OMP No. 402 of 2005 Page 1 of 25
IN THE HIGH COURT OF DELHI AT NEW DELHI
O.M.P. No. 402/2005
Reserved on: February 10, 2012
Decision on: March 5, 2012
ALFA LAVAL (INDIA) LTD. ..... Petitioner
Through: Mr. V.P. Singh and Mr. D.S. Narula, Senior
Advocates with Mr. S. Vaidyaligam and
Mr. A.S. Narula, Advocates.
versus
J.K. PAPER LIMITED & ORS. ..... Respondents
Through: Mr. Parag P. Tripathi, Senior Advocate with
Mr. Shadan Farasat, Mr. A. Ganguli,
Mr. A.T. Patra, Mr. Ramesh, Advocates.
CORAM: JUSTICE S. MURALIDHAR
JUDGMENT
05.03.2012
1. The challenge in this petition under Section 34 of the Arbitration and
Conciliation act 1996 (‘Act’) by the Petitioner Alfa Laval (India) Limited
(‘ALIL’) is to an Award dated 11th August 2005 passed by the Arbitral
Tribunal (‘Tribunal’) holding that ALIL will pay the Respondent J.K. Paper
Limited (‘JK’) [formerly known as JK Corporation Limited] a sum of Rs.
1,71,09,439/- within six months from the date of receipt of the Award with
interest @ 7% per annum on the unpaid part of the said amount, if any, from
the date of the Award till the date of actual payment.
Background facts
2. ALIL is a subsidiary of Alfa Laval AB, a multinational corporation
headquartered in Sweden which deals, inter alia, in planning, engineering,
manufacturing and commissioning of machines for Black Liquor Evaporator
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Plants. ALIL states that since 1968 it has had a technical tie-up with APV
Anhydro of Denmark for technical knowhow of ‘falling film evaporation
plants’. It claims to have executed more than 200 dryer and evaporator
projects in various industries in India.
3. JK is a company registered under the Companies Act, 1956 and has a
paper mill at Rayagada in Orissa. The paper mill consists of a pulping
section and a chemical recovery section. JK was desirous of obtaining a
superior technology evaporator plant to process 600 Tons Per Day (‘TPD’)
of black liquor solids producing concentrated black liquor with 65% of total
solids (‘TS’). In 1995 JK engaged the services of the SPB Projects and
Consultancy Limited (‘the Consultant’) for detailed engineering and
evaluation of the expansion of JK’s paper mill at Rayagada in Orissa. It was
stated that an integral part of the whole expansion project was a ‘Tubular
Falling Film Black Liquor Evaporation Plant’ in the recovery section of
JK’s paper mill. It was stated that the Consultant floated an enquiry and
short listed ALIL as well as three other companies, Enmas, Larsen &
Toubro Limited and Pass Engineering Limited. After evaluating the
technical specifications and expertise in the field, the Consultant shortlisted
ALIL. It was further stated that during the meeting thereafter held between
ALIL and JK, the drawings, design specifications and other technical details
of the plant in line with the requirements of JK were discussed at length,
cross-compared with those of the other bidders and approved by JK. At the
meeting held on 6th July 1995 between the representatives of JK, ALIL and
APV Anhydro, JK specified that the plant is to be designed on the basis of
feed (furnish) of 40% hardwood and 60% bamboo. On 27th November 1995
ALIL confirmed that the basis of design of the said plant would be based on
liquor characteristics from a furnish of 40% mixed hardwood and 60%
bamboo coming out of Kraft pulping process.
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4. On 19th January 1996 ALIL and JK entered into a contract for supply,
erection and commissioning of seven bodies with one standby falling black
liquor evaporation plant at a contract price of Rs. 10,09,07,000/-, inclusive
of all taxes, duties etc. It was to be a 120 TPH evaporator plant with a
production capacity guarantee to process 600 TPD Black Liquor solids with
product liquor concentration of 65% TS. In terms of the contract ALIL
furnished to JK three Performance Guarantees (‘PGs’) in the sum of Rs.
1,01,36,050. In terms of Clause 13 of the said contract, the limit of damages
was fixed at 10% of the value of the contract.
5. According to ALIL, the plant was supplied and erected in terms of the
approved drawings in June 1997 and made ready for commissioning by 15th
July 1997. It is claimed by ALIL that the plant was thoroughly inspected and
found to be as per the approved design and description. According to ALIL,
the said plant was run in August 1997 and made ready for continuous trial
runs. According to the ALIL, JK expressed that continuous trial runs at
100% capacity and 65% concentration would be possible only after two and
a half to three months. ALIL claimed that the said plant was run at 65%
concentration intermittently for 3 to 10 hours for five days. It was stated that
on being satisfied with the performance and its capabilities, JK took over the
plant for regular operation and maintenance on 13th November 1997. By a
letter dated 8th December 1997 addressed to ALIL, JK admitted that they
were producing product black liquor of 65% solids concentration from the
said plant for their new recovery boiler trial run. It is stated by ALIL that JK
also admitted that the new recovery boiler was commissioned in April 1998.
6. On 10th January 1998 JK wrote to ALIL stating that the full load
performance trial of the evaporation plant would be conducted “after
rectification of all process and mechanical problems” including “nitric acid
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cleaning, Auma actuated valve problems in standby body changing”, low
temperature of product liquor, trimming of impeller of Akay pumps etc.
