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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO. 1229 OF 2001
IN
ARBITRATION PETITION NO. 416 OF 2001
IN
AWARD NO. 24 OF 2001.
ig
Oil and Natural Gas Corporation Limited, )
Bombay Regional Business Centre, )
Vasudhara Bhavan, Bandra (East), )
Mumbai-400 051 )..Appellants
versus
Dai Ichi Karkaria Limited, )
a Public Company incorporated under the )
Companies Act, 1956, having its Registered Office )
at Liberty Building, Sir Vithaldas Thackersey Marg, )
Mumbai-400 020 )..Respondents
Sri Dara Zaiwala, Senior Advocate, with Sri K.H. Mody and Ms. Chandini
Prakash, instructed by Little & Co., for the appellants.
Mr. D.J. Khambatta, Senior Advocate, with Sarvasri Zuber Behram Kamdin,
Vivek Vashi and Ms. Anuradha Agnihotri, instructed by Bharucha &
Associates for the respondents.
CORAM: SRI R.M.S. KHANDEPARKAR
&
SRI P.B. MAJMUDAR, JJ.
DATE: JUNE 30, 2008
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JUDGMENT (Per Sri P.B. Majmudar, J.)
This appeal is directed against the judgment and order dated 14th
August, 2001, of the learned single Judge passed in Arbitration Petition No.
416 of 2001 by which the learned single Judge modified the award of the
Arbitrator to the extent of rate of interest provided by the Arbitrator by
reducing the same from 12 per cent to 10 per cent from February, 1993 upto
the date of the award. The rest of the award was confirmed by the learned
single Judge.
2. The facts in a nutshell are as under:
2.1 The respondent, Dai Ichi Karkaria Limited, is a Public Limited
Company incorporated under the Companies Act, 1956, having its registered
office in Mumbai. The respondent-claimant carries on business of
manufacture and sale, inter alia, of Pour Point Depressant (“PPD” for short).
The appellant is a Public Sector Undertaking engaged in oil exploration,
development, production and treatment of oil and natural gas. The appellant
floated a global tender for supply of 2,450 metric tons of PPD and ultimately
the tender of the respondent was accepted and the appellant placed a supply
order dated 2nd April, 1988 on the respondent. The respondent agreed to
supply 2,450 metric tons of PPD at the aggregate rate of Rs. 8,19,10,850/-
plus sales tax as applicable. Clause 29 of the supply order provided that the
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appellant shall be entitled to place with the respondent repeat order for 50
per cent of the quantity of the supply order at the same price and on the
same terms and conditions as stipulated in the supply order during the validity
of the supply order or within six months from the date of supply order,
whichever was later.
2.2 The appellant by its letters dated 13th April, 1988 and 3rd May,
1988 agreed that in case there was any Government notification allowing
exchange rate fluctuation, the same should be complied with in accordance
with the provisions therein. The appellant agreed to this aspect pursuant to
the request made in this behalf by the respondent. Since the foreign
exchange fluctuation had occurred in the meanwhile, the respondent
requested the appellant to raise the price by absorbing the foreign exchange
fluctuation. Correspondence ensued between the parties in that behalf. The
appellant, however, refused to comply with the request made by the
respondent and on 12th June, 1989, the appellant placed a repeat order at
the same price and on the same terms and conditions as the original supply
order without providing for foreign exchange fluctuation or assuring the
respondent that its case would be referred to the concerned Ministry as per
the circular issued by the Government of India, Ministry of Finance. Following
upon the repeat order dated 12th June, 1989, a formal repeat order with some
minor amendments was placed by the appellant on the respondent on 26th
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February, 1990 and this amended repeat order also did not accept the
request of the respondent to absorb foreign exchange fluctuation and insisted
on maintaining the same price as set out in the original supply order.
