Judgement Compilation

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© 2024 EBC Publishing Pvt. Ltd., Lucknow.
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2019 SCC OnLine Mad 34196
In the High Court of Madras

(BEFORE SENTHILKUMAR RAMAMOORTHY, J.)
PTC India Ltd. … Petitioner;

Versus
Tamil Nadu Electricity Board … Respondents.
O.P. No. 338 of 2014
Decided on November 12, 2019, [Judgment Reserved on 12.11.2019]
Advocates who appeared in this case:
For Petitioner : M/s. Ravi Kishore
Mr. Guntur Promot Kumar for M/s. Arun Karthick Mohan
For Respondents : Mr. P.H. Arvind Pandian Additional Advocate General Assisted by
Mr. V. Viswanathan for R-1.
Prayer : - Original Petition is filed under Section 34 of the Arbitration and
Conciliation Act, 1996 to set aside the Award dated 26.12.2013 passed by the
Arbitrator.
The Order of the Court was delivered by
SENTHILKUMAR RAMAMOORTHY, J.:— The claimant in the arbitration is the Petitioner
before this Court. The dispute arises out of a Power Purchase Agreement dated
16.06.2008 (the PPA). The admitted position is that the PPA envisaged supply of
power by the first Respondent to the Petitioner between June and September 2008. It
is also the admitted position that two categories of supply was envisaged under the
PPA, namely, firm power and power on “as and when available on day ahead basis”.
Although the PPA was executed on 16.06.2008, the effective date is specified as
01.06.2008. The PPA specified the approximate contracted quantity of both categories
of power supply and, in terms of the PPA, the first Respondent made supplies to the
Petitioner in the months of June and July 2008. However, the first Respondent did not
meet its firm power supply commitments in the months of August and September
2008 on account of the alleged non-availability of power. The PPA contains a
compensation clause, which is triggered in case the first Respondent fails to declare
availability of power of 80% of the contracted quantity. In such event, the first
Respondent is required to pay compensation at Rs. 2/- per kilowatt hour for the
shortfall below 80%. The Petitioner resorted to this clause and computed and claimed
compensation from the first Respondent. In response, the first Respondent took the
position that the non-supply is on account of a force majeure event and that,
therefore, the first Respondent is not liable and that the claim for compensation should
be waived and withdrawn by the Petitioner. The said dispute could not be settled
amicably and was, therefore, referred to Arbitration. In the Arbitration Proceeding, the
Petitioner made claims for an aggregate sum of Rs. 16,23,01,200/- with interest
thereon at 15% per annum from 10.09.2008. Upon completion of pleadings, the
Arbitral Tribunal framed 10 issues. Both parties adduced both oral and documentary
evidence : the Petitioner relied on one witness and exhibited documents as Exhibit-A
to Exhibit-TT; and the first Respondent, likewise, relied on one witness and exhibited
documents as Exhibits R-1 to R-29. By Arbitral Award dated 26.12.2013 (the Award),
the claims were rejected. The Award is impugned in this Petition under Section 34 of
the Arbitration and Conciliation Act, 1996 (the Arbitration Act).
2. I heard the learned counsel for the Petitioner, Mr. Ravi Kishore, and the learned
Additional Advocate General, Mr. P.H. Arvind Pandian, for the first Respondent. The
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learned counsel for the Petitioner opened his submissions by adverting to and
outlining the nature of the trading business that is carried on by the Petitioner. In this
regard, he pointed out that, as per Section 2(71) of the Electricity Act, 2003, a trader
is defined as a purchaser of electricity for re-sale. Therefore, he submitted that the
object and purpose of the PPA was to purchase electricity from the first Respondent for
purposes of re-sale to other electricity utilities. Consequently, he pointed out that the
Petitioner had also reached out to buyer utilities while negotiating the contract with
the first Respondent and that this is recognised and reflected in the PPA. In order to
substantiate the submission, he referred to the letters dated 09.04.2008, 03.05.2008,
07.05.2008. He, thereafter, referred to the PPA and, in particular, to the fact that the
PPA provides for two categories of power supply, namely, firm power and “as and when
available on day ahead basis” power. He also pointed out that the PPA uses the
expressions “its surplus power” (the PPA at p.88 of the typed set of papers) and
“surplus power available with it“(the PPA at p.91 of the typed set of papers) so as to
establish that surplus power was available when the PPA was executed. Moreover, he
pointed out that the effective date of the PPA is 01.06.2008 although the PPA was
executed on 16.06.2008. This fact was alluded to in order to establish that the first
Respondent was already aware about the power availability when the PPA was
executed.
3. Consequently, he submitted that the PPA also provides for compensation for non-
supply of not less than 80% of the contracted quantity of firm power whereas such
compensation is not payable with regard to “as and when available” power. Besides,
he pointed out that the first Respondent was acutely conscious of the fact that it was
required to pay compensation for shortfall in supply and, therefore, requested the
Petitioner, by letter dated 24.07.2008, to waive the compensation because the failure
of monsoon is an “Act of God” and would, therefore, qualify as a force majeure event.
In these facts and circumstances, he further pointed out that the Petitioner could not
meet its re-sale obligations to the Punjab State Electricity Board (PSEB) and was
called upon to pay compensation of Rs. 6,11,74,344/- by the PSEB, by letter dated
30.08.2008, for failure by the Petitioner to re-sell the power, which should have been
purchased from the first Respondent and re-sold to the PSEB. Therefore, he pointed
out that the Petitioner was constrained to issue invoice dated 10.09.2008 to the first
Respondent towards compensation for default in supply of not less than 80% of the
contracted quantity of firm power between 01.08.2008 and 31.08.2008, which
amounted to a sum of Rs. 6,24,22,800./- In response, the first Respondent informed
the Petitioner that it had requested PSEB to waive the compensation claimed from the
Petitioner and, consequently, the Petitioner was requested to withdraw the invoice.
However, PSEB informed the Petitioner, by communication dated 19.09.2008, that it
was deducting a sum of Rs. 9,78,80,832/- from the bills of the Petitioner. He
submitted that, therefore, the Petitioner was constrained to issue another invoice
dated 01.10.2008 for a sum of Rs. 9,98,78,400/- to the first Respondent in respect of
default in supply in September 2008. In the aggregate, he pointed out that a demand
was made on 14.11.2008 for a sum of Rs. 16,23,01,200/- from the first Respondent as
compensation for default in supply in September and October 2008 and that in
response thereto, the first Respondent pointed out that there was no surplus power in
the months of August and September 2008 and, therefore, the first Respondent could
not declare availability of power to the extent of 80% of the contracted quantity. On
that basis, the first Respondent contended that it was not in breach of the PPA and
that it is not liable to pay the amount demanded or any other amount to the
Petitioner. The learned counsel for the Petitioner contended that this was untenable in
the context of the contractual commitment to pay compensation for failure to supply
firm power.
4. In support of his submissions, the learned counsel for the Petitioner referred to
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and relied upon the following judgments:

(i) PTC v. Uttarakhand Electricity Regulatory Commission, Appeal No. 168 of 2014,
APTEL, Order dated 31st August 2016, wherein, at paragraph 17, the role of a
trader was discussed and it was held that a trader is an intermediary and not a
merchant trader and acts as a conduit between the generating company and the
distribution licensee.
(ii) ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705 (the ONGC case) and, in
particular, Paragraphs 15, 28 and 55 thereof, for the proposition that an award
that is contrary to the substantive provisions of law, or the Arbitration Act or the
contract is patently illegal and that the expression “public policy” should be
interpreted liberally and not narrowly.
(iii) Roop Kumar v. Mohan Thedani (2003) 6 SCC 595 (the Roop Kumar case),
wherein it was held, at paragraph 15 to 17, that once the understanding between
parties is captured in an integrated agreement, in writing, all other evidence is
excluded for the purpose of contradicting or altering the agreement.
(iv) Alopi Parshad v. Union of India AIR 1960 SC 588, wherein it was held, at
paragraphs 21 and 22, that a party is not absolved from performing obligations
under a contract merely because it is onerous to do so.
(v) Adani Power (Mundra) Ltd. v. Gujarat Electricity Regulatory Commission 2019
SCC OnLine SC 819 (the Adani Power case), wherein, at paragraphs 17 to 19 and
22, the Hon'ble Supreme Court examined the law on interpretation of contracts
and held that the plain, literal meaning is to be adopted and that terms should
not be implied in a contract unless the conditions that are specified in paragraph
22 thereof are satisfied.
(vi) Transmission Corporation of Andhra Pradesh Ltd. v. GMR Vemagiri Power
Generation Ltd. (2018) 3 SCC 716, wherein, at paragraphs 20, 21, 24 and 26,
the principles related to contractual interpretation were discussed and, in
particular, it was held that a commercial document should not be interpreted to
arrive at a conclusion at complete variance with that intended by the parties.
(vii) Energy Watchdog v. Central Electricity Regulatory Commission (2017) 14 SCC
80 (the Energy Watchdog case) wherein, at paragraphs 34 to 41, 45 and 47, the
law on contingent contracts, frustration and force majeure was discussed and it
was held that when alternative modes of performance, albeit at a higher price are
available, the contract is not frustrated.
(viii) Associate Builders v. DDA (2015) 3 SCC 49 (the Associate Builders case), and,
in particular, paragraph 42.2 and 42.3 thereof, where it was held that an Arbitral
Award, which is in contravention of substantive law, the Arbitration Act or the
contract is patently illegal subject to the caveat that reasonable interpretation of
the contract would not be interfered with.
5. After adverting to these judgments, the learned counsel for the Petitioner
concluded his submissions by pointing out that the first Respondent did not enter into
a contingent contract, as regards firm power, and, therefore, should have fulfilled its
obligation to the Petitioner as it did with regard to its power swap obligation.
6. The learned AAG made submissions in response and to the contrary. His principal
contention was that the PPA is a contingent contract both with regard to firm power
and “as and when available” power. He commenced his submissions by adverting to
the Award. In particular, he referred to paragraphs 23 to 25 of the Award wherein the
correspondence that preceded the PPA was discussed. By referring to the said findings
in the Award, he pointed out that the learned Arbitrator took into consideration the
fact that there is repeated reference in the said correspondence to the fact that parties
intended that the first Respondent would sell its surplus monsoon power and the
Petitioner would buy the same. He also pointed out that the Arbitral Tribunal examined
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the PPA and concluded that when the PPA is construed contextually, it is clear that
what was intended to be sold under the PPA is surplus monsoon power. He further
pointed out as to how the Arbitral Tribunal closely examined the pre-PPA
correspondence and the PPA before concluding that the contract is contingent on the
availability of surplus monsoon power. Consequently, he submitted that the Arbitral
Tribunal fairly and reasonably interpreted the PPA, in the aforesaid context, and
concluded that the first Respondent agreed to sell firm power from and out of the
surplus, if available. In other words, the inference of the Arbitral Tribunal was that the
obligation and liability of the first Respondent would arise under the PPA only if there
is surplus monsoon power and that, therefore, the PPA and, in particular, clause 8
thereof, namely, the compensation clause, may be resorted to only if there is surplus
monsoon power because the PPA is a contingent contract.
7. With regard to the contention that the first Respondent supplied power during
the relevant period to the Haryana Power Generation Corporation Ltd. (the HPGCL), he
referred to the analysis and conclusion of the Arbitral Tribunal that this was done in
fulfilment of an earlier obligation for the return of banked power that was supplied by
HPGCL to the first Respondent under a swap agreement. Consequently, he contended
that only if there is power availability after the fulfilment of prior obligations, it can be
concluded that the first Respondent had surplus power. In this regard, he submitted
that the power generation data relating to the previous year is not relevant in as much
as it does not prove that there was surplus power in the relevant year. In specific, his
contention is that the obligation under the PPA is contingent on the availability of
surplus power between June and September 2008. In response to a question as to
whether the contingency is the monsoon and the associated rainfall or the availability
of power, he submitted that the PPA is contingent on the availability of surplus power.
8. His next contention was that the failure of the monsoon is a force majeure event.
In particular, he submitted that it constitutes an Act of God as per the force majeure
clause in the PPA. Therefore, he submitted that the first Respondent was not liable for
non-supply of at least 80% of the contracted quantity of firm power both on account of
the non-occurrence of the contingency and in view of the force majeure event. In
conclusion, he submitted that the Arbitral Tribunal fairly and reasonably appraised the
evidence and interpreted the PPA. Consequently, interference with the Award is not
warranted under Section 34 of the Arbitration Act.
9. By way of rejoinder, the learned counsel for the Petitioner submitted that the
compensation clause provides for payment of compensation not only by the first
Respondent but also by the Petitioner. The learned counsel also relied upon the
judgment of the Bombay High Court in Ranchhoddas v. Nathmal Hirachand (the
Ranchhoddas case) AIR 1950 Bom 144 (DB) wherein, at internal page 148, the
Division Bench of the Bombay High Court held that a contract for the supply of goods
manufactured by a certain mill “as and when received” cannot be construed as a
contingent contract by converting the words to “if and when received”. Similarly, the
learned counsel contended that the PPA specifies that surplus power is available and
this cannot be read as “if available”. The learned counsel also referred to the power
swap agreement under which the first Respondent made supplies to HPGCL and
pointed out that the said agreement provides for compensation at 691 p/kWh as
opposed to a much lower compensation under the PPA and contended that this is the
reason why the first Respondent reneged on its commitment under the PPA. As
regards the force majeure clause, he pointed out that the alleged failure of monsoon is
not a force majeure event as per the PPA and that, in any event, it was necessary, as
per the force majeure clause in the PPA, to satisfy the counter party that there is a
force majeure event whereas the said requirement was not satisfied in the instant
case.
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10. The records were examined and the oral submissions of both sides were
considered carefully. A preliminary issue that should be considered is whether the pre-
PPA correspondence can be examined for the purpose of interpreting the PPA and,
secondly, whether the pre-PPA correspondence indicates that it is a contingent
contract. The common law principle is that pre-contractual negotiations are not
admissible in evidence for purposes of interpreting the contract. In this regard, the
judgment of the Hon'ble Supreme Court, in the Roop Kumar case, which was cited by
the learned counsel for the Petitioner, is apposite wherein it was held that extraneous
evidence is inadmissible to interpret an integrated document in writing. In addition,
the words of Lord Wilberforce in Prenn v. Simmons [1971] 1 WLR 1381 are
illuminating when he held as under:
“The reason for not admitting evidence of these exchanges is not a technical one
or even mainly of convenience…. It is simply that such evidence is unhelpful. By the
nature of things, where negotiations are difficult, the parties' positions, with each
passing letter are changing and until the final agreement, though converging, still
different. It is only the final document which records a consensus. If the previous
documents use different expressions, how does construction of those expressions,
itself a doubtful process, help on the construction of the contractual words? If the
same expressions are used, nothing is gained by looking back; indeed something
may be lost since the relevant surrounding circumstances may be different. And at
this stage there is no consensus of the parties to appeal to.”
11. The exception to this principle is with regard to representations that were relied
upon by one of the parties to the contract. In an action for misrepresentation, pre-
contractual correspondence may be looked at so as to ascertain if representations were
made and whether such representations were relied upon for the purpose of entering
into the contract concerned. In this case, one is not dealing with representations.
Instead, the contention of the first Respondent is that the pre-contractual
correspondence discloses, without doubt, that the intention of the parties was to sell
and buy the surplus power that is generated during the monsoon season. Given the
fact that the case of the first Respondent is not based on representations that were
made by the Petitioner and relied upon by the first Respondent for purposes of
entering into a contract, I do not see any reason to depart from the common law
principle, which is also the law in India, that pre-contractual negotiations are not
admissible in evidence. In this case, the Arbitral Tribunal relied heavily on pre-
contractual negotiations in order to conclude that it is a contingent contract. For
reasons set out above, this approach of the Arbitral Tribunal is patently erroneous. In
any event, on examining the pre-contractual correspondence, while it is clear that the
parties envisaged the sale and purchase of the surplus power available during the
monsoon season, the said correspondence does not lead to the inference that the
contract is contingent. In this connection, it is relevant to bear in mind that parties
decided to provide for two categories of power supply in the PPA : firm power and “as
and when available” power. In addition, parties specified the payment of
compensation not only by the seller but also by the buyer in the event of default in
making available or purchasing power, as the case may be. It is also pertinent to note
that this compensation clause only applies to firm power. For the above reasons, it is
concluded that the PPA cannot be said to be a contingent contract by relying on pre-
contractual correspondence.
12. This leads to the question whether it can be said that the PPA is a contingent
contract by examining the PPA and, if so, the consequential question is whether it is
contingent on the rainfall during the monsoon period meeting estimates, in that
regard, or on the availability of surplus power. The Arbitral Tribunal examined this
question and concluded that the PPA is contingent upon the generation of surplus
monsoon power during the monsoon period and that the compensation clause is
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enforceable only if the contingency happens (paragraph 33 of the Award). Therefore, it

