OPG POWER GENERATION PRIVATE LIMITED versus ENEXIO POWER COOLING SOLUTIONS INDIA PRIVATE LIMITED & ANR.

Summary

The Supreme Court upheld an ICC arbitral award directing a power company and its holding company to pay a contractor's outstanding dues for an air-cooled condenser unit. It held that a composite money claim for goods and work is governed by Article 55 of the Limitation Act; that minutes acknowledging the balance, though subject to set-off, extended limitation under Section 18 only for the items they mentioned; and that an award whose reasons are inadequate but intelligible need not be set aside under Section 34 of the Arbitration Act, after explaining the narrow post-2015 grounds of public policy and patent illegality.

Issues

1. What 'public policy of India', 'fundamental policy of Indian law', 'most basic notions of morality or justice' and 'patent illegality' mean after the 2015 amendment to Section 34, and when inadequate reasons vitiate an award.
2. Whether the holding company, which placed the purchase orders and made advance payments before its subsidiary reissued them, was bound by the arbitration agreement and jointly and severally liable.
3. Which Article of the Limitation Act governs an indivisible claim for the balance price of goods supplied and work done, and when limitation began to run.
4. Whether minutes of meeting recording the balance payable subject to the employer's debits were an acknowledgment under Section 18 extending limitation for the claim and for counterclaims not mentioned in them.
5. Whether rejection, as time-barred, of the prayer to declare the employer's debit notes invalid defeated the claim for the outstanding amount.
6. Whether the tribunal applied different yardsticks to the claim and the counterclaim, and whether the appellate court could explain the award's underlying reasoning.

Provisions considered

• Section 34(2)(b)(ii), Explanations 1 and 2, and Section 34(2-A), Arbitration and Conciliation Act, 1996Post-2015, public policy is confined to the three Explanation 1 categories without merits review; patent illegality must go to the root of the matter, excluding mere erroneous application of law or reappreciation of evidence, but covers perversity, absent or unintelligible reasons and constructions of the contract that are not a possible view. No such ground was made out. (¶¶ 29, 42, 44, 45, 46, 52, 58, 62, 65, 67, 68, 151)
• Section 31(3), Arbitration and Conciliation Act, 1996Awards were classed as having no or unintelligible reasons (liable to be set aside), improper reasons (challengeable on Section 34 grounds) and inadequate reasons (to be upheld if the reasoning is discernible from the award and the documents it refers to). (¶¶ 71, 71.3, 71.4, 71.5, 71.6, 148)
• Sections 21 and 43, Arbitration and Conciliation Act, 1996The Limitation Act applies to arbitrations, and the claim is tested as on commencement of arbitration under Section 21, agreed here to be 2 May 2019. (¶¶ 83, 84)
• Schedule, Articles 14, 18 and 55, Limitation Act, 1963Articles 14 and 18 did not apply to an indivisible claim for goods and work whose final payment depended on certificates. Article 55 governs a claim for a specified sum due under a contract on breach, since 'compensation' includes such a sum; time ran from 19 March 2016, when the 180-day performance guarantee period expired. (¶¶ 91, 92, 95, 98, 99, 105, 106, 107, 111, 112, 113, 114)
• Section 18, Limitation Act, 1963Minutes of 19 April 2018 admitting the balance payable, though coupled with a claim of set-off, were a valid acknowledgment extending limitation for the claim and the items mentioned, but not for the counterclaims about gear boxes and fan modules, which they did not mention. (¶¶ 116, 117, 118, 119, 131, 132, 137, 138)
• Section 3(2)(b), Limitation Act, 1963A counterclaim is a separate suit instituted on the date it is made, so its limitation runs independently of the claim from the accrual of its own cause of action. (¶¶ 122, 123, 124, 127)
• Schedule, Article 58, Limitation Act, 1963The prayer to declare the debit notes invalid was time-barred, but the money claim was not consequential on that declaration. (¶¶ 14, 88, 140, 141)
• Section 73, Indian Contract Act, 1872The wide sense of 'compensation' in Section 73 supported reading Article 55 as covering a claim for a specified sum due under a contract. (¶¶ 96, 97, 98)
• Section 23(2-A), Arbitration and Conciliation Act, 1996Permits a respondent to raise a counterclaim or set-off within the scope of the arbitration agreement; read with Section 43 and Section 3(2)(b) of the Limitation Act for limitation. (¶ 122)
• Section 37, Arbitration and Conciliation Act, 1996An appellate court under Section 37, like a court under Section 34, may explain an award's discernible underlying reasoning without supplanting it. (¶¶ 147, 148, 149)