2.3 The respondent was not prepared to accept the amended repeat
order dated 26th February, 1990, as it was of the view that under the circular
of the Government of India, Ministry of Finance, the appellant was bound to
absorb the foreign exchange fluctuation or at least to forward the case of the
respondent to the concerned Ministry with its recommendation. Thereafter
negotiations went on between the parties in this regard and in the course of
negotiations, the appellant acceded to the request of the respondent for
revised price of PPD and to give foreign exchange fluctuation by its telex
dated 27th July, 1990. The appellant thereafter by its letter dated 28th July,
1990 forwarded to the respondent certain amendments to the repeat order
dated 26th February, 1990. These amendments related, inter alia, to the
dates of delivery of PPD at Nhava Seva site of the appellant and the foreign
exchange content for metric ton of PPD and also increased the price to Rs.
39,287.44 per metric ton from the original price of Rs. 33,433.51 per metric
ton. The letter dated 28th July, 1990 made it clear that all other terms and
conditions of the repeat order dated 26th February, 1990 will remain
unaltered. The respondent, however, not prepared to accept the amended
repeat order dated 28th July, 1990, since the amendments did not fully
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concede the request made by the respondent in its letters dated 14th June,
1990 and 5th July, 1990, and accordingly the said repeat order dated 28th July,
1990 was not accepted by the respondent which resulted into further
negotiations between the appellant and the respondent. Considerable
correspondence ensued between the parties and in the course of which the
appellant addressed a letter dated 31st January, 1992 clarifying its position in
regard to the various issues. The appellant also set out a new delivery
schedule for supplies of PPD without imposing liquidated damages, as a
special case, and accordingly as per the new delivery schedule, delivery was
to commence at 350 Metric ton per month from February, 1992 onwards.
The appellant also made it clear that the respondent may accept 4 per cent
price reduction if new specifications were to be applied or in the alternative
the respondent may supply material as per the specifications indicated in the
original supply order. The appellant also requested the respondent to convey
its option immediately so that the supply order could be amended suitably, if
necessary. The respondent by its letter dated 4th February, 1992, reiterated
its contention that it was entitled to the benefit of foreign exchange
fluctuations. Accordingly, the proposal made by the appellant in its letter
dated 31st January, 1992 was not accepted by the respondent. This resulted
into further negotiations between the parties and ultimately an amended
repeat order dated 12th October, 1992 was issued by the appellant which
was accepted by the respondent. As per the aforesaid amended order dated
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12th October, 1992, a clause was incorporated to the effect that “other terms
and conditions of the subject order will remain unaltered”. So far as the
orders dated 26th February, 1990 and 28th July, 1990 are concerned, both
expressly stated that the sales tax was payable as “extra as applicable”.
There was no delivery schedule specified in the amended order dated 12th
October, 1992. The respondent actually completed the supplies under the
amended order dated 12th October, 1992 by February, 1993.
2.4 While making payment of the price for the supplies made by the
respondent, the appellant deducted an aggregate sum of Rs. 24,06,356.00
towards liquidated damages for delay in supplying PPD. The appellant also
refused to grant foreign exchange fluctuations to the respondent and also
failed to reimburse the difference of 6 per cent in sales tax payable under the
Maharashtra Sales Tax Act which had increased from 4 per cent to 10 per
cent with effect from 1st June, 1992. The respondent thereupon sought
arbitration in respect of its claim against the appellant in accordance with the
provisions in that behalf contained in the original supply order and the matter
was referred to the sole Arbitrator to adjudicate upon the claim of the
respondent.
2.5 Parties filed their respective pleadings before the Arbitrator and
after hearing the parties, the learned Arbitrator came to the conclusion that
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since no time for delivery was specified in the amended order dated 12th
October, 1992, it is implied that the supplies should be made within
reasonable time from the date of amended order. The sole Arbitrator found
that the respondents had complied with this obligation and complied delivery
of the supplies by February, 1993 and that there was no delay on the part of
the respondent in making supplies of PPD to the appellant and, therefore,
appellant was not entitled to deduct any amount by way of liquidated
damages from the price payable to the respondent. The learned Arbitrator
accordingly held that the respondent was entitled to recover the amount of
Rs. 24,06,356/- from the appellant together with interest thereon at the rate
of 12 per cent per annum from February, 1993 upto the date of the Award.