is necessary to consider whether this conclusion is in contravention of the Indian
Contract Act, 1872 (the Contract Act) and the interpretation of the relevant provisions
thereof and/or whether the interpretation of the PPA is unreasonable, implausible or
perverse thereby warranting interference under Section 34 of the Arbitration Act. In
order to answer these questions, it is necessary to examine the relevant provisions of
the Contract Act. Sections 31 to 36 of the Contract Act deal with contingent contracts
and in view of the assertion by the first Respondent that the PPA is contingent on the
happening of a future uncertain event, Section 32 is relevant and it reads, inter alia,
as under:
“Enforcement of contracts contingent on an event happening-Contingent
contracts to do or not to do anything if an uncertain future event happens, cannot
be enforced by law unless and until that event has happened. If the event becomes
impossible, such contracts become void.”
13. In the Ranchhoddas case, a Division Bench of the Bombay High Court examined
the contract in question, which used the expression “as and when received” and held
that it is a contract that creates an absolute obligation and not a contingent obligation
and should not be read as “if and when available”. Therefore, the next stop, in the
endeavour to ascertain if the PPA is a contingent contract, is the PPA. On examining
the PPA, it is indubitable that the PPA does not use the expression contingent or any
expression equivalent thereto either in connection with the liability to pay
compensation or otherwise. Therefore, it is clear that the PPA does not contain an
explicit expression of the intention of parties to create a contingent contract. However,
the PPA does contain the term “surplus power” and the question to be examined is
whether the use of this expression implies that the PPA is contingent on the
availability of surplus power. This term is used in the recitals with the qualifier “its”
surplus power. The expression is used in the operative clauses of the PPA also. For
instance, the PPA stipulates that “TNEB is agreeable to supply the surplus power
available with it to PTC India Ltd. for a period of four months from 01.06.2008 with the
provision for review of this Agreement on mutually agreed terms and conditions after
expiry of four months.” In this regard, as contended by the learned counsel for the
Petitioner, it should be noted that the PPA was executed on 16.06.2008 but was
effective from 01.06.2008. When this aspect is looked at in conjunction with the
stipulation “to supply the surplus power available with it”, it leads to the reasonable
inference that surplus power was available as on 16.06.2008. This is corroborated by
the fact that supplies were made in June and July 2008. Therefore, on facts, even
assuming that the PPA was contingent on the happening of a future uncertain event,
i.e. either rainfall of not less than the threshold quantity or the availability of a certain
quantity of total power thereby resulting in surplus power, these requirements were
satisfied in June and July 2008 even according to the first Respondent.
14. Nonetheless, it remains to be considered whether the PPA could be considered
as contingent on account of the use of the expression “surplus power” and whether it
was unenforceable in August and September 2008 for that reason. For this purpose,
other clauses of the PPA should also be examined. For instance, the clause that deals
with scheduling is pertinent and provides that “TNEB shall schedule this power except
in case of technical constraints/force majeure”. Once again, it is noticeable that the
PPA does not make the supply of power contingent either on the availability of surplus
power or on specific rainfall requirements in the monsoon season. Instead, the two
riders are technical constraints and force majeure. Besides, if the contingency was the
availability of surplus power, it would have been necessary to specify the total power
requirements of the first Respondent and provide that if the power generation exceeds
the stipulated requirements of the first Respondent, it would constitute surplus power.
Likewise, if the contingency was rainfall of not less than the specified threshold,
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parties should have specified such threshold quantity in the PPA. In the absence of
such details in the PPA, it is evident that the relevant benchmarks to ascertain if the
alleged contingencies have happened or not is not available and this is also indicative
of the fact that the PPA was not intended to be contingent on these events.
15. In order to draw definitive conclusions as to whether it is a contingent contract
or not, it is also relevant to examine other clauses of the PPA. The recitals of the PPA
recognise that “PTC shall invite Tenders from purchasing utilities/distribution
companies for sale of above power”. This is, once again, not indicative of the intention
to form a contingent contract. The implementation clause specifies that both parties
shall obtain necessary approvals and consents from competent authorities for the sale
and purchase of power. This clause also does not make the PPA contingent on the
availability of surplus power or the quantum of rainfall during the monsoon. The PPA
provides for a payment security mechanism by way of the provision of an irrevocable
and revolving LC by the Petitioner for an amount equivalent to 18 days of 105% billing
of contracted energy thereby indicating that the PPA is enforceable immediately upon
execution and not on the occurrence of a future uncertain event or contingency.
16. The other clause of particular significance is the compensation clause which
reads as under:
“For power with Compensation Clause
Without prejudice to the provisions of Force Majeure, if PTC fails to schedule to
the extent of 80% in energy terms of the contracted quantum then PTC shall pay
compensation at the rate of Rs. 1.96/kWh for such short quantity below 80%.
Similarly if TNEB fails to declare availability to the extent of 80% of the contracted
quantity, TNEB shall pay compensation at Rs. 2/kWh for such short quantity below
80%. The above compensation shall be calculated on monthly basis. The above
clause shall be applicable only for firm power.”
17. When the above clause is examined, it is abundantly clear that there is no
indication therein that it is contingent. Indeed, it would be 19 of 28 reasonable to infer
that it militates against the inference that the PPA is contingent. Thus, on examination
of the PPA holistically and in light of the admitted factual position that supplies were
made both in June and July 2008, it is clear that it would be wholly unreasonable to
conclude that the PPA is contingent either on the availability of surplus power or
rainfall of not less than the threshold during the monsoon season.
18. Notwithstanding the above conclusion, the compensation clause is subject to
the force majeure clause. Consequently, no compensation would be payable by either
party if such party can establish that the non-fulfilment of the purchase or supply
obligation, as the case may be, is on account of a force majeure event. From the pre-
arbitration correspondence also, for instance, the letters dated 24.07.2008,
13.08.2008 and 29.08.2008, it appears that the main defence of the first Respondent
was force majeure. Therefore, this issue needs to be considered separately and the
force majeure clause is significant, in this regard, and reads as under:
“Both the parties shall ensure compliance of the terms and conditions of this
Agreement. However, no party shall be liable for any claim for any loss or damage
whatsoever arising out of failure to carry out the terms of this Agreement to the
extent that such failure is due to force majeure events such as rebellion, mutiny,
civil commotion, riot, strike, lockout, epidemic, plague, fire, explosion, flood,
drought, cyclone, lightning, earthquake, war or other forces, accident or act of God,
terrorism, malicious act, landslide, sabotage, communal violence etc. But any party
claiming the benefit of this clause shall satisfy the other party of the existence of
such an event (s). Transmission constraint as certified by RLDC and non availability
of open access shall be considered as force majeure.”
19. From the above, it is evident that the force majeure clause covers several
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events, including related events such as flood, cyclone and drought, but conspicuously
the failure of monsoon or a fall in the quantum of rainfall during the monsoon period is
not specifically referred to as a force majeure event. Particularly when viewed in the
context of a PPA for supply of surplus power during June to September 2008 and a
detailed force majeure clause wherein several force majeure events, including flood,
cyclone and drought are specified, the absence of specific events relating to the failure
of monsoon or a reduction in the quantum of rainfall during the monsoon season is
significant and cannot be disregarded. The Hon'ble Supreme Court, in the Energy
Watchdog case, examined the force majeure clause, in that PPA, and held, at
paragraph 47, that it would not excuse non-performance when alternative modes of
performance, albeit at a higher price, are available. In this case also, from the
evidence on record that supplies were made to HPGCL, it is clear that alternative
modes of supply were available. Moreover, I find that no credible evidence was
adduced by the first Respondent to establish the failure of monsoon and the only
evidence (Petitioners' Ex-NN) showed that the wind power generation in 2008 was
higher than in 2007 whereas it was the converse as regards hydro-power generation.
But this does not constitute evidence of the failure of the monsoon and the variation in
power generation cannot be construed as a force majeure event under the PPA. Thus,
in light of the above analysis of the force majeure clause and the evidence on record, I
am of the view that the conclusion of the Arbitral Tribunal, in paragraphs 26 and 41 of
the Award, that the failure of monsoon is a force majeure event that would be covered
by the generic term “Act of God” is an unreasonable and implausible conclusion that
warrants interference.
20. Therefore, I conclude that the PPA is not a contingent contract. In this
connection, it may be noted that the first Respondent was unclear as to whether the
PPA is contingent on the availability of surplus power or on the quantum of rainfall
during the monsoon season. As stated earlier, if the intention of the parties was to
make the PPA contingent on the availability of surplus power, it stands to reason that
the PPA would have specified the power requirement of the first Respondent and,
consequently, the quantum of power that would be required to be generated so as to
result in surplus power. There is no such indication in the PPA. As regards the
quantum of rainfall being the contingent event, once again, if that were the case, the
parties would have specified the minimum quantum of rainfall that would be necessary
to make the PPA effective. On examining the PPA, I do not find any such stipulation.
In fact, if this was the contingency, the rainfall data from the preceding years could
also be material to decide the issue. As discussed earlier, the compensation clause is
made subject only to the force majeure clause. The force majeure clause does not
specify the failure of the monsoon or a reduction in the quantum of rainfall during the
monsoon season as a force majeure event. The contention of the first Respondent both
in pre-arbitration correspondence and in the Arbitral Proceedings is that the failure of
the monsoon qualifies as an Act of God. Given the fact that floods, drought and other
similar eventualities have been expressly specified and keeping in mind the context,
namely, that this is a PPA for supply of power during the months of June to September
2008, i.e. the south-west monsoon season, the exclusion cannot be disregarded. In
effect, the only conclusion that can be drawn is that this was not intended by the
parties to be a force majeure event.
21. In this regard, the judgment of the Hon'ble Supreme Court in the Energy
Watchdog case to the effect that frustration cannot be cited when there is a force
majeure clause is pertinent. In addition, in that case, the court examined the force
majeure clause and concluded that the event in question did not constitute a force
majeure event. Similarly, the judgment in the Adani Power case with regard to the
circumstances in which terms can be implied in a contract is also relevant to this case.
The said judgment cited with approval the judgment in B.P. Refinery (Westernport)
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Pty. Ltd. v. Shire of Hastings (1978) 52 A.L.J.R., wherein the following five conditions
for implying terms in a contract were specified:
(a) It must be reasonable and equitable;
(b) It must be necessary to give business efficacy to the contract, so that no term
will be implied if the contract is effective without it;
(c) it must be so obvious it goes without saying;
(d) It must be capable of clear expression; and
(e) It must not contradict any express term of the contract
22. In this case, it cannot be said that it is necessary to imply that the contract is
contingent on the availability of surplus power. As stated in the Adani Power case, the
test of business efficacy is a test of necessity and, therefore, the question to be
considered and answered is whether the contract becomes unworkable without
implying such a clause and the obvious answer is that it does not become unworkable,
albeit performance may become relatively more commercially onerous. On the
contrary, in view of the stipulation of compensation, without any 24 of 28 indication
that it is subject to such contingency, both in the event of failure to make power
available or purchase power, implying a term that the contract is contingent on the
availability of surplus power would be in conflict with the compensation clause.
Therefore, implying a term in this case would violate one of the five conditions that
courts have specified so as to decide whether to imply a term and, in any event, such
implication is not justifiable even by applying the business efficacy test as set out
above.
23. Although, ordinarily, interpretation of a contract, by the Arbitral Tribunal, does
not warrant interference under Section 34 of the Arbitration Act, this is a case wherein
the Arbitral Tribunal implied terms that are not contained in the PPA, in a fact situation
that did not warrant such implication and in a manner contrary to the established
principles in that regard. Thus, it may be concluded that the conclusion of the Arbitral
Tribunal that the PPA is contingent on the availability of surplus power by implying
and reading non-existent terms into the PPA is perverse, implausible and
unreasonable. This conclusion is also contrary to Sections 31 to 36 of the Contract Act,
which deal with contingent contracts, as interpreted in judgments such as the
Ranchhoddas case. Equally, the conclusion that the deficiency of monsoon qualifies as
an “Act of God” is also patently erroneous in light of the force majeure clause.
Moreover, these errors are evident on the face of the Award and go to the root of the
matter. To put it differently, the Arbitral Tribunal would have reached the conclusion
that the first Respondent committed breach of the PPA but for the fact that the Arbitral
Tribunal inferred that the PPA is contingent on the availability of surplus power. Hence,
a case is made out for interference with the Award as per principles laid down in
paragraphs 15 and 55 of the ONGC case and paragraphs 29, 31 and 42.1-42.3 of the
Associate Builders case.
24. In fact, the conclusions with regard to the supply of power to PSEB and HPGCL
by the first Respondent under swap agreements in August and September 2008 are
also blatantly erroneous. The Arbitral Tribunal disregarded the fact that the first
Respondent complied with its obligations to supply power to the aforesaid entities in
spite of the alleged shortfall in the availability of power and concluded that such
supply was not for monetary consideration and to fulfill prior obligations. This
conclusion was reached on the specious reasoning that these transactions are
distinguishable because they are swap agreements without monetary consideration,
whereas they are barters or exchanges with difference in rates and, therefore, there is
monetary consideration. Furthermore, the conclusion, at paragraph 42 of the Award,
that the principle of estoppel does not apply to arbitral proceedings is also patently
incorrect and contrary to established principles in this regard.
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25. For all these reasons, the Arbitral Award is liable to be and is hereby set aside.
Consequently, the Petitioner is granted leave to initiate de novo arbitration
proceedings for the purposes of claiming compensation as per the terms of the PPA. If
such proceedings are initiated, the Petitioner would be entitled to the benefit of
Section 14 of the Limitation Act, 1963 in respect of the time taken in the arbitration
proceedings and this Petition. In the facts and circumstances, there will be no order as
to costs.
———
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1970 SCC OnLine Kar 158 : (1971) 1 Mys LJ 258
In the High Court of Mysore

