Bombay High Court Upholds Award In Paharpur–Siemens Dispute, Reaffirms Limited Scope Of Section 34

On 8 June, the Bombay High Court reiterated that under Section 34 of the Arbitration and Conciliation Act, 1996, courts cannot reappreciate evidence or substitute a plausible view taken by an arbitral tribunal merely because another interpretation of the contract or evidence is possible.

Justice Somasekhar Sundaresan dismissed the petition filed by Paharpur Cooling Towers Ltd. and upheld the arbitral award in favour of Siemens Ltd. in its entirety. He held:

"In my opinion, this analysis is a reasonable and commercially commonsensical interpretation of a commercial contract. It would not be open for this Court to substitute one plausible view taken by the Learned Arbitral Tribunal with another plausible view that is canvassed as being more acceptable and more logical."

The dispute arose from a General Responsibility Agreement and three contracts dated 24 December 2010 under which Siemens Ltd. engaged Paharpur Cooling Towers Ltd. for construction of three natural draft cooling towers for Torrent Energy Ltd.'s Dahej power project in Gujarat.

Siemens alleged delays in execution of the project and proceeded to engage third-party contractors, levy liquidated damages, and invoke bank guarantees furnished by Paharpur Cooling Towers Ltd. Siemens also invoked arbitration seeking recovery of risk-purchase costs, liquidated damages, and adjustment of amounts realised through the guarantees.

By an award dated 27 February 2019, the three-member Arbitral Tribunal partly allowed Siemens' claims to the extent of Rs. 53.53 crore, including Rs. 8.17 crore towards risk-purchase claims and Rs. 23.59 crore as liquidated damages. The Yribunal also partly allowed Paharpur's counterclaims worth Rs. 22.48 crore. After adjusting Rs. 51.89 crore already recovered by Siemens, the tribunal directed Siemens to pay Paharpur a net amount of Rs. 20.84 crore with interest at 6% per annum.

Paharpur challenged the award under Section 34, disputing the tribunal's findings awarding Siemens Rs. 8.17 crore towards risk-purchase claims, Rs. 23.59 crore as liquidated damages, and upholding invocation of bank guarantees aggregating Rs. 34.73 crore. It contended that the tribunal arbitrarily quantified claims, failed to properly apportion delays, and wrongly treated Advance Payment Bank Guarantees as Performance Bank Guarantees.

The Court rejected these contentions and held that the arbitral tribunal had considered the parties' submissions, relied on contemporaneous records, and adopted a commercially reasonable interpretation of the contract. It found that the tribunal supported its findings on risk-purchase claims and liquidated damages with correspondence, meeting minutes, milestone records, and material showing shortages of manpower and machinery.

The Bench also upheld invocation of bank guarantees worth Rs. 34.73 crore and accepted the tribunal's finding that the Advance Payment Bank Guarantee also functioned as a Performance Bank Guarantee because the parties agreed to keep it alive until provisional acceptance of the works even after adjustment of the advance payment. It observed:

“Suffice it to say, however, that Paharpur's contention that the Learned Arbitral Tribunal has whimsically equated the Performance Bank Guarantee and the Advance Bank Guarantee is not a tenable criticism. The reasoning for which the Learned Arbitral Tribunal has equated the two is indeed logical and does not make out a case for constituting a view that no reasonable person would have taken,”

Accordingly, the High Court dismissed that petition and upheld the arbitral award, holding that none of the findings suffered from patent illegality or perversity.

Appearances for Paharpur Cooling Towers Ltd.: Advocates Siddharth Datta, Suhani D., Siddharth Dey, Kriti Kalyani and Siddhant Marathe, instructed by Shardul Amarchand Mangaldas & Co.

Appearances for Siemens Ltd.: Advocates Rashmin Khandekar, Chakrapani Misra, Jeevan Ballav Panda, Rahul Kaushik and Ananya Mishra, instructed by Khaitan & Co.