When a contract does not provide for demurrage, can TAMP rates create the liability?

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Vizag Seaport Pvt. Ltd. v. Steel Authority of India Ltd.

Case: APO 112 of 2022 with IA No. GA/1/2022  Court: High Court of Calcutta Date of Decision: 25 June 2026  Coram: Arijit Banerjee J. and Om Narayan Rai J. Citation: (2026) ibclaw.in 3412 HC  Statutes: Arbitration and Conciliation Act, 1996 and Major Port Trusts Act, 1963

The Calcutta High Court's decision in Vizag Seaport Pvt. Ltd. v. Steel Authority of India Ltd. addresses an important question at the intersection of contract law and arbitration law. The issue was whether an arbitral tribunal could impose a financial liability by relying on a statutory tariff framework when the underlying private contract did not expressly provide for that liability. The Division Bench comprising Justice Arijit Banerjee and Justice Om Narayan Rai answered the question in the negative and upheld the setting aside of a majority arbitral award which had awarded approximately Rs. 19.68 crore towards demurrage charges.

The judgment is significant because it concerns not only the interpretation of a storage clause but also the limits of arbitral authority. The Court emphasised that an arbitrator derives authority from the contract between the parties and cannot create an obligation which the parties themselves never agreed to undertake. At the same time, the judgment reiterates the restricted scope of judicial interference under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

The Contractual Relationship and the Dispute

Vizag Seaport Pvt. Ltd., referred to as VSPL, and Steel Authority of India Ltd., referred to as SAIL, entered into a Short Term Agreement dated 6 May 2008. Under the agreement, VSPL was to handle coal imported by SAIL through the EQ 8 and EQ 9 berths at Visakhapatnam Port. The arrangement involved unloading the cargo, transporting it from the hook point to the stockpile area and mechanically loading it onto railway wagons or rakes. SAIL had an assured cargo commitment of 1.5 million metric tonnes per year.

The dispute arose principally from Clause 5.12 of the agreement which dealt with storage and stacking. Under the first part of the clause, VSPL was required to store cargo up to a maximum of 60,000 MT. In an exigency, VSPL would endeavour to accommodate a further 30,000 MT for a period not exceeding 15 continuous days, provided SAIL gave 30 days' notice. The clause further contemplated a higher storage arrangement where SAIL's cargo commitment was expected to exceed 2 million MT per year. In that situation, storage of up to 90,000 MT with a further 30,000 MT during exigencies was contemplated.

VSPL subsequently alleged that SAIL had kept cargo beyond the permissible storage limits. VSPL began raising the issue of excess stacking through correspondence and on 20 December 2010 formally demanded storage or demurrage charges. SAIL disputed the demand and maintained that the agreement did not contain a provision permitting VSPL to levy demurrage. The dispute was eventually referred to a three member arbitral tribunal.

VSPL claimed approximately Rs. 30.83 crore along with interest. Its claim was calculated by applying the relevant TAMP Scale of Rates. The majority of the arbitral tribunal ultimately awarded approximately Rs. 19.68 crore with interest while the minority arbitrator rejected the claim.

Note on terminology: For precision, it should be recorded that VSPL's claim, as computed and as later defended on appeal, was framed as "storage charges" under Clause 3.6.2 of the TAMP Scale of Rates, and not as "demurrage" under Clause 3.5, a distinction VSPL relied on to avoid a possible double-recovery objection under Clause 3.5(3)(v) of the TAMP order. The majority award and the judgment itself frequently use "demurrage" and "storage charge" interchangeably, and this article follows that convention for readability, but the underlying claim was technically confined to storage charges.

The Central Question Before the Court

The central controversy was whether TAMP and the Major Port Trusts Act, 1963 could be relied upon to impose demurrage or storage charges under the private agreement between VSPL and SAIL even though the agreement itself did not expressly provide for such a charge.

VSPL argued that the agreement was not completely independent of the statutory port framework. It relied upon provisions of the Major Port Trusts Act, the licence arrangement between VSPL and the Visakhapatnam Port Trust, references to VPT and TAMP in the agreement and the provisions of Annexure 1 dealing with Integrated Terminal Service Charges. According to VSPL, TAMP's Scale of Rates could therefore be used to quantify the charges arising from SAIL's excessive storage.