(BEFORE HONNIAH AND VENKATARAMIAH, JJ.)
A. Palaniappa Mudaliar … Appellant;

Versus
P.T. Kandaswamy Mudaliar & Another … Respondents.
RFA. Nos. 41 & 58/65 and RFA. 57 & 58/66
Decided on September 15, 1970
The Judgment of the Court was delivered by
HONNIAH, J.:— RFAs. Nos. 41 and 53 of 1965 and RFA. No. 57 of 1966 are the
plaintiffs' appeals from the judgment and decree of the Civil Judge, Bangalore in O.S.
Nos. 168, 297 and 295 of 1964. RFA. No. 58 of 1966 is filed by the defendants in O.S.
No. 296 of 1964 on the file of the Civil Judge, Bangalore. The appellant in all the four
appeals is the same person by name A. Palaniyappa Mudaliar. The facts of the cases so
far as they are relevant to the question involved in these appeals are very simple.
Palaniappa Mudaliar, the plaintiff in O.S. Nos. 168, 297 and 295 of 1964, is the brother
-in-law of the brother of P.T. Kandaswami Mudaliar, the first defendant in these suits.
Kandaswami Mudaliar the first defendant is the father of the second defendant
Ramaswamy Mudaliar. In O.S. No. 296 of 1964 the abovesaid Kandaswami Mudaliar
and Ramaswamy Mudaliar are the plaintiffs and Palaniappa Mudaliar is the defendant.
But for convenience, Palaniappa Mudaliar will be hereafter referred to as the plaintiff
and Kandaswami Mudaliar and Ramaswamy Mudaliar will be referred to as defendants.
Defendant No. 1 has two younger brothers, viz., Nanjappa Mudaliar and Sengoda
Mudaliar. Defendants 1 and 2 have been doing business in cloth in wholesale in
Bangalore City for over 25 years under the name and style of ‘P.T. Kandaswami
Mudaliar’ and their turnover lately was more than about Rs. 20 lakhs per year. This
firm, as admitted by the parties, enjoys a great reputation. Nanjappa Mudaliar and
Sengoda Mudaliar are also doing the same business as that of the defendants in the
same locality separately.
Page: 261
2. Plaintiff in the beginning was working as a clerk in the firm of defendants for
some years till 1-4-1953 on an annual salary of Rs. 2,000 to Rs. 3,000. In the year
1953, he was taken as a working partner of the defendants' firm and the partnership
was registered which came into effect from 1-4-1953 (as per Ext. D-2 dated 22-1-
1956). The plaintiff according to the terms of the partnership was entitled to 4 annas
share in a rupee in the profits and loss of the firm. The first defendant was entitled to
8 annas share and the second defendant to 4 annas share. The partnership business
went on for about 6 years. Thereafter, misunderstandings arose between the parties.
Whatever may be the reason, it is admitted that the plaintiff stopped going to the
shop and looking after the affairs of the firm from 10-6-1959.
3. The plaintiff's case is that he was the partner of the firm till 12-11-1960, on
which date he filed a suit for dissolution of the firm and for accounts. The plaintiff
admittedly joined as a partner of the firm of P.T. Sengoda Mudaliar, on 22-8-1959
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about two months after he left the firm of the defendants. The new firm he joined
belonged to Sengoda Mudaliar, one of the brothers of defendant No. 1 and brother-in-
law of the plaintiff.
4. The defendants' case is that the plaintiff left the firm voluntarily on 9-6-1959.
There is nothing on record to show that the firm was dissolved and reconstituted by
the defendants on that day. The defendants intimated the Registrar of Firms under
Ext. P-21 dated 28-6-1960 a year later stating that the plaintiff ceased to be a partner
from 9-6-1959 and in his place one Sengoda Mudaliar son-in-law of the first defendant
had become the partner.
5. The plaintiff replied to the notice Ext. D-4 dated 10-6-1960 as per Ext. D-5 dated
14-6-1960, repudiating, among other things, that he ceased to be a partner from 9-6-
1959.
6. The plaintiff was not given his share in the profits and it appears after exchange
of notices, plaintiff asked the defendants to settle his accounts, but nothing seems to
have been done.
7. On 12-11-1960, plaintiff filed O.S. No. 69 of 1960 in the Court of the District
Judge, Bangalore for dissolution of partnership of the firm by name P.T. Kandaswami
Mudaliar of which the plaintiff and defendants were partners and for recovery of Rs.
60,000 being his estimated share in the profits and such other sum he was entitled to
on taking accounts. In that suit, at his instance, Mr. Biligere Ramachandra Rao an
Advocate was appointed as receiver, without notice to the defendants. Ext. P-1 is the
warrant issued by the Court. The warrant directed the receiver to take possession,
control and management of the partnership business and to make an inventory of all
the articles found in the premises of the firm.
8. The plaintiff, his Counsel Mr. C.R.V. Swamy and the receiver went to the
business place of the firm in the evening of 12-11-1960 at about 5-30 or 6 P.M. There
are conflicting versions as to what took place in the shop after the plaintiff, his Counsel
and the receiver went to the shop. That is the bone of contention between the parties,
in these suits. We will refer to the respective stands of the parties at appropriate
places. It will suffice here to state the facts. When the receiver wanted
Page: 262
to execute the warrant, it appears, some panchayatdars intervened. On their advice

and after looking into the accounts here and there, according to the plaintiff, he was
found entitled to get Rs. 60,000 roughly, being his share of the profits. The defendants
appear to have agreed and that as they had no full cash, they paid in cash Rs. 5,000
on that night and passed six cheques, one of which was of the same date for Rs. 5,000
and was cashed on 14-11-1960. The other post-dated cheques each for Rs. 10,000
were realisable on various dates, the last one to be encashed on 31-1-61. Ext. P-2 was
executed by plaintiff in favour of defendants, setting out therein the manner in which
his claim in the suit was settled. The defendants executed Ext. D-29 in favour of the
plaintiff stating therein that the claim of the plaintiff in the suit was settled as
indicated therein and nothing was due to the plaintiff. They further stated that if the
postdated cheques were not honoured on the respective dates, they undertook to hold
themselves liable to the plaintiff for the same.
9. On the same night, on the reverse of the warrant, Counsel for the plaintiff made
a note to the effect that since the parties had settled the suit claim, the warrant need
not be executed. Further it is mentioned in the note that the settlement took place in
the presence of panchayatdars and the panchayatdars and the parties had attested to
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evidence the settlement.

10. On the basis of this, the receiver made an endorsement to the effect that it was
not necessary to execute the warrant, as the claim of the plaintiff itself had been
settled. To this endorsement also the plaintiff and the defendants attested, 12-11-
1960 was a Saturday and the next day being a Sunday, the plaintiff encashed the
cheque for Rs. 5,000 on 14-11-60. The receiver returned the warrant on 15-11-60 to
which date the case was advanced. In view of the report of the receiver and what had
taken place on 12-11-1960, the Counsel for the plaintiff reported to Court that the
claim of the plaintiff in the suit had been settled out of Court, with the result the suit
was dismissed on 15-11-1960 as per Ext. P-10 the order sheet.
11. While matters stood there, the defendants caused a Lawyer's notice Ex. D-30
dated 21-11-1860 issued to the plaintiff, repudiating the contract of 12-11-1960, on
the ground that the same was vitiated due to threat held out by the plaintiff to close
the business and alternatively the contract was entered into by defendants on the
premise of the plaintiff looking into accounts and settle the claim within a week.
12. The plaintiff replied, as contained in Ext. D-31 dated 30-11-60, denying the
allegations made by the defendants. Thereafter, the post dated cheques to be
encashed on 30-11-1960, 15th and 31st December, 1960 and 15th and 30th January
1961 each for Rs. 10,000 amounting in all to a sum of Rs. 50,000 were dishonoured
on presentation on the respective dates as the defendants intimated the bank not to
honour the same. It is on these dishonoured cheques, the plaintiff has filed the three
suits on the facts stated above for recovery of Rs. 50,000 being the balance of his
share of profits in the business with interest at 6 per cent per annum from the date on
which the cheques were dishonoured, as settled between the parties.
13. In reply, the defendants pleaded that the plaintiff was entitled only to a sum of
Rs. 35,000 roughly, less income tax as on June, 1959.
Page: 263
The plaintiff brought the receiver along with the warrant to take possession of the shop
and to manage the same. The firm being a reputed one they felt that if the receiver
took possession, their reputation would suffer and so the defendants being faced with
such a situation agreed to the suggestion of the plaintiff that they should agree to the
plaintiff's claim for a sum of Rs. 60,000 subject to the accounts being scrutinised
within a week thereafter and the correct amount being ascertained. Under these
circumstances, they were compelled to agree to the suggestion of the plaintiff and
paid Rs. 5,000 cash and cheques for the balance of the amount. To this they agreed
being overawed, helpless and bereft of independent advice. In the circumstances, they
pleaded that there was no final settlement on 12-11-1960 of accounts and the alleged
settlement was vitiated by fraud, misrepresentation and undue influence. In the
meanwhile, defendants filed O.S. No. 1 of 1961 on 2-1-1961 on the file of the District
Judge, Bangalore which was subsequently re-numbered as O.S. No. 226 of 1964 on
the file of the Civil Judge, Bangalore for dissolution of Partnership of P.T. Kandaswami
Mudaliar, taking of accounts of the partnership, for payment of such amount as may
be found due to the plaintiff, and to declare that the settlement as contained in Ext. P-
2 and Ext. D-29 dated 12-11-1960 was void and not enforceable as having been got
by fraud, coercion and undue influence and for permanent injunction restraining the
plaintiff from encashing the post dated cheques. In the plaint, as it was presented to
Court, this is what they have stated:
“The plaintiffs submit that the alleged settlement secured under coercion not being
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valid or enforceable, they are entitled to a declaration to the effect that the
settlement is procured by coercion and undue influence and therefore
unenforceable. The plaintiffs submit that if the settlement be disregarded, as they
submit it should be in the circumstances, on the basis of the defendant's case itself
that he continued as a partner till the date of the suit and there had been no
dissolution of partnership, the partnership subsists but for the settlement on 12-11-
1960 as alleged by him.”
14. In the year 1963, the defendant made an application for amending their plaint.
Their application was allowed and the following was added to para 9 of the original
plaint.
“The plaintiffs submit that the defendant having left the partnership firm of P.T.
Kandaswamy Mudaliar on 9-6-59 and having subsequently joined another firm
known as P.T. Sengoda Mudaliar, there was an automatic dissolution of the
partnership concern of P.T. Kandaswamy Mudaliar.”
15. In the prayer column, in substitution of the prayer for dissolution, this is what
they prayed by the amendment:
“For taking accounts of the old partnership firm of P.T. Kandaswamy Mudaliar as on
9-6-1959 upto which the defendant was a partner and for the determination of the
amount if any payable to the defendant on such taking of accounts less amounts
already paid to or received by him.”
16. As all these suits raised common questions of law and facts they were tried
together by the learned Civil Judge, Bangalore, and by his judgment dated 15th April,
1965, he dismissed the suits of the plaintiff and passed a preliminary decree in O.S.
No. 296 of 1965 (the suit filed by the
Page: 264
defendants) for taking accounts on the basis that the firm was dissolved on 9-6-1059.
Aggrieved by the judgment and decree passed in these four suits, the plaintiff has
preferred these four appeals.
17. On the pleadings in the suits filed by the plaintiff the material issues that arose
for consideration were whether there was a settlement of the claim of the plaintiff
against the defendants which resulted in a correct between the parties on 12-11-1960
or as pleaded by defendants whether the agreement as contained in Ext. P-2 and D-
29, was obtained by the plaintiff by coercion, undue influence, fraud and
misrepresentation and whether the agreement of that date was entered into by the
parties with an understanding that the account should be taken within a week from
that date. In the suit filed by the defendants, the material issues that arose for
consideration were whether the suit was maintainable in view of the settlement and
compromise arrived at on 12-11-1960, whether the from of P.T. Kandaswamy Mudaliar
became dissolved on 9-6-1959 and the plaintiff ceased to be a partner thereof, and
whether the plaintiff was entitled to get only a sum of about Rs. 35,000 as on 9-6-
1959 being his share of profits till that date. If the issues that arise for determination
in the suits filed by the plaintiff are decided in favour of the plaintiff, it would be
unnecessary to go into the merits of the suit filed by the defendants.
18. Although the defendants' case in main was that they entered into an agreement
with the plaintiff on 12-11-1960 with an understanding that the account should be
looked into within a week from that date, at the time of argument the learned Counsel
for the defendants strongly contended that the so called agreement ??? into between
the parties on 12-11-1960 was vitiated due to undue influence, fraud, coercion and
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misrepresentation practised by the plaintiff. We would rather decide first the question
whether the agreement between the parties as contained in Exts. P-2 and ??? were
entered into with an understanding that accounts should be locked into within a week
thereafter. The defendants case is that the plaintiff contrary to the agreement, did not
approach them to ??? the accounts between them and on the other hand encashed the
cheque dated 1-11-1960 and 14-11-60 and attempted to encash the other cheques
subsequently. In support of these pleadings, the defendants relied pron the statement
made by them in their written statement and oral evidence of the second defendant.
S. 92 of the Evidence Act provides that when the terms of any such contract, grant or
other disposition of property, or any matter required by law to be reduced to the form
of a document, have been proved according to S. 91, no evidence of any oral
agreement or statement shall be admitted, as between the parties to any such
instrument or their representatives in interest, for the purpose of contradicting,
varying adding to, or subtracting from, its terms. Proviso (3) is material for the
purpose of this case. That proviso provides that the existence of any separate oral
agreement constituting a condition precedent to the attaching of any obligation under
any such contract, grant or disposition of property may be proved. The contract that
was entered into by the parties is contained in Exts. P-2 and D-29. Ext. P-2 reads as
follows:
“Whereas I have filed against, Sri P.T. Kandaswamy Mudaliar and Sri K. Ramaswami
Mudaliar in O.S. No. 69/60 on the file of the
Page: 265
Principal District Judge, Bangalore, for the recovery of the sum of Rs. 60,000 (Rupees
Sixty thousand only) with Court costs and such other reliefs and on the advice of well
wishers and friends, I have received the said sum of Rs. 60,000 (Sixty thousand only)
in the following manner.
By cash Rs. 5,000-00

By cheque No. 280484/12-11-60 for Rs. 5,000-00
do 280485/30-11-60 Rs. 10,000-00
do 280486/15-12-60 Rs. 10,000-00
do 280487/31-12-60 Rs. 10,000-00
do 280489/15-1-61 Rs. 10,000-00
do 280490/31-1-61 Rs. 10,000-00
Total receipt Rs. 60,000-00
all on the Canara Banking Corporation Ltd., Bangalore-2 in full and final settlement
of my claim in this behalf and nothing is due to me. Thus, I have settled my suit
claim.
Bangalore-2.
Sd/. A. Palaniyappa Mudr.
12th Nov. 1960.
(on 10 np. receipt stamp) 12-11-60.
Sd/. K.R. Rangappa
Sd/. in Tamil (P.T. Nanjappa Mudr)
Sd/. in Tamil (N.K. Perumal Mudr)
Sd/. in Tamil (P. Subbaraya)
Sd/. in Tamil (P.T. Sengoda Mudliar)
Received copy
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Sd/. P.T. Kandaswami Mudaliar