Another letter was sent by JK to ALIL on 9th July 1998 stating that they
would like to carry out full load performance trial of the evaporator plant
and further that the “AUMA actuator main steam valve problem may please
be got attended prior to above performance trial as this job is pending since
long.” By a further letter dated 23rd July 1998 JK requested ALIL to depute
the concerned engineer for carrying out the full load performance trial from
27th July 1998. According to ALIL, between November 1997 and July 1998
JK had run the plant without proper support and without proper cleaning of
calendrias.
7. As noted by the Tribunal in para 6 of the impugned Award, and from the
charts submitted to this Court during the hearing, it is seen that in the
pulping section ‘wood and bamboo chips’ are mixed with ‘white liquor’ and
fed into a ‘digester’. The resultant product is subject to filtration. At this
stage the pulp is taken out and the by-product which is ‘weak black liquor’
(‘WBL’) with 15-17% solids at 70-77 degree Celsius is fed into the
evaporator plant. The resultant concentrated black liquor consisting of 65%
TS @ 102 degree Celsius is fed to the recovery boiler. There it is processed
with organic chemicals, burnt and then sent for a weak wash with hot water
which results in ‘green liquor.’ This then fed back into the ‘pulping section’.
The evaporator plant is, therefore, an integral part of the total chemical
recovery process of the paper mill. The performance as well as the operation
of the plant depends on the upstream process like ‘pulp mill’ and downstream
process which comprises the feed going into the recovery boiler. The
plant is designed as a seven effect falling film tubular evaporator. However,
there are eight bodies as the first body is equipped as a stand-by effect.
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8. According to ALIL, JK insisted that one set of impellers should be
trimmed before the performance test could be carried out. According to
ALIL although JK was assured that the said job would be taken care of
during the full load performance trials, JK threatened to encash the bank
guarantee of Rs. 1,01,36,050. ALIL was therefore constrained to trim the
impellers in October 1998. According to ALIL, even then JK did not release
to ALIL the balance outstanding payment of Rs. 20,15,465 towards the cost
of the plant. ALIL stated that it could not undertake the performance test
between December 1998 and March 1999 since the paper mill at Rayagada
in Orissa was under a lockout. Thereafter JK, without first cleaning the
plant, operated the same. According to ALIL, during the warranty period for
defects liability, i.e., 12 months from the date of commissioning or 18
months from the date of last despatch, whichever is earlier, there was no
complaint received by it from JK of any major defects requiring replacement
including the first tubular body and its standby.
9. ALIL stated that after the mill reopened in March 1999, repeated efforts
were made by ALIL to get the said plant ready for performance tests. But
this was met with stiff resistance by JK on one ground or the other.
According to ALIL, the performance test conducted in September/October
1999 revealed deviations made by JK against the design relating to feed
temperature, pulping raw material etc.
10. ALIL stated that it received a letter dated 13th November 1999 from its
Bank informing it that JK had invoked bank guarantees totalling Rs.
1,01,36,050/-. ALIL filed a petition under Section 9 of the Act in this Court
to restrain JK from encashing the bank guarantees. The said petition was
rejected. Even before ALIL’s appeal against the order could be heard before
the Division Bench, JK encashed the bank guarantees. Thereafter, the
OMP No. 402 of 2005 Page 6 of 25
disputes were referred to arbitration. The two learned arbitrators nominated
by each party appointed the presiding Arbitrator.
Arbitral Proceedings
11. ALIL filed a statement of claim, inter alia, claiming that JK should pay
it (i) a sum of Rs. 1,01,36,050/- with further interest on Rs. 1,07,44,213/ @
24% per annum from the date of filing of the statement of claims till its
realization (ii) a sum of Rs. 23,33,816/- together with interest @ 24% per
annum from the date of filing of the statement of claim till the date of
payment and (iii) a sum of Rs. 13,70,439/- together with interest @ 24% per
annum from the date of filing of the statement of claims till realization as
well costs of arbitration.
12. In its reply before the Tribunal, JK stated that an additional guarantee
had been provided by ALIL that in case 65% TS output concentration of
liquor was not achieved, ‘ALIL shall replace, free of cost, the first tubular
body and its standby with plate type and the modifications and for
replacement on this account shall be done by ALIL at no cost to the
company.’ JK pointed out that the performance guarantee was extended
thrice, i.e., first upto 28th February 1999, next upto 22nd August 1999 and
finally upto 22nd February 2000. JK denied that ALIL had successfully
erected the plant. According to JK, although the work for commissioning of
the plant was commenced in August 1997, the plant could not achieve the
parameters. It was denied that the hardware related problems could have
been attended to by JK itself. JK denied that it was not ready for
performance trial of the plant. It maintained that ALIL had failed to conduct
the full load performance trial of the evaporator plant. ALIL was also
alleged not to have extended the period of bank guarantee in the sum of Rs.
