LEDVANCE PRIVATE LIMITED Vs. GAIL (INDIA) LIMITED

JUDGEMENT

(1.) The question urged in this appeal under Sec. 37 of the Arbitration and Conciliation Act, 1996 (hereafter "the Act") is that given the nature of the contract between the parties, could the Gas Authority of India (the respondent, hereafter referred to as "GAIL") have validly encashed the bank guarantees furnished by Osram India (P) Ltd, the claimant (the name of which has undergone a change, and consequently would be referred to as "Ledvance").

(2.) The parties to this dispute entered into a Gas Transmission Agreement ("GTA") on 01.05.2007; valid for 15 years i.e. up to 31.12.2022. In the GTA, the respondent was described as the "Shipper" and GAIL as the "Transporter". By Clause 2.2 of the GTA, the Shipper and the Transporter had to enter into transactions in relation to the "redelivery point" which required the Shipper to contract for "specified capacity for a specified duration for transportation of the gas through the Transporter's facilities and the Transporter shall provide Gas Transmission services for such duration." This transaction was to be governed by the GTA and by other terms agreed between the parties confirming the transaction. By Clause 2.7(iii) of the GTA, the gas supplied was subject to Shipper's "termination security" in terms of Clause 13.3. The GTA could be terminated prior to 31.12.2022 on few grounds outlined in Clause 5.5. The grounds were detailed in Clause 11.8/Clause 13.

(3.) The GTA also required the Shipper to provide a bank guarantee ("BG") covering 60% of its agreed liability in the event of premature termination of the GTA and a letter of credit ("LC") under Clause 8.10 covering regular payment for use of facilities. A "termination" BG was submitted by the shipper/claimant to GAIL on 01.11.2007 for an amount of Rs.3,34,34,568.00. On 08.11.2007, gas transportation began after connection of the "Spur Line" with the shipper's delivery point. GAIL's position is that the estimated cost of the Spur Line, at the time of commissioning was Rs.4.88 crores. Fixed Spur Line charges in the GTA was computed on that estimated cost by using the discounted cash flow method to ensure a return of 12% post tax over a 15 year period. Clause 6.1 of the GTA provided for transmission charges. Apart from the transmission charges, the Shipper had to pay "fixed monthly charges towards Spur Line" as well. Annexure-I to the agreement provided that