The Arbitrator also granted difference of of 6 per cent sales tax under the
Maharashtra Sales Tax Act on supplies of PPD made by the respondent. The
Arbitrator found that the refusal by the appellant to pay the difference of 6 per
cent by way of sales tax was not justified and accordingly awarded Rs.
28,87,627/- towards the difference in the sales tax together with interest at
the rate of 12 per cent from 28th February, 1993 till the date of the Award.
2.6 So far as original claim of the respondent regarding foreign
exchange fluctuation is concerned, the same was given up by the
respondent before the Arbitrator. The Arbitrator accordingly, by his award
dated 8th March, 2001, awarded an aggregate sum of Rs. 52,93,983/-
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together with interest thereon at the rate of 12 per cent from 28th February,
1993 upto the date of the Award and thereafter at the rate of 9 per cent per
annum till payment.
2.7 The appellant instituted Arbitration Petition under Section 30 of the
Arbitration Act, 1940, challenging the award of the sole Arbitrator being
Arbitration Petition No. 416 of 2001. The learned single Judge rejected the
contention of the appellant in connection with the liquidated damages as well
as the payment of difference in connection with the sales tax. The learned
single Judge, however, modified the award to the extent of rate of interest by
reducing interest from 12 per cent as awarded by the Arbitrator to 10 per cent
from February, 1993 upto the date of the Award and the rest of the Award of
the Arbitrator was confirmed and accordingly the Award as modified was
made a decree of the Court.
2.8 It is the aforesaid order of the learned single Judge which is
impugned in this appeal at the instance of the appellant.
3. At the time of hearing of this appeal, the learned counsel
appearing for the appellant attacked the award of the Arbitrator on the
following grounds:
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3.1 That in view of the delay in supplying the material, the respondent
was liable to pay liquidated damages and, therefore, the appellant was
justified in withholding the amount in question towards liquidated damages.
3.2 That the appellant was not required to pay the difference in
connection with the increase in the rate of sales tax and the appellant was
required to pay only 4 per cent of the sales tax irrespective of increase of the
same subsequently.
3.3 There is no provision for payment of interest in the contract and
that the Award in connection with the payment of interest is not sustainable
and the respondent was not entitled to get any interest in connection with the
amount awarded by the Arbitrator, and
3. 4 That the award of the Arbitrator is contrary to the terms of the
contract which would necessitate interference of the court on the ground of an
error apparent on the face of record.
4. To substantiate the argument, the learned counsel for the
appellant relied upon the decision of the Supreme Court in the case of Oil
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and Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.1. On behalf of the
respondent, the learned counsel has supported the order of the learned
single Judge as well as the Award of the Arbitrator.