20,90,700 resulting in JK not remitting payments to ALIL. It was stated that
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although there was a lock out between December 1998 and first week of
March 1999 ALIL was not on that account prevented from conducting a full
load performance trial run. JK maintained that in March 1999 ALIL
requested JK to fabricate modified distribution plates for Calendrias I and II
with increased hole diameter which was the responsibility of ALIL but was
shifted to JK. It was alleged that the details supplied by ALIL for fabrication
of distribution plates were also not correct and were subsequently corrected
by a fax dated 1st April 1999. The delay in conducting the performance trial
was attributable to ALIL. It demonstrated the method of nitric acid cleaning
to JK only in April 1998, i.e., five months after the operation and handing
over of the plant on 13th November 1997 to JK. JK also stated that ALIL did
not carry out acid cleaning in place (‘CIP’) before the plant was handed over
to JK. It requested ALIL to agree to a proposal of cleaning of bodies I, II
and III one by one. It was stated by JK that on practical grounds it was
appropriate for JK not to agree to ALIL’s proposal. JK also filed its counter
claims in the sum of Rs. 13,24,01,300/- after giving credit to ALIL for the
bank guarantee of Rs. 1,00,90,700/- enchased by JK with interest @ 24%
per annum with costs.
13. At the hearing before the Tribunal on 10th January 2000 both parties
consented that Mr. Sarju Singh, former CMD, Hindustan Paper Corporation
and Director (Technical) of Indian Agro-Paper Mills’ Association
(‘IAPMA’) be appointed as an independent expert to carry out an inspection
of the plant and submit a report to the Tribunal. The expert was to opine on
the present technical condition and status of the plant and the extent to
which it had been functional. Pursuant thereto, Mr. Sarju Singh filed a
detailed report on 18th February 2000. Objections were filed to the said
report.
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14. On the basis of the pleadings of the parties, the following issues were
framed by the Tribunal:
“1. Whether the evaporator plant as supplied by M/s. Alfa
Laval fulfils the parameters and standards of the supply
contract or is it defective in any respect?
2. Is the claim raised by JK Corporation within the period of
warranty under the terms of the contract?
3. Whether JK Corporation have incurred losses as claimed,
if so, to what extent are they entitled to be compensated?
4. Whether invocation of bank guarantees by JK Corporation
was legal and proper?
5. Whether both the parties under the supply contract have
fulfilled their duties and obligations thereunder and, if not,
what are the consequences?
6. Is the damages for breach of guaranteed performance
limited to 10% of the contract price as contended by Alfa
Laval to JK Corporation?
7. Whether JK Corporation is entitled to the claim of Rs.
13,70,439/- mentioned in prayer (c) of the claim of Alfa
Laval?
8. Whether JK Corporation is justified in withholding the
balance payment of Rs. 23,33,816/- with interest, as claimed?
9. To what relief the respective parties are entitled to?”
The Arbitral Award
15. The Tribunal took up the first two issues together. Issue No. 2 was
answered in the affirmative. It was held that both the parties had shown
laxity in the observance and fulfilment of the contractual requirement under
Article 21 (1) read with Article 12 (vi) concerning of commissioning of the
plant. Since JK was not claiming under the warranty clause, it had to be “left
out of account.” It was held that although JK took over the plant and
commissioned it in its paper mill with effect from 13th November 1997, that
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date could not be taken as the date relevant for purposes of Article 12 (vi)
whose stipulations had not been complied with and therefore ALIL could
not be relieved of its obligation to prove the performance guarantee within
six months of commissioning of the plant. Since the conditions in Article 12
(vi) read with Article 21 (1) had not been complied with, the contention of
ALIL that JK’s claim was beyond the warranty period could not be
accepted.
16. Turning to Issue No.1, the Tribunal noted that the basic foundation for
the contract between the parties was the assurance in the representations
held out by ALIL that it had expertise in the installation of tubular type
water evaporators with the technical back up of APV Anhydro and its
technical staff. It was a new technology and ALIL claimed to have installed
it in two plants in India prior to entering into agreement with JK. It was held
by the Tribunal that if the important parameters specified in Section 1 of
Schedule A and Article 13 were not satisfied, then ALIL would in any way
have to pay damages to JK. The Tribunal then noted the conclusions in para
11.4 of Mr. Sarju Singh’s report and proceeded to deal with ALIL’s
defences. It was held that the plea of ALIL that it was only on account of
lack of capacity of JK’s recovery boilers to handle black liquor at 600 TPD
that hindered achieving the targets was not acceptable and no specific query
in that regard was put to the expert witness Mr. A.S. Krishna, an assistant of
Mr. Sarju Singh. As regards the contention of ALIL that the plant was
capable of producing 65% concentration black liquor, the Tribunal noticed
that at the trial runs taken on 4th October 1999 in the presence of the
representatives of JK, ALIL and APV Anhydro the net utilisation of the
capacity was only 58% without any fault being attributed to JK.
Consequently, it was concluded by the Tribunal that “there is no doubt that
the plant did not yield black liquor with 65% TS concentration as required
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by the contract.” The plea of ALIL that JK failed to maintain proper ratio of
bamboo and pulp in the feed, and that this in turn resulted in the plant failing
to achieve the required parameters, was held not to have been substantiated
by any evidence. The expert had made no adverse comments on the high
level of the injection temperature. As regards the condenser temperature the
expert had in para 8.1.4.2 of his report concluded that there was no major
fault in the condenser.