SAIL, on the other hand, maintained that the Short-Term Agreement was a private contract. According to SAIL, while TAMP might prescribe rates for services within the statutory port framework, it could not itself create a contractual obligation to pay demurrage where the parties had not agreed to such an obligation.

The Significance of Clause 5.12

The Division Bench closely examined the language of Clause 5.12. The Court observed that the parties had expressly dealt with storage limits, additional storage, the 15 day period and the requirement of notice. What they had not expressly provided was that exceeding those limits would result in a liability to pay demurrage.

This omission assumed considerable importance.

The Court noted that the agreement expressly provided for penalties or damages in certain circumstances. Therefore, the absence of a demurrage provision could not simply be ignored and replaced with an obligation created by interpretation. The Court observed that if the parties had intended the continued storage of cargo beyond the relevant period to attract demurrage, they could have expressly provided for it.

The reasoning reflects a basic contractual principle. Parties are bound by what they agreed and not by what an arbitral tribunal subsequently considers commercially desirable.

TAMP Could Not Create a Contractual Liability

One of the most important findings of the judgment concerns the relationship between statutory regulation and private contractual obligations.

The Court accepted that VSPL was operating within the statutory framework governing the port and that the Major Port Trusts Act and TAMP could regulate port operations. However, the Court drew a clear distinction between statutory regulation of port activities and the financial obligations voluntarily undertaken by parties through a private contract.

The Court explained that the fact that certain activities of VSPL were subject to the Major Port Trusts Act did not automatically mean that the provisions of that legislation or TAMP's tariff structure could be incorporated into the private agreement for the purpose of imposing demurrage.

The Court particularly examined Clause 5.5 which required cargo discharge to comply with the rules and regulations enforced by the port under the applicable statutory framework. The Court found that this provision was operational in nature. It regulated the manner in which cargo was to be handled and discharged but did not contain a financial obligation requiring SAIL to pay demurrage at a particular rate. The Court therefore held that an operational reference to statutory rules could not be transformed into a financial liability which was absent from the contract.

Distinction is important. A statutory authority may have the power to prescribe a particular rate but that does not necessarily mean that the rate can be imposed upon parties to a private contract when the underlying obligation itself has not been incorporated into that contract.

The Minority Award and the Intention of the Parties

Although the majority award was the award under challenge, the Division Bench also examined the reasoning contained in the minority award. The Court referred to the Supreme Court's recognition that while considering a challenge under Section 34, a court is not precluded from considering the findings and conclusions contained in a dissenting opinion.

The minority arbitrator had found that TAMP's rates could not automatically apply to the private agreement. The minority award also referred to VSPL's own representations before TAMP where VSPL had indicated that its estimated income from demurrage was nil. The minority arbitrator considered this material because it provided evidence regarding the commercial understanding behind the agreement and the absence of a demurrage component in the agreed tariff structure.

The minority award also considered the commercial relationship between the parties. VSPL had expressed concern about losing SAIL's cargo to other ports and had taken steps to retain SAIL as a major customer. The minority arbitrator regarded this conduct as relevant to why the parties had not incorporated a demurrage provision into the agreement.

The Division Bench found this reasoning persuasive.

The 2 Million MT Threshold and the Evidence Problem

The Court identified another difficulty with the majority award. Even assuming that Clause 5.12 could give rise to demurrage, the Tribunal still had to correctly determine which storage limit applied during each relevant period.

The Court noted that Clause 5.12 contemplated a higher storage capacity where the cargo commitment was expected to exceed 2 million MT per year. The minority award had examined the cargo figures and found that the applicable higher threshold had not been properly considered by the claimant while calculating demurrage.

The figures referred to in the minority award showed approximately 0.97 million MT for the first period, 1.94 million MT for the next period, 2.06 million MT for the following period and 1.86 million MT for the subsequent period. The minority arbitrator concluded that the higher storage limits contemplated by Clause 5.12 had not been properly accounted for in the claim.

