{"id":128221,"date":"2005-04-05T00:00:00","date_gmt":"2005-04-04T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/bhagawati-oxygen-ltd-vs-hindustan-coper-ltd-on-5-april-2005"},"modified":"2017-08-13T19:34:58","modified_gmt":"2017-08-13T14:04:58","slug":"bhagawati-oxygen-ltd-vs-hindustan-coper-ltd-on-5-april-2005","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/bhagawati-oxygen-ltd-vs-hindustan-coper-ltd-on-5-april-2005","title":{"rendered":"Bhagawati Oxygen Ltd vs Hindustan Coper Ltd on 5 April, 2005"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Bhagawati Oxygen Ltd vs Hindustan Coper Ltd on 5 April, 2005<\/div>\n
Author: C Thakker<\/div>\n
Bench: Ruma Pal, C.K. Thakker<\/div>\n
           CASE NO.:\nAppeal (civil)  2412-2413 of 2005\n\nPETITIONER:\nBhagawati Oxygen Ltd.\n\nRESPONDENT:\nHindustan Coper Ltd.\n\nDATE OF JUDGMENT: 05\/04\/2005\n\nBENCH:\nRUMA PAL & C.K. THAKKER\n\nJUDGMENT:\n<\/pre>\n
JUDGMENT<\/p>\n
C.K. Thakker, J.\n<\/p>\n
Leave granted.\n<\/p>\n
All these appeals arise out of common judgment and order passed by the
\nDivision Bench of the High Court of Calcutta in APOT Nos. 721 of 2002 and
\n736 of 2002 on July 03, 2003 by which the Division Bench confirmed the
\norder passed by learned single Judge on July 24, 2002 in A.P. No. 369 of
\n2002. That A.P. was filed by Hindustan Copper Limited against Arbitration
\naward passed by Justice L.M. Ghosh (Retd.) on September 25, 2000, under the
\nArbitration Act, 1940 (hereinafter referred to as `the Act’).\n<\/p>\n
To appreciate the controversy raised in the present appeals, relevant facts
\nmay be stated in brief. On March 10, 1988, Hindustan Copper Limited (`HCL’
\nfor short) invited tender for supply of oxygen for its plant at Ghatsila.
\nThe tender contained a condition that successful bidder will set up an
\noxygen plant in the vicinity of HCL. The tender of Bhagwati Oxygen Limited
\n(`BOL’ for short) was accepted and an agreement had been entered into
\nbetween HCL and BOL on March 17\/April 14, 1990. It was for a period of
\nseven years from the date of commencement of supply of oxygen. The
\nagreement stated that the supplier i.e. BOL will at its own cost install,
\noperate and maintain an oxygen plant of 25 TPD capacity of pressure vacuum
\nswing absorption type with suitable compressors for supply of high purity
\noxygen gas to HCL. It also stated that the purity of oxygen would be 99 per
\ncent. The agreement further stated; “The oxygen plant should have the
\ncapacity to supply not less than 1,25,000 mm3 of gas of 99 per cent purity
\nper week on a sustained basis as and when required by HCL. Clause 2.3
\nclarified that the minimum acceptable purity of the oxygen gas should be 85
\nper cent for both flash furnace and converter. Meter readings for invoicing
\nbilling purpose were to be taken jointly by authorized representatives of
\nHCL and BOL as and when the plant stopped\/started. Provision was also made
\nfor periodical checking and calibration of meters. It was the duty of BOL
\nto erect plant and pipe line system. A right to inspection and review was
\nconferred upon HCL. Requirement of gas and supply thereof had been
\nmentioned in Clause 2.1. Water supply required for the plant was to be
\narranged by BOL at its own cost but HCL agreed to supply water for
\noperation of the plant. BOL had undertaken to erect and commission the
\nplant and start supply of gas continuously to HCL within 18 months from the
\ndate of receipt of order or letter of intent whichever was earlier and the
\ngas was to be made available to HCL in the requisite quality and quantity
\nas per conditions agreed upon. Provisions had also been made with regard to
\nprice of gas and minimum off-take guaranteed. Time was the essence of the
\ncontract and penalty had been provided for in case of breach of contract.\n<\/p>\n
Clauses 10.4 and 10.5 are relevant and they read as under :-\n<\/p>\n
“10.4. In case BOL fail to supply oxygen from the Captive plant as per the
\ncontract terms after commissioning of the plant, it will be the
\nresponsibility of BOL to arrange liquid oxygen from other sources at
\ncontracted rates and keep HCL requirement feed uninterruptedly failing
\nwhich HCL will have the right to procure the gas from elsewhere and the
\ndifference of such procurement cost and the agreed price subject to a limit
\nof 80% of the total requirement as per NIT, will be recovered from BOL
\nforthwith. However, HCL will give adequate chance to BOL to meet the HCL’s
\nrequirements by their own means from other sources at the contract price.\n<\/p>\n
“10.5. In case, for any period the quantity of Gas supplied goes down below
\nthe guaranteed purity or pressure, no payment will be made for that period
\nor quantity unless specifically prior acceptance is obtained from HCL.”<\/p>\n
A security deposit of Rs. 20 lacs (Rupees twenty lacs only) had been made
\nby BOL to HCL in the form of bank guarantee issued by the Central Bank of
\nIndia, New Delhi. There was an arbitration clause being Clause No.12. The
\nsaid clause reads thus:\n<\/p>\n
“Except where it has been provided otherwise, any dispute or difference
\narising out of or in connection with the work or any operation covered by
\nthe contract and any dispute or difference arising out of in connection
\nwith the agreement entered into between HCL and BOL including any dispute
\nor difference relating to the interpretation of the agreement or any clause
\nthereof, shall be referred to sole arbitration of a person appointed
\njointly by the Chairman of HCL and BOL. The provisions of the Arbitration
\nAct, 1940 and the rules thereunder and any amendment thereto from time to
\ntime shall apply. The award of the arbitrator shall be final, conclusive
\nand binding to all the parties to the contract. The arbitrator shall be
\ncompetent to decide whether any matter, dispute of difference referred to
\nhim falls within the purview of arbitration as provided for above.”\n<\/p>\n
In accordance with the terms and conditions of the contract, BOL set up its
\noxygen producing plant on 31st July, 1992 and commenced supply of oxygen to
\nHCL. It is the case of BOL that it supplied oxygen to HCL from 10th
\nFebruary, 1993 to 12th August, 1993. According to the BOL, however, no
\npayment was made by HCL to BOL on the ground that oxygen supplied by BOL to
\nHCL did not meet the purity standard as agreed between the parties. It was
\nalso alleged by BOL that bad water was supplied by HCL as a result of which
\nthe plant was damaged and ultimately was shut down on August 12, 1993. On
\nOctober 11, 1993, a letter was written by HCL to BOL calling upon BOL to
\nsupply or to arrange for supply of oxygen to HCL on or before August 26,
\n1993. But the gas was not supplied by BOL to HCL. On July 27, 1994, an
\nagreement was arrived at between the parties to refer the dispute to the
\nArbitration of Justice L.M. Ghosh, retired Judge of the High Court of
\nCalcutta. On 1st April, 1995, arbitration commenced. BOL claimed Rs.