17. The Tribunal held that the correspondence exchanged between the
parties showed that “the evaporator plant was not functioning as per the
design parameters”. The plant indeed had not been commissioned as per the
contract but “neither party can be exclusively blamed for this situation nor
both have to take the consequences of there being no ‘date of
commissioning’ within the meaning of the contract.” It was further held that
this point was not very significant except for the purpose of defence of
limitation in relation to the claim of liquidated damages under Article 13,
which however was not claimed by JK. Referring to the additional guarantee
in the contract it was held by the Tribunal that ALIL was obliged to replace,
at its own cost, the first tubular body and its stand by with a plate type body
at no extra cost. It was held that JK was entitled to be reimbursed by ALIL
in the sum of Rs. 2,58,00,000/-, which was the cost incurred by JK for the
replacement.
18. JK’s claim under Issue No. 3 for losses was upheld only to the extent of
Rs. 40 lakhs towards excess expenditure on electricity and Rs. 2.58 crores in
respect of the replacement of one plate type lamilla. It was held that the
amount of guarantee encashed by JK, i.e., Rs. 1,01,36,050/- would be
deducted from the damages of Rs. 2,98,00,000/- awarded to JK. The
Tribunal further held that ALIL could not be burdened with the cost of all
OMP No. 402 of 2005 Page 11 of 25
the modifications and improvements made by JK but was clearly liable to
the extent of the cost incurred for the substitution of the first effect by a
body-type lamilla. The claim of ALIL for a sum of Rs. 13,70,439/- was not
entertained. The Tribunal held that JK was not justified in withholding the
balance payment of Rs. 15,15,465/-. This amount was accordingly awarded
to ALIL with 9% interest from 14th November 1997 till the date of
realization and 7% from the date of Award till the date of actual payment. In
conclusion, the it was held by the Tribunal that ALIL will pay JK a sum of
Rs. 1,71,09,439/- within six months and interest 7% per annum on the
unpaid part of the said amount from the date of the Award till the date of
payment.
19. By an order dated 7th February 2006, ALIL was directed by the Court to
deposit the awarded amount in the form of a fixed deposit. After this was
done, by an order dated 17th September 2008, JK was permitted to withdraw
the amount subject furnishing a bank guarantee.
Submissions of counsel
20. It was first contended by Mr. V.P. Singh, learned Senior counsel for
ALIL that the Award was given after expiry of one year and eight months
from the conclusion of arguments and that some of the submissions were not
dealt with. It was submitted that delay in pronouncing the Award was by
itself a reason to set aside the Award as being opposed to the public policy
of India. It was further submitted that the demand by JK for replacement of
the first tubular body on the ground that 65% TS concentration was not
achieved on continuous basis, was made for the first time in December 1998
which was 13 months after the plant was commissioned and during which
time JK had been running the plant without proper maintenance. It is
submitted that with the Tribunal holding that neither party could be blamed
OMP No. 402 of 2005 Page 12 of 25
for not ensuring that the performance trial took place as envisaged in the
agreement, JK would be precluded from claiming any damages on that
score. It is submitted that Article 14 of the agreement provided for
warranties and the discovery of any difficulty was required to be
communicated immediately in writing by JK to ALIL. The outer limit for
replacement of defective parts was 12 months from the date of
commissioning or 18 months from the date of last despatch, whichever was
earlier. Even assuming that there was uncertainty about the date of
commissioning, no complaint was received from JK within 18 months
period from the date of last despatch. According to Mr. V.P. Singh, there
was no additional guarantee under Article 12 (viii) or Article 13 and it was
mere reiteration of the other guarantees contained in the earlier parts of the
agreement. The central thrust of the argument of the Petitioner is that by not
holding the performance trials, by not ensuring proper feed and by not
cleaning or maintaining it more than 13 months after the date of
commissioning, JK could not hold ALIL responsible for the failure of the
plant. It was submitted that the findings of the Tribunal are against the terms
of the contract. What ALIL was liable to do under Article 12 (viii) was only
to ‘replace free of cost, the first tubular body and its standby with plate type
body’ and not provide anything in addition to the tubular body. The contract
entered into by JK with Enmas clearly showed that it was seeking an
additional tubular body and not its replacement. Reliance is placed on the
decision of the Supreme Court in McDermott International Inc. v. Burn
Standard Co. Limited (2006) 11 SCC 181 where it was observed that in the
assessment of damages, “the Court must consider only strict legal
obligations and not the expectations, however reasonable, of one contractor
that the other will do something that he has assumed no legal obligation to
do.” Finally, it was submitted that although JK claimed to have incurred a
cost of Rs. 2.58 crore to replace the body-type lamilla, it did not actually
OMP No. 402 of 2005 Page 13 of 25
provide any proof of having made such payment to Enmas. Mr. Singh
pointed out that by the time Mr. Sarju Singh visited the plant in February
2000 it had already been in operation for several months and his
observations made long after the actual commissioning of the plant would
not actually indicate whether it was capable of achieving the parameters
soon after the commissioning of the plant. He reiterated that a demand for
replacement could not have been made after 18 months of the expiry of the
last despatch.