Sd/. K. Ramaswamy, 12-11-60.”
19. Exhibit D-29 is a document executed by the defendants in favour of the plaintiff
and that reads as follows:
“Whereas the plaintiff Sri A. Palaniayyppa Mudaliar had filed a suit in O.S. No. 69 of
1960 on the file of the Principal District Judge. Bangalore against us to day, we
have issued the following cheques on the Canara Banking Corporation Ltd.,
Bangalore-2, and a sum of Rs. 5000 (Rupees Five thousand) has been paid in cash
to the said plaintiff today.
By cheque No. 280484/12-11-60 for Rs. 5,000-00
do 280485/30-11-60 Rs. 10,000-00
do 280486/15-12-60 10,000-00
do 280487/31-12-60 Rs. 10,000-00
do 280489/15-1-61 Rs. 10,000-00
do 280490/31-1-61 Rs. 10,000-00
55,000-00
Cash paid to-day 5,000-00
Total payment 60,000-00
Page: 266
Total sum of Rs. 60,000 (Sixty thousand only) in full and final settlement of the
plaintiff's claim against us and nothing is due to him in this behalf and nothing is
due to us also from the plaintiff in this connection. Thus we have settled this suit
claim on the advice of friends and well-wishers of ours. In case the above said
cheques are not honoured on the said dates, we hold ourselves liable to the plaintiff
for the same.
Sd/. P.T. Kandaswami Mudaliar 12-11-60
Sd/. K. Ramaswamy.
Bangalore-2
(on one 10 np stamp)
12th Nov. 1960.
Sd/. N.K. Perumal Mudaliar (in Tamil)
Sd/. P. Subbaraya Mudaliar (in Tamil)
Sd/. K.R. Rangappa (in Tamil)
Sd/. P.T. Sengoda Mudaliar (in Tamil)
Sd/. P.T. Nanjappa Mudaliar (in Tamil).”
20. After the above documents were executed by the parties, the Counsel for the
plaintiff who was present there made an endorsement on the reverse of the warrant
Ext. P-1 as follows:
“Since the parties have settled the suit claim, this warrant is not necessary to be
executed. In token of their settlement, the parties have also attested this
endorsement in the presence of the panchayatdars.”
Sd/. Advocate for Plaff. 12-11-60.”
21. Under this endorsement, the parties and the panchayatdars have signed. While
returning the warrant, the receiver has made an endorsement stating that it was not
necessary to execute the warrant as the suit claim itself was settled by the parties out
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of Court. Having made such an endorsement, he returned the warrant to the Court on
15-11-1960. As already stated, the Counsel for the plaintiff reported to Court that the
suit claim of the parties has been settled out of Court, and therefore, the Court
dismissed the suit. The terms of the settlement are unambiguous. The evidence shows
that in pursuance of these settlements, the defendants paid a sum of Rs. 5,000
forthwith and gave a cheque of that date for another sum of Rs. 5,000 and for the
balance of the amount of Rs. 50,000 issued post-dated cheques. The agreement
entered into between the parties came into force on the very day when the defendants
paid the sum of Rs. 5,000 and when the plaintiff encashed the cheque of that date on
14-11-1960. The parties having acted upon this agreement, it is futile for the
defendants to contend that there was an oral agreement as pleaded by them. In
substance their plea being that the whole of this agreement should not be acted upon
until the accounts were looked into by the parties within a week. Oral evidence to
contradict, vary, add to or subtract from the writing is excluded when there is an
actual contract between the parties. In this case there is a contract, and, therefore, in
respect of that contract no oral evidence can be adduced by the parties. If there is any
stipulation that the contract would not be enforced or that it was not intended to be
acted upon until the happening of a condition precedent, oral evidence may be
adduced regarding the existence of such a term. In a case where the agreement has
come into force forthwith ???
Page: 267
it has been partly acted upon, the parties cannot be allowed to adduce oral evidence
against its terms. For in such a case there can be no condition precedent at all. That
apart, there is no satisfactory evidence that there was a stipulation between the
parties that this contract should not be acted upon until the accounts were looked into
by the parties within a week. For the first time this story appears to have been
thought of by the defendants when they got issued the notice Ext. D-30 on 21-11-60.
At the time of trial, only the second defendant has been examined on behalf of the
defendants and except his uncorroborated testimony, there is no other evidence to
support the plea of the defendants. The agreement was entered into between the
plaintiff and the defendants on 12-11-1960 by which the claim of the plaintiff in his
suit was settled as per the terms contained in Exs. P-2 and D-29 and as stated earlier
the suit was dismissed on a submission made by the Counsel for the plaintiff that the
claim had been settled out of Court. After all these happened, this story seems to have
been thought of with a view to reopen the settlement that had been arrived at
between the parties on 12-11-60. As the evidence is unsatisfactory, we are unable to
accept the contention raised on behalf of the defendants in respect of the so called oral
agreement.
22. The real controversy between the parties as could be gathered from the
evidence, though the pleadings in that behalf are very slender, is that Exts. P-2 and D-
29 as contended by the defendants were obtained by the plaintiff under threat,
coercion, undue influence, fraud and misrepresentation. In the written statement filed
by the defendants in the suits filed by the plaintiff, this is what they have pleaded,
after narrating the circumstances under which the plaintiff came to the premises of
their shop on the evening of 12-11-1960 along with the Receiver:
“While matters stood thus, on 12-11-60 suddenly at about 6 p.m. the plaintiff
accompanied by his lawyer Sr. C.R.V. Swamy and Sri P.T. Sengoda Mudaliar and Sri
P.T. Nanjappa Mudaliar and their friends and Sri Biligiri Ramachandra Rao,
Advocate, since deceased, came to the defendants' business premises and
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intimated that the plaintiff had instituted suit Nos. O.S. 69 of 60 in the Court of the
Principal District Judge, Bangalore, for dissolution of the partnership business of
‘P.T. Kandaswamy Mudaliar’ and for the recovery of a sum of Rs. 60,000 as being
tentatively due to him from the said partnership business. The plaintiff also
intimated that he had obtained an exparte order for closure of the defendants'
business and for taking possession of the same through late Sri Biligiri
Ramachandra Rao, who had been appointed a Receiver in the said case and that he
had the necessary warrant to take possession of the defendant's business. The
defendants protested and stated that the plaintiff was not entitled to the sum of Rs.
60,000 claimed by him and that the accounts disclosed that the plaintiff was
entitled to only a sum of Rs. 35,000 roughly subject to income-tax and bad debts
as on June 1959. The plaintiff did not heed the said protestations nor did he allow
the defendants to go out of their shop premises to have independent advice in the
matter and threatened that the Receiver would take immediate possession if they
did so. The plaintiff further represented that the only solution out of the impasse
was to agree to the suit claim therein, subject to the accounts being scrutinised
within a week thereof and the correct amount being ascertained. The plaintiff
Page: 268
further insisted that the defendants should immediately pay cash of Rs. 5,000 and
pass in his favour post-dated cheques for the balance of the amount pending scrutiny
of the accounts within a week thereof and that in the meantime he would not cash the
cheque. The defendants overawed by the said situation and being helpless and bereft
of all independent advice had no other option except to agree to the plaintiff's proposal
in order to avoid the threatened direct consequences held out by the plaintiff.
Thereafter the plaintiff produced a receipt as having been prepared by his Auditor and
demanded and obtained the defendants' signature thereto, in the circumstances, the
defendants submit that there was no free or fair settlement of accounts between the
parties. The defendants further submit that the alleged settlement set up by the
plaintiff is a false one and is vitiated by fraud, misrepresentation and undue
influence.”
23. This is all that the defendants stated by way particulars regarding their case of
undue influence, coercion, fraud and misrepresentation. It is not disputed in this case
that the plaintiff accompanied by his Lawyer and the receiver went to the shop
premises of the defendants which is situated in Dewan Soorappa lane which is close to
Chickpet in Bangalore City. It is in this lane as the evidence discloses that most of the
wholesale close dealers have their shops. At the time the plaintiff went to the spot,
even according to the second defendant there were his clerks, the first defendant and
some customers, it is not disputed that it is one of the busiest commercial localities in
Bangalore City. The defendants admittedly had a phone in their shop at that time and
their shop is at a distance of 100 yards from Chickpet Police Station. There were many
wholesale dealers near about the premises and it could fairly be inferred that at the
time the plaintiff went to the shop along with the receiver and his Counsel, there were
number of people nearabout. The second defendant in his deposition has deposed as
follows on this question:
“On 12-11-60 at about 6-30 p.m. when our business was in full swing, 15 persons
rushed into our business premises. Plaintiff was one of them. P.T. Sengoda
Mudaliar, P.T. Nanjappa Mudaliar, Subbanna Chettiar, K.R. Rangappa, N.K. Perumal
Mudaliar, Plaintiff's Lawyer, Mr. Swamy, plaintiff's Auditor Narayan, late Mr. Biligiri
Ramachandra Rao came along with plaintiff to our business premises. Plaintiff
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threatened me and my father that we should go out of the shop premises and he
had obtained orders to seal the premises. We were then confused. Myself and my
father asked the plaintiff as to why he was so threatening and as to what the matter
was. Plaintiff then said that he had preferred a suit against us for recovering Rs.
60,000 and that he had got appointed a Receiver for closing the business and
locking it up. Then we told the plaintiff as to how he could have filed the suit for
recovery of Rs. 60,000, when from the accounts he was entitled to only Rs. 35,000,
and odd subject to bad debts etc. The plaintiff said that he was not prepared to
hear all that and compelled us to pay him Rs. 60,000. Then we told the plaintiff
that ours was a big reputed firm and that it was not proper for the plaintiff to have
taken such drastic steps and that he may look into the accounts. Plaintiff did not
heed to it. The talk and the scuffle went on till mid-night on that day. Plaintiff then
said
Page: 269
that accounts would be looked into within a week and that for the present he should
be paid Rs. 5,000 in cash for Court expenses incurred by him and for the balance of
that suit claim, post dated cheques may be given to the extent of Rs. 55,000 and that
he would not encash them till accounts were scrutinised. Though we protested he
insisted for it. The plaintiff threatened us, compelled us and induced us by
misrepresentation and undue influence, took Rs. 5,000 in cash and six post dated
cheques to the extent of Rs. 55,000.”
24. In cross-examination this is what he has stated, ‘Plaintiff came and told us that
we should all go out of the shop and the shop was to be sealed: This is the threat
referred to by me above as given by the plaintiff’. In his evidence there is nothing to
indicate that the plaintiff physically prevented them from going out of the shop for any
purpose or sending any of their servants for their help. The threat said to have been
given by the plaintiff and as explained by the second defendant is only that the
plaintiff asked them to go out of the shop as the shop was to be sealed. The plaintiff
has denied the allegation made in the written statement and he has stated that he
went to the shop of the defendants with the receiver and his Counsel and when the
defendants came to know about the suit filed by him and the appointment of the
receiver to take over the business and to run it, the defendants sent for panchayatdars
which included P.W. 2 Narayan, an Auditor and P.W. 3 Rangappan, a wholesale
merchant and Secretary of the Handloom Dealers Association of which the defendants
were members, P.T. Sengoda Mudaliar, and P.T. Nanjappa Mudaliar the two brothers of
defendant-1. In the pleadings extracted above, the defendants do not say that the
brothers of the first defendant who came to the shop were not on good terms with
them, but in the course of his evidence, the second defendant has stated that there
was no love last between the first defendant and his brothers because of business
rivalry. It is difficult for us to accept this version of the second defendant. If as stated
by him, the brothers of the first defendant were not on good terms with them, it is
improbable that they would come to the shop of the defendant for any purpose. More
so when a partner of that firm had gone there with the receiver to take possession of
the business in pursuance of an order of the Court. These persons were not necessary
at all for the effective execution of the receiver warrant. It was the receiver who was to
execute the warrant. If the plaintiff had accompanied him it is obviously for the
purpose of locating the premises and identifying the defendants. A criticism was
levelled against the evidence of P.W. 2 Narayan who is an Auditor by the Counsel for
the defendants. According to him P.W. 3 K.R. Rangappa wanted to secure business for
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this witness and in fact secured business to him in some shops. Reliance is placed on
the evidence of these two witnesses which is to the effect that Rangappa once took
P.W. 2 Narayan to the shop of the defendants when the plaintiff was partner and asked
them to give their audit work to him. The evidence of the second defendant is that he
did not give any work to P.W. 2 Narayan. But P.W. 2 Narayan's evidence is that he had
secured audit work in a number of shops in Dewan Soorappa Lane at the instance of
Rangappa and on 12-11-1960 he was sitting in one of the adjacent shops when the
defendants sent for him and on his going there, he was asked to write Ext. P-2 and D-
29 and that he did not take any part in the panchayat that took place between the
parties. His evidence
Page: 270
shows that he was doing audit work of Sengoda Mudaliar with whom the plaintiff had
started a new partnership business after 9-6-1959. Assuming what all defendant-2
has stated is true, it is difficult to reject the evidence of P.W. 2 because he only speaks
to his writing Exts. P-2 and D-29. The defendants do not deny his presence nor do
they deny the execution of Exts. P-2 and D-29. The other witness examined on behalf
of the plaintiff is P.W. 3 Rangappa. His evidence in substance is that the defendants
sent for him and after he went to the shop of the defendants, he came to know about
the dispute between the plaintiff and the defendants and of the receiver having come
there to take possession of the premises and the business. The defendants, according
to him, requested him and other panchayatdars to settle the dispute between them
and accordingly they looked into the accounts and found that as on 9-6-1959 the
plaintiff was entitled to a sum of about Rs. 45,000 and odd, and interest upto date
worked out to about Rs. 20,000. According to his evidence, on the above basis, the
plaintiff and the defendants agreed to a settlement whereby the defendants agreed to
pay a sum of Rs. 60,000 in full settlement of the claim and the plaintiff agreed to
accept the same and in pursuance of this agreement, the plaintiff executed Ext. P-2
and the defendants Ext. D-29, and they were attested by the panchayatdars. His
evidence further shows that he and other parties signed the endorsement made by the
Counsel for the plaintiff on the back of the receiver warrant. The only criticism levelled
against this witness is that he is a friend of the plaintiff. This witness had admitted
that he is a friend of the plaintiff as well as of the defendants. On the basis of the
statement made by this witness that he had taken P.W. 2 to the shop of the
defendants to get him audit work and in view of the fact that the defendants did not
give any work and also the fact that P.W. 2 was doing the audit work in the shop of
Sengoda Mudaliar where the plaintiff was a partner, it is urged on behalf of the
defendants that this witness is more friendly towards the plaintiff than towards the
defendants. We see no merit in this argument. The second defendant who has given
evidence at great length does not even whisper that this witness is hostile to him or is
more friendly towards the plaintiff. This witness once was a Treasurer of the Handloom
Cloth Merchants Association and at the relevant point of time was the Secretary of the
Association of which the defendants and many other wholesale merchants were
members. In our opinion, he is a disinterested witness. Apart from the evidence of this
witness, the plaintiff has sworn to the circumstances under which Exts. P-2 & D-29
came to be executed by the parties. If the evidence as now narrated is taken into
consideration, it is difficult for any Court to hold that there was any coercion, undue
influence, fraud or misrepresentation, practised by the plaintiff.
25. As is well known an agreement to settle a dispute amicably would not be