Held

• After the 2015 amendment, an award conflicts with the public policy of India only in the three categories of Explanation 1. 'Fundamental policy of Indian law' means fundamental principles underlying the administration of justice, for example natural justice, binding superior court decisions and laws serving the public interest, not a mere contravention of law. The 'most basic notions of justice' ground applies only where an elementary principle of justice is violated so as to shock the conscience of the court. Patent illegality excludes erroneous application of law and reappreciation of evidence, but covers perverse findings, absent or unintelligible reasons and constructions of the contract that are not a possible view. (¶¶ 52, 58, 62, 65, 67, 68, 72)
• Where an award's reasons appear inadequate but the underlying reason is intelligible from the award and the documents it relies on and is not perverse, the court under Section 34 or 37 need not set it aside and may explain that reason without supplanting it. The tribunal's use of 'ongoing negotiations' when it in substance applied acknowledgment under Section 18 was a trivial error not going to the root of the matter. (¶¶ 71.6, 144, 148, 149)
• The holding company placed the purchase orders, took part in forming the contract and made the advance payments, and the subsidiary reissued the orders on the same terms. Applying the Group of Companies doctrine as explained in Cox & Kings, the tribunal's finding that the two acted as a single economic entity and were jointly and severally liable was a possible view not open to interference. (¶¶ 79, 80, 81, 150)
• A suit for a specified sum due under a contract is a suit for 'compensation', and if it arises from the defendant's breach it is governed by Article 55 unless another Article specially applies. Articles 14 and 18 did not govern the indivisible claim for goods and work, whose final payment depended on completion and performance certificates. The cause of action matured when the 180-day period for the performance guarantee test, which the purchaser failed to conduct despite request, expired on 19 March 2016. (¶¶ 98, 105, 106, 107, 111, 112, 113)
• Missing the original completion date of 31 March 2014 did not start limitation: time was not of the essence given the liquidated damages clause, the contract was never repudiated, performance continued and the contractor was found entitled to a 539-day extension. (¶ 114)
• An acknowledgment under Section 18 must admit a subsisting jural relationship and liability, and is not defeated by a claim of set-off. An acknowledgment of a specified sum or specific right extends limitation only for that sum or right, not for other claims arising from the same relationship. The minutes therefore saved the claim but not the counterclaims for repair or replacement of gear boxes and fan modules, which were time-barred whether limitation ran from 21 September 2015 or 19 March 2016. (¶¶ 119, 124, 129, 132, 137, 138)
• Limitation bars the remedy, not the right. Debit notes issued unilaterally by the employer did not bind the contractor, so the declaration against them was optional rather than a prerequisite. Its rejection as time-barred neither defeated the money claim nor required the debited amounts to be adjusted automatically. (¶¶ 139, 141)
• The tribunal did not apply different yardsticks: the counterclaims for liquidated damages and customs duty were rejected on merits. An acknowledgment is only a piece of evidence that can be explained, so the tribunal could rely on the minutes for limitation yet find on the whole evidence, including the contractor's prompt denial and the later settlement offer, that the contractor was not liable for those items. (¶¶ 143, 145, 146)

Result

Appeals dismissed; the Division Bench judgment setting aside the Single Judge's order and restoring the arbitral award dated 13 July 2020 was upheld; parties to bear their own costs.