21. Mr. Parag P. Tripathi, learned Senior counsel appearing for JK
submitted that the very basis of the entire agreement was that the assurances
by ALIL that the new technology which was sourced from APV Anhydro
was a new technology using tubular evaporators instead of plate type
evaporators. Referring to the clause concerning performance guarantee he
submitted that at no point in time ALIL had run the plant continuously for
72 hours to demonstrate that there was output of 65% TS. He emphasized
that Clause 9 in Section 6 of the Schedule Act of the Agreement which
pertained to performance guarantees made it incumbent on ALIL to replace
the first tubular body and its standby in case the output of 65% TS was not
achieved. He submitted that Mr. Sarju Singh, an expert appointed by the
Tribunal opined that the plant could have never achieved 65% TS
concentration at any point in time. Since there was no reference to the clause
concerning warranties the limitation period specified thereunder did not
apply. There was also no claim for liquidated damages. There was no claim
with reference to Article 15 as well. As regards the problem of scaling of the
bodies it is pointed out that this was an anticipated problem which is why
ALIL had assured that “a cleaning in place (CIP) system shall be provided
for cleaning effect E-1 and its standby”. There was no effective crossexamination
of the expert to substantiate the plea of ALIL that the failure of
OMP No. 402 of 2005 Page 14 of 25
the plant to achieve full capacity was on account of improper feed by JK or
individual capacity of the boiler plant. As regards the proof of payment of
the cost of replacement of the first body to Enmas, it was submitted that this
issue was never raised before the Tribunal.
Delay in pronouncing the Award
22. As regards the first ground of delay in the Tribunal pronouncing the
Award, it is seen that the impugned Award has discussed the entire evidence
in great detail and given elaborate reasons for the conclusions issue-wise. In
the circumstances, this Court is not inclined to entertain the challenge to the
legality of the impugned Award only on the ground that there was a delay in
the Award being pronounced after conclusion of the final arguments. In
other words, the delay in pronouncing the Award itself is not a sufficient
ground to hold that it was opposed to public policy of India as contended by
ALIL.
Delay in JK raising a claim
23. One of the submissions of ALIL is that if at all JK wanted to raise a
claim in regard to the defective plant, it should have invoked Article 14 of
the contract within the period specified thereunder and not have waited till
13 months after the commissioning of the plant. Article 14 of the contract
reads as under:
“14. Alfa Laval’s liabilities for defects:
Alfa Laval shall be liable in accordance with the sub-Section
(i) and (ii) below for all defects of whatsoever nature in the
supplies made by them. The term defect includes lack of any
normal property, quality, design, workmanship or
performance guarantees in the contract.
OMP No. 402 of 2005 Page 15 of 25
(i) All parts which within 12 months from the date of
commissioning or 18 months from the date of last despatch
of equipment whichever is earlier shall become unserviceable
or shall have their usefulness materially impaired, by any
cause whatsoever such as faulty design, inferior material or
bad workmanship the same shall be repaired or replaced by
Alfa Laval free of cost to the company at company’s works.
The discovery of any defect shall be immediately
communicated in writing to Alfa Laval. Alfa Laval
undertakes to replace and/or repair with least possible delay
and in reasonable time such defective part or equipment and
in case the same is not done in reasonable time, the company
shall have full right and liberty but no obligation of procuring
such equipment or getting the same repaired from any source
at the entire cost, risk and responsibility of Alfa Laval.
(ii) The guarantee by Alfa Laval mentioned above shall apply
irrespective of any part or machinery and equipment having
been procured by the Alfa Laval from any other
manufacturer.”
24. There are two periods stated in Article 14 (i) within which a claim in
respect of defects in the supplies can be made. The first is within 12 months
from the date of commissioning and the other within 18 months from the
date of last despatch. In the event that JK found any difficulty in any of the
parts for any cause whatsoever such as faulty design, inferior material or bad
workmanship, it was required to communicate in writing to ALIL
immediately and then ALIL would replace that part or repair it “at least
possible delay and in reasonable time”. While ALIL’s understanding of
what this clause requires is correct, the submission fails to account for the
fact that JK did not invoke this clause. In other words, as was reiterated by
Mr. Parag Tripathi, learned Senior counsel for JK during arguments, JK did
not lay its claim with reference to Article 14 at all. The Tribunal too noted in
the impugned Award that there is no claim made by JK with reference to the
warranty under Article 14. While rejecting a similar plea of ALIL, the
Tribunal has noted that irrespective of Article 14, JK could claim damages
OMP No. 402 of 2005 Page 16 of 25
for supply of a defective plant, with reference to the other clauses of the
contract. The Curt finds no error in the said conclusion and concurs with it.
ALIL’s liability to replace the first tubular body and stand by
25. The central issue before the Tribunal was whether the black evaporator
equipment erected by ALIL met the required parameters. The clauses of the
contract relevant to this issue are as under:
“Article 12 – Guarantee by ALFA Laval
(i) That the plant, machinery and equipment to be supplied
by them shall be new and suitable and capable to render the
desired performance to the entire satisfaction of the company
and shall be free from any defect of whatsoever nature
including those arising from the use of any defective
materials or faulty design in the manufacture thereof or bad
workmanship.