\n1,80,81,402.93 ps. :\n<\/p>\n
(i)\tDues on account of unpaid bills;\n<\/p>\n
(ii)\tCost of repairing and over hauling its plant due to bad water
\nsupplied by HCL;\n<\/p>\n
(iii)\tLoss of revenue due to shut down of the plant by reason of bad
\nwater supplied by HCL; and<\/p>\n
(iv)\tInterest.\n<\/p>\n
HCL, on the other hand, filed a counter claim in the arbitration
\nproceedings for Rs. 2,66,26,023.14 ps. inter alia claiming :\n<\/p>\n
(i)\tRecovery of excess amount paid to BOL;\n<\/p>\n
(ii)\tDifference of price of oxygen purchased by HCL from other sources
\n(risk purchase);\n<\/p>\n
(iii)\tExtra expenditure due to consumption of excess furnace oil due to
\nlow purity of oxygen;\n<\/p>\n
(iv)\tLoss of production by HCL; and<\/p>\n
(v)\tInterest.\n<\/p>\n
The Arbitrator, after holding several meetings, gave an award on September
\n25, 2000. He held that the claim put forward by BOL was well founded and
\nBOL was thus entitled to an amount of Rs. 74,84,521.34 ps. He also held
\nthat HCL was unable to prove its case and counter claim. The counter claim,
\ntherefore, was liable to be dismissed. Regarding interest, he held that BOL
\nwas entitled to claim interest at the rate of eighteen per cent per annum
\nfor pre-reference period, pendente lite and from the date of award till the
\ndate of payment. According to the Arbitrator, BOL was also entitled to an
\namount of Rs. 1,50,000 (One lakh and fifty thousand only) on account of
\ncosts.\n<\/p>\n
The award was challenged by HCL by filing A.P. No. 369 of 2000 under
\nSections 30 and 33 of the Act. A prayer was made to set aside the award. It
\nwas contended that the Arbitrator had misconducted himself and the
\nproceedings. It was also contended that the Arbitrator had exceeded his
\njurisdiction and decided the questions not covered by Clause 12 of the
\nArbitration agreement and hence, the award was invalid. It was argued that
\nthe Arbitrator ought not to have allowed the claim of BOL nor could have
\ndismissed the counter claim of HCL. Since there was breach of contract by
\nBOL, it was not entitled to any amount. On the other hand, in view of non-
\ncompliance with the terms and conditions of the contract and breach of
\nagreement, BOL was liable to pay and HCL was entitled to the amount claimed
\nin the counter claim. It was also urged that the Arbitrator had no
\njurisdiction and had committed an error of law as well as of jurisdiction
\nin awarding interest at the rate of eighteen per cent for pre-reference,
\npendente lite and post award period.\n<\/p>\n
The learned single Judge heard the parties and held that so far as the
\nclaim of BOL was concerned, the Arbitrator was right in allowing the said
\nclaim and no interference was called for. Regarding counter claim, however,
\nthe learned single Judge was of the opinion that Clause 10.4 as extracted
\nhereinabove was clear and it provided for “default”. The learned single
\nJudge referred to several letters and communications by HCL to BOL and
\nobserved that from those documents, it was proved that objection was raised
\nby HCL as to non supply of oxygen gas by BOL and BOL was expressly
\nintimated that HCL would be constrained to purchase oxygen gas at the cost
\nand consequences of BOL. Since all those letters and communications had not
\nbeen considered by the Arbitrator, the award dismissing the counter claim
\nof HCL deserved to be interfered with. Accordingly, order dismissing the
\ncounter claim by HCL was set aside by the learned single Judge and the
\nmatter was remitted to the Arbitrator to take an appropriate decision in
\naccordance with law on that issue.\n<\/p>\n
So far as the payment of interest to BOL on the claim which had been
\nallowed by the Arbitrator is concerned, the learned single Judge was of the
\nview that Section 61 of the Sale of Goods Act, 1930 did not provide rate of
\ninterest. Section 34 of the Code of Civil Procedure, 1908 had no
\napplication to arbitration proceedings. In absence of any contract between
\nthe parties with regard to the rate of interest payable, the learned single
\nJudge held that it would be appropriate if interest is awarded to BOL at
\nthe rate of six per cent per annum. For taking that view the learned single
\nJudge relied upon a decision of this Court in State of Rajasthan v. Nav
\nBharat Construction Co.,<\/a> [2002] 1 SCC 659 wherein this Court reduced the
\nrate of interest awarded by the Arbitrator from eighteen per cent to six
\nper cent per annum. The learned single Judge accordingly partly allowed the
\nappeal and remitted the matter to the Arbitrator to decide counter claim of
\nHCL.\n<\/p>\n
Being aggrieved by the order passed by the learned single Judge, HCL and
\nBOL preferred appeals before a Division Bench of the High Court. The
\ngrievance of HCL was that the learned single Judge ought to have allowed
\nthe appeal in its entirety and ought to have dismissed the claim of BOL by
\nallowing counter claim of HCL. The complaint of BOL, on the other hand, was
\nthat the learned single Judge ought to have dismissed the counter claim and
\nshould not have interfered with the rate of interest granted by the
\nArbitrator in favour of BOL. In short, the learned single Judge ought to
\nhave dismissed the application of HCL.\n<\/p>\n
The Division Bench considered the rival contentions of the parties and
\ndismissed both the appeals confirming the order passed by the learned
\nsingle Judge. The Division Bench observed that by confirming the claim of
\nBOL, the learned single Judge did not commit any error of law. Similarly,
\nthe learned single Judge was also right in upholding the argument of HCL
\nthat the Arbitrator was wrong in dismissing the counter claim and he had
\nnot considered several communications to BOL. The order of the learned
\nsingle Judge thus did not call for interference. Regarding rate of
\ninterest, the Division Bench was of the view that learned single Judge was
\nright in observing that Section 61 of Sale of Goods Act did not provide the
\nrate of interest. It was also true that there was no indication in the
\ncontract as to payment of interest. In the opinion of the Division Bench,
\nhowever, the learned single Judge was right in reducing the rate of
\ninterest keeping in view the provisions of Section 34 of the Code of Civil
\nProcedure and as such that part of the order also did not warrant
\ninterference. The Division Bench thought it proper to dismiss the appeals
\nand accordingly both the appeals were dismissed.\n<\/p>\n
Both the parties, i.e. HCL and BOL have approached this Court.\n<\/p>\n
We have heard learned counsel for the parties.\n<\/p>\n
Learned counsel for BOL submitted that the Arbitrator was wholly right in
\npassing the award and in allowing the claim of BOL. It was urged that
\nlearned single Judge as well as the Division Bench were totally wrong in
\npartly setting aside the award passed by the Arbitrator. The counsel
\ncontended that the jurisdiction of the court under Section 30 of the Act is
\nextremely limited and an award can be set aside only on one or more grounds
\nspecified therein. Since none of the grounds existed, the court could not
\nhave interfered with the award nor the award could be set aside. According
\nto the learned counsel, the Arbitrator considered the evidence on record –
\ndocumentary as well as oral – and came to the conclusion that no case was
\nmade out by HCL on the basis of which counter claim could be allowed and
\naccordingly dismissed it. The learned single Judge and the Division Bench
\nre-appreciated the evidence and set aside that part of the award by
\nremitting the matter to the Arbitrator to reconsider and decide afresh the
\ncounter claim of HCL. It was not within the jurisdiction of the learned
\nsingle Judge or the Division Bench and the order deserves to be quashed and
\nset aside. Regarding interest, the counsel submitted that the agreement did
\nnot contain any clause as to interest. Section 34 of the Code of Civil
\nProcedure was not applicable. Section 61 of the Sale of Goods Act does not
\nprovide rate of interest nor it applied to the case on hand. If in the
\nlight of these facts, the Arbitrator awarded interest to BOL at eighteen
\nper cent considering the fact that that was the rate at which HCL had given
\nadvance to BOL, such an order could not be termed as unlawful or otherwise
\nobjectionable. Neither the learned single Judge nor the Division Bench was
\njustified in interfering with the rate of interest. It was, therefore,
\nsubmitted that the appeal filed by HCL deserves to be dismissed and appeal
\nfiled by BOL deserves to be allowed.\n<\/p>\n
The learned counsel for HCL, on the other hand, supported the orders passed
\nby the learned single Judge and the Division Bench so far as they relate to
\nremanding the matter to Arbitrator for deciding afresh the counter claim of
\nHCL. Regarding payment of interest at the rate of six per cent per annum to
\nBOL, it was submitted that even that part of the order was not warranted
\nand the claim of BOL was liable to be rejected. The Arbitrator committed an
\nerror of law and has misconducted himself as well as proceedings in
\nallowing such claim. According to the learned counsel, there was breach of
\ncontract on the part of BOL, oxygen was not supplied as per the agreement
\nentered into between the parties; purity of oxygen was not maintained;
\nother terms and conditions were also not fulfilled by BOL and as such, BOL
\nwas not entitled to any relief. It was, therefore, prayed that the award
\npassed by the Arbitrator deserves to be quashed in its entirety by allowing
\nthe appeal of HCL.\n<\/p>\n
In the light of rival contentions of the parties, in our opinion, three
\nquestions arise for our consideration :\n<\/p>\n
(1) Whether on the facts and in the circumstances of the case, the
\nArbitrator was right in allowing the claim of BOL?\n<\/p>\n
(2) Whether the Arbitrator had misconducted himself in passing the impugned
\naward and by dismissing the counter claim of HCL and whether the learned
\nsingle Judge and the Division Bench of the High Court were right in setting
\naside that part of the award by directing the Arbitrator to re-consider the
\nmatter and decide it afresh? and<\/p>\n
(3) Whether the Arbitrator had power to award interest at the rate of
\neighteen per cent per annum for pre-reference period, pendente lite and
\npost reference, i.e. future interest from the date of award till the date
\nof payment and whether the learned single Judge and the Division Bench were
\njustified in reducing the rate of interest from eighteen per cent to six
\nper cent?\n<\/p>\n
Now, so far as the first question is concerned, the Arbitrator considered
\nthe matter in detail. He observed that after the agreement was entered into
\nbetween the parties, BOL set up its plant and commenced supply of oxygen to
\nHCL. It was the case of BOL that though oxygen was supplied to HCL, no
\npayment was made by HCL. It was alleged by HCL that oxygen supplied by BOL
\ndid not meet the purity standard of 99 per cent nor the minimum standard of
\n85 per cent but it varied between 45 per cent to 65 per cent. BOL was,
\ntherefore, not entitled to payment for the supply. It was also contended
\nthat Clause 10.5 (referred to earlier by us) specifically provided that in
\ncase quantity of gas supplied goes down below the guaranteed purity, no
\npayment would be made. Since the purity of oxygen gas was below 85 per
\ncent, HCL was justified in refusing payment. It was also submitted that as
\nper agreement, BOL was required to establish a 50,000 Litres Vacuum
\nInsulated Storage Tank (VIST) evaporation and distribution system in the
\nplant and was to maintain constant stock of 50,000 Litres of liquid oxygen
\nbut BOL failed to establish it. There was thus breach of condition by BOL.