5. It is submitted on behalf of the respondent that the powers of the
Court in a petition under Section 30 of the Arbitration Act, 1940 (hereinafter
referred to as “the Act”) is very limited as it is neither an appeal on facts nor
an appeal on law and the Court is required to consider only whether the
Arbitrator has committed an error apparent on the face of record and while
doing so, the Court cannot re-appreciate the evidence on record. It is further
submitted that from the material on record, the respondent has clearly
established that the appellant was not entitled to withhold any amount
towards liquidated damages especially when no delivery schedule was
fixed. It is also submitted that the appellant was bound to reimburse the
difference in the payment of sales tax. On the question regarding grant of
interest, it is submitted that the Arbitrator was within his right in awarding
interest for which a reference was made to the decision of the Supreme Court
in the case of Board of Trustees for the Port of Calcutta vs. Engineers-De-
Space-Age2 , the decision of a single Judge of this Court in the case of Oil and
1 (2003) 5 SCC 705
2 (1996) 1 SCC 516
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Natural Gas Commission vs. Macqreqor-Navire Port Equipment and others3 and
the decision of another single Judge of this Court in the case of Oil and
Natural Gas Corporation Ltd. vs. Western Geco International Ltd.4
6. The learned counsel for the appellant relied on the decision of the
Supreme Court in the case of Sikkim Subba Associates vs. State of Sikkim5,
to substantiate the argument on the ground that if there is an error apparent
on the face of record, the order of the Arbitrator can be set aside by the
Court. The Arbitrator having acted beyond his jurisdiction is a ground which
is different from an error apparent on the face of record. The appellant has
also relied upon various other judgments on the ground that if the Arbitrator
has committed any error apparent on the face of record, or if he has
exceeded his jurisdiction, the Court can interfere with such an Award. It is
also submitted that the Arbitrator cannot act arbitrarily, irrationally,
capriciously or beyond the contractual terms.
7. We have heard the learned counsel for the parties. We have
perused the documentary evidence placed on record, the Award of the
Arbitrator as well as the order of the learned single Judge. We have also
3 2002 (1) Bom.C.R. 278
4 2006 (3) Bom.C.R. 848.
5 2001 (2) Arb. LR 17 (SC)17
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considered the rival submissions advanced by the counsel appearing for the
parties. The first point which is required to be considered is as to whether
the Arbitrator has exceeded his jurisdiction in awarding the amount deducted
by the appellant towards liquidity damages. After considering the voluminous
documentary evidence on record, the Arbitrator has found that considering
the amended order dated 12th October, 1997, no time limit was fixed for
supply and in that view of the matter there was no delay on the part of the
respondent. It is required to be noted that the appellant at the first instance
placed reliance on the supply order issued to the respondent on 2nd April,
1998. Under clause (6) delivery in respect of that supply order was to be
completed by February, 1989. As per clause 18, the expression used in the
same is that “Sales tax extra as applicable”. Clause 20 provided that in the
event the Contractors failed to deliver or any instalments thereto within the
period fixed for such delivery in the schedule or at any time of contract before
expiry of such period, the purchaser without prejudice to any other remedy
available to him, may recover damages in breach of the contract. Clause 29
provides as under:
“Repeat order can also be placed with the supplier upto 50% of
the quantity of this order on the same terms and conditions as
stipulated in this original supply order during the validity of that
supply order or within 6 months from the date of this supply
order whichever is latter. It is the condition of this order which
will be obligatory on the part of the supplier to execute such
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order.”
8. The appellant thereafter placed repeat order on 13th June, 1989
and the delivery was to be made upto March, 1990. Subsequently
correspondence ensued between the parties. On 31st January, 1992, the
appellant wrote a letter to the respondent informing them that the case of the
respondent had been examined in detail taking into consideration various
letters and that, as a special case, appellant agreed for reimbursement of
excise duty on production of proof of payment of excise duty. The said letter
further states that the delivery was to commence against the order at the rate
of 150 metric tonnes per month from February, 1992 onwards.
