Award Of Demurrage Charges Under Major Ports Act Is Not Valid When Contract Does Not Provide For Such Charges : Calcutta High Court

The Bench of Justice Krishna Rao held that an arbitral award wherein the tribunal has awarded demurrage charges in absence of any provision in the agreement for levy of such charge would be vitiated by patent illegality. The Court held that the tribunal cannot resort to provisions of Major Ports Act, 1963 for awarding demurrage charges when the agreement contains no such provision for demurrage charges or when the agreement makes no reference to the Act.

Facts

The parties entered into a Short-Term Agreement dated 06.05.2008 whereby the respondent was to provide Integrated Terminal Services to the petitioner. Clause 5.12 of the agreement provided that the maximum cargo capacity should be 60,000 M.T which in cases of exigencies could be extended by further 30, 000 M.T provided the petitioner gives a 30 days' notice. It further provided that if the cargo capacity is expected to go beyond 2 million M.T, then the cargo capacity should be 90,000 M.T with a further provision of storing additional 30,000 M.T in cases of exigencies for a period not exceeding 15 days.

On 20.12.2010, the respondent issued a notice to the petitioner for payment of demurrage charges for exceeding the free period.

The petitioner denied the payment on the ground that the agreement between the parties contains no provision for payment of demurrage charges. Thus, a dispute arose between the parties that was referred to a three members arbitral tribunal.

The Award

The majority of arbitrators passed an award in favour of the respondent and allowed the claim of the respondent for demurrage charges by relying on the provisions of Major Ports Act, 1963. The tribunal held that the maximum cargo volume that the petitioner is entitled to store was 60,000, consequently, it has overused the cargo facility beyond the free period, thus, it is liable to pay the demurrage charges.

The minority award was passed in the favour of the petitioner and the arbitrator held that the respondent failed to adduce any evidence to support its claim that it was entitled to demurrage charges, moreover, Clause 5.12 provided that the maximum cargo volume could be 120000 M.T if the annual volume was likely to reach 2 million M.T and the annual volume had gone beyond 2 million M.T in the past, therefore, the petitioner was not liable to pay the demurrage charges as contended by the respondent.

Aggrieved by the award, the petitioner challenged the award under Section 34 of the A&C Act.

The Grounds of Challenge

The petitioner contended that there is no clause in the agreement that provides for recovery of demurrage charges and the tribunal travelled beyond the agreement in awarding the claim of the respondent.

The tribunal erred in not appreciating the fact that the maximum cargo volume that the petitioner was entitled to was 1,20,000 within Clause 5.12 as in past the annual volume had breached the 2 million M.T mark.

Analysis by the Court

The Court held that the tribunal the majority award has created a new contract by applying provisions of Major Port Act,1963 and TAMP order as there is no provision under the contract for demand of demurrage charges against the petitioner.

The Court held that the tribunal erred in applying the provisions of Major Ports Act, 1963 and TAMP order by ignoring Clause 5.12 and the chart showing the cargo handling during the contract period which were the material documents available with the arbitrators. It held that the tribunal was bound decide the controversy within the four corners of the arbitration agreement.

The Court held that the majority arbitrators have passed award by going outside of the four corners of the agreement in spite of the fact that there is no clause in the agreement for levy of demurrage against the petitioner and have consider the Major Port Act which was not the subject matter before the Ld. Arbitrators under the contract.

Therefore, the Court allowed the application and set aside the arbitral award as vitiated by patent illegality.

Case Title: Steel Authority of India v. Vizag Seaport Pvt. Ltd. AP 1750 of 2015

Date: 10.08.2022

Citation: 2022 LiveLaw (Cal) 293 

Counsel for the Petitioner: Mr. Pradip Ghosh, Sr. Adv. Mr. Aryak Dutta Ms. Riya Kundu

Counsel for the Respondent: Mr. Ranjan Bachawat, Sr. Adv. Mr. Rudraman Bhattacharya Ms. Mini Agarwal

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