Arbitration tribunal asks SAIL to pay Rs 323 crore to Essar shipping
24 May 2016
An arbitration tribunal has directed the Steel Authority of India to pay about $48 million (Rs 323 crore) to Essar Shipping for illegally terminating a contract and causing damages and losses to the Ruia-controlled company.
The panel headed by former Supreme Court Justice Deepak Kumar Verma passed the award in favour of Essar Shipping and directed state-owned SAIL to pay the money last week.
"The arbitration panel had granted claim of $38 million and interest, which stands at around $48 million," said Hemant Kumar, group general counsel of the Essar Group. "This was a very complex, time-consuming and tedious arbitration but we are happy with the end result." A SAIL spokesperson said the company is studying the award and will take appropriate action. The dispute was over a contract between Essar Shipping and SAIL signed in November 2007. SAIL engaged Essar Shipping to transport 3 million tonnes of coking coal - a steel-making ingredient - from Queensland, Australia, to Indian ports including Vizag, Paradeep, Kakinada and Haldia.
The contract was renegotiated in March 2011 for a three-year period at the request of SAIL, reducing freight and demurrage rates, according to a person familiar with the matter. However, according to Essar Shipping, SAIL subsequently opted to buy coal from the spot market and terminated the shipping contract after invoking the force majeure clause, causing huge losses for Essar.
SAIL had argued that it terminated the contract on the grounds of the force majeure clause and the default clause without liability because coal prices had fallen, leading to a drop in charter freight rates. Force majeure is a special clause that exempts parties to a contract from fulfilling their obligations due to causes that can't be anticipated or beyond their control.
However, in this case, force majeure was to be invoked after complying with certain preconditions, which SAIL allegedly did not go by. The steel company failed to give the required 20 days' notice supported by a certificate from a chamber of commerce or government authority before invoking the clause. The default clause was to be invoked after certain eventualities, which could not be established by SAIL. With the parties unable to settle the matter, Essar Shipping resorted to arbitration.
SAIL reported a loss of Rs 2,906 crore in the nine months ended December, the highest in 15 years, compared with a net profit ofRs 1,758 crore a year earlier, according to ETIG data. It had debt of over Rs 32,000 crore at the end of September and cash of aboutRs 2,300 crore.
Essar Shipping made a net loss ofRs 301 crore in the first nine months of 2015-16, little changed from a loss of Rs 299 crore in the same period a year ago. The company had consolidated debt of over Rs 3,300 crore at the end of September.
Source : economictimes.indiatimes.com