Arbitrator Can't Rewrite Contract By Linking Repayment To Commercial Success Contrary To TDA Terms: Delhi High Court

The Delhi High Court has set aside an arbitral award, holding that the arbitrator travelled beyond the contractual terms by making repayment of financial assistance contingent upon commercial success of the project contrary to the express stipulations of the Technology Development Assistance Agreement (TDA). Justice Jasmeet Singh held that “No doubt the Arbitrator has the power to interpret the terms and conditions of the contract, but, the Arbitrator being the creature of the contract, does not have the power to substitute, supplement, alter or modify the terms of the contract. It is the solemn responsibility of the Arbitrator to adjudicate and decide the disputes while staying within the circumscribing limits of the provisions of the contract between the parties while also upholding the terms of the contract.” The dispute arose out of a Technology Development Assistance Agreement (TDA) dated 22 December 1999 executed between the Technology Information Forecasting and Assessment Council (TIFAC), Strategic Engineering Pvt. Ltd. (SEPL), and Madras Institute of Technology (MIT). Under the agreement, TIFAC agreed to provide financial assistance upto Rs. 2.80 crores to SEPL for development of CNG cylinders. The TDA stipulated that upon development of technology as certified by the Advisory and Monitoring Committee (AMC), SEPL would repay upto Rs. 3.36 crores in installments. The AMC was constituted as the final authority to assess technical success of the project. Disputes arose after AMC in its meeting declared the project a success. SEPL issued post dated cheques towards repayment obligations. SEPL contended that the project never attained commercial success primarily due to non-procurement of a 3-axis filament winding machine and hence it was not bound to make the repayment. Arbitration was invoked following a consent order passed in a civil suit. The arbitrator passed an award holding that since the project did not achieve commercial success, SEPL was not bound to make repayment to TIFAC while issuing several equitable and penal directions against both parties. Aggrieved, both SEPL and TIFAC had filed cross petitions under section 34 before the High Court. TIFAC argued that repayment obligations under the TDA triggered upon successful development of technology, not its commercialisation.It was further argued that the AMC had declared the project successful and SEPL never raised any objections to such declaration. Agreeing with the first contention, the court noted that TDA clearly distinguished between development of technology and commercial production. While commercial success of the project was an eventual object, the repayment obligation under the agreement was linked to successful development of technology as certified by the AMC. “Even though the completion of the Project depends on commercialisation of the same, the “development of technology” is not dependent upon the same. Development of the technology is a separate stage, prior to the commercial production. Once the AMC has declared the development of technology as successful in terms of the Clause VIII of the TDA, the repayment becomes due to the TIFAC in terms of Clause IX of the TDA.”, the court held. It further noted that Clause VIII of the agreement clearly vested the final authority to decide whether the project had been developed successfully in the AMC and its decision was final and binding. It held that “the contention of SEPL that the AMC could not have been treated as a final authority to decide the successful completion of development of technology, to my mind, does not hold merit. Upon perusal of the terms of the TDA above, more specifically Clause VIII, it is clear that it was the AMC that had the sole jurisdiction to certify whether the development of technology was a success or not. The same was decided in favour of TIFAC in the 5th AMC meeting and never challenged by SPEL.” It further noted that the AMC had conclusively declared the project successful and SEPL never raised any objections at that stage or thereafter. Based on the above, the court held that SEPL's conduct including issuance of post dated cheques after the 6th AMC meeting clearly amounted to acquiescence. The court further observed that although the arbitrator in the impugned order had acknowledged that AMC's determination about project completion was binding, it nevertheless refused to direct repayment by introducing extraneous considerations such as market acceptance and commercial viability of the project. This, the court held, amounted to rewriting the contract. The court held that “the finding of the Arbitrator that the development of technology is not successful until commercial viability is achieved is contrary to the specific terms of the TDA. The interpretation that the repayment obligation becomes due only when the commercialisation of the project...

Arbitrator Can't Rewrite Contract By Linking Repayment To Commercial Success Contrary To TDA Terms: Delhi High Court

Mohd Malik Chauhan

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