\nKeeping that fact in view, payment was not made by HCL and it could not
\nhave been held that HCL was wrong in not making payment. BOL, in view of
\nbreach of condition could not have asked for payment. The Arbitrator,
\ntherefore, was wrong in allowing the claim of BOL.\n<\/p>\n
Now, the Arbitrator has considered the contention of both the parties. He
\nobserved that as per the contract, BOL had undertaken to provide a VIST for
\nstorage of liquid oxygen of 50,000 litres. It was not disputed that VIST
\nwas not established by BOL and there was no provision for storage of liquid
\noxygen. He, however, observed that HCL neither insisted for establishing
\nVIST nor objected for not establishing it.\n<\/p>\n
Regarding purity of oxygen, the Arbitrator observed that HCL never
\ncomplained regarding the fall of purity of oxygen during the relevant
\nperiod. Referring to the letters written by HCL to BOL, the Arbitrator
\nobserved that HCL continued to accept oxygen gas supplied by BOL without
\navoiding the contract on the ground that there was breach of agreement by
\nBOL. The Arbitrator observed that there was neither excess consumption of
\nfurnace oil nor drop in production by HCL. Referring to the decisions of
\nthis Court in Associated Hotels of India Ltd. v. S.B. Sardar Ranjit Singh,<\/a>
\n[1968] 2 SCR 545 and Brijendra Nath Bhargava and Anr. v. Harsh Vardhan and
\nOrs.,<\/a> [1988] 1 SCC 454, the Arbitrator held that even if it was the case of
\nHCL that there was non-compliance of certain terms and conditions by BOL,
\nthere was waiver and abandonment of the rights conferred on HCL and it was
\nnot open to HCL to refuse to make payment to BOL on that ground. In view of
\nwaiver on the part of HCL, it was incumbent on HCL to make payment and
\nsince no such payment was made, BOL was right in making grievance regarding
\nnon-payment of the amount and accordingly an award was made in favour of
\nBOL. The learned single Judge as well as the Division Bench of the High
\nCourt considered the grievance of HCL so far as the claim of BOL allowed by
\nthe Arbitrator and upheld it.\n<\/p>\n
In view of the finding recorded by the Arbitrator and non-interference by
\nthe High Court, we are of the view that no case has been made out by HCL as
\nregards the claim allowed by the Arbitrator in favour of BOL to the extent
\nof supply of oxygen gas to HCL. Hence, the appeal filed by HCL deserves to
\nbe dismissed.\n<\/p>\n
The grievance of the BOL is the learned single Judge and the Division Bench
\nwere not justified in setting aside the dismissal of counter claim of HCL
\nby the Arbitrator and in remitting the matter to the Arbitrator for fresh
\nconsideration. It was submitted that the High Court was not hearing an
\nappeal from the order passed by the Arbitrator. The jurisdiction of the
\nCourt in such matters is limited and an award can be set aside only on
\ncertain grounds specified in the Act. Since the case was not covered by any
\nof the clauses of Section 30, the orders passed by the High Court are
\nclearly without jurisdiction.\n<\/p>\n
Section 30 of the Act enumerates grounds for setting aside an award passed
\nby the Arbitrator. It reads thus :\n<\/p>\n
“30. Grounds for setting aside award. – An award shall not be set aside
\nexcept on one or more of the following grounds, namely :\n<\/p>\n
(a) that an arbitrator or umpire has misconducted himself or the
\nproceedings ;\n<\/p>\n
(b) that an award has been made after the issue of an order by the Court
\nsuperseding the arbitration or after arbitration proceedings have become
\ninvalid under Sec. 35;\n<\/p>\n
(c) that an award has been improperly procured or is otherwise invalid.”\n<\/p>\n
This Court has considered the provisions of Section 30 of the Act in
\nseveral cases and has held that the court while exercising the power under
\nSection 30, cannot re-appreciate the evidence or examine correctness of the
\nconclusions arrived at by the Arbitrator. The jurisdiction is not appellate
\nin nature and an award passed by an Arbitrator cannot be set aside on the
\nground that it was erroneous. It is not open to the court to interfere with
\nthe award merely because in the opinion of the court, other view is equally
\npossible. It is only when the court is satisfied that the Arbitrator had
\nmisconducted himself or the proceedings or the award had been improperly
\nprocured or is `otherwise’ invalid that the court may set aside such award.\n<\/p>\n
In the leading decision of Hodgkinson v. Fernie, (1857) 140 ER 712,
\nWilliams, J. stated;\n<\/p>\n
“The law has for many years been settled, and remains so at this day, that,
\nwhere a cause or matters in difference are referred to an arbitrator,
\nwhether a lawyer or a layman, he is constituted the sole and final judge of
\nall questions both of law and of fact. Many cases have fully established
\nthat position, where awards have been attempted to be set aside on the
\nground of the admission of an incompetent witness or the rejection of a
\ncompetent one. The court has invariably met those applications by saying,
\n`You have constituted your own tribunal; you are bound by its decision.”
\n(emphasis supplied)<\/p>\n
In Union of India v. Rallia Ram, AIR<\/a> (1963) SC 1685, this Court said;\n<\/p>\n
“An award being a decision of an arbitrator whether a lawyer or a layman
\nchosen by the parties, and entrusted with power to decide a dispute
\nsubmitted to him is ordinarily not liable to be challenged on the ground
\nthat it is erroneous. In order to make arbitration effective and the awards
\nenforceable, machinery is devised for lending the assistance of the
\nordinary Courts. The Court is also entrusted with power to modify or
\ncorrect the award on the ground of imperfect form or clerical errors, or
\ndecision on questions not referred, which are severable from those
\nreferred. The Court has also power to remit the award when it has left some
\nmatters referred undetermined, or when the award is indefinite, or where
\nthe objection to the legality of the award is apparent on the face of the
\naward. The Court may also set aside an award on the ground of corruption or
\nmisconduct of the arbitrator, or that a party has been guilty of fraudulent
\nconcealment or willful deception. But the Court cannot interfere with the
\naward if otherwise proper on the ground that the decision appears to it to
\nbe erroneous. The award of the arbitrator is ordinarily final and
\nconclusive, unless a contrary intention is disclosed by the agreement. The
\naward is the decision of a domestic tribunal chosen by the parties, and the
\nCivil Courts which are entrusted with the power to facilitate arbitration
\nand to effectuate the awards, cannot exercise appellate powers over the
\ndecision. Wrong or right the decision is binding if it be reached fairly
\nafter giving adequate opportunity to the parties to place their grievance
\nin the manner provided by the arbitration agreement.” (emphasis supplied)<\/p>\n
In U.P. Hotels v. U.P. State Electricity Board,<\/a> [1989] 1 SCC 359, after
\nreferring to Halsbury’s Laws of England, 4th edition, Vol. 2, para 624,
\nMukharji, J. (as his Lordship then was) stated that an award of an
\narbitrator may be set aside for error of law appearing on the face of it,
\nthough that jurisdiction is not lightly to be exercised. If a specific
\nquestion of law is submitted to the arbitrator for his decision and he
\ndecides it, the fact that the decision is erroneous does not make the award
\nbad on its face so as to permit it being set aside; and where the question
\nreferred for arbitration is a question of construction, which is, generally
\nspeaking, a question of law, the arbitrator’s decision cannot be set aside
\nonly because the court would itself have come to a different conclusion;
\nbut if it appears on the face of the award that the arbitrator has
\nproceeded illegally, as, for instance, by deciding on evidence which was
\nnot admissible, or on principles of construction which the law does not
\ncountenance, there is error in law which may be ground for setting aside
\nthe award.\n<\/p>\n
In Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises
\nand Anr.,<\/a> [1999] 9 SCC 283, this Court after considering several decisions
\non the point, held that if an Arbitrator has acted arbitrarily,
\nirrationally, capriciously or beyond the terms of the agreement, an award
\npassed by him can be set aside. In such cases, the Arbitrator can be said
\nto have acted beyond the jurisdiction conferred on him.\n<\/p>\n
In U.P. State Electricity Board v. Searsole Chemcials Ltd.,<\/a> [2001] 3 SCC
\n397, this Court held that where the Arbitrator had applied his mind to the
\npleadings, considered the evidence adduced before him and passed an award,
\nthe court could not interfere by reappraising the matter as if it were an
\nappeal.\n<\/p>\n
In Indu Engineering & Textiles Ltd. v. Delhi Development Authority,<\/a> [2001]
\n5 SCC 691, it was observed that an Arbitrator is a Judge appointed by the
\nparties and as such the award passed by him is not to be lightly interfered
\nwith.\n<\/p>\n
In Bharat Coking Coal Ltd. v. M\/s. Annapurna Construction,<\/a> [2003] 8 SCC
\n154, this Court held that there is distinction between error within
\njurisdiction and error in excess of jurisdiction. The role of the
\nArbitrator is to arbitrate within the terms of the contract and if he acts
\nin accordance with the terms of the agreement, his decision cannot be set
\naside. It is only when he travels beyond the contract that he acts in
\nexcess of jurisdiction in which case, the award passed by him becomes
\nvulnerable and can be questioned in an appropriate court.\n<\/p>\n
In the instant case, the Arbitrator has considered the relevant evidence on
\nrecord. He has observed that oxygen was supplied by BOL which was accepted