The Division Bench found that the majority had failed to adequately consider these aspects. This was not treated as a mere difference in interpretation. In the Court's view, the failure to consider material evidence contributed to the conclusion that the majority award suffered from non application of mind and patent illegality.

There was also a separate evidentiary difficulty. The statements initially produced by VSPL did not demonstrate that the cargo had remained beyond the permissible period in the manner necessary to sustain the claim. A later statement identifying four periods of alleged excess storage was also not supported by sufficient underlying evidence or contemporaneous business records. The Court therefore found substance in the conclusion that the majority award was unsupported by evidence.

Waiver and the Conduct of VSPL

The Court also considered whether VSPL had waived its right to claim demurrage, assuming that such a right existed.

Clause 8 of the agreement contemplated a review of the contractual arrangement after the initial test period. The Court noted that the parties had an opportunity during this review process to consider operational parameters and modify the terms if required. Yet no demurrage provision was introduced.

The Court also considered VSPL's subsequent conduct. When SAIL denied liability for demurrage, VSPL continued the relationship, did not terminate the agreement and ultimately extended the arrangement without first insisting upon payment of the alleged outstanding demurrage. The Court regarded this conduct as supporting the finding of waiver.

The Court referred to the established principle that waiver involves the relinquishment of a known right.

The Limits of Arbitral Power

The judgment ultimately rests on a broader principle of arbitration law. An arbitrator cannot travel beyond the contract.

The Court relied upon authorities including Chandu Construction and PSA SICAL Terminals Pvt. Ltd. v. Board of Trustees of V.O. Chidambaranar Port Trust to reiterate that the arbitrator's authority comes from the agreement between the parties. An arbitrator cannot rewrite the agreement or introduce a contractual obligation which the parties did not incorporate.

The Court therefore concluded that the majority Tribunal had travelled beyond the contractual framework by imposing demurrage despite the absence of an agreed demurrage provision. The problem was compounded by the Tribunal's failure to properly consider material evidence and the applicable storage limits.

The Court accordingly characterised the majority award as suffering from non application of mind, lack of evidence, patent illegality and perversity.

Section 34 and Section 37

The decision also provides an important reminder about the relationship between Sections 34 and 37 of the Arbitration and Conciliation Act.

The Division Bench did not approach the matter as an ordinary appeal against the arbitral award. It examined whether the Single Judge had acted within the permissible boundaries of Section 34.

The Court concluded that the Single Judge had correctly exercised Section 34 jurisdiction. More importantly, the Division Bench held that the Single Judge's conclusion was an eminently plausible view. In a Section 37 appeal, the Division Bench would not interfere merely because it might have preferred another interpretation. Interference would be justified only if the Single Judge's conclusion was clearly wrong or perverse. The Court found no such error.

This reinforces the restrained approach applicable to judicial scrutiny of arbitral awards. Section 37 does not provide an opportunity for a second round of merits review. The appellate court must respect the limited scope of interference prescribed by the Arbitration and Conciliation Act.

Conclusion

The Calcutta High Court ultimately dismissed VSPL's appeal, APO 112 of 2022, along with IA No. GA/1/2022, and sustained the Single Judge's order setting aside the majority arbitral award. There was no order as to costs.

The significance of Vizag Seaport lies in the Court's insistence that arbitration remains fundamentally contractual. A tribunal may interpret the agreement but it cannot supplement it with a financial obligation that the parties did not include. Similarly, the existence of a statutory regulatory framework does not automatically transform every regulatory provision into a term of a private contract.

The decision also demonstrates that the principle of minimal judicial interference with arbitral awards is not absolute. Where an award travels beyond the contract, ignores material evidence and reaches a conclusion unsupported by the contractual framework, Section 34 scrutiny can be attracted. Once the Single Judge has reached a plausible conclusion within those parameters, the scope for further interference under Section 37 becomes even narrower.

Ultimately, the judgment can be reduced to one fundamental proposition. An arbitral tribunal is a creature of the contract. While it has authority to interpret the agreement, it cannot create a liability which the agreement itself does not contain.