9. So far as the delivery schedule set out in the letter dated 31st
January, 1992 is concerned, the same was never accepted by the
respondent as the respondent did not accept the proposal contained in the
said letter dated 31st January, 1992. It resulted into further correspondence
between the parties. In our view, therefore, the Arbitrator was perfectly
justified in holding that the delivery schedule set out in the letter dated 31st
January, 1992 did not bind on the respondent and on the contrary
negotiations went on between the parties and ultimately on 12th October,
1992 an amended order was agreed to between the parties. It has been
rightly held by the Arbitrator that liabilities of the parties in regard to supplies
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of PPD came to be governed exclusively by the amended order dated 12th
October, 1992. The amended order dated 12th October, 1992 made certain
amendments in the “Subject Supply Order”. It is required to be noted that
the subject order referred to the amended repeat orders dated 12th June,
1989, 26th February, 1990 as amended by the amendment repeat order dated
26th July, 1990 did not make any reference to the appellant’
s letter dated 31st
January, 1992. Considering the said documents on record, the Arbitrator
found that no delivery schedule was set out in the amended order dated 12th
October,1992 and, therefore, ultimately it was required to consider whether
the supply was made within reasonable time from the date of the amended
order dated 12th October, 1992 and the Respondent ultimately completed the
delivery of supplies by February, 1993. On the aforesaid basis it was found
that there was no unreasonable delay on the part of the respondent in
supplying the material and that the appellant, therefore, was not entitled to
deduct any amount towards liquidated damages from the price payable to the
respondent for the supplies made to the appellant. In our view, considering
the aforesaid factual aspect of the matter and considering the fact that after
voluminous correspondence ensued between the parties, it can never be
said that the Arbitrator has exceeded his jurisdiction or has misdirected
himself in coming to the conclusion that the appellant was not entitled to
withhold any amount towards liquidated damages from the price payable to
the respondent. It is required to be noted that in a petition under Section 30
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of the Act, the Court is not sitting in appeal over the Award of the Arbitrator.
The Court while examining the objections taken to an award filed by the
Arbitrator is not required to examine the correctness of the claim on merits
with reference to the materials produced before the Arbitrator. This Court can
interfere with the Award, if the Arbitrator has exceeded his jurisdiction or has
committed an error apparent on the face of record in interpreting the contract
and that the award is contrary to the terms of the contract.
10. The learned Arbitrator after considering the documents and
clauses contained in the contract between the parties has held that there was
no delay on the part of the respondent in supplying the material and,
therefore, appellant was not entitled to withhold the amount towards
liquidated damages. It is not in dispute that there was no time specified in the
amended order dated 12th October, 1992 for supply of material in question as
ultimately the respondent started supplying the material to the appellant
under the amended repeat order dated 12th October, 1992. In our view, the
learned Arbitrator has not committed any error apparent on the face of record
on this aspect and, therefore, the contention of the appellant, therefore, in this
behalf is rejected.
11. So far as the claim regarding difference in the payment of sales
tax is concerned, it is to be noted that the sales tax payable on the date of
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delivery of the supplies was 10 per cent, since supplies were made after 1st
June, 1992. The Arbitrator has rightly found that the appellant was not
justified in reimbursing the claim towards the sales tax only to the extent of 4
per cent as at the time when the supply was made, the sales tax payable was
10 per cent as per Maharashtra Sales tax Act. The appellant was
accordingly bound to reimburse the total amount paid by the respondent
towards Sales Tax. As the sales tax was to be borne by the purchaser and if
there is change in the quantum of sales tax in between, whatever amount
paid by the respondent towards sales tax, the entire amount towards the
same was reimbursed and accordingly the Arbitrator has rightly awarded the
difference of 6 per cent of payment of sales tax. It cannot be said that the
Arbitrator has committed any error much less any error of law or any other
error apparent on the face of record while awarding the said amount. The
learned counsel for the appellant has placed reliance on the decision of the
Supreme Court in the case of Associated Engineering Company vs.
Government of Andhra Pradesh and another6 wherein the Supreme Court has
held in paragraph 24 as under:
“24. The arbitrator cannot act arbitrarily, irrationally,
capriciously or independently of the contract. His sole
function is to arbitrate in terms of the contract. He has no
power apart from what the parties have given him under the
contract. If he has travelled outside the bounds of the6 (1991) 4 SCC 93
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remained inside the parameters of the contract and has
construed the provisions of the contract, his award cannot be
interfered with unless he has given reasons for the awarddisclosing an error apparent on the face of it”.