\nby HCL. Certain letters were, no doubt, written by HCL to BOL complaining
\nabout the quantity and quality of oxygen gas. The Arbitrator also observed
\nthat the evidence disclosed that verbal complaints were made regarding
\npurity of gas. He, however, recorded a finding that Clause 10.4 which
\nallowed HCL to purchase oxygen from other sources at the cost and
\nconsequence of BOL was never invoked. The said clause which was “risk
\npurchase” from elsewhere was not resorted to by HCL. The Arbitrator noted
\nthat in some of the letters, HCL stated that it would have no option but to
\npurchase liquid oxygen at the cost of BOL during non-availability of oxygen
\nfrom BOL, but ultimately it was a letter dated October 11, 1993 that HCL
\ninformed BOL that if BOL would not supply oxygen by October 26, 1993, it
\nwould be constrained to purchase oxygen from other sources. Thus, time was
\ngranted up to October 26, 1993 in view of letter dated October 11, 1993. In
\nthe light of such letter the Arbitrator concluded that HCL could not have
\npurchased oxygen from other sources in August, 1993 and hence it was not
\nentitled to put forward counter claim<\/p>\n
The learned single Judge virtually reappreciated the evidence by referring
\nto several letters and observed that the Arbitrator had not considered
\nthose letters and there was misconduct on his part. According to the
\nlearned single Judge, HCL informed BOL about the grievance and quantity and
\nquality of oxygen supplied by BOL, about the `risk purchase agreement’ and
\nalso about its need, necessity and completion of purchase of oxygen gas
\nfrom other sources. The learned single Judge also has referred to some of
\nthose letters in which the said fact was referred by HCL.\n<\/p>\n
In our opinion, however, the learned counsel for BOL is justified in
\nsubmitting that really it was in realm of appreciation and re-appreciation
\nof evidence. At the most all those letters go to show that HCL had some
\ncomplaint against BOL and it had also disclosed its intention to purchase
\noxygen gas from other sources but as observed by the Arbitrator, it was not
\nproved that HCL had in fact purchased oxygen from other sources under
\nClause 10.4. If in the light of such evidence, the Arbitrator did not think
\nit fit to allow counter claim, it could not be said to a case of misconduct
\ncovered by Section 30 of the Act. The learned single Judge as also the
\nDivision Bench were, therefore, not justified in setting aside the award
\npassed by the Arbitrator dismissing the counter-claim and hence the order
\nof the learned single Judge as confirmed by the Division Bench deserves to
\nbe set aside by restoring dismissal of counter-claim of HCL by the
\nArbitrator.\n<\/p>\n
The last question relates to payment of interest. The Arbitrator awarded
\ninterest to BOL at the universal rate of eighteen per cent for all the
\nthree stages, pre-reference period, pendente lite and post award period. It
\nis not disputed that in the arbitration agreement there is no provision for
\npayment of interest. The learned single Judge as well as the Division Bench
\nwere right in observing that the Arbitrator, in the facts and
\ncircumstances, could have awarded interest. The Arbitrator had granted
\ninterest at the rate of eighteen per cent on the ground of loan so advanced
\nby HCL to BOL at that rate.\n<\/p>\n
Now Section 34 of the Code of Civil Procedure has no application to
\narbitration proceedings since Arbitrator cannot be said to be a `court’
\nwithin the meaning of the Code. But an Arbitrator has power and
\njurisdiction to grant interest for all the three stages provided the rate
\nof interest is reasonable.\n<\/p>\n
So far as interest for pre-reference period is concerned, in view of the
\nconflicting decisions of this Court, the matter was referred to a larger
\nBench in Executive Engineer, Dhenkanal Minor Irrigation Dvision and Ors. v.
\nN.C. Budhraj (Deceased)<\/a> by Lrs and Ors., [2001] 2 SCC 721. The Court, by
\nmajority, held that an arbitrator has power to grant interest for pre-
\nreference period provided there is no prohibition in the arbitration
\nagreement excluding his jurisdiction to grant interest. The forum of
\narbitration is created by the consent of parties and is a substitute for
\nconventional civil court. It is, therefore, of unavoidable necessity that
\nthe parties be deemed to have agreed by implication that the Arbitrator
\nwould have power to award interest in the same way and same manner as a
\ncourt.\n<\/p>\n
Regarding interest pendente lite also, there was cleavage of opinion. The
\nquestion was, therefore, referred to a larger Bench in Secretary,
\nIrrigation Department, Government of Orissa and Ors. v. G.C. Roy,<\/a> [1992] 1
\nSCC 508. The Court considered several cases and laid down following
\nprinciples;\n<\/p>\n
\t“The question still remains whether arbitrator has the power to
\n\taward interest pendente lite, and if so on what principle. We must
\n\treiterate that we are dealing with the situation where the
\n\tagreement does not provide for grant of such interest nor does it
\n\tprohibit such grant. In other words, we are dealing with a case
\n\twhere the agreement is silent as to award of interest. On a
\n\tconspectus of aforementioned decisions, the following principles
\n\temerge :\n<\/p>\n
(i) A person deprived of the use of money to which he is legitimately
\nentitled has a right to be compensated for the deprivation, call it by any
\nname. It may be called interest, compensation or damages. This basic
\nconsideration is as valid for the period the dispute is pending before the
\narbitrator as it is for the period prior to the arbitrator entering upon
\nthe reference. This is the principle of Section 34, Civil Procedure Code
\nand there is no reason or principle to hold otherwise in the case of
\narbitrator.\n<\/p>\n
(ii) An arbitrator is an alternative forum for resolution of disputes
\narising between the parties. If so, he must have the power to decide all
\nthe disputes or differences arising between the parties. If the arbitrator
\nhas no power to award interest pendente lite, the party claiming it would
\nhave to approach the court for that purpose, even though he may have
\nobtained satisfaction in respect of other claims from the arbitrator. This
\nwould lead to multiplicity of proceedings.\n<\/p>\n
(iii) An arbitrator is the creature of an agreement. It is open to the
\nparties to confer upon him such powers and prescribe such procedure for him
\nto follow, as they think fit, so long as they are not opposed to law. (The
\nproviso to section 41 and Section 3 of Arbitration Act illustrate this
\npoint). The arbitrator must also act and make his award in accordance with
\nthe general law of the land and the agreement.\n<\/p>\n
(iv) Over the years, the English and Indian courts have acted on the
\nassumption that where the agreement does not prohibit and a party to the
\nreference makes a claim for interest, the arbitrator must have the power to
\naward interest pendente lite, Thawardas has not been followed in the later
\ndecisions of this court. It has been explained and distinguished on the
\nbasis that in that case there was no claim for interest but only a claim
\nfor unliquidated damages. It has been said repeatedly that observations in
\nthe said judgment were not intended to lay down any such absolute or
\nuniversal rule as they appear to, on first impression. Until Jena case
\nalmost all the courts in the country had upheld the power of the arbitrator
\nto award interest pendente lite. Continuity and certainty is a high
\ndesirable feature of law.\n<\/p>\n
(v) Interest pendente lite is not a matter of substantive law, like
\ninterest for the period anterior to reference (pre-reference period). For
\ndoing complete justice between the parties, such power has always been
\ninferred.”<\/p>\n
As to post-award interest, the point is covered by the decision of this
\nCourt in Hindustan Construction Co. Ltd. v. State of Jammu & Kashmir,<\/a>
\n[1992] 4 SCC 217. It was held there that an arbitrator is competent to
\naward interest for the period from the date of the award to the date of
\ndecree or date of realization, whichever is earlier.\n<\/p>\n
In view of the aforesaid decisions, we hold that it was within the power of
\nArbitrator to award interest. As to the rate of interest, the contention of
\nHCL is that it ought to have been at the rate of six per cent only. The
\nlearned counsel for HCL has strongly relied upon the decision of this Court
\nin Nav Bharat Construction Co. In that case, interest was awarded by the
\nArbitrator at the rate of fifteen per cent. The said action was challenged
\nby the State Government as well as the Contractor. The contention of the
\nState Government was that the Arbitrator could not have awarded interest at
\nthe rate of fifteen per cent and it was exorbitant. The Contractor, on the
\nother hand, urged that interest ought to have awarded at the rate of
\neighteen per cent. This Court C.K. Thakker, J. Leave granted.\n<\/p>\n
All these appeals arise out of common judgment and order passed by the
\nDivision Bench of the High Court of Calcutta in APOT Nos. 721 of 2002 and
\n736 of 2002 on July 03, 2003 by which the Division Bench confirmed the
\norder passed by learned single Judge on July 24, 2002 in A.P. No. 369 of
\n2002. That A.P. was filed by Hindustan Copper Limited against Arbitration
\naward passed by Justice L.M. Ghosh (Retd.) on September 25, 2000, under the
\nArbitration Act, 1940 (hereinafter referred to as `the Act’).\n<\/p>\n
To appreciate the controversy raised in the present appeals, relevant facts
\nmay be stated in brief. On March 10, 1988, Hindustan Copper Limited (`HCL’
\nfor short) invited tender for supply of oxygen for its plant at Ghatsila.
