the
submission to arbitration. However, this question has been
addressed by the courts in terms of the construction of the
contract between the parties, and as such it can be safely
said that a review of such a construction cannot be made in
terms of reassessment of the material on record, but only
in terms of the principles governing interference with an
award as discussed above.

16. It is equally important to observe at this juncture that
while interpreting the terms of a contract, the conduct of
parties and correspondences exchanged would also be
relevant factors and it is within the arbitrator’s jurisdiction to
consider the same. [See McDermott International Inc. v.
Burn Standard Co. Ltd
., (2006) 11 SCC 181; Pure Helium
India (P) Ltd. v. ONGC, (2003) 8 SCC 593 and D.D.
Sharma v. Union of India
, (2004) 5 SCC 325].

17. We have gone through the material on record as well
as the majority award, and the decisions of the learned
Single Judge and the Division Bench. The majority of the
62
Arbitral Tribunal as well as the courts found upon a
consideration of the material on record, including the
agreement dated 14-12-1993, the correspondence
between the parties and the oral evidence adduced, that
the agreement does not make any distinction within the
type of customers, and furthermore that the supplies to
HTPL were not made in furtherance of any independent
understanding between the appellant and the respondent
which was not governed by the agreement dated 14-12-
1993.”
(pages 166-168)

46. Likewise, in Dyna Technologies Pvt. Ltd. v. Cromptom Greaves

Ltd., 2019 SCC Online SC 1656, [“Dyna Technologies”], this Court

held:

“26. There is no dispute that Section 34 of the Arbitration
Act limits a challenge to an award only on the grounds
provided therein or as interpreted by various Courts. We
need to be cognizant of the fact that arbitral awards should
not be interfered with in a casual and cavalier manner,
unless the Court comes to a conclusion that the perversity
of the award goes to the root of the matter without there
being a possibility of alternative interpretation which may
sustain the arbitral award. Section 34 is different in its
approach and cannot be equated with a normal appellate
jurisdiction. The mandate under Section 34 is to respect
the finality of the arbitral award and the party autonomy to
get their dispute adjudicated by an alternative forum as
provided under the law. If the Courts were to interfere with
the arbitral award in the usual course on factual aspects,
then the commercial wisdom behind opting for alternate
dispute resolution would stand frustrated.

27. Moreover, umpteen number of judgments of this Court
have categorically held that the Courts should not interfere
with an award merely because an alternative view on facts
and interpretation of contract exists. The Courts need to be
cautious and should defer to the view taken by the Arbitral
Tribunal even if the reasoning provided in the award is

63
implied unless such award portrays perversity
unpardonable under Section 34 of the Arbitration Act.”

47. In Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan

Nigam Ltd., (2019) 7 SCC 236, after referring to the parameters of

review in Associate Builders (supra) and other cases, this Court

found that with respect to the first claim, relating to price

adjustment/escalation, the arbitrator interpreted the relevant clauses of

the contract and came to a certain finding. The High Court, in

interfering with that finding, was wrong in doing so merely because

some other view could have been taken, as the interpretation made by

the arbitrator was a possible one. The High Court’s judgment was,

therefore, set aside to this extent. However, insofar as the second and

third claims were concerned, on the facts of that case, the finding was

said to be so perverse or irrational that no reasonable person could

have arrived at the same, based on the material/evidence on record,

as a result of which, the High Court’s judgment was upheld.

48. In South East Asia Marine Engg. & Constructions Ltd. (SEAMEC

LTD.) v. Oil India Ltd., (2020) 5 SCC 164, a three Judge Bench of this

Court referred to the judgment of this Court in Dyna Technologies

(supra) and found that the interpretation of the arbitral tribunal in

expanding the meaning of clause 23 of the contract to include a

change in rate of high-speed diesel, not being even a possible

interpretation of the concerned contract, the High Court in setting aside
64
the award, could not be said to be incorrect. Also, other contractual

terms when seen together with this interpretation would also render

such finding perverse.

49. In Patel Engg. Ltd. v. North Eastern Electric Power Corpn. Ltd.,

(2020) 7 SCC 167, this Court, after setting out the law stated in

Associate Builders (supra) and Ssangyong Engg. & Construction

Co. Ltd. v. NHAI, (2019) 15 SCC 131, applied the test of perversity

and then concluded:

“26. Even though the High Court in para 44 of the judgment
referred to various judgments, including Western Geco
[ONGC v. WesternGeco International Ltd., (2014) 9 SCC
263] [which is now no longer good law], the case has been
decided on the ground that the arbitral award is a perverse
award and on a holistic reading of all the terms and
conditions of the contract, the view taken by the arbitrator
is not even a possible view. The High Court has rightly
followed the test set out in para 42.3 of Associate Builders
[Associate Builders v. DDA
, (2015) 3 SCC 49, paras 40 to
45], which was reiterated in para 40 of Ssangyong Engg.
[Ssangyong Engg. & Construction Co. Ltd. v. NHAI
, (2019)
15 SCC 131, para 19] judgment.

27. In our view, while dealing with the appeal under Section
37
of the Act, the High Court has considered the matter at
length, and held that while interpreting the terms of the
contract, no reasonable person could have arrived at a
different conclusion and that the awards passed by the
arbitrator suffer from the vice of irrationality and perversity.”
(pages 179-180)

50. All the aforesaid judgments are judgments which, on their facts, have

been decided in a particular way after applying the tests laid down in

Associate Builders (supra) and its progeny. All these judgments turn
65
on their own facts. None of them can have any application to the case

before us, as it has been found by us that in the fact situation which

arises in the present case, the Majority Award is certainly a possible

view of the case, given the entirety of the correspondence between the

parties and thus, cannot in any manner, be characterised as perverse.

51. Accordingly, the appeal stands allowed. The judgment of the Division

Bench dated 02.03.2020 is set aside, thereby restoring the Majority

Award dated 12.05.2014 and the Single Judge’s judgment dated

10.07.2015 dismissing the application made under section 34 of the

Arbitration Act by the Respondent.

………………………………….. J.

(ROHINTON FALI NARIMAN)

…………………………………. J.

(K.M. JOSEPH)
New Delhi;

December 17, 2020.

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