In the case of Saw Pipes (supra) the Supreme Court has held that if an
award is contrary to substantive provisions of law or the provisions of the Act
of 1940 or against the terms of contract, it would be patently illegal and the
same would be subject to interference under Section 34 (2) (a) (v) of the Act
of 1940. On the other hand, the learned counsel for the respondent has
referred to a decision rendered by a Division Bench of this Court to which
one of us (R.M.S. Khandeparkar, J.) is a party in Appeal No. 1202 of 1997
(Oil and Natural Gas Corporation Ltd. vs. Dai Ichi Karkaria Ltd. The Division
Bench after considering various judgments of the Supreme Court,
summarised the propositions as under:
“(i) A Court while examining the objections taken to an award
filed by an Arbitrator is not required to examine the
correctness of the claim on merits with reference to the
materials produced before the Arbitrator. The Court cannot sit
in appeal over the views of the Arbitrator by re-examining andre-assessing the material;7
(ii) The Arbitrator is constituted by the parties to be a final
arbiter of the disputes between them and the award is not
open to challenge on the ground merely that the Arbitrator has
reached a wrong conclusion or that he has failed to appreciate
facts;8
(iii) If there is no legal proposition either in the award or in
7 Puri Construction Pvt. Ltd. v. Union of India, AIR 1989 SC 777 (pages 13 and 14 at pages 782 and 783.
8 Hindustan Tea Co. v. K. Shashikant & Co., AIR 1987 SC 81 (para 2 at page 82)
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any document annexed to the award which is erroneous and
which constitutes the basis of the award and the alleged
mistakes or errors are only mistakes of fact, the award is not
amenable to correct by the Court;9
(iv) Even assuming that there is an error of construction of
an agreement, or an error in law in arriving at a conclusion,
such an error is not an error which is amenable to correction in
a reasoned award. In order to set aside an award, there must
be a wrong proposition of law laid down in the award which
constitutes the basis of the award;10
(v) The reasonableness of the reasons furnished by
the Arbitrator in making his award cannot be challenged. The
fact that on the same evidence, a Court might have arrived at
a conclusion different from the one arrived at by the Arbitrator
is by itself no ground for setting aside the award;11
(vi) The application of the error apparent on the face of
the record test does not empower the Court exercising
jurisdiction under Section 30 to substitute the scrutiny by the
Arbitrator by an evaluation of the Court of the merits of the
documents and the materials on record. If the view of the
Arbitrator is a possible view, the reasons in the award cannot
be examined. Issues relating to a default in the performance
of contractual obligations; of whether time was of the essence
and of the assessment of the quantum of damages are issues
of fact and it is not open to the Court to interdict an award on
such factual issues;12
(vii) If the Arbitral Tribunal has committed an error of
fact or law in reaching its conclusion on a disputed question
submitted for adjudication, the Court would have no jurisdiction
to interfere with the Award. This would depend upon the
reference made to the Arbitrator. In a general reference for
deciding a contractual dispute, the Court could interfere if the
award is based on an erroneous legal proposition. In a
reasoned award, the Court can interfere if on the face of the
award, there is an erroneous proposition of law or application.