\nThe tender contained a condition that successful bidder will set up an
\noxygen plant in the vicinity of HCL. The tender of Bhagwati Oxygen Limited
\n(`BOL’ for short) was accepted and an agreement had been entered into
\nbetween HCL and BOL on March 17\/April 14, 1990. It was for a period of
\nseven years from the date of commencement of supply of oxygen. The
\nagreement stated that the supplier i.e. BOL will at its own cost install,
\noperate and maintain an oxygen plant of 25 TPD capacity of pressure vacuum
\nswing absorption type with suitable compressors for supply of high purity
\noxygen gas to HCL. It also stated that the purity of oxygen would be 99 per
\ncent. The agreement further stated; “The oxygen plant should have the
\ncapacity to supply not less than 1,25,000 mm3 of gas of 99 per cent purity
\nper week on a sustained basis as and when required by HCL. Clause 2.3
\nclarified that the minimum acceptable purity of the oxygen gas should be 85
\nper cent for both flash furnace and converter. Meter readings for invoicing
\nbilling purpose were to be taken jointly by authorized representatives of
\nHCL and BOL as and when the plant stopped\/started. Provision was also made
\nfor periodical checking and calibration of meters. It was the duty of BOL
\nto erect plant and pipe line system. A right to inspection and review was
\nconferred upon HCL. Requirement of gas and supply thereof had been
\nmentioned in Clause 2.1. Water supply required for the plant was to be
\narranged by BOL at its own cost but HCL agreed to supply water for
\noperation of the plant. BOL had undertaken to erect and commission the
\nplant and start supply of gas continuously to HCL within 18 months from the
\ndate of receipt of order or letter of intent whichever was earlier and the
\ngas was to be made available to HCL in the requisite quality and quantity
\nas per conditions agreed upon. Provisions had also been made with regard to
\nprice of gas and minimum off-take guaranteed. Time was the essence of the
\ncontract and penalty had been provided for in case of breach of contract.\n<\/p>\n
Clauses 10.4 and 10.5 are relevant and they read as under :-\n<\/p>\n
“10.4. In case BOL fail to supply oxygen from the Captive plant as per the
\ncontract terms after commissioning of the plant, it will be the
\nresponsibility of BOL to arrange liquid oxygen from other sources at
\ncontracted rates and keep HCL requirement feed uninterruptedly failing
\nwhich HCL will have the right to procure the gas from elsewhere and the
\ndifference of such procurement cost and the agreed price subject to a limit
\nof 80% of the total requirement as per NIT, will be recovered from BOL
\nforthwith. However, HCL will give adequate chance to BOL to meet the HCL’s
\nrequirements by their own means from other sources at the contract price.\n<\/p>\n
“10.5. In case, for any period the quantity of Gas supplied goes down below
\nthe guaranteed purity or pressure, no payment will be made for that period
\nor quantity unless specifically prior acceptance is obtained from HCL.”<\/p>\n
A security deposit of Rs. 20 lacs (Rupees twenty lacs only) had been made
\nby BOL to HCL in the form of bank guarantee issued by the Central Bank of
\nIndia, New Delhi. There was an arbitration clause being Clause No.12. The
\nsaid clause reads thus:\n<\/p>\n
“Except where it has been provided otherwise, any dispute or difference
\narising out of or in connection with the work or any operation covered by
\nthe contract and any dispute or difference arising out of in connection
\nwith the agreement entered into between HCL and BOL including any dispute
\nor difference relating to the interpretation of the agreement or any clause
\nthereof, shall be referred to sole arbitration of a person appointed
\njointly by the Chairman of HCL and BOL. The provisions of the Arbitration
\nAct, 1940 and the rules thereunder and any amendment thereto from time to
\ntime shall apply. The award of the arbitrator shall be final, conclusive
\nand binding to all the parties to the contract. The arbitrator shall be
\ncompetent to decide whether any matter, dispute of difference referred to
\nhim falls within the purview of arbitration as provided for above.”\n<\/p>\n
In accordance with the terms and conditions of the contract, BOL set up its
\noxygen producing plant on 31st July, 1992 and commenced supply of oxygen to
\nHCL. It is the case of BOL that it supplied oxygen to HCL from 10th
\nFebruary, 1993 to 12th August, 1993. According to the BOL, however, no
\npayment was made by HCL to BOL on the ground that oxygen supplied by BOL to
\nHCL did not meet the purity standard as agreed between the parties. It was
\nalso alleged by BOL that bad water was supplied by HCL as a result of which
\nthe plant was damaged and ultimately was shut down on August 12, 1993. On
\nOctober 11, 1993, a letter was written by HCL to BOL calling upon BOL to
\nsupply or to arrange for supply of oxygen to HCL on or before August 26,
\n1993. But the gas was not supplied by BOL to HCL. On July 27, 1994, an
\nagreement was arrived at between the parties to refer the dispute to the
\nArbitration of Justice L.M. Ghosh, retired Judge of the High Court of
\nCalcutta. On 1st April, 1995, arbitration commenced. BOL claimed Rs.