invalid unless it is obtained by coercion, undue influence, fraud and misrepresentation.
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As to the question whether the documents Exts. P-2 and D-29 were executed by the
defendants out of their own free will or as contended by them under coercion, a
reference may be made to Ss. 15 to 18 of the Indian Contract Act. In the present case
it is said the documents Exts. P-2 and D-29 are said to have been vitiated as
aforesaid. The learned trial Judge has found that the defendants were forced and
coerced and due to undue influence they executed Exts. P-2 &
Page: 271
D-29. He has come to this conclusion not upon any acceptable evidence, but on mere
surmises and to specifically state his own reasoning, he has based it on the ground
“that the second defendant has stated in his evidence that the plaintiff threatened
him”. He comes to the conclusion that all the ingredients of Ss. 15, 16, 17 and 18 of
the Contract Act have been established. We are unable to agree with his reasoning in
this case. The real question for determination is whether the execution of the
documents Exts. P-2 and D-29 was obtained by coercion, undue influence, fraud and
misrepresentation and whether the transaction was itself unfair and unconscionable so
as to relieve the defendants from the claim of the plaintiff. In this case, the evidence
which we have referred to could not support the findings of the learned trial Judge.
The learned trial Judge having quoted the pleadings of the defendants has stated that
the defendants were placed in such a situation which the plaintiff took advantage and
coerced them to settle as per Exts. P-2 and D-29. This finding of the learned Judge is
not based upon satisfactory evidence nor is it based upon the inference drawn from
the proved circumstances. It cannot be presumed that the defendants were in such a
situation that the imaginary threat placed them under the control of the plaintiff and
that the plaintiff took advantage of such control to induce them to execute Exts. P-2
and D-29, with an understanding that account should be settled within one week.
26. We must further point out that the brothers of defendant-1 were also present at
the relevant time. Although the second defendant has stated that they were not on
good terms with them, from the circumstances of this case it could be gathered that
they had come there with a view to help the defendants. In the notice Ext. P-30 issued
by the defendants nine days after the execution of Exts. P-2 and D-29, the defendants
do not say that the first defendant's brothers were not well disposed towards them.
Only defendant-2 in his evidence says that his uncles were not on good terms. Apart
from this, their own clerks and other customers were in the shop and it is not as if the
defendants had no friends in the locality. The evidence in this case is that defendants'
firm is one of the reputed firms for over 25 years, their business turnover being to the
extent of twenty laks per year. The second defendant himself is an educated man
having studied upto intermediate. It is very difficult to believe the version of the
defendants that under coercion, undue influence, fraud and misrepresentation the two
documents were obtained by them. It is inconceivable that in the situation in which
the defendants were, that they would meekly submit to the plaintiff's dictation. It is
not as if that they had no knowledge of litigation in the Courts. Admittedly number of
suits had been filed by the firm for the recovery of dues earlier. At the relevant point
of time, their Advocate was Mr. Ganesha Rao, who was a very well known senior
Advocate of this Court, who himself had a phone. It is impossible to believe the
version of the defendants that the plaintiff did not allow them to go out, nor allow
them to contact anybody else for nearly six hours. If as stated by the defendants,
under threat of the plaintiff, they executed the documents in question, we find no
reason why the receiver should sit in the shop till late in the midnight by which time it
was reported that the matter had been settled between the parties. Such a long time
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obviously has been taken with a view to find out a solution for the settlement of the
disputes between the parties. It
Page: 272
is urged for the defendants that there was no panchayat and even assuming that there
was a panchayat, the evidence does not disclose that the panchayatdars went into the
real disputes between the parties thoroughly. As could be gathered from the evidence
of P.W. 3, it appears that they never went into the details of the dispute between the
parties, but it could be stated with certainty that they took into consideration the
relevant positions and status of the parties and having due regard to the claim of the
plaintiff, they must have advised the defendant and the defendants must have
voluntarily agreed for that decision.
27. Even otherwise the defendants without reference to any threat or panchayat,
would have agreed to the terms as contained in Exts. P-2 and D-29 for more than one
reason. To repeat, the firm was a very reputed one, the business turnover being in the
order of nearly rupees twenty lakhs per year the outstandings were in the order of
about rupees eight lakhs and admittedly that they had a stock of about rupees two
lakhs and that they were running the business for over 25 years themselves and with
a view to help the plaintiff who was their relative, admitted him as a partner agreeing
to pay four annas share in every rupee of profit. It is no doubt true, it is only such
people get into trouble at the hands of persons whom they brought up and placed
them on sound footing in life. But that is no ground or reason for the defendants to
deny the legitimate claim of the plaintiff to which he is entitled in law. In all
probability in our opinion, in order to avoid their reputation being affected and in order
to get rid of the plaintiff, who proved according to them ungrateful, they must have
agreed voluntarily to pay him Rs. 60,000 in full settlement of the claim in the suit that
he had filed in the District Court and that may be the reason why the two documents
Exts. P-2 and D-29 came to be executed between the parties.
28. If really there was any such threat as stated by the defendants, they would not
have kept quiet immediately after the receiver left the shop. They could have
approached the Court on 14-11-1960 and could have placed all the materials before
the Court. They did not do anything. It is obvious from their own conduct that they felt
happy by getting the dispute settled between them and the plaintiff as contained in
Exts. P-2 and D-29 and kept quiet. It is after the suit of the plaintiff was dismissed, on
21-11-1960, the defendants got issued the notice Ext. D-30 questioning the
settlement. We think they were not properly advised in taking up a stand as stated in
Ext. D-30 and in the written statement. If their first case, namely, that the agreement
was subject to the account being settled between the parties within a week is to be
accepted, the second part of their case that Exts. P-2 and D-29 were obtained under
threat, etc., obviously would be inconsistent and it is impossible to reconcile the two
stands that the defendants have taken.
29. S. 15 of the Indian Contract Act deals with coercion. Lawful process of a Court
such as the appointment of a receiver cannot be construed as coming within the
meaning of S. 15 of the Act. In order that there may be coercion, as is pleaded by the
defendants, the threat must be unlawful and it must be shown that it was effected
with the intention of coercing the other party to enter into an agreement. Undue
influence is defined in S. 16 of the Act. A party pleading undue influence will have to
establish that the opposite party had an influence over him because
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Page: 273
of close relationship, custody or due to other circumstances and by exercising that

