Calcutta High Court Upholds Setting Aside of ₹19.68 Crore Arbitral Award Against SAIL Over Demurrage Claim

The Calcutta High Court has recently dismissed an appeal filed by Vizag Seaport Private Limited (VSPL) and upheld an earlier order setting aside a majority arbitral award.

The award had directed the Steel Authority of India Ltd. (SAIL) to pay nearly ₹19.68 crore towards claimed demurrage and storage charges.

The court held that the parties' Short Term Agreement (STA) did not provide for such charges. It also held that VSPL had waived its right to claim them by not seeking to include such a provision when the contract was reviewed.

A division bench of Justices Arijit Banerjee and Om Narayan Rai observed that the agreement contained no express provision permitting recovery of demurrage charges.

"The terms and conditions of the STA do not expressly provide for demurrage charges. Therefore, if the same were to be levied the same ought to have been included while reviewing the terms. Not having done so would mean waiver of the appellant's right to claim such charge.", the court held.

The dispute arose from a Short Term Agreement executed on May 6, 2008, under which VSPL agreed to handle coal imported by SAIL through berths EQ-8 and EQ-9 at Visakhapatnam Port. The agreement envisaged handling an assured volume of 1.5 million metric tonnes of cargo every year.

It permitted storage of up to 60,000 metric tonnes at a time. An additional 30,000 metric tonnes could be stored for up to 15 days in exigencies upon 30 days' prior notice.

VSPL alleged that SAIL repeatedly stored coal beyond the contractual limits and failed to evacuate it in accordance with the agreement. On December 20, 2010, it issued a demand seeking demurrage and storage charges for the period between May 4, 2009 and November 30, 2010. SAIL denied liability. It maintained that neither the STA nor the Integrated Terminal Service Charges prescribed under the contract authorised such charges.

VSPL invoked arbitration and claimed about ₹30.83 crore with interest. In August 2015, the majority of the tribunal awarded nearly ₹19.68 crore with interest after deducting ₹40 lakh from the claim. The dissenting arbitrator rejected the claim in its entirety.

SAIL challenged the majority award before the High Court. A Single Judge set aside the award and affirmed the minority view. VSPL then filed the present appeal.

Before the division bench, VSPL argued that the Single Judge had exceeded the permissible scope of interference. It contended that the Judge had reinterpreted the agreement, reappreciated the evidence, and preferred the minority view.

VSPL also argued that the STA incorporated the statutory framework governing major ports. According to it, this entitled the company to recover charges at rates fixed by the Tariff Authority for Major Ports.

SAIL argued that the contract prescribed an all-inclusive Integrated Terminal Service Charge. It submitted that the agreement contained no clause permitting demurrage or storage charges. SAIL also argued that VSPL had never sought to include such a provision during the contractual review contemplated under the agreement.

Agreeing with SAIL, the court held that the STA's references to the Major Port Trusts Act and port regulations were operational in nature. They did not incorporate a contractual obligation to pay demurrage or storage charges in the absence of an express provision.

"Indeed, if there are provisions in the STA that either specifically or by necessary implication indicate that the parties agreed that the 1963 Act and TAMP would apply to them for collection/implementation/imposition of demurrage, then the statute and the tariff would be applicable for such purpose. However, no clause in the STA has been cited to demonstrate that. It cannot be introduced in the STA interpretatively, all the more so when the term relates to financial implications," the court noted.

The court also held that Clause 8 of the agreement gave the parties an opportunity to review and revise its terms. VSPL did not seek incorporation of a demurrage clause during that exercise. The court therefore held that it had waived its right to claim such charges.

The court further found that the majority tribunal deducted ₹40 lakh from the claim without assigning any reasons. It held that this was contrary to the statutory requirement that an arbitral award disclose the reasons on which it is based.

Finding that the Single Judge had correctly exercised jurisdiction in setting aside the majority award, the division bench dismissed VSPL's appeal.

For Appellant (Vizag Seaport Private Limited): Senior Advocate Ritzu Ghosal with Advocates Aurin Chakraborty, Aditya Chakraborty and Anirban Ghosh.

For Respondent (Steel Authority of India Limited): Senior Advocate Pradip Kumar Ghose and Advocate Aryak Dutt.