\n1,80,81,402.93 ps. :\n<\/p>\n
(i)\tDues on account of unpaid bills;\n<\/p>\n
(ii)\tCost of repairing and over hauling its plant due to bad water
\nsupplied by HCL;\n<\/p>\n
(iii)\tLoss of revenue due to shut down of the plant by reason of bad
\nwater supplied by HCL; and<\/p>\n
(iv)\tInterest.\n<\/p>\n
HCL, on the other hand, filed a counter claim in the arbitration
\nproceedings for Rs. 2,66,26,023.14 ps. inter alia claiming :\n<\/p>\n
(i)\tRecovery of excess amount paid to BOL;\n<\/p>\n
(ii)\tDifference of price of oxygen purchased by HCL from other sources
\n(risk purchase);\n<\/p>\n
(iii)\tExtra expenditure due to consumption of excess furnace oil due to
\nlow purity of oxygen;\n<\/p>\n
(iv)\tLoss of production by HCL; and<\/p>\n
(v)\tInterest.\n<\/p>\n
The Arbitrator, after holding several meetings, gave an award on September
\n25, 2000. He held that the claim put forward by BOL was well founded and
\nBOL was thus entitled to an amount of Rs. 74,84,521.34 ps. He also held
\nthat HCL was unable to prove its case and counter claim. The counter claim,
\ntherefore, was liable to be dismissed. Regarding interest, he held that BOL
\nwas entitled to claim interest at the rate of eighteen per cent per annum
\nfor pre-reference period, pendente lite and from the date of award till the
\ndate of payment. According to the Arbitrator, BOL was also entitled to an
\namount of Rs. 1,50,000 (One lakh and fifty thousand only) on account of
\ncosts.\n<\/p>\n
The award was challenged by HCL by filing A.P. No. 369 of 2000 under
\nSections 30 and 33 of the Act. A prayer was made to set aside the award. It
\nwas contended that the Arbitrator had misconducted himself and the
\nproceedings. It was also contended that the Arbitrator had exceeded his
\njurisdiction and decided the questions not covered by Clause 12 of the
\nArbitration agreement and hence, the award was invalid. It was argued that
\nthe Arbitrator ought not to have allowed the claim of BOL nor could have
\ndismissed the counter claim of HCL. Since there was breach of contract by
\nBOL, it was not entitled to any amount. On the other hand, in view of non-
\ncompliance with the terms and conditions of the contract and breach of
\nagreement, BOL was liable to pay and HCL was entitled to the amount claimed
\nin the counter claim. It was also urged that the Arbitrator had no
\njurisdiction and had committed an error of law as well as of jurisdiction
\nin awarding interest at the rate of eighteen per cent for pre-reference,
\npendente lite and post award period.\n<\/p>\n
The learned single Judge heard the parties and held that so far as the
\nclaim of BOL was concerned, the Arbitrator was right in allowing the said
\nclaim and no interference was called for. Regarding counter claim, however,
\nthe learned single Judge was of the opinion that Clause 10.4 as extracted
\nhereinabove was clear and it provided for “default”. The learned single
\nJudge referred to several letters and communications by HCL to BOL and
\nobserved that from those documents, it was proved that objection was raised
\nby HCL as to non supply of oxygen gas by BOL and BOL was expressly
\nintimated that HCL would be constrained to purchase oxygen gas at the cost
\nand consequences of BOL. Since all those letters and communications had not
\nbeen considered by the Arbitrator, the award dismissing the counter claim
\nof HCL deserved to be interfered with. Accordingly, order dismissing the
\ncounter claim by HCL was set aside by the learned single Judge and the
\nmatter was remitted to the Arbitrator to take an appropriate decision in
\naccordance with law on that issue.\n<\/p>\n
So far as the payment of interest to BOL on the claim which had been
\nallowed by the Arbitrator is concerned, the learned single Judge was of the
\nview that Section 61 of the Sale of Goods Act, 1930 did not provide rate of
\ninterest. Section 34 of the Code of Civil Procedure, 1908 had no
\napplication to arbitration proceedings. In absence of any contract between
\nthe parties with regard to the rate of interest payable, the learned single
\nJudge held that it would be appropriate if interest is awarded to BOL at
\nthe rate of six per cent per annum. For taking that view the learned single
\nJudge relied upon a decision of this Court in State of Rajasthan v. Nav
\nBharat Construction Co.,<\/a> [2002] 1 SCC 659 wherein this Court reduced the
\nrate of interest awarded by the Arbitrator from eighteen per cent to six
\nper cent per annum. The learned single Judge accordingly partly allowed the
\nappeal and remitted the matter to the Arbitrator to decide counter claim of
\nHCL.\n<\/p>\n
Being aggrieved by the order passed by the learned single Judge, HCL and
\nBOL preferred appeals before a Division Bench of the High Court. The
\ngrievance of HCL was that the learned single Judge ought to have allowed
\nthe appeal in its entirety and ought to have dismissed the claim of BOL by
\nallowing counter claim of HCL. The complaint of BOL, on the other hand, was
\nthat the learned single Judge ought to have dismissed the counter claim and
\nshould not have interfered with the rate of interest granted by the
\nArbitrator in favour of BOL. In short, the learned single Judge ought to
\nhave dismissed the application of HCL.\n<\/p>\n
The Division Bench considered the rival contentions of the parties and
\ndismissed both the appeals confirming the order passed by the learned
\nsingle Judge. The Division Bench observed that by confirming the claim of
\nBOL, the learned single Judge did not commit any error of law. Similarly,
\nthe learned single Judge was also right in upholding the argument of HCL
\nthat the Arbitrator was wrong in dismissing the counter claim and he had
\nnot considered several communications to BOL. The order of the learned
\nsingle Judge thus did not call for interference. Regarding rate of
\ninterest, the Division Bench was of the view that learned single Judge was
\nright in observing that Section 61 of Sale of Goods Act did not provide the
\nrate of interest. It was also true that there was no indication in the
\ncontract as to payment of interest. In the opinion of the Division Bench,
\nhowever, the learned single Judge was right in reducing the rate of
\ninterest keeping in view the provisions of Section 34 of the Code of Civil
\nProcedure and as such that part of the order also did not warrant
\ninterference. The Division Bench thought it proper to dismiss the appeals
\nand accordingly both the appeals were dismissed.\n<\/p>\n
Both the parties, i.e. HCL and BOL have approached this Court.\n<\/p>\n
We have heard learned counsel for the parties.\n<\/p>\n
Learned counsel for BOL submitted that the Arbitrator was wholly right in
\npassing the award and in allowing the claim of BOL. It was urged that
\nlearned single Judge as well as the Division Bench were totally wrong in
\npartly setting aside the award passed by the Arbitrator. The counsel
\ncontended that the jurisdiction of the court under Section 30 of the Act is
\nextremely limited and an award can be set aside only on one or more grounds
\nspecified therein. Since none of the grounds existed, the court could not
\nhave interfered with the award nor the award could be set aside. According
\nto the learned counsel, the Arbitrator considered the evidence on record –
\ndocumentary as well as oral – and came to the conclusion that no case was
\nmade out by HCL on the basis of which counter claim could be allowed and
\naccordingly dismissed it. The learned single Judge and the Division Bench
\nre-appreciated the evidence and set aside that part of the award by
\nremitting the matter to the Arbitrator to reconsider and decide afresh the
\ncounter claim of HCL. It was not within the jurisdiction of the learned
\nsingle Judge or the Division Bench and the order deserves to be quashed and
\nset aside. Regarding interest, the counsel submitted that the agreement did
\nnot contain any clause as to interest. Section 34 of the Code of Civil
\nProcedure was not applicable. Section 61 of the Sale of Goods Act does not
\nprovide rate of interest nor it applied to the case on hand. If in the
\nlight of these facts, the Arbitrator awarded interest to BOL at eighteen
\nper cent considering the fact that that was the rate at which HCL had given
\nadvance to BOL, such an order could not be termed as unlawful or otherwise
\nobjectionable. Neither the learned single Judge nor the Division Bench was
\njustified in interfering with the rate of interest. It was, therefore,
\nsubmitted that the appeal filed by HCL deserves to be dismissed and appeal
\nfiled by BOL deserves to be allowed.\n<\/p>\n
The learned counsel for HCL, on the other hand, supported the orders passed
\nby the learned single Judge and the Division Bench so far as they relate to
\nremanding the matter to Arbitrator for deciding afresh the counter claim of
\nHCL. Regarding payment of interest at the rate of six per cent per annum to
\nBOL, it was submitted that even that part of the order was not warranted
\nand the claim of BOL was liable to be rejected. The Arbitrator committed an
\nerror of law and has misconducted himself as well as proceedings in
\nallowing such claim. According to the learned counsel, there was breach of
\ncontract on the part of BOL, oxygen was not supplied as per the agreement
\nentered into between the parties; purity of oxygen was not maintained;
\nother terms and conditions were also not fulfilled by BOL and as such, BOL
\nwas not entitled to any relief. It was, therefore, prayed that the award
\npassed by the Arbitrator deserves to be quashed in its entirety by allowing
\nthe appeal of HCL.\n<\/p>\n
In the light of rival contentions of the parties, in our opinion, three
\nquestions arise for our consideration :\n<\/p>\n
(1) Whether on the facts and in the circumstances of the case, the
\nArbitrator was right in allowing the claim of BOL?\n<\/p>\n
(2) Whether the Arbitrator had misconducted himself in passing the impugned
\naward and by dismissing the counter claim of HCL and whether the learned
\nsingle Judge and the Division Bench of the High Court were right in setting
\naside that part of the award by directing the Arbitrator to re-consider the
\nmatter and decide it afresh? and<\/p>\n
(3) Whether the Arbitrator had power to award interest at the rate of
\neighteen per cent per annum for pre-reference period, pendente lite and
\npost reference, i.e. future interest from the date of award till the date
\nof payment and whether the learned single Judge and the Division Bench were
\njustified in reducing the rate of interest from eighteen per cent to six
\nper cent?\n<\/p>\n
Now, so far as the first question is concerned, the Arbitrator considered
\nthe matter in detail. He observed that after the agreement was entered into
\nbetween the parties, BOL set up its plant and commenced supply of oxygen to
\nHCL. It was the case of BOL that though oxygen was supplied to HCL, no
\npayment was made by HCL. It was alleged by HCL that oxygen supplied by BOL
\ndid not meet the purity standard of 99 per cent nor the minimum standard of
\n85 per cent but it varied between 45 per cent to 65 per cent. BOL was,
\ntherefore, not entitled to payment for the supply. It was also contended
\nthat Clause 10.5 (referred to earlier by us) specifically provided that in
\ncase quantity of gas supplied goes down below the guaranteed purity, no
\npayment would be made. Since the purity of oxygen gas was below 85 per
\ncent, HCL was justified in refusing payment. It was also submitted that as
\nper agreement, BOL was required to establish a 50,000 Litres Vacuum
\nInsulated Storage Tank (VIST) evaporation and distribution system in the
\nplant and was to maintain constant stock of 50,000 Litres of liquid oxygen
\nbut BOL failed to establish it. There was thus breach of condition by BOL.
