NIRMA LIMITED Vs. LENTJES ENGERGY INDIA PRIVATE LIMITED

JUDGEMENT

(1.) This appeal under section 37 of the Arbitration & Conciliation Act, 1996 is directed against the order dated 31/08/2001 made by the learned Judge, City Civil Court No.11, Ahmedabad in Civil Miscellaneous Application No. 21 of 2001 filed by the appellant against these respondents under section 9 of the said Act. By that application, the appellant sought a direction on the respondents to preserve boilers Nos.1, 2 and 3 contracted to be supplied by them under the agreements dated 12-12-1997, 12-12-1997 and 17-3-1998 at the appellant's plant in Bhavnagar by conducting the "Start-up" and "Performance Test Run" and further to achieve the agreed parameters as per Annexure VI of the contract dated 1-9-1997 between the appellant and the respondent No.2 till the hearing and final disposal of the arbitral proceedings. In the alternative, the appellant sought a direction on the respondents to deposit Rs.6.53 crores with the Court to be released to the appellant so as to enable it to conduct "Start-up" and "Performance Test Run" by engaging any other agency as may be deemed proper by the appellant. A further direction was sought on the respondents that, any payments made by them to any person will be subject to the rights and claims of the appellant for the amounts claimed and that may be ultimately awarded by the Arbitral Tribunal, and that the respondents should accordingly intimate to all those whom they made such payments. A security by way of bank guarantee was also sought from the respondents for a sum of Rs.60,67,18,000=00 said to have been paid by the appellant to operate during the pendency of the arbitral proceedings. A direction was also sought on these respondents that they should not alienate their immovable assets and movables except in ordinary course of business pending the making of the award by the Arbitral Tribunal.

(2.) For the purpose of this appeal, the facts of the case would be in a narrow compass. The appellant entered into an agreement for purchase of three CFB Boilers of 100 tph each for the purpose of steam generation to be used in the appellant's Soda Ash Plant at Bhavnagar. The respondent No.2 had know-how in respect of such boilers and the agreement dated 1/09/1997 was entered into between the appellant and the respondent No.2, under which the respondent No.2 agreed to provide to the appellant the know-how as was required to fabricate or get fabricated, assembled, erected and commissioned these boilers for power generation and process steam for Soda Ash and Pure Water for Site, as per the agreement. It was also agreed to provide supervision of fabrication, procurement and supply of equipments, components, spares, consumable etc. as may be required for fabrication, assembly, erection and commissioning of the boilers, and to undertake that the boilers once assembled, erected and commissioned will operate in conformity of this agreement as well as other agreements as may be entered by appellant with Engineer, Contractor and Erection Contractor, which were defined in this agreement. The terms of payment were also agreed and certain warranties were given by the respondent No.2, which included a guarantee (Article 7.1 (a) of the agreement), to the effect that the Contractor, Engineer and Erection Contractor shall duly and timely perform their respective obligations with the appellant, as may be provided in their respective contracts. The respondent No.2 also guaranteed fulfillment of the warranties contained in those contracts. In Article 7.1 (c), the respondent No.2 agreed that it would be "the principal guarantor for due performance of the CFB boilers as covered in this agreement and the said guarantee shall be in addition to any guarantees which NIRMA may have from the Contractor, Engineer and Erection Contractor". The respondent No.2 also agreed as principal guarantor to accept the guarantee obligations as mentioned in Appendix VI of the agreement, as also to monetarily or otherwise compensate the appellant for all the obligations covered under Article 7.2. It undertook to demonstrate that the boiler was capable of operating in accordance with the technical specifications by conducting performance test, and it was stipulated that, in case the performance test run is not possible due to reasons not attributable to the respondent No.2 within seven months after provisional acceptance of a boiler or such extended time as agreed upon between the parties, such boiler shall be considered as provisionally accepted and the acceptance certificate shall be issued by the appellant. Stipulation regarding liquidated damages was also made should the respondent fail to fulfill its performance warrantee and the liquidated damages were to be as specified in Annexures to the Agreement. The agreement was to be governed according to the laws of India as provided in Article 16. However, by arbitration clause in Article 15.1, it was agreed between the respondent No.2 and the appellant that the disputes under this agreement will be finally settled by arbitration in accordance with the Rules of conciliation and arbitration of the International Chamber of Commerce and the place of arbitration shall be London. In Article 16.6, it was stipulated that the appellant shall have no claim or demands against the respondent No.2 other than those specified in the Agreement, and that the liabilities of the respondent No.2 to the appellant for all or any claim or demands of the appellant shall be limited to what is provided in the Agreement and shall in the aggregate limited to 15% of the total order value that may be paid to the appellant under the Agreement as well as 15% of the total order value of the agreements to be entered with the Engineer, Contractor and Erection Contractors and such limitation shall not be alterable by decision of arbitration or court. In Appendix VI, the performance guarantees were enumerated and if the guarantees were not complied with even after repairs and replacement, the appellant was entitled to the liquidated damages at the rates which were specifically mentioned. The appellant had a right not to accept the unit or parts thereof in the events enumerated in Appendix VI, which included the event where liquidated damages exceeded 10% of the contract price. In case of such non-acceptance, the appellant was entitled to further use of the unit or the parts under consideration until a suitable replacement is ready for operation, for a period of not longer than two years after written confirmation by the respondent No.2 of non-acceptance and the conditions agreed upon mutually.

(3.) It will be seen from the nature of the aforesaid four agreements that the respondent No.2 had a know-how in respect of the boilers having patented design, and that it had undertaken to give that know-how to the appellant through the contractors of its choice, with whom the appellant entered into agreements after due approval from the respondent No.2. The common element in all the four agreements was that the performance test run of the boilers was to be conducted and the final payment of 10% was to be made against the performance guarantee and a successful performance test. The respondent No.2 had undertaken to carry out the obligations of the respondent No.1 under the three agreements. The arbitration clause in the agreement with the respondent No.2 named London as the place for arbitration, while in the three agreements executed by the respondent No.1, the seat of arbitration was Ahmedabad.