9 Jawaharlal Wadhwa v. Haripada Chakroberty, AIR 1989 SC 606 (para 6 at page 610)
10 U.P. Hotels v. U.P. State Electricity Board, AIR 1989 SC 268 (paras 17 and 19 at pages 274 and 275).
11 Delhi Municipal Corporation vs. M/s. Jagan Nath Ashok Kumar, AIR 1987 SC 2316.
12 Arosan Enterprises Ltd. v. Union of India, AIR 1999 SC 3804 (para 36 page 3819 and para 38 page 3820).
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However, if a specific question of law is submitted to the
Arbitrator an erroneous decision therein would not render the
award bad unless the Arbitrator has proceeded illegally;13
(viii) The Court exercising jurisdiction under Section 30
of the Arbitration Act, 1940 is not entitled to probe the mental
process of the Arbitrator and where no reasons have been
furnished as to what impelled the Arbitrator to arrive at his
conclusion, the reasonableness of the reasons and the
appraisal of evidence are matters which lie in a realm of
arbitration. The Court does not take upon itself the task of
being a judge on the evidence before the Arbitrator. The error
apparent test does not empower the Court to invalidate an
award merely because by a process of interference and
argument, it may be demonstrated that the Arbitrator has
committed some mistake in arriving at a conclusion;14
(ix) An award may be remitted or set aside on the
ground that the Arbitrator making it had exceeded his
jurisdiction and evidence of matters not appearing on the face
of award will be admitted in order to establish whether or not
the jurisdiction has been exceeded, because the nature of the
dispute is something which has to be decided outside the
award. The Arbitrator having acted beyond jurisdiction is a
ground which is different from an error apparent on the face of
the award. However, a distinction in such a case must be
drawn between an error within the jurisdiction and an error in
excess of jurisdiction. While the Court may examine the
claims to find out whether they were within the disputes
referred to the Arbitrator, it is not open for the Court to find out
whether in arriving at the decision, an Arbitrator has acted
correctly or incorrectly. Hence, whether a particular amount
was liable to be paid or damages liable to be sustained was a
decision within the competence of the Arbitrator;15
(x) An Arbitrator cannot act arbitrarily, irrationally,
capriciously or independently of the contract. His sole function
is to arbitrate in terms of the contract. An Arbitrator who travels
outside the bounds of the contract, acts without jurisdiction.
However, so long as he remains within the parameters of the
13 ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705 (para 54 page 736)
14 Sudarshan Trading Co. v. Govt. of Kerala, AIR 1989 SC 890 (para 29 page 901)
15 Sudarshan Trading (supra) Para 31 page 902.
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contract and construes the provisions of the contract, the
award cannot be interfered with unless he has given the
reasons for the award disclosing an error apparent on the face
of it;16
(xi) The authority of the Arbitrator is derived from the
contract and he commits a misconduct if by his award, he
decides a matter excluded by the agreement. A conscious
disregard of the law or of the provisions of the contract from
which the Arbitrator has derived his authority vitiates the
award. An error in the construction of the contract is an error
within jurisdiction but an Arbitrator who travels outside the
contract commits a jurisdictional error.17″
After going through the award of the Arbitrator and after going through the
material on record, in our view, it cannot be said that the Arbitrator has
committed any error apparent on the face of record or that he has travelled
beyond the agreement between the parties in coming to the conclusion that
the appellant was not entitled to withhold any amount by way of liquidated
damages as ultimately the material was supplied within the reasonable time
and that the appellant was required to pay the difference in sales tax. The
Arbitrator reached the said conclusion after interpreting the agreement
entered into between the parties and it cannot be said that he has travelled
beyond the contract.
12. So far as the award of the Arbitrator granting interest is concerned,
in our view, the award of the Arbitrator in this regard is not sustainable. In
16 Associated Engineering Co. v. Govt. of A.P. (1991) 4 SCC 93 (para 24 page 103).
17 Associated Engineering Co. v. Govt. of A.P. (1991) 4 SCC 93 (paras 25 and 27 page 103).
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this connection, it is relevant to mention clause 27 of the supply order dated
26th February, 1990, which provides as under:
“It is agreed term of the contract/supply order that the sum of
money or monies so withheld or retained under the lienreferred to above, by the Commission will be kept withheld or
retained as such by the Commission till the claim arising out of
or under the contract is determined by the Arbitrator (if the
contract is governed by the arbitration clause) or by thecompetent court, as the case may be, and that the contractor
will have no claim for interest or damages whatsoever onany account in respect of such withholding or retention under
the lien referred to supra and duly notified as such to the
Contractor. For the purpose of this clause, where Contractor isa partnership firm or a limited Company, the Commission shall
be entitled to withhold and also have a lien to retain towards
such claimed amount or amounts in whole or in part from any
such sum payable to any partner or director of a limitedcompany, as the case may be, whether in his individual
capacity or otherwise”.