influence, he took unfair advantage at his cost. In this case, the relationship between
the parties that existed is one of partners and there is no question that the plaintiff
was in a dominating position and in exercise of that position, he obtained an unfair
advantage. In deciding the question of undue influence as in most other matters, an
overall picture of the case will have to be taken into consideration.
30. An argument was addressed in order to show that while in fact the plaintiff was
only entitled to get Rs. 35,000 and odd, by means of obtaining a warrant, appointing a
receiver for taking over the business and to run the business, the plaintiff obtained an
unfair advantage to the extent of Rs. 25,000. Although the scope of the appeal is not
to examine that aspect of the case, in order to know the real position between the
parties, we heard at length arguments. The learned Counsel for the defendants
brought to our notice that the plaintiffs had left the partnership business on 9-6-1959
and by his own conduct subsequently he ceased to be a partner of the firm. It is not
necessary to go into the details of the various circumstances brought to our notice. It
is no doubt true that he was a working partner of the firm and left the firm on 9-6-
1959. The exact reason is not given by either parties. We get an indication that
misunderstanding appears to have arisen between them and that is the reason why
the plaintiff left the firm. Shortly after that he joined the firm of Sengoda Mudaliar as a
partner and there admittedly got a considerable profit for the year 1959-1960 and
thereafter. The defendants also got another partner in place of the plaintiff and
thereafter carried on the business without, reference to the plaintiff. In these
circumstances, it was contended that the plaintiff was not entitled to any profits of the
firm after 9-6-1959. Here we may refer to Ss. 40, 41, 42 and 43 of the Partnership
Act, which deal with dissolution of partnership in general. Although it was urged that
the partnership came to an end by consent of the parties on 9-6-1959, from the
circumstances mentioned above, it is difficult in the eye of law to hold that the
partnership came to an end on that date. Under Ext. D-2 the partnership deed
between the parties, it is stipulated that partnership could be dissolved by any one of
the parteners giving six months' notice. No such notice has been given in this case.
None of these provisions therefore will come to the aid of the defendants to hold that
the partnership came to an end on 9-6-1959. If that be so and if on 9-6-1959 the
plaintiff was entitled to get Rs. 35,000 and odd to his share and admittedly the
defendants' firm earned an income of about Rs. 53,000 during 1959-1960, it cannot
be said that the plaintiff got an unfair advantage over the defendants. The plaintiff
claimed in his suit Rs. 60,000. Even assuming that he was entitled to get Rs. 35,000
on 9-6-1959, more or less he was entitled to get about Rs. 60,000 on 12-11-1960
inclusive of cost which he incurred to file the suit and without taking into account the
goodwill of the firm. It cannot, therefore, be said that any undue influence was
exercised by the plaintiff. No ingredient of fraud or misrepresentation is made out in
this case.
31. The Counsel for the parties have cited number of decisions in support of their
respective cases. We propose to deal with only such cases which we find to be relevant
to the facts of this case.
Page: 274
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32. As already mentioned earlier the facts set out by the defendants regarding what
took place at the time Exts. P-2 and D-29 came into existence are common to the
cases of coercion, undue-influence, fraud, and misrepresentation. It is the contention
of the defendants that it would be possible to hold that the settlement contained in
Exhibits P-2 and D-29 is vitiated on account of the facts pleaded by them, which
according to them, give rise to all the four grounds under which they plead the
settlement was vitiated. It is needless to say that parties who rely on any such
invalidating circumstances should clearly set out in the pleadings all the facts in
support of their plea. If authority is needed in support of the above proposition, we
may refer to the decision of the Supreme Court in Bishundeo Narain v. Seogeni Rai(1)
in which the Supreme Court observed as follows:
“We turn next to the questions of undue influence and coercion. Now it is to be
observed that these have not been separately pleaded. It is true they may overlap
in part in some cases but they are separate and separable categories in law and
must be separately pleaded.
It is also to be observed that no proper particulars have been furnished. Now if
there is one rule which is better established than any other it is that in cases of
fraud, undue influence and coercion, the parties pleading it must set forth full
particulars and the case can only be decided on the particulars as laid. There can be
no departure from them in evidence. General allegations are insufficient even to
amount to an averment of fraud of which any Court ought to take notice, however
strong the language in which they are couched may be, and the same applies to
undue influence and coercion. See Order 6 Rule 4 CPC.”
33. As already stated the defendants have not separately pleaded the facts relating
to the allegation of coercion, undue influence, fraud and misrepresentation. According
to them, the fact that the plaintiff appeared at the business premises of the
defendants along with the receiver appointed by the Court in O.S. No. 69 of 1960 and
his Advocate, was itself sufficient to establish that the settlement in question was
arrived at on account of the coercion practised by the plaintiff on the defendants. On
the same fact they seek to prove that there was undue influence practised by the
plaintiff on the defendants. The allegation of fraud and misrepresentation are based on
the same fact set out above. Even though the defendants have not adhered to the
strict rule relating to the law of pleadings as required by Or. 6 R. 4 CPC., we propose
to examine the case of the defendants in order to find out whether in law the
allegations made by them have been established. We shall take up the allegation
regarding coercion first. S. 15 of the Indian Contract Act defines the expression
‘coercion’. It reads, ‘coercion’ is the committing or threatening to commit, any act
forbidden by the Penal Code, 1860 or the unlawful detaining, or threatening to detain,
any property, to the prejudice of any person whatever, with the intention of causing
any person to enter into an agreement. In this case it is not made out by the
defendants that the plaintiff either committed or threatened to commit any act
forbidden by the Penal Code, 1860. Nor can it be stated that the presence of the
receiver appointed by the Civil Court with a warrant to take charge of the goods and
the business premises of the defendants as per the receiver
Page: 275
warrant Ext. P-1, would amount to unlawful detention or a threat to unlawfully detain
any property to the prejudice of any person. The receiver was appointed by the Court
in exercise of its powers under Or. 40, R. 1 of the CPC., and when the plaintiff was
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entitled to make an application in order to secure his interests under that provision of
law, it cannot be stated that what the receiver would have done pursuant to the
warrant would have been an unlawful act within the meaning of S. 15 of the Contract
Act had there not been a settlement. The mere fact that the reputation of the
defendants could suffer or that for sometime the receiver appointed by the Court
would take possession of the goods and the premises, cannot amount to coercion and
any settlement or agreement arrived at in such a situation cannot become vitiated.
Reference may be made here to the decision of the Calcutta High Court in Rameshwar
Marwari v. Surendranath Das Sarkar(2) . In that case a bond for recovery of Rs. 7,662-8
-0 was taken from the defendant at a time when there was a case of criminal breach of
trust pending against the defendant at the instance of the plaintiff and that it was the
case of the defendant that the bond was executed because it was stipulated that if it
was so executed the criminal case would be withdrawn. It was contended that the
defendant had executed the said bond not out of his own free will and he did so
because there was a criminal prosecution against him. Dealing with the above
contention, the High Court observed as follows:
“Now these facts, even if established, would not bring the case within S. 15
Contract Act which defines coercion. As regards undue influence the contract would
be vitiated if it has been induced by undue influence where the relations subsisting
between the parties are such that one of the parties is in a position to dominate the
will of the other and uses that position to obtain an unfair advantage over the other.
The relation between a debtor and a creditor is not necessarily one in which the
former is to be taken as being situated in such a position that his will is bound to be
dominated by the latter. It is however urged that there are facts from which this
domination of the will may be justly presumed. We have been referred to certain
circumstances for the purpose of coming to the conclusion that the case comes
within sub-sec. (3) to S. 16 Contract Act. These circumstances are that although
the defendant was only a partner to the extent of ⅓rd share in the business, yet by
the bond he acknowledged a liability to the extent of Rs. 18,000 or Rs. 19,000,
which, it is stated, is much in excess of the amount for which he was really liable. It
has also been stated that the stipulation in the bond for payment of interest on
default of payment of any of the instatements as well as other stipulations with
regard to stock in trade show that the transaction was an unconscionable one……..
The terms of the bond may be considered, to be stringent, but there is no reason to
suppose that the bargain was an unconscionable one. I am therefore of opinion that
it has not been proved that there was any undue influence in consequence of which
the defendant was made to execute this bond.”
34. It is, therefore, clear that the fact that there was a civil case pending against
the defendants for dissolution of the partnership firm and accounts, which admittedly
the plaintiff was entitled to get at the hands
Page: 276
of the Court, would not be a circumstance amounting to coercion in the eye of law.
35. Mere compulsion to enter into an agreement which is the result of process of
law, cannot also be considered as coercion under the Act. Dealing with a case arising
under the Andhra Pradesh Sugar-cane (Regulation of Supply and Purchase), Act (45 of
1961) which required the occupier of a factory to buy the sugar-cane when it was
offered by the sugar-cane grower, this is what the Supreme Court observed in Andhra
Sugars Ltd. v. State of Andhra Pradesh(3) ,
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“Now, under Act No. 45 of 1961 and the Rules framed under it, the cane-grower in
the factory zone is free to make or not to make an offer of sale of cane to the
occupier of the factory. But if he makes an offer, the occupier of the factory is
bound to accept it. The resulting agreement is recorded in writing and is signed by
the parties. The consent of the occupier of the factory to the agreement is not
caused by coercion, undue influence, fraud, misrepresentation or mistake. His
consent is free as defined in S. 14 of the Indian Contract Act though he is obliged
by law to enter into the agreement. The compulsion of law is not coercion as
defined in S. 15 of the Act. In spite of the compulsion, the agreement is neither
void nor voidable. In the eye of the law, the agreement is freely made. The parties
are competent to contract. The agreement is made for a lawful consideration and
with a lawful object and is not void under any provisions of law. The agreements are
enforceable by law and are contracts of sale of sugar-cane as defined in S. 4 of the
Indian Sale of Goods Act.”
36. Sri K.R. Karanth, learned Advocate for the defendants, relied upon the decision
of the Privy Council in Kanhaya Lal v. National Bank of India Ltd.(4) in support of his
case that coercion was practised by the plaintiff within the meaning of S. 15 of the
Contract Act in order to obtain Exts. P-2 and D-29 from the defendants. In that case
the following were the facts; on the 15th August, 1902 the defendant Bank which had
obtained a decree against the Delhi Cotton Mills obtained attachment against certain
other mills at Subzi Mandi and on the 20th August, 1902, took possession of them to
obtain satisfaction for a sum of Rs. 83,805, the balance then unpaid under decree. The
plaintiff contended that he was the sole proprietor of the mills at Subzi Mandi and of
their contents. On thus being ousted from the property, he took the course of paying
under protest the sum claimed. Having thus freed his property from the attachment,
he at once brought a suit claiming a return of the money so paid and damages for the
alleged illegal acts of the defendant. The said case was one which fell under S. 72 of
the Indian Contract Act which dealt with the liability of a person to whom money was
paid by mistake or under coercion. It may be mentioned here that the word ‘coercion’
used in S. 72 of the Indian Contract Act has not the same restricted meaning it has in
S. 15 of the Act. That is clear from a reading of S. 14 of the Act which lays down that
consent is said to be free when it is not caused by coercion as defined in S. 15 of the
Act. It may, therefore, be taken that the definition of the said expression which
appears in S. 15 of the Act is confined for the purpose of examining whether an
agreement has been entered
Page: 277
into with free consent as defined in S. 14 of the Act. It is, therefore, clear that the
above decision of the Privy Council is of no assistance to the defendants. The decision
in Bansraj Das v. Secretary of State(5) is also distinguishable from the present case on
the same grounds. That was a case where a suit was filed for recovery of a certain
amount realised by way of fine by the Government by proceeding against property
jointly belonging both to a father and his son when only the son was liable for the said
fine. The father who paid the amount of line in order to save the joint family property
from sale, was held to be entitled to recover the amount under S. 72 of the Indian
Contract Act. Hence it does not bear on the point. Reliance was placed by Mr. Karanth
on certain decisions of the English Court dealing with cases in which it had been held
that certain agreements were void on account of duress. It may not be safe always to
rely on the English decisions to decide the question whether an agreement is vitiated
on account of coercion under the Indian Contract Act which has been defined under S.
15 of the Act. It is well known that there are some essential points of difference
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between the Indian law and the English law on the above question. We do not,
therefore, propose to deal with the cases of the English Courts. We also find that in the
said decisions, facts found are not the same as the facts which we have before us in
this case.
37. The next question is whether the settlement relied on by the plaintiff is vitiated
on account of undue influence. In Subhas Chandra Dos Mushib v. Ganga Prosad Das
Mushib(6) the Supreme Court has explained the considerations which should weigh
with the Court in finding out whether an agreement is vitiated on account of undue
influence within the meaning of S. 16 of the Indian Contract Act, as follows:
“Under S. 16(1) of the Indian Contract Act a contract is said to be induced by
undue influence where the relations subsisting between the parties are such that
one of the parties is in a position to dominate the will of the other and uses that
position to obtain an unfair advantage over the other. This shows that the Court
trying a case of undue influence must consider two things to start with, namely, (1)
are the relations between the donor and the donee such that the donee is in a
position to dominate the will of the donor and (2) has the donee used that position
to obtain an unfair advantage over the donor?”
38. The expressions ‘donor’ and ‘donee’ are used in the aforesaid decision of the
Supreme Court because they were dealing with a case of gilt. It may however be taken
that what the Supreme Court has staled in the above case applies to all cases of
agreements. The defendants have not made out in this case that the plaintiff was in a
position to dominate the will of the defendants. Except that he had filed a suit for
dissolution of the partnership firm and recovery of his share in the assets of the
partnership firm and that he had got a receiver appointed, he had done nothing else.
There is no noubt, some evidence in this case which proves that the plaintiff stated
that he would withdraw the suit if the defendants paid him Rs. 60,000. Beyond this it
is not shown that the plaintiff did any other tiling. It cannot be said always that a
creditor or a plaintiff is in a position
Page: 278
to dominate the will of a debtor or a defendant. It was open to the defendants in this
case to have sought independent advice. The defendants were business men carrying
on business for nearly 25 years in Bangalore. The talks regarding settlement took
place between 6-00 p.m. and 1-00 a.m. as stated by the defendants themselves, and
in those circumstances, it is very difficult to hold that the plaintiff was able to
dominate over the will of the defendants and he made use of that position to obtain as
unfair advantage over the defendants.
39. Sri Karanth further relied upon a decision of the Privy Council in Maneshah
Baksh Singh v. Shadi Lal(7) to snow that there was undue influence practised by the
plaintiff in this case. We find that the facts obtained in the above decision of the Privy
Council are distinguishable from the facts of the present case. In the case before the
Privy Council the facts were that the defendant, a disqualified proprietor under the
Oudh Land Revenue Act, 1896, had executed a bond dated 27-1-1876 whereby he
agreed to pay within two years to the plaintiff a sum of Rs. 9,950 and compound
interest at the rate of 18 per cent per annum with yearly rests. It was found that there
was practically no consideration paid at the time of the execution of the bond which
was given in renewal of a previous one dated 18-9-1889 the consideration for which
was an advance of Rs. 4,000. It was also established in that case that the defendant
was a person of extravagant habits and when his estate was placed under the Court of
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Wards, at his own instance, in August 1886, his debts were said to have amounted to
seven or eight lakhs of rupees. The bond in suit had been given without the knowledge
or consent of the Court after his estate had been taken over. It was under those
circumstances the Privy Council held that there was undue influence, because they
were satisfied that the borrower had been placed in such a condition of helplessness
that the lender was able to dominate his will and that he used that position to obtain
an unfair advantage over the debtor. As already stated, we are of opinion that in the
present case the defendants have not made out the ingredients which have to be
established to hold that the settlement is vitiated on the ground of undue influence.
40. The contention of the defendants that the settlement was vitiated on the
ground of fraud and misrepresentation, has no basis. It is not established that the
plaintiff entered into me settlement with intent to deceive the defendants. The plaintiff
and the defendants knew their respective rights and obligations. The defendants had
the custody of the account books. No sort of misrepresentation was made by the
plaintiff which induced the defendants to enter into the settlement. In fact there can
be no misrepresentation about a fact which is very well within the knowledge of the
parties. A contract cannot be avoided on the ground of misrepresentation if the party
whose consent was so caused had the means of knowing the truth (vide Exception to
S. 19 of the Contract Act). The Counsel for the defendants did not cite any authority to
show that in the circumstances of the present case, it was possible for the Court to
hold that the case of fraud and misrepresentation had been made out.
41. Such being the case, we know of no consideration consistent with justice or
with common sense which induces us to hold that the agreement
Page: 279
entered into between the parties was vitiated under any one of the circumstances
pleaded by the defendants. For the reasons stated above we disagree with the findings
of the learned Civil Judge; set aside the judgments and decrees in all the four suits,
and allow these appeals.
42. Before concluding it is necessary to refer to one aspect of the case. We have
stated how the plaintiff was brought up by the defendants how they were responsible
for setting him up in life on sound basis. Whatever may be the reason, he parted
company with the defendants and joined his brother-in-law as a partner in a rival
business. His own Income-tax Assessment Order in respect of his income in the other
business for the year 1959-1960 was in the order of Rs. 16,000. On the facts of this
case, the defendants could have made a counter-claim in respect of the profits made
in the rival business under S. 16(2) of the Partnership Act. Whatever may be the
reason, now it is too late for them to make a counter-claim in the profits so earned by
the plaintiff. After the cheque for Rs. 10,000 was dishonoured the plaintiff filed the
first suit, O.S. 90 of 1960 which was after transfer, numbered as O.S. 295/64, for
recovery of that amount and interest accured till then and obtained an order of
attachment before judgment without notice to the defendants on the ground that the
defendants were about to remove the goods in their shop to Salem and that if they did
so, he was not likely to realise the amount from them. Immediately after the notice
went to the defendants, they deposited the entire claim in the suit with costs and
avoided attachment. Within a few days, he filed another suit in which he again took
out an attachment before judgment in which the defendants furnished security and
avoided attachments. Taking into consideration the status and financial position of the
defendants which was known to the plaintiff, it was wrong on his part to have taken
such a drastic step. He did so probably with a view to humiliate them, otherwise there
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was no apparent reason to do so. In view of what has been stated above, we think that
it is just and equitable to hold that the plaintiff shall not get interest in the principal
sum claimed by him in O.S. 295 of 1964 from date of suit.
43. For the reasons stated above, there shall be a decree in O.S. 295 of 1964
against the defendants for Rs. 10,025. As stated above, the plaintiff will not get
current interest on the principal amount. He will get costs in the lower Court, but in
this Court, each party to bear his own costs. He is at liberty to withdraw the sum in
deposit in Court. The defendants have no objection to do so. In O.S. 297/64 there
shall be a decree against the defendants for a sum of Rs. 20,000 with current interest
at 3 per cent per annum from date of suit till today and hereafter at 6 per cent per
annum till payment. The plaintiff will get his costs in the trial Court, but in this Court,
the parties will bear their own costs. In O.S. 268/64 there shall be a decree against
the defendants for a sum of Rs. 23,550 with interest on Rs. 20,000 from the date of
suit till today at 3 per cent per annum and hereafter at 6 per cent per annum till
payment. The plaintiff will get costs in the lower Court, but in this Court, each party to
bear his own costs.
44. In view of the above decision, O.S. 296/64 does not survive and accordingly it
is dismissed and each party to bear costs throughout. At the close of the argument Sri
K.R. Karanth appearing for the defendants prayed that three months time may be
granted to the defendants to pay the decree amount in each of the above cases. Sri
Ramachandra
Page: 280
Rao appearing for the plaintiff said that the question be decided by the Court in
exercise of its discretion. We feel that in the circumstances, it is reasonable to grant
three months time to pay the decree amounts. It is ordered accordingly.
45. It is brought to our notice that an application under S. 95 of the Code of Civil
Procedure by defendants in OS. 295/64 is pending in the lower Court.
46. Both parties state that application may be dismissed. The lower Court is
directed to dismiss the same.
———
1. AIR. 1961 SC. 280.
2. AIR. 1926 Cal. 455.

3. AIR. 1968 SC. 599.
4. ILR. 40 Cal. 598 PC.
5.
AIR. 1939 All. 373.
6. AIR. 1967 SC. 878.
7. ILR. 31 All. 386 PC.
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2018 SCC OnLine Del 12596
In the High Court of Delhi at New Delhi

(BEFORE S. RAVINDRA BHAT AND PRATEEK JALAN, JJ.)
Oswal Woolen Mills Ltd. … Appellant;

Versus
NTPC Vidyut Vyapar Nigam Ltd. … Respondent.
FAO(OS) (COMM) 265/2018, CAV. No. 1058/2018 & CM Nos.
48089-92/2018
Decided on November 20, 2018
Mr. Sanjeev Puri, Sr. Adv. with Mr. Sanjeev Mahajan, Adv.
Mr. Vikas Singh, Sr. Adv. with Mr. Bharat Sangal, Ms. Anindita Deka
and Ms. Srishtee Banerjee, Advs.
S. RAVINDRA BHAT, J. (Oral)
CAV. No. 1058/2018
1. As counsel for the caveator has put in appearance, the caveat
stands discharged.
FAO(OS) (COMM) 265/2018 & CM Nos. 48089-92/2018
2. The appellant impugns the judgment of the learned Single Judge
which partly set aside an award rendered by the Arbitral Tribunal under
the Arbitration and Conciliation Act, 1996 (hereafter referred to as “the
Act”). The contract was entered into by the parties i.e. the appellant
(hereafter referred to as “Oswal”) and the respondent (hereafter
referred to as “NTPC Vidyut”) pursuant to the launching of the Jawahar
Lal Nehru National Solar Mission, which promised to establish India as a
global leader of solar energy. NTPC Vidyut was designated as a nodal
agency by the Central Government (Ministry of New and Renewable
Energy), which issued guidelines for selection of grid connected solar
power projects (hereafter referred to as “MNRE Guidelines”). Para 2.5
(C) which has some bearing on the issue defined what was
“connectivity with the grid” and stated inter alia that “the responsibility
of constructing the transmission line from power plant up to 132/33 kv
substation would be of STU”. NTPC Vidyut issued a request for selection
(RFS) on 18.08.2010, which defined “connectivity with the grid” in a
manner aligned with Clause 2.5(C) of the MNRE Guidelines. It stated
that the “responsibility of constructing the transmission line from the
power plant up to 132/33 kv substation would be of STU”.
3. The dispute arose between the parties on account of the amounts
claimed by the Oswal from NTPC Vidyut, for laying down the
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infrastructure to the delivery point, which it alleged stood altered in the

power purchase agreement, after the LOI was awarded. The claim was
premised upon two important facts i.e. that RFS contained a standard
power purchase agreement (PPA) which defined delivery point, and the
term “interconnection facilities” in a manner that coincided with what
was defined by the guidelines and Clause 1.7 of the RFS. The two terms
“delivery point” and “interconnection facilities” were defined as follows:
““Delivery Point”
shall mean……which is the commercial metering point at STU
pooling station at …….kV [Insert voltage level which is either 33kV or
above]
“Interconnection Facilitites” shall mean the facilities on SPD's side
of the Delivery Point for sending and metering the electrical output
in accordance with this Agreement and which shall include, without
limitation all other Transmission Lines and associated equipments,
transformers, relay and switching equipment and protective devices,
safety equipment and subject to Article 7, the Metering System
required for supply of power as per the terms of this Agreement”
4. The eventual power purchase agreement, was signed after Oswal's
bid was found acceptable. A Letter of Interest (LOI) was issued on
11.12.2010. Oswal furnished a bank guarantee on 06.01.2011 for over
Rs. 9.13 crores. The parties then signed the power purchase agreement
(PPA) on 10.01.2011.
5. The PPA in material terms departed in its definition of delivery
point, from the guidelines, inasmuch as it stated - by Articles 3 and 4
that the successful contractor (called “SPD”) had to make adequate
arrangements to connect the power project switchyard with the
interconnection facilities at the delivery point. Articles 3 & 4 are
reproduced below:
“10. Article 3.1(d) of the draft PPA is reproduced as under:—
“3 ARTICLE 3: CONDITIONS SUBSEQUENT
3.1 Satisfaction of conditions subsequent by the SPD.
xxxxx
d) The SPD shall make adequate arrangements to connect the
Power Project switchyard with the Interconnection Facilities at the
Delivery Point.”
11. Article 4.1.1(d) of the draft PPA further provides as under:—
“4 ARTICLE 4: CONSTRUCTION & DEVELOPMENT OF THE
PROJECT
4.1 SPD's Obligations
4.1.1 The SPD undertakes to be responsible at SPD's own cost
and risk, for:
xxxxxx
-----------------------------------------------------------------------------------------------------------------------------------------------------------
d) connecting the Power Project switchyard with the