(ii) That each item of the plant, machinery and equipment
shall be manufactured in accordance with the specifications
contained in Schedule ‘A’ of this contract.
(iii) That each item of plant, machinery and equipment
supplied shall operate efficiently and in the manner stipulated
in the specifications and as intended in Schedule ‘A’ hereto.
(iv) ALFA Laval guarantee that the evaporator plant to be
supplied by ALFA Laval shall be designed and are
guaranteed for the following performance:-
ALFA Laval guarantees the following at 100% MCR.
1) Black Liquor solids handling T/24 hr
600
2) Water evaporation capacity with feed T/hr
120
Feed con. of 15.8% total solids at 20 deg c
and product liquor con. of 65% TS at 120 deg C
OMP No. 402 of 2005 Page 17 of 25
3) Product liquor concentration %TS by weight
65
4) Steam economy (T.water evaporated T/S 6.1
4/- 2% per T of LP steam)
5) Power consumption for pumps KWH 301 4/-
2% included in scope of supply (in
operation to achieve 120TPH water
evaporation capacity)
6) Maximum permissible entrainment 1 PM
150 through fooled condensate
NaOH
7) Cooling water to surface condenser Co.M/hr
1550 @ 35 deg c. (including inter condenser)
v) To prove the fulfilment of the performance guarantees
mentioned herein, tests on the performance of the machinery
and equipment shall be carried out as early as practicable
after the plant is put into operation but not later than three
months after the date of completion and starting of the plant.
vi) Unless otherwise agreed between the company and ALFA
Laval tests shall be carried out each last a continuous span of
72 hours. The tests shall be taken in the presence of and with
the assistance of ALFA Laval’s Technician assigned for this
purpose. If in the said tests the required outputs and
conditions are not proved and/or the said tests reveal defects
and/or deficiencies which prevent the attainment of output
stated in Schedule ‘A’ hereto the tests would be repeated as
often as necessary. However, the performance guarantees
shall have to be proved within six months from the date of
commissioning of the plant. The proof of satisfactory results
shall be a statement of results obtained with technical data
and comments signed jointly by the persons authorised by
ALFA Laval and the company in this regard. At every test,
the statement of results obtained with technical comments
and agreed proposals for replacements, alterations and/or
additions necessary, if any, shall be made and signed jointly
by persons authorised b y the company and ALFA Laval for
the said tests.
OMP No. 402 of 2005 Page 18 of 25
vii) ALFA Laval undertake that if for reasons attributable to
ALFA Laval these tests are not satisfactory to the company
they shall rectify and/or cause to rectify the defect either by
modifying or completely replacing such defective
machineries or any part thereof to prove the performance set
out in Schedule ‘A’ hereto.
viii) ALFA Laval undertake that in case the 65% output
concentration of liquor is not achieved ALFA Laval shall
replace free of cost, the first tabular body and its standby
with plate type and the modifications and for replacements
on this account shall be done by ALFA Laval at no cost to
the company.
ix) ALFA Laval shall be deemed to have fulfilled their
guarantees upon the issue of the company’s notification
under the hand of the President (Paper) of the company,
which shall not be unreasonably withheld, that the company
is satisfied in regard to the various guarantees by ALFA
Laval. Such notification shall be issued soon after tests for
proving the guarantees are carried out and the performance is
found by the company in conformity with the performance
guarantees set out in the contract.”
21. General
(i) The commissioning of the plant, machinery and
equipment for the purposes of this contract shall mean the
date on which the entirely of the plant, machinery and
equipment supplied under this contract are commissioned for
commercial production at full capacity. Alfa Laval and the
company through their authorised representatives shall sign
the certificate recording the date of commissioning of the
plant, machinery and equipment and such certificate alone
shall be the evidence to show for the purposes of this contract
the date of commissioning of the plant, machinery and
equipment.
(ii) The date of despatch of the last consignment of the plant,
machinery and equipment under this agreement shall be the
OMP No. 402 of 2005 Page 19 of 25
date confirmed to the company by Alfa Laval to be the date
of despatch of the last consignment and accepted as such by
the company.”
26. The above clauses have to be read cumulatively to understand when
according to the contract the ‘commissioning of the plant’ can be said to
have taken place. IN terms of Article 21 (1) the commissioning takes place
on the date “the entirely of the plant, machinery and equipment supplied
under this contract are commissioned for commercial production at full
capacity”. Further representatives of ALIL were to sign a certificate
recording the date of such commissioning and such certificate “alone shall
be conclusive evidence” of the date of commissioning. Admittedly, there
was no such certificate of commissioning issued in the instant case.
Therefore the Tribunal was called upon to investigate why the
commissioning of the plant as envisaged by Article 21 (1) did not take place.
27. Under Article 12 (v) “the performance tests on the performance of the
machinery and equipment shall be carried out after the plant is put into
operation but not later than three months after the date of completion and
starting of the plant.” The case of ALIL, as already noticed hereinabove by
the Tribunal, was that the plant was commissioned and taken over by JK on
13th November 1997. The relevant portion of the minutes of the Meeting
held between ALIL and JK on 13th November 1997 reads as under:
“Minutes of meeting held between Alfa Laval (I) Limited
and J.K. Corporation Limited Jaykaypur on 13th November
1997
Persons present:
M/s. J.K. Corp Ltd. Ms. ALIL
1. Mr. V.K. Oswal 1. Mr. Prashant S. Dravid
OMP No. 402 of 2005 Page 20 of 25
2. Mr. M.L. Devram 2. Mr. V.V. Pathak
3. Mr. Ashok
Srivastava
Sub.: 120 TPH Black Liquor Evaporator Plant Contract No.