In view of the above, it is amply clear that the respondent was not entitled to
claim any interest. In that view of the matter and especially when the
agreement nowhere provides that the Arbitrator will be entitled to adjudicate
the claim of interest, the award of the Arbitrator suffers from patent illegality
in so far as the award of payment of interest is concerned. The Supreme
Court in the case of Oil and Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.18
which was a matter arising under the Act of 1996 has held as under:
“It is to be reiterated that it is the primary duty of the
arbitrators to enforce a promise which the parties have made
18 (2003) 5 SCC 705
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and to uphold the sanctity of the contract which forms the
basis of the civilized society and also the jurisdiction of the
arbitrators. Hence, this part of the award passed by the
Arbitral Tribunal granting interest on the amount deducted by
the appellant from the bills payable to the respondent is
against the terms of the contract and is, therefore, violative of
Section 28 (3) of the Act.”
13. The appellant has also relied upon a decision of the learned
single Judge of this Court in the case of Oil and Natural Gas Commission vs.
McDermott International Inc19 wherein the learned single Judge has
considered the payment of interest under the Act of 1940. The learned single
Judge has held in paragraph 50 of the said judgement which considered the
question about award of pre-reference interest that as per the terms of the
contract in that case the interest could be awarded only with regard to the
undisputed amount, and for the disputed amount no interest could be
granted. The respondent on the other hand has relied upon the decision of
the Supreme Court in the case of Board of Trustees for the Port of Calcutta
(supra). The said decision is under the Act of 1940. The Supreme Court in
the said case has considered the question of payment of interest in regard to
the award of the interest by the Arbitrator post reference. In paragraph 4 it
has been held that after considering the clause in the contract by which the
Commissioner was prohibited from entering any claim of interest, the
Supreme Court has held that by the particular clause, the Commissioner was
19 2000 (3) Mh.L.J. 747
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prohibited from entering any claim of interest but it does not mean that the
Arbitrator was also prohibited from awarding interest pending dispute. It has
been held that once the matter goes to arbitration the discretion of the
arbitrator is not, in any manner, stifled by the term of the contract and the
arbitrator would be entitled to consider the question of grant of interest
pendente lite and award interest if he finds the claim to be justified. The
Supreme Court has accordingly considered the payment of interest pendente
lite. So far as the facts of the present case is concerned, there is nothing on
record to show that the parties had agreed on the question of payment of
interest for the period prior to the reference. On the contrary, the agreement
speaks otherwise. Considering the factual aspect of the matter, in our
considered opinion, the arbitrator has exceeded his jurisdiction in awarding
the amount with interest which covers the payment prior to the making of the
reference. As a matter of fact, even as per the clause which we have quoted
above, no amount of interest was payable at all. Interpreting the said clause
and considering the factual aspect of the matter and the provisions of the Act
of 1940, in our view, the arbitrator has acted beyond his jurisdiction and,
therefore, part of the award in granting interest to the respondent is without
jurisdiction. The order of the Arbitrator is therefore clearly without jurisdiction
and accordingly the order of the arbitrator is modified to the extent of setting
aside the same in so far as it relates to payment of interest upto the date of
the award regarding pre-reference period as well as pending the reference.
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However, we confirm the order of the learned single Judge in granting
interest from the date of the Award.
14. The grant of interest upto the date of award is accordingly set
aside by modifying the order of the arbitrator. The respondent will be entitled
to get interest from the date of the Award at the rate of 10 per cent.
Accordingly, this appeal is partly allowed by modifying the award to the
aforesaid extent. The order of the learned single Judge is also set aside to
the aforesaid extent and the order passed by this Court is accordingly made
a decree of the Court.
R.M.S. KHANDEPARKAR, J.
P.B. MAJMUDAR, J.
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