A. The dispute
Bharat Heavy Electricals Limited (“BHEL”) signed a contract with the Public Electric Company, Yemen, to construct a power plant. For the manufacture of some equipment required in the power plant, BHEL selected the petitioner ‘G+H Schallschutz Gmbh’ and issued a Purchase Order in its favour. The equipment had to be supplied in two lots and delivered to the Hodeiadah seaport in Yemen. A dispute arose when BHEL put on hold the delivery of the second lot, contending that the Government of India had put a travel advisory asking Indians to leave Yemen and avoid all travel due to the political situation. Force majeure was declared.
Clause 25 of the Purchase Order provided that in the event of any hold/force majeure condition, Schallschutz will keep material in their custody for six months without any storage charges to BHEL and if it was not possible to make the shipment to Yemen even after six months, then to dispatch the material to Mumbai / Haridwar in India and claim payment.
Schallschutz stored the supplies for six months. BHEL claimed the force majeure condition subsisted and requested for an extension. Schallschutz rejected BHEL’s request and invoked the arbitration clause.
B. The partial final award
The arbitral tribunal first delivered a Partial Final Award (“PFA”) on liability. It held that Clause 25 of the Purchase Order brought the contract between BHEL and Schallschutz within the exception identified in the Ghose  Ghose, Para 17– “it must be pointed out here that if the parties do contemplate the possibility of an intervening circumstance which might affect the performance of the contract, but expressly stipulate that the contract would stand despite such circumstance, there can be no case of frustration because the basis of the contract being to demand performance despite the happening of a particular event, it cannot disappear when the event happens.” Show More case (AIR 1954 SC 44). The tribunal concluded that despite the war in Yemen, which rendered the contract impossible of performance, the Purchase Order did not stand frustrated. Accordingly, the tribunal concluded that BHEL breached its obligation under Clause 25 in failing to enable Schallschutz to deliver the supplies to India.
The tribunal kept the question of damages open, subject to further submissions.
C. The final award and Schallschutz’ challenge in set-aside proceedings
In the Final Award, the tribunal declined Schallschutz’ claim for damages, which was challenged in the High Court under Section 34 of the Arbitration and Conciliation Act, 1996 (“ACA”) on the ground that it was contrary to public policy and patently illegal. The court rejected the challenge.
The court held that there was no conflict between the PFA and the final award. Its reasons were: –
Then the court specifically addressed the claim for damages:-
As to the tribunal’s findings of fact and the scope to deal with them in a set-aside proceeding, the court held:-
Then, lastly, the court found that the award was not violative of the Sale of Goods Act. It held that the tribunal’s findings on refusal and unwillingness to accept the goods were factual and could not be evaluated in set-aside proceedings.
Categories: 2015 Amendments | Application for Setting Aside Arbitral Award | Damages | International Commercial Arbitration | Interpretation of Contract | Patent Illegality | Public Policy | Section 34 ACA | Set Aside or Refusing to Set Aside an Arbitral Award | Ssangyong | Standard for Setting Aside Arbitral Award