\nKeeping that fact in view, payment was not made by HCL and it could not
\nhave been held that HCL was wrong in not making payment. BOL, in view of
\nbreach of condition could not have asked for payment. The Arbitrator,
\ntherefore, was wrong in allowing the claim of BOL.\n<\/p>\n
Now, the Arbitrator has considered the contention of both the parties. He
\nobserved that as per the contract, BOL had undertaken to provide a VIST for
\nstorage of liquid oxygen of 50,000 litres. It was not disputed that VIST
\nwas not established by BOL and there was no provision for storage of liquid
\noxygen. He, however, observed that HCL neither insisted for establishing
\nVIST nor objected for not establishing it.\n<\/p>\n
Regarding purity of oxygen, the Arbitrator observed that HCL never
\ncomplained regarding the fall of purity of oxygen during the relevant
\nperiod. Referring to the letters written by HCL to BOL, the Arbitrator
\nobserved that HCL continued to accept oxygen gas supplied by BOL without
\navoiding the contract on the ground that there was breach of agreement by
\nBOL. The Arbitrator observed that there was neither excess consumption of
\nfurnace oil nor drop in production by HCL. Referring to the decisions of
\nthis Court in Associated Hotels of India Ltd. v. S.B. Sardar Ranjit Singh,<\/a>
\n[1968] 2 SCR 545 and Brijendra Nath Bhargava and Anr. v. Harsh Vardhan and
\nOrs.,<\/a> [1988] 1 SCC 454, the Arbitrator held that even if it was the case of
\nHCL that there was non-compliance of certain terms and conditions by BOL,
\nthere was waiver and abandonment of the rights conferred on HCL and it was
\nnot open to HCL to refuse to make payment to BOL on that ground. In view of
\nwaiver on the part of HCL, it was incumbent on HCL to make payment and
\nsince no such payment was made, BOL was right in making grievance regarding
\nnon-payment of the amount and accordingly an award was made in favour of
\nBOL. The learned single Judge as well as the Division Bench of the High
\nCourt considered the grievance of HCL so far as the claim of BOL allowed by
\nthe Arbitrator and upheld it.\n<\/p>\n
In view of the finding recorded by the Arbitrator and non-interference by
\nthe High Court, we are of the view that no case has been made out by HCL as
\nregards the claim allowed by the Arbitrator in favour of BOL to the extent
\nof supply of oxygen gas to HCL. Hence, the appeal filed by HCL deserves to
\nbe dismissed.\n<\/p>\n
The grievance of the BOL is the learned single Judge and the Division Bench
\nwere not justified in setting aside the dismissal of counter claim of HCL
\nby the Arbitrator and in remitting the matter to the Arbitrator for fresh
\nconsideration. It was submitted that the High Court was not hearing an
\nappeal from the order passed by the Arbitrator. The jurisdiction of the
\nCourt in such matters is limited and an award can be set aside only on
\ncertain grounds specified in the Act. Since the case was not covered by any
\nof the clauses of Section 30, the orders passed by the High Court are
\nclearly without jurisdiction.\n<\/p>\n
Section 30 of the Act enumerates grounds for setting aside an award passed
\nby the Arbitrator. It reads thus :\n<\/p>\n
“30. Grounds for setting aside award. – An award shall not be set aside
\nexcept on one or more of the following grounds, namely :\n<\/p>\n
(a) that an arbitrator or umpire has misconducted himself or the
\nproceedings ;\n<\/p>\n
(b) that an award has been made after the issue of an order by the Court
\nsuperseding the arbitration or after arbitration proceedings have become
\ninvalid under Sec. 35;\n<\/p>\n
(c) that an award has been improperly procured or is otherwise invalid.”\n<\/p>\n
This Court has considered the provisions of Section 30 of the Act in
\nseveral cases and has held that the court while exercising the power under
\nSection 30, cannot re-appreciate the evidence or examine correctness of the
\nconclusions arrived at by the Arbitrator. The jurisdiction is not appellate
\nin nature and an award passed by an Arbitrator cannot be set aside on the
\nground that it was erroneous. It is not open to the court to interfere with
\nthe award merely because in the opinion of the court, other view is equally
\npossible. It is only when the court is satisfied that the Arbitrator had
\nmisconducted himself or the proceedings or the award had been improperly
\nprocured or is `otherwise’ invalid that the court may set aside such award.\n<\/p>\n
In the leading decision of Hodgkinson v. Fernie, (1857) 140 ER 712,
\nWilliams, J. stated;\n<\/p>\n
“The law has for many years been settled, and remains so at this day, that,
\nwhere a cause or matters in difference are referred to an arbitrator,
\nwhether a lawyer or a layman, he is constituted the sole and final judge of
\nall questions both of law and of fact. Many cases have fully established
\nthat position, where awards have been attempted to be set aside on the
\nground of the admission of an incompetent witness or the rejection of a
\ncompetent one. The court has invariably met those applications by saying,
\n`You have constituted your own tribunal; you are bound by its decision.”
\n(emphasis supplied)<\/p>\n
In Union of India v. Rallia Ram, AIR<\/a> (1963) SC 1685, this Court said;\n<\/p>\n
“An award being a decision of an arbitrator whether a lawyer or a layman
\nchosen by the parties, and entrusted with power to decide a dispute
\nsubmitted to him is ordinarily not liable to be challenged on the ground
\nthat it is erroneous. In order to make arbitration effective and the awards
\nenforceable, machinery is devised for lending the assistance of the
\nordinary Courts. The Court is also entrusted with power to modify or
\ncorrect the award on the ground of imperfect form or clerical errors, or
\ndecision on questions not referred, which are severable from those
\nreferred. The Court has also power to remit the award when it has left some
\nmatters referred undetermined, or when the award is indefinite, or where
\nthe objection to the legality of the award is apparent on the face of the
\naward. The Court may also set aside an award on the ground of corruption or
\nmisconduct of the arbitrator, or that a party has been guilty of fraudulent
\nconcealment or willful deception. But the Court cannot interfere with the
\naward if otherwise proper on the ground that the decision appears to it to
\nbe erroneous. The award of the arbitrator is ordinarily final and
\nconclusive, unless a contrary intention is disclosed by the agreement. The
\naward is the decision of a domestic tribunal chosen by the parties, and the
\nCivil Courts which are entrusted with the power to facilitate arbitration
\nand to effectuate the awards, cannot exercise appellate powers over the
\ndecision. Wrong or right the decision is binding if it be reached fairly
\nafter giving adequate opportunity to the parties to place their grievance
\nin the manner provided by the arbitration agreement.” (emphasis supplied)<\/p>\n
In U.P. Hotels v. U.P. State Electricity Board,<\/a> [1989] 1 SCC 359, after
\nreferring to Halsbury’s Laws of England, 4th edition, Vol. 2, para 624,
\nMukharji, J. (as his Lordship then was) stated that an award of an
\narbitrator may be set aside for error of law appearing on the face of it,
\nthough that jurisdiction is not lightly to be exercised. If a specific
\nquestion of law is submitted to the arbitrator for his decision and he
\ndecides it, the fact that the decision is erroneous does not make the award
\nbad on its face so as to permit it being set aside; and where the question
\nreferred for arbitration is a question of construction, which is, generally
\nspeaking, a question of law, the arbitrator’s decision cannot be set aside
\nonly because the court would itself have come to a different conclusion;
\nbut if it appears on the face of the award that the arbitrator has
\nproceeded illegally, as, for instance, by deciding on evidence which was
\nnot admissible, or on principles of construction which the law does not
\ncountenance, there is error in law which may be ground for setting aside
\nthe award.\n<\/p>\n
In Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises
\nand Anr.,<\/a> [1999] 9 SCC 283, this Court after considering several decisions
\non the point, held that if an Arbitrator has acted arbitrarily,
\nirrationally, capriciously or beyond the terms of the agreement, an award
\npassed by him can be set aside. In such cases, the Arbitrator can be said
\nto have acted beyond the jurisdiction conferred on him.\n<\/p>\n
In U.P. State Electricity Board v. Searsole Chemcials Ltd.,<\/a> [2001] 3 SCC
\n397, this Court held that where the Arbitrator had applied his mind to the
\npleadings, considered the evidence adduced before him and passed an award,
\nthe court could not interfere by reappraising the matter as if it were an
\nappeal.\n<\/p>\n
In Indu Engineering & Textiles Ltd. v. Delhi Development Authority,<\/a> [2001]