Interconnection Facilities at the Delivery Point; and”
6. Sometime in January 2013, after the project was commissioned,
Oswal made claims to the tune of Rs. 1.82 crores and Rs. 4.33 crores,
on two specific heads i.e. reimbursement in its favour of the amount of
bank guarantee which it alleged was wrongly invoked by NTPC Vidyut;
and towards transmission line cost which accrued due to the shifting of
onus of laying of the transmission line upon it. The sum of Rs. 3.02
crores too was claimed towards loss of income on account of
transmission line. NTPC Vidyut in its statement of defence urged inter
alia that a clarification had been issued pursuant to the two prebid
inquiries on 11.09.2010 - which is notified on the public domain, to the
effect that the delivery point would be “the injection point” at which the
generator will deliver the power to STU, the metering shall be done at
this point of injection. All charges and losses up to the point of injection
shall be borne by the solar power developer and after the point of
injection, the demand charges and usage charges, as noted by the STU
from time to time, shall be paid by NTPC Vidyut, even if it was paid by
the SPD which will be recovered from the buying utilities. It was stated
that the SPD shall interconnect to the Pooling Substation of STU or the
STU injection point at its own cost. It was also pointed out that the pre-
bid clarification, however, is not produced during the course of the
proceedings but rather at the time of the hearing. Oswal denied the pre
-bid clarification and contended economic duress elaborating that the
LOI essentially constituted the complete contract between the parties
and that the PPA as far as it departed from the material particulars,
sought to change the foundation of the contract by saddling larger cost
upon it which were to be reimbursed.
7. The Tribunal by its award of 08.07.2015 accepted all Oswal's
contentions and awarded the amounts claimed by it. NTPC Vidyut
thereafter approached the learned Single Judge under Section 34. By
the impugned judgment, the Single Judge reversed the award as far as
the question of damages and reimbursement claims on account of
changing in delivery point was concerned but confirmed the award vis-à
-vis the refund of bank guarantee amount. It is not disputed by the
parties as far as the last issue is concerned (refund of bank guarantee
amount), NTPC Vidyut has preferred an appeal which is pending on the
file of this court.
8. Mr. Sanjeev Puri, learned Senior Counsel made two-fold
submissions on behalf of Oswal: firstly, that the Single Judge ought not
to have relied upon the clarification since it was never produced
appropriately. He reiterated that the LOI constituted the complete
contract and that NTPC Vidyut, by changing the definition after the
contract was accepted, sought to alter the bargain altogether. Since
-----------------------------------------------------------------------------------------------------------------------------------------------------------
according to the PPA, greater onus was placed upon Oswal in terms of
the additional responsibility, the cost therefore, naturally had to be
borne by the STU i.e. NTPC Vidyut. Learned counsel submitted that the
circumstances under which Oswal was made to sign on the PPA clearly
demonstrate economic duress. It was submitted in this regard that the
bank guarantee for Rs. 9.13 crores, had been furnished in accordance
with the RFS, which NTPC Vidyut, was bound to encash had Oswal not
signed on the dotted line. This single circumstance alone constituted
economic duress, which entitled Oswal to disclaim its alleged
responsibility, in the PPA vis-à-vis the extended delivery point and
claim suitable damages in that regard.
9. It was secondly argued that the learned Single Judge in fact did
not deal with the question of economic duress even though the
impugned judgment noted it.
10. This Court is of the opinion that the submissions of Oswal with
respect to the incorrectness of the impugned judgment are
insubstantial. It is a matter of record that the clarification was issued
on 11.09.2010; Oswal submitted its bid on 29.09.2010. It therefore,
had adequate notice of what was meant by the term “delivery point”
and “interconnection facilities”. In fact the LOI also contained the
changed terms as it were, casting responsibility of laying physical
infrastructure up to the point of delivery at the STU, rather than
creating the onus on the STU to make it available at the last point. If
one keeps these circumstances in the background, it would be clear
that Oswal's argument with respect to economic duress is
opportunistic, if one may say so. Having been made aware of the
changed terminology, it had the choice of not entering into the contract
i.e. not signing the PPA but rather than insisting that the changes
departed from the guidelines which - according to it, bound NTPC
Vidyut. Instead it weakly “protested” by a letter and subsequent
representations and chose to accept the contract. Having worked the
contract out completely, it then turned around and claimed
reimbursement on the basis that it was forced to enter into the
contract, the terms of which were not acceptable to it. The argument of
economic duress, was considered by the learned Single Judge having
regard to these facts. The impugned judgment in this regard discusses
the aspect as follows:
“57. As noted above, there was no challenge made by the
respondent to the final PPA. Even after the petitioner as also the
MNRE had referred to the changed definition of ‘Delivery Point’ while
rejecting the representations of the respondent, the respondent did
not challenge the same by invoking Arbitration or otherwise. It
quietly accepted the said position. After having done so, it was not
entitled to challenge the terms of the PPA. The finding of the Arbitral
-----------------------------------------------------------------------------------------------------------------------------------------------------------
Tribunal with regard to economic duress is therefore, not only in the

face of absence of proper pleading to that effect, but also in absence
of any evidence in support of the same being placed on record by the
respondent and cannot be sustained.
58. It is no longer res Integra that a bald plea of fraud, coercion,
duress or undue influence is not enough and the party who sets up
such a plea, must establish the same by placing evidence in this
regard.
Reference:
1. New India Assurance Company Ltd. v. Genus Power
Infrastructure Ltd., (2015) 2 SCC 424;
2. ONGC Mangalore Petrochemicals Ltd. v. ANS Constructions Ltd.,
(2018) 3 SCC 373;
3. Union of India v. Master Construction Company, (2011) 12 SCC
349.
59. In any case, this Court in Classic Motors Ltd. v. Maruti Udyog
Ltd., (1997) 65 DLT 166, relying upon the judgment of North Ocean
Shipping Co. Ltd. v. Hyundai Construction Co. Ltd., (1978) 3 All ER
170, has held that if the party complaining of an unfair contract does
not do anything to avoid it and accepts it, then the complaining
party cannot make a grievance of the contract. The present case
shall clearly fall in this exception.”
11. Earlier the impugned judgment had noticed as follows:
“34. It was only on 11.09.2012 that the respondent invoked the
Arbitration Agreement between the parties by nominating its
Arbitrator.
35. Even in the Statement of Claim filed before the Arbitral
Tribunal, as far as the change of definition of ‘Delivery Point’ and
alleged coercion in execution of the PPA, only the following assertion
can be found:
“11. It was only after receipt of the bid bond that PPA had been
signed and as stated hereinabove Claimant had no other option
but to sign and execute the said PPA. It was surprising for
Claimant to note that the definition of the delivery point had been
changed substantial in the following terms:
xxxxxxxx
“15. Subsequent to the said exchange of communications,
wherein Respondent wrongly and in violation of the RERC Tariff
Order dated 25th May 2010 exerted pressure on to Claimant to
proceed further in the Project. It is stated that Claimant being
under duress, both economical and otherwise had no other choice
but to proceed with project. By this time, Respondent had already
taken delivery of PBGs worth 9,13,15,000 from Claimant.”
-----------------------------------------------------------------------------------------------------------------------------------------------------------
xxxxxxx
“22. Since as stated herein above. Claimant was under the
duress it had no other option but to accept the arbitrariness of
Respondent and utilized all its resources in order to meet its
obligations under the PPA.”
12. This Court is of the opinion that on both the grounds urged, the
learned Single Judge cannot be faulted for setting aside the award. It is
now too far well established that though the remit of the Court under
Section 34 of the Act is limited, yet it extends to interdicting an award
which plainly travels beyond the terms of a contract between the
parties [referred under Section 28(3) and Section 34(2) of the Act]. In
the present case, the ambiguous nature of the “protest”, if weighed
against the fact that the appellant/Oswal proceeded to sign the PPA and
performed its obligations under it, in the opinion of this Court,
precluded it from urging that it was a victim of economic duress. The
learned Single Judge's findings therefore, are neither unreasonable nor
contrary to the terms of the contract or beyond the pleadings.
13. This appeal being unmerited is therefore, dismissed. Pending
applications also stand dismissed.
———
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2018 SCC OnLine Del 13264 : (2019) 173 DRJ 717 (DB)
In the High Court of Delhi at New Delhi

(BEFORE SANJIV KHANNA AND ANUP JAIRAM BHAMBHANI, JJ.)
TGV Projects & Investments Pvt. Ltd. … Appellant;

Versus
National Highways Authority of India …
Respondent.
FAO(OS) (COMM) No. 244/2018
Decided on December 11, 2018
Advocates who appeared in this case:
Mr. Abhishek Pratap Singh, Adv.
Mr. Saurabh Banerjee, Adv.
ANUP JAIRAM BHAMBHANI, J. (Oral):—
CM No. 44916/2018 (for exemption)
1. Allowed, subject to all just exceptions. Application stands
disposed of.
CM No. 44917/2018 (for delay of 31 days in filing of appeal)
2. This application is not opposed. Accordingly, it is allowed.
Application stands disposed of.
CM No. 44918/2018 (for delay of 7 days in re-filing of appeal)
3. This application is not opposed. Accordingly, it is allowed.
Application stands disposed of.
FAO(OS) (COMM) No. 244/2018
4. This is an appeal under Section 37 of the Arbitration and
Conciliation Act, 1996 (hereinafter the “A&C Act”) read with Section 13
of the Commercial Courts Act, 2015 challenging judgment dated 24th
May, 2018 rendered by the learned Single Judge of this Court in OMP
(Comm) No. 445/2017, which was a proceeding under Section 34 of
the A&C Act impugning arbitral award dated 17th August, 2017. The
Impugned Judgment dismisses objections filed by the appellant to
arbitral award dated 17th August 2017 rendered by a Tribunal
comprising three learned Arbitrators, with one of the Arbitrators
rendering a dissenting award.
5. The basis of the disputes between the parties was a contract
agreement dated 31st July, 2015 (hereinafter the “Agreement’) entered
into between the appellant (M/s. TGV Projects & Investments Pvt. Ltd.)
and the respondent (National Highways Authority of India) whereby the
appellant was granted the right to collect toll or “user fee” on the
-----------------------------------------------------------------------------------------------------------------------------------------------------------
Vempada Toll Plaza along the Ankapalli-Tuni stretch of National

Highway No. 5 for a certain period of time. In consideration of the grant
of right to collect toll, the appellant was required to make to the
respondent a weekly payment.
6. The appellant's claim was predicated entirely on excessive rains in
certain parts of Southern India, in particular in Chennai, the Southern
part of Andhra Pradesh and Pondicherry during November-December,
2015. It was the appellant's contention before the Arbitral Tribunal that
by reason of heavy rains, there was inundation leading to 30 to 40 per
cent reduction in traffic on the stretch of road over which the appellant
had the right to collect toll. In these circumstances, the appellant made
a claim on the following three major counts:
a. Loss on account of force majeure leading to 30-40% loss of traffic
for the period 11th November, 2015 to 10th December, 2015. This
claim was in the sum of Rs. 83,51,425/-;
b. Reimbursement for toll maintenance charges for the period 11th
November, 2015 to 10th December, 2015 at the rate of Rs.
75,000/- per day for 30 days. This claim was in the sum of Rs.
22,50,000/-;
c. Penalty claimed under Clause 19 of the Agreement at 0.2% per
day for the first month of delay, in the sum of Rs. 6,36,086/-; and
at 0.5% per day for the period beyond one month, in the sum of
Rs. 2,34,82,044/-.
7. As per the appellant/claimant, the period during which the alleged
force majeure prevailed was 6th November, 2015 to 26th November,
2015.
8. On the basis of the claims made, two learned members of the
Arbitral Tribunal rendered an award allowing the following claims in
favour of the appellant:
(a) A sum of Rs. 83,51,425/- towards the claim on account of force
majeure;
(b) A sum of Rs. 6,36,086/- and Rs. 2,34,82,044/- towards the
claim for penalty under Clause 19 of the Agreement thereby
awarding an aggregate sum of Rs. 3,24,69,554/- against the
claims made. The majority of the Arbitral Tribunal however
declined to grant the claim towards toll maintenance charges,
which had been claimed in the sum of Rs. 22,50,000/-.
9. The claim towards force majeure was awarded by the majority of
the Arbitral Tribunal for reasons as contained in the following extracts
of the Award:
“……. That the submission put forth by the Claimant is that it is
entitled for the benefit of Force Majeure clause due to the climate
conditions of the states which are almost 700 to 1400 kms away.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
Hence the submission of the Claimant is not only devoid of merit but
also without any substance.
(extracted from para 8 of the Award)
“…… That the Claimant submitted its claim vide letter dated
04.12.2015 (Annexure C-4). Thereafter, the Claimant vide its letter
dated 28.12.2015, Annexure C-5, submitted the loss of toll due to
reduction of traffic. That the Respondent did not dispute the
Claimant's claim within the period specified therein, i.e. in Clause 25
(c)(2) of the Agreement. That the Respondent asked for
documentary evidence regarding Force Majeure event along with
Server report in support of the claim vide its letter at Annexure C-6
dated 29.12.2015. Thereby the Respondent is not empowered to
dispute the Claimant's claim. No doubt the distance of the various
parts through which the concerned highway passes cannot be
questioned, AT considers, it may not be possible at this juncture to
evaluate reduction in traffic due to the floods and rains that occurred
at various relevant places. However, question arises when the
Claimant informed/put to notice the Respondent on 4th December,
2015 vide Annexure C-4, the damage caused by the floods and
rains, why no response/objection was taken at that material time by
the Respondent. The Respondent took more than 4 months to reject
the claim. In fact Clause 25(c)(i)(2) mandates that the party
receiving the claim under Force Majeure shall, if wishes to dispute
the claim, give a written notice of the dispute to the party
making the claim within 30 days of receiving the notice of
claim. AT finds that the Respondent failed in this mandatory
contractual requirement. AT has also noted that even while rejecting
the claim after more than 4 months of Claimant's notice, Respondent
failed to give any reasons. Thus, the AT has no reason to question
the contemporaneous record filed by the Claimant and not objected
to by the Respondent.
(emphasis are as contained in the Award)
“….. Hence this evidence, AT holds, cannot be objected to at this
stage, when for such objection clause 25(c)(i)(2) specifically lays
down 30 days for the party raising an objection. In any case as per
Section 19 of the Arbitration and Conciliation Act, 1996 the Arbitral
Tribunal is not bound by the Indian Evidence Act.”
10. As is clear from a perusal of the purported reasoning given by
majority of Arbitrators, they considered the claimant's submission that
it was entitled to force majeure benefit as being devoid of merit since
the conditions that were prevailing, namely heavy rains, were almost
700 to 1400 km. away from the location of the Toll Plaza and from the
-----------------------------------------------------------------------------------------------------------------------------------------------------------
stretch of road under contract to the claimant. However, the majority of