13/95-96 dated 19th January 1996.
1. During the various trials, the plant has been run at various
capacities from 50% upto 115% at 50-55% TS. The
concentration of 65% also has been tried for continuous short
of 16 hrs on 29th October 1997 and plant was run at 65%
intermittently for 3 to 10 hours for a few days.
The plant is being taken over by JKCL for regular operation
and maintenance. Presently the plant is being run continuously
at 50% to 55% outlet concentration to feed existing recovery
boiler and expected to run at 65% concentration from 20th/21st
November 1997. During this run JKCL requested Ms/ ALIL
Engineer to be present for few days in order to observe
working at 65% solids continuously and to stabilize plant at
65% solids.
2. Regarding performance JCKL informed that performance
trials shall be conducted in the month of January/February
1998.”
28. The above minutes show that upto that date the plant was run at various
capacities ‘concentration of 65% TS’ for continuous short ‘duration of 16
hrs’ on 29th October 1997 and the plant was run at ‘65% intermittently for 3
to 10 hours for a few days.’ Clearly by that date the performance tests as
envisaged by the contract had not been conducted. They were expected to be
conducted in the month of January/February 1998. The performance trials
did not take place on the said dates. Both the parties had referred to the
correspondence exchange between them to show that either was not
responsible for postponement of the conduct of the performance trials which
ultimately never took place. In fact, the Tribunal has observed that “neither
of the parties completely fulfilled its obligations under the contract but
OMP No. 402 of 2005 Page 21 of 25
allowed matters to drift by ad hoc modifications and improvements without
insistence on Article 21.”
29. The Court finds that no error has been committed by the Tribunal in
coming to the above conclusion. Indeed, the correspondence showed that JK
had been making complaints about scaling and consequent clogging, the
need for constant cleaning and trimming the impellers. ALIL appears to
have been attending to some of these complaints and writing to JK regarding
installation of a new boiler, modification of distributor plate, constant
periodical cleaning in place, repairs of condensers. The full load
performance test had become impossible after the system had started
operating and was interconnected to JK’s paper mill plant and the plant
could not be shut down for a period long enough to carry out the actual
performance trials. However, as pointed out by the Tribunal the fact that the
performance trial could not be carried out as envisaged in the contract did
not mean that ALIL was totally absolved of its liability for the failure of the
plant to meet the design parameters of performance. Under Article 12 (vii),
if the failure to hold performance tests was on account of ALIL, then ALIL
“shall rectify and/or cause to rectify the defect either by modifying or
completely replacing such defective machineries or any part thereof to prove
the performance set out in Schedule ‘A’”. However, the guarantee under
Article 12 (viii) is specific to the plant failing to produce black liquor of
65% TS concentration. Since this was central to the contract it was agreed
that if this parameter were to fail, then “ALIL shall replace free of cost, the
first tubular body and its standby with plate type body.” These guarantees
have to be read together with Schedule A which is divided into 11 sections
which set out the various design parameters, general description of
evaporator plant, specification of various equipments etc. Section 6 relates
to performance guarantee. Clause 9 of Section 6 states as under:
OMP No. 402 of 2005 Page 22 of 25
“9. Alfa Laval have additionally guaranteed that in the event,
Alfa Laval observe that the output concentration of 65% not
being maintained as per the performance guarantee, Alfa
Laval shall replace free of cost, the first tubular body and its
standby with plate type body and the modification required
on this account shall be done by Alfa Laval at no additional
cost to the company.”
30. The interpretation placed on the above clause by the Tribunal in
concluding that even where the performance trials were not held within time
and in the manner envisaged under the contract, ALIL could not be relieved
of its obligation to replace the first tubular body for failure to achieve 65%
TS concentration, cannot be said to be erroneous. The intention of the
parties in this regard is made even more explicit in Article 13 which
specifies the extent of LD payable to JK by ALIL for failure of the plant to
achieve production capacity, water evaporation capacity, steam economy,
power consumption, “alkali carry over in condensate expressed in term of
PPM NaOH”, and product liquor concentration. Article 13 specifies that
“the damages set out within each of the following guarantees category
below are not cumulative but independent of each other.” In the penultimate
para of Article 13 it is stated “ALFA LAVAL have additionally guaranteed
that in the vent of outlet concentration not being achieved at 65% solids,
other parameters remaining as per contract, Alfa Laval shall replace free of
cost the first tubular body and its stand by with plate type body at no extra
cost.” A collective reading of Article 12 (viii), with Clause 9 of Section 6 of
Schedule A and the additional guarantee under Article 13 supports the
conclusion drawn by the Tribunal that ALIL would be liable to pay damages
to JK if the parameters set out thereunder were not satisfied.
