Case Note & Summary
The present matter concerned an appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 before the High Court of Judicature for Rajasthan, Bench at Jaipur. The appeal arose from an order dated 03.01.2019 passed by the Commercial Court No.4, Jaipur, which allowed a Section 34 objection petition and set aside an arbitral award dated 20.04.2018. The underlying dispute related to a wind turbine generator supplied by the respondent to the appellant for a wind farm project in Soda Mada, Jaisalmer. The Energy Department, Government of Rajasthan, had issued the Policy for Promotion of Electricity Generation from Wind, 2003, encouraging development and maintenance of wind farms over a period of at least 20 years. In this context, the respondent as developer approached the appellant with an investment proposal for a turnkey wind farm project. Based on the respondent's project report projecting guaranteed minimum generation of 28 lakh units of electricity annually, the appellant issued a purchase order dated 14.07.2004 for one SUZLON S-66 – 1.25 MW Wind Turbine Generator, along with a work order and subsequent Memorandum of Understanding dated 16.07.2004. The parties also executed Operation & Management and Maintenance agreements and a Power Purchase Agreement with Jaipur Vidyut Vitran Nigam Limited. The WTG was supplied, installed and commissioned on 29.12.2004. Disputes arose due to a shortfall in electricity generation. The appellant invoked arbitration and claimed that the respondent had guaranteed annual generation of 28 lakh units for the entire 20-year contractual period, that machine availability fell below 95% in certain financial years, and that the WTG was defective. The appellant sought compensation for generation shortfall, non-availability, interest, and loan repayment damages. The respondent denied the claims, contending that the generation guarantee was limited to four years, had been fully discharged by payment of Rs.1,36,93,149 with interest, and that wind and grid availability—external factors—were beyond its control. The learned arbitrator framed 17 issues and, after hearing, passed an award on 20.04.2018 deciding 11 issues in favour of the appellant, holding that because the project was turnkey, the generation guarantee extended to the entire 20-year period. The respondent challenged the award under Section 34 before the Commercial Court. The Commercial Court allowed the objection petition by order dated 03.01.2019, holding that a conjoint reading of the purchase order and MOU established that the generation guarantee was restricted to four years. Aggrieved, the appellant filed the present appeal under Section 37. The provided excerpt does not include the High Court's final analysis or operative decision; it sets out the factual background, issues, and the lower court's decision.
Headnote
A) Contract Law - Performance Guarantee - Duration of Generation Guarantee - Arbitration and Conciliation Act, 1996, Sections 34 and 37 - The appeal under Section 37 arose from an order of the Commercial Court allowing a Section 34 petition and setting aside an arbitral award; the core dispute was whether the generation guarantee in the purchase order dated 14.07.2004 and MOU dated 16.07.2004 was for the entire 20-year turnkey project period or limited to four years. The Commercial Court held that a conjoint reading restricted the guarantee to four years, contrary to the arbitrator's finding that it extended to 20 years (Paras 1, 2.12-2.13). B) Arbitration - Arbitral Tribunal - Framing of Issues and Award - Arbitration and Conciliation Act, 1996, Section 34 - The learned arbitrator framed 17 issues covering guarantee, machine availability, compensation, interest, and loan damages; after evaluating evidence, the arbitrator decided 11 issues in favour of the appellant and held that the turnkey project extended the generation guarantee to 20 years. The respondent challenged this award under Section 34, leading to the impugned order and the present appeal under Section 37 (Paras 2.11-2.12).
Issue of Consideration
Whether the Commercial Court erred in setting aside the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996; specifically, whether the generation guarantee in the purchase order and MOU was for four years or the entire 20-year contractual period.
Final Decision
Not mentioned in the provided excerpt; the Commercial Court had allowed the Section 34 petition and set aside the arbitral award.
Law Points
- Section 34 of Arbitration and Conciliation Act
- 1996 permits setting aside of arbitral award
- Section 37 provides appeal against orders under Section 34
- interpretation of contractual guarantee duration depends on conjoint reading of purchase order and MOU
- commercial court may examine arbitral award for patent illegality
- arbitrator held turnkey project extended generation guarantee to entire 20-year period