the Tribunal proceeded to yet award the amount claimed under force
majeure on a strict application of clause 25(c)(i)(2) [incorrectly
mentioned in the Award as clause 25(c)(ii)] of the Agreement, namely
that the respondent had failed to dispute the force majeure claim made
by the claimant vide letters dated 4th December, 2015 and 28th
December, 2015 within the period stipulated in Clause 25(c)(i)(2) of
the Agreement. The majority of the Tribunal therefore concluded, that
having failed to dispute the claim towards force majeure within the
period stipulated in the agreement, the respondent was not empowered
to later dispute the same; and further that respondent no. 1 having
also failed to give any reasons to reject the force majeure claim, could
not later object to this claim. It was on this purported reasoning that
the claim of force majeure was allowed.
11. Granting the claim for penalty under Clause 19 of the
Agreement, the majority of the Arbitral Tribunal proceeded to give the
following purported reasons:
“16. The Claimant has further claimed interest as penalty
chargeable to Respondent in terms of Clause 19 of the contract as
under:
(i) @ 0.2 percent per day for initial delay of one month Rs.
6,36,086/-.
(ii) @ 0.5 percent per day for further delay beyond one month Rs.
2,34,82,044/-.
The details thereof are given in Annexure C-16. The Respondent
has made no observation on the same. AT allows payment of Rs.
6,36,086/- and Rs. 2,34,82,044/- as claimed by the Claimant in
Annexure C-16.”
12. As stated above, while two learned Arbitrators allowed the
claims towards force majeure and penalty, one learned Arbitrator
recorded a dissenting note rejecting all claims made.
13. At this point, it will be useful to extract the clauses of the
agreement relating to force majeure and penalty that are relevant for a
decision in the matter, for ease of reference:
Clause 25(b) (ii)
“(ii) Floods/Earthquake having materially adverse impact i.e.
compete blockade of road.”
Clause 25(c)(i) (2)
“(2) The Party receiving the claim for relief under Force Majeure
shall, if wishes to dispute the claim, give a written notice of the
dispute to the Party making the claim within 30 days of receiving
the notice of claim.”
Clause 25(c)(ii)(5)
-----------------------------------------------------------------------------------------------------------------------------------------------------------
“(5) The relief under force Majeure will be calculated on the

basis of average collection per day, arrived based on the agreed
weekly remittance. The difference in collection per day during
force majeure and average amount of collection per day, arrived
based on the agreed weekly remittance multiplied by number of
days of force majeure will be payable to the contractor.”
Clause 25(c)(iii)
“(iii) TERMINATION DUE TO FORCE MAJEURE:
If any event of Force Majeure shall continuously impede or
prevent a Party's performance for longer than 60 days from the date
of commencement of such Force Majeure event, the parties shall
decide through mutual consultation, either the terms upon which to
continue the performance of this Contract or to terminate this
Contract by mutual consent. If the parties are unable to agree on
such terms or to terminate the Contract by mutual consent within 90
days from the date of commencement of such Force Majeure event,
either Party may issue a Notice to terminate this Contract.”
Clause 25(b)(vii)
“(vii) Suspension of traffic on the said section of National
Highway/said bridge or any part thereof, exceeding 15 (fifteen)
days at a stretch.”
Clause 25(b)(viii)
“(viii) Any event or circumstances of a nature analogous to the
foregoing.”
“19. PENALTY FOR FAILURE TO PAY INSTALMENTS:
(i) In case of delay in remittance of the agreed amount of any
installment due under this Contract to the Authority beyond
the fixed day (as per clause 8, of SECTION - II), the Authority
shall levy penalty @ 0.2% per day for initial one month delay
and @0.5% per day for further delay beyond one month. Such
right would, inter-alia, include unconditional right of the
Authority to terminate the Contract forthwith, without
assigning any reasons whatsoever and take over possession of
the User Fee Plaza(s) for User Fee collection in any manner the
Authority may deem fit. The penalty so levied shall be
recovered from the performance guarantee which shall be
replenished by the contractor within 10 days from the date of
such recovery failing which the contract is liable to be
terminated.
(ii) For avoidance of doubt, if more than one remittance are
delayed and the contractor deposits a lumpsum amount, this
will be adjusted following First-in-First-out (FIFO) approach,
i.e., the earliest installment due shall be first adjusted along-
-----------------------------------------------------------------------------------------------------------------------------------------------------------
with the applicable penal interest on the earliest remittance on

that date and in similar manner the other remittances shall be
adjusted. No further interest shall be applicable on the penal
interest component. The penal interest shall be simple i.e. shall
not be compounded.
(iii) (a) If the remittances outstanding including penal interest, if
any, on ending of the contract is less than the cash
performance security, then such amount shall be recovered
from cash performance security, accounts will be settled and
balance securities will be released and penal interest shall be
levied only upto end date of contract. In case of contractor has
not deposited the remittance of last week on ending of contract
period which is also to be adjusted from the cash performance
security, then an additional penal interest @0.2% per day for 7
days on the last week remittance shall also be levied.
(b) If the remittances outstanding including penal interest, if any,
on ending of the contract are more than the cash performance
security, then the dues to the extent of cash performance
security will be adjusted as provided at Para-(iii)(a) above,
following FIFO approach given at Para-(ii) above and the
balance including penal interest shall be deposited by the
contractor. For avoidance of doubt, it is clarified that the penal
interest will be applicable only on the balance remittances and
the penal interest will continue till payment of dues by the
contractor.”
14. In making the Award, the Arbitral Tribunal also considered the
following communications exchanged between the parties whereby
claims were raised, documentation in support of the claims was
supplied and claims made were rejected, which documents are being
recorded here only for sake of completeness:
(a) Claimant's letter dated 4th December, 2015;
(b) Claimant's letter dated 28th December, 2015;
(c) Respondent's letter dated 29th December, 2015;
(d) Claimant's reply dated 29th December, 2015; and
(e) Respondent's letter dated 18th April, 2016, finally rejecting the
claims made.
15. Upon a conspectus of the foregoing aspects, the following
undisputed position emerges:
(a) During the period November-December, 2015 heavy rains had
affected Chennai, Southern parts of Andhra Pradesh and
Pondicherry;
(b) Admittedly, no flooding had occurred on the section of the road
for which the claimant had been granted the right to collect toll
-----------------------------------------------------------------------------------------------------------------------------------------------------------
under the Agreement;

(c) The distance between the claimant's toll plaza and the places
where the claimant said flood conditions prevailed were as under:
Nellore - distance from Toll Plaza was 552 km.;
Chennai - distance from Toll Plaza was 725 km.;
Pondicherry - distance from Toll Plaza was 882 km.; and
Andhra Pradesh - distance from Toll Plaza was 422 km.
(d) It is also evident from a perusal of the claim for penalty and the
majority decision awarding penalty that even the amount on
which the percentage penalty has been computed is nowhere to
be found.
16. The claim for force majeure was permitted under Clause 25(b)
(ii), namely force majeure event arising from “Floods/Earthquake
having materially adverse impact i.e. compete blockade of road”.
Considering the vast distance between the places that were affected by
heavy rains/flooding and the location of the appellant's toll plaza, and
considering the admitted position that there was no flood resulting in
complete blockade of road in and around the toll plaza, it is impossible
to conclude that the heavy rains/flooding in those distant locations was
the cause for reduction in traffic at the appellant's toll plaza.
17. While Clause 25(b)(ii) of the Agreement was the only basis of
the force majeure claim as pleaded in the Statement of Claim,
subsequently in the course of proceedings before the Arbitral Tribunal
the claimant also cited clause 25(b)(vii), namely suspension of traffic
exceeding 15 days at a stretch on the road section that was subject
matter of the agreement.
18. Thereafter, in the proceeding under Section 34 of the A&C Act
before the Single Judge, as a defence to the objections raised by the
respondent, the appellant also cited clause 25(b)(viii), namely an event
or circumstances of a nature analogous to the other events or
circumstances enumerated in clause 25(b) of the Agreement. It bears
mentioning that the appellant had not placed reliance upon clause 25
(b)(viii) in its statement of claim nor had this clause been relied upon
by the majority of the Arbitral Tribunal in allowing the force majeure
claim.
19. In our opinion, considering the vast distance between the places
affected due to heavy rains/flooding and the location of the appellant's
toll plaza, clause 25(b)(ii) would have no application. This clause would
not apply since, even by the appellant's own reckoning, there was no
complete blockade of road and the claim was of 30 to 40% reduction in
traffic.
20. Furthermore, clause 25(b)(vii) which contemplates suspension
of traffic exceeding 15 days at a stretch on the road section that was
-----------------------------------------------------------------------------------------------------------------------------------------------------------
subject matter of the agreement, would also not apply for the reason
that the force majeure claim relates only to the period from 16th
November, 2015 to 26th November, 2015 i.e. a period less than 15
days.
21. Even the afterthought of applying clause 25(b)(viii), namely an
event or circumstances of nature analogous to the other events or
circumstances enumerated in clause 25(b) would necessarily have to
take its colour and meaning from the other events contemplated in the
clause. A significant aspect of all other events and circumstances
contemplated in the provision is that they result in complete blockade
of traffic on the section of the road for which the appellant is entitled to
collect toll. But at the risk of repetition, it is not even the appellant's
own case that there was complete blockade of traffic on the subject
section of the road but only that there was a significant drop in traffic.
22. The term ‘analogous’ is understood, in common parlance as also
in law, to mean that there is resemblance, proportion or
correspondence of one thing with another. In law, we also understand
‘analogous’ in the sense of the phrase ejusdem generis or ‘of the same
kind’. In the present case, the term ‘analogous’ would therefore be
applicable to events and circumstances that, though not specifically
mentioned in the other provisions of the clause, are akin to or of the
same kind as those referred to in such other provisions.
23. On the aspect of force majeure, a brief reference to the true
nature of force majeure may not be out of place. In its recent judgment
titled Energy Watchdog v. CERC reported as (2017) 14 SCC 80, on a
conspectus of earlier rulings, the Supreme Court explains that force
majeure would arise under the Contract Act, 1872, either under Section
32 thereof if it is relatable to an express or implied clause in the
contract; or under Section 56 insofar as events occurring dehors the
contract are concerned. If unforeseen events occur during the
performance of the contract making it impossible of performance, in the
sense that the fundamental basis of the contract goes, then such
contract need not be performed since in such circumstances insisting
upon performance would be unjust (citing Taylor v. Caldwell (1861-73)
All ER 24).
24. Furthermore, the Supreme Court cites Edwinton Commercial
Corporation v. Tsavliris Russ (Worldwide Salvage and Towage) Ltd. (The
Sea Angel) (2007) 2 Lloyd's Rep 517 (CA) to say that the doctrine of
frustration of contract is not to be lightly invoked; that mere incidence
of expense or delay or onerousness is not sufficient; and that there has
to be, as it were, a break in identity between the contract and in its
performance in the new circumstances, for such doctrine to be
applicable.
25. In the present case since force majeure had been contractually
-----------------------------------------------------------------------------------------------------------------------------------------------------------
defined, it was necessary to proceed only on the basis of such

contractual definition and not to travel beyond what the parties had
agreed would amount to force majeure.
26. In our view, in the facts of the present case, circumstances
warranting invocation of force majeure do not at all arise. In any event,
considering the distance between the appellant's toll plaza and the
places affected by heavy rains and floods, to invoke force majeure
would be to grossly over-stretch the concept, since even assuming
there was some drop in traffic by reason of the natural calamity in a
distant place, one is unable to discern a cause-and-effect nexus
between the calamity and the drop in traffic. At best, the force majeure
event was too remote. If events as remote as the ones in the present
case are accepted as basis for a force majeure claim, then surely
excessive rains and flooding in parts of Southern India must also,
indirectly and consequentially, have affected trade and commerce
throughout the country in some way. In our view however, such
indirect or consequential impact on trade and commerce cannot justify
a force majeure claim. We may also add that nothing was cited or
brought before the Arbitral Tribunal to show that the natural calamity in
remote locations was the only reason for drop in the volume of traffic at
the appellant's toll plaza.
27. By relying upon a purely procedural provision of the agreement,
namely the provision that required the respondent to dispute a force
majeure claim within the time period provided in the contract, the
majority of the Arbitral Tribunal held, in effect, that default in disputing
the force majeure claim within such time period ipso facto would
amount to admission of such claim. We are afraid, we cannot subscribe
to this view, since mere omission to respond can never amount to
admission of a claim; and a mere procedural provision cannot be
construed in a way as to create a substantive right in the appellant to
receive damages. It is pertinent to mention here that the respondent
did, on point of fact, dispute the force majeure claim made by the
appellant by respondent's communication dated 18th April 2016, albeit
beyond the 30-day period stipulated in clause 25(c)(i)(2) of the
agreement.
28. So far as the claim for penalty under Clause 19 is concerned, we
are at a complete loss to understand as to how the provisions of Clause
19 would at all be available to the claimant, who was the contractor
liable to pay the weekly amount to the respondent. A perusal of Clause
19 of the agreement shows that the provision relates to penalty for the
failure on the part of the contractor/concessionaire to pay to the NHAI
the weekly amount in consideration for the grant of the permission to
collect toll. This penalty is meant to compensate for the delay in
remittance of the weekly amount payable by the contractor to the
-----------------------------------------------------------------------------------------------------------------------------------------------------------
NHAI, on which weekly amount a percentage penalty is leviable for the

delay in payment. No matter how much one bends or contorts Clause
19, the provision applies only to a situation when the appellant defaults
in paying the weekly amounts to the respondent; and the clause cannot
be applied in the reverse order as has been done in the majority Award.
29. In fact this Court is at a loss to find even the sum on which the
penalty of 0.2% per day for the first month and 0.5% per day for the
subsequent months is required to be applied to reach the sum claimed
and awarded.
30. In light of the above discussion, we are in complete agreement
with the Single Judge when by the impugned judgment, he holds that
the majority Award runs contrary to the contract and falls within the
scope of Section 34(2)(b)(ii) of the A&C Act, apart from being ex facie
perverse and failing the test of reasonableness.
31. Accordingly, we find no infirmity in the impugned judgment
which has correctly set-aside the majority Award dated 17th August,
2017.
32. We find no merit in the present appeal which is accordingly
dismissed, without however, any order as to costs.
———
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SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.

2019 SCC OnLine Mad 34196

In the High Court of Madras

PTC India Ltd. … Petitioner;

and relied upon the following judgments:

enforceable only if the contingency happens (paragraph 33 of the Award). Therefore, it

1970 SCC OnLine Kar 158 : (1971) 1 Mys LJ 258

In the High Court of Mysore

A. Palaniappa Mudaliar … Appellant;

to execute the warrant, it appears, some panchayatdars intervened. On their advice

evidence the settlement.

By cash Rs. 5,000-00

Sd/. P.T. Kandaswami Mudaliar

25. As is well known an agreement to settle a dispute amicably would not be

of close relationship, custody or due to other circumstances and by exercising that

2. AIR. 1926 Cal. 455.

2018 SCC OnLine Del 12596

In the High Court of Delhi at New Delhi

Oswal Woolen Mills Ltd. … Appellant;

infrastructure to the delivery point, which it alleged stood altered in the

d) connecting the Power Project switchyard with the

Tribunal with regard to economic duress is therefore, not only in the

In the High Court of Delhi at New Delhi

TGV Projects & Investments Pvt. Ltd. … Appellant;

Vempada Toll Plaza along the Ankapalli-Tuni stretch of National

stretch of road under contract to the claimant. However, the majority of

“(5) The relief under force Majeure will be calculated on the

with the applicable penal interest on the earliest remittance on

under the Agreement;

defined, it was necessary to proceed only on the basis of such

NHAI, on which weekly amount a percentage penalty is leviable for the

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