31. ALIL’s case, which was rejected by the Tribunal, was that the “other
parameters” that Article 13 mentions were required to be ensured by JK and
since they were not, the plant could not produce the black liquor of desired
OMP No. 402 of 2005 Page 23 of 25
concentration although it was capable of doing so. In approaching this issue,
the Tribunal has gone by the report of Mr. Sarju Singh, the expert appointed
by it, and the evidence that emerged during the hearings of the Tribunal. The
Tribunal while dealing with the issue concerning the handling capacity of
the boiler noted the contention of ALIL that even according to Mr. Sarju
Singh, JK applied for expansion of the additional mill including a new
recovery boiler to handle 300 TPD black liquor solid at 65% concentration
and that the effective handling capacity of the boiler with JK was only 510
TPD. It also noted the contention of JK that 510 TPD represented the
capacity of the restructured evaporator for which JK had contracted with
Enmas and this restricted capacity was intentional as JK was able to replace
only one of the bodies by a plate type lamilla due to financial constraints.
The Tribunal then proceeded to observe as under:
“29. This controversy would have been easily settled by
ALIL putting this to A.S. Krishna, Assistant of Mr. Sarju
Singh, who was cross-examined by it in length. A number of
questions were put to him about the handing capacities of the
new boilers, storage tanks for liquids of different
concentration and so on. ALIL had indeed raised objections
to Mr. Sarju Singh’s report which were replied to by Mr.
Sarju Singh on 24th April 200 (V.13). Mr. Sarju Singh has
clearly stated in his report that the black liquor handling
capacity of the evaporator was far below the contract
parameters and if ALIL wanted to say that this deficiency
was attributable not to the evaporator but due to the
inadequacy of JK’s boiler they should have put a specific
query to the expert to that effect and got the point cleared.
Also, as correctly pointed out for JK, the stage of boiler
handling is subsequent to that of the evaporator and the
question of availability of a boiler which could have handled
600 TPD of solid concentration is totally irrelevant to the
issue. At no point of time did ALIL tell JK that the nonavailability
of boiler of adequate capacity was hindering their
achievement of targets. In this state of the record, as it is, it is
difficult to accept this explanation of ALIL that this
parameter was fulfilled by ALIL’s plant.”
OMP No. 402 of 2005 Page 24 of 25
32. It is difficult to appreciate the contention of ALIL that the above
conclusion of the Tribunal is either contrary to the evidence on record or to
the clause of the contract. Mr. Sarju Singh has in his report stated that “the
black liquor handling capacity of the evaporator was far below the contract
parameters.” It was apparent that at no point in time the plant achieved 65%
TS concentration. This was considered by the Tribunal in some detail in
para 30 of its impugned Award where it noticed that in answer to question
No. 34, Mr. Sarju Singh conceded the theoretical possibility of the plant
achieving 65% TS concentration but in fact the said target was achieved
only occasionally. The Tribunal analysed the correspondence between the
parties in some detail and then concluded as under:
“There is, therefore, no doubt that the plant did not yield
black liquor with 65% TS concentration as required by the
contract. That the plant could not achieve this and other
parameters as per the contract is borne out by attempts on the
part of ALIL to attribute faults to JK in various respects for
the deficient working of the system.”
33. The Tribunal also considered the point concerning the variation in feed.
Referring to the evidence of Mr. A.S. Krishna, the expert from of the
Central Pulp & Paper Research Institute, it observed as under:
“It is also interesting to see that while general questions were
put to Sri A. Krishna on the possibility of feed variation
affecting the characteristics of the liquor (p.v. 16, Qns 35 to
38) no question was put to him that the concentration output
of the black liquor would have been affected by the variation
in the composition of the feed to the paper mill. In fact A.
Krishna in his answer 36 clearly supports the present stand
taken by JK. Insofar as the point made regarding a change of
pulp unit process by JK, the answer of A. Krishna (answers
11 to 15) does not substantiate the plea of ALIL. If the
composition of the feed were as important as is now sought
to be made out, ALIL should have carried out preliminary
inspection about this parameter and satisfied themselves that
it was alright. The contention that the change in the
composition of the feed as between hardwood and bamboo
OMP No. 402 of 2005 Page 25 of 25
would have called for a different type of design and that the
specifications of the subsequent contract with Enmas support
this plea has not been substantiated by any evidence.”
34. The scope of interference under Section 34 of the Act does not permit
the Court to re-examine and re-appreciate the evidence in order to come to a
different conclusion only because it is possible to do so. The Court is also
not inclined to examine the correspondence between the parties to which
both counsel referred to substantiate their respective positions as regards
which party should be held responsible for the performance tests not having
taken place as envisaged by the contract. The conclusion drawn by the
Tribunal on appreciation of the evidence placed before it is a perfectly
plausible one. As regards the submission that JK did not produce
documentary evidence of making a payment of Rs. 2.58 crores to Enmas,
indeed it does not appear that such contention was raised before the
Tribunal. ALIL cannot be permitted to raise this issue at this stage.
35. No grounds have been made out for interference with the impugned
Award of the Tribunal under Section 34 of the Act. The petition is dismissed
with costs of Rs. 30,000/- which will be paid by ALIL to JK within a period
of four weeks from today. The bank guarantee furnished by JK shall stand
discharged.
S. MURALIDHAR, J.
MARCH 5, 2012
rk