\n5 SCC 691, it was observed that an Arbitrator is a Judge appointed by the
\nparties and as such the award passed by him is not to be lightly interfered
\nwith.\n<\/p>\n
In Bharat Coking Coal Ltd. v. M\/s. Annapurna Construction,<\/a> [2003] 8 SCC
\n154, this Court held that there is distinction between error within
\njurisdiction and error in excess of jurisdiction. The role of the
\nArbitrator is to arbitrate within the terms of the contract and if he acts
\nin accordance with the terms of the agreement, his decision cannot be set
\naside. It is only when he travels beyond the contract that he acts in
\nexcess of jurisdiction in which case, the award passed by him becomes
\nvulnerable and can be questioned in an appropriate court.\n<\/p>\n
In the instant case, the Arbitrator has considered the relevant evidence on
\nrecord. He has observed that oxygen was supplied by BOL which was accepted
\nby HCL. Certain letters were, no doubt, written by HCL to BOL complaining
\nabout the quantity and quality of oxygen gas. The Arbitrator also observed
\nthat the evidence disclosed that verbal complaints were made regarding
\npurity of gas. He, however, recorded a finding that Clause 10.4 which
\nallowed HCL to purchase oxygen from other sources at the cost and
\nconsequence of BOL was never invoked. The said clause which was “risk
\npurchase” from elsewhere was not resorted to by HCL. The Arbitrator noted
\nthat in some of the letters, HCL stated that it would have no option but to
\npurchase liquid oxygen at the cost of BOL during non-availability of oxygen
\nfrom BOL, but ultimately it was a letter dated October 11, 1993 that HCL
\ninformed BOL that if BOL would not supply oxygen by October 26, 1993, it
\nwould be constrained to purchase oxygen from other sources. Thus, time was
\ngranted up to October 26, 1993 in view of letter dated October 11, 1993. In
\nthe light of such letter the Arbitrator concluded that HCL could not have
\npurchased oxygen from other sources in August, 1993 and hence it was not
\nentitled to put forward counter claim<\/p>\n
The learned single Judge virtually reappreciated the evidence by referring
\nto several letters and observed that the Arbitrator had not considered
\nthose letters and there was misconduct on his part. According to the
\nlearned single Judge, HCL informed BOL about the grievance and quantity and
\nquality of oxygen supplied by BOL, about the `risk purchase agreement’ and
\nalso about its need, necessity and completion of purchase of oxygen gas
\nfrom other sources. The learned single Judge also has referred to some of
\nthose letters in which the said fact was referred by HCL.\n<\/p>\n
In our opinion, however, the learned counsel for BOL is justified in
\nsubmitting that really it was in realm of appreciation and re-appreciation
\nof evidence. At the most all those letters go to show that HCL had some
\ncomplaint against BOL and it had also disclosed its intention to purchase
\noxygen gas from other sources but as observed by the Arbitrator, it was not
\nproved that HCL had in fact purchased oxygen from other sources under
\nClause 10.4. If in the light of such evidence, the Arbitrator did not think
\nit fit to allow counter claim, it could not be said to a case of misconduct
\ncovered by Section 30 of the Act. The learned single Judge as also the
\nDivision Bench were, therefore, not justified in setting aside the award
\npassed by the Arbitrator dismissing the counter-claim and hence the order
\nof the learned single Judge as confirmed by the Division Bench deserves to
\nbe set aside by restoring dismissal of counter-claim of HCL by the
\nArbitrator.\n<\/p>\n
The last question relates to payment of interest. The Arbitrator awarded
\ninterest to BOL at the universal rate of eighteen per cent for all the
\nthree stages, pre-reference period, pendente lite and post award period. It
\nis not disputed that in the arbitration agreement there is no provision for
\npayment of interest. The learned single Judge as well as the Division Bench
\nwere right in observing that the Arbitrator, in the facts and
\ncircumstances, could have awarded interest. The Arbitrator had granted
\ninterest at the rate of eighteen per cent on the ground of loan so advanced
\nby HCL to BOL at that rate.\n<\/p>\n
Now Section 34 of the Code of Civil Procedure has no application to
\narbitration proceedings since Arbitrator cannot be said to be a `court’
\nwithin the meaning of the Code. But an Arbitrator has power and
\njurisdiction to grant interest for all the three stages provided the rate
\nof interest is reasonable.\n<\/p>\n
So far as interest for pre-reference period is concerned, in view of the
\nconflicting decisions of this Court, the matter was referred to a larger
\nBench in Executive Engineer, Dhenkanal Minor Irrigation Dvision and Ors. v.
\nN.C. Budhraj (Deceased)<\/a> by Lrs and Ors., [2001] 2 SCC 721. The Court, by
\nmajority, held that an arbitrator has power to grant interest for pre-
\nreference period provided there is no prohibition in the arbitration
\nagreement excluding his jurisdiction to grant interest. The forum of
\narbitration is created by the consent of parties and is a substitute for
\nconventional civil court. It is, therefore, of unavoidable necessity that
\nthe parties be deemed to have agreed by implication that the Arbitrator
\nwould have power to award interest in the same way and same manner as a
\ncourt.\n<\/p>\n
Regarding interest pendente lite also, there was cleavage of opinion. The
\nquestion was, therefore, referred to a larger Bench in Secretary,
\nIrrigation Department, Government of Orissa and Ors. v. G.C. Roy,<\/a> [1992] 1
\nSCC 508. The Court considered several cases and laid down following
\nprinciples;\n<\/p>\n
\t“The question still remains whether arbitrator has the power to
\n\taward interest pendente lite, and if so on what principle. We must
\n\treiterate that we are dealing with the situation where the
\n\tagreement does not provide for grant of such interest nor does it
\n\tprohibit such grant. In other words, we are dealing with a case
\n\twhere the agreement is silent as to award of interest. On a
\n\tconspectus of aforementioned decisions, the following principles
\n\temerge :\n<\/p>\n
(i) A person deprived of the use of money to which he is legitimately
\nentitled has a right to be compensated for the deprivation, call it by any
\nname. It may be called interest, compensation or damages. This basic
\nconsideration is as valid for the period the dispute is pending before the
\narbitrator as it is for the period prior to the arbitrator entering upon
\nthe reference. This is the principle of Section 34, Civil Procedure Code
\nand there is no reason or principle to hold otherwise in the case of
\narbitrator.\n<\/p>\n
(ii) An arbitrator is an alternative forum for resolution of disputes
\narising between the parties. If so, he must have the power to decide all
\nthe disputes or differences arising between the parties. If the arbitrator
\nhas no power to award interest pendente lite, the party claiming it would
\nhave to approach the court for that purpose, even though he may have
\nobtained satisfaction in respect of other claims from the arbitrator. This
\nwould lead to multiplicity of proceedings.\n<\/p>\n
(iii) An arbitrator is the creature of an agreement. It is open to the
\nparties to confer upon him such powers and prescribe such procedure for him
\nto follow, as they think fit, so long as they are not opposed to law. (The
\nproviso to section 41 and Section 3 of Arbitration Act illustrate this
\npoint). The arbitrator must also act and make his award in accordance with
\nthe general law of the land and the agreement.\n<\/p>\n
(iv) Over the years, the English and Indian courts have acted on the
\nassumption that where the agreement does not prohibit and a party to the
\nreference makes a claim for interest, the arbitrator must have the power to
\naward interest pendente lite, Thawardas has not been followed in the later
\ndecisions of this court. It has been explained and distinguished on the
\nbasis that in that case there was no claim for interest but only a claim
\nfor unliquidated damages. It has been said repeatedly that observations in
\nthe said judgment were not intended to lay down any such absolute or
\nuniversal rule as they appear to, on first impression. Until Jena case
\nalmost all the courts in the country had upheld the power of the arbitrator
\nto award interest pendente lite. Continuity and certainty is a high
\ndesirable feature of law.\n<\/p>\n
(v) Interest pendente lite is not a matter of substantive law, like
\ninterest for the period anterior to reference (pre-reference period). For
\ndoing complete justice between the parties, such power has always been
\ninferred.”<\/p>\n
As to post-award interest, the point is covered by the decision of this
\nCourt in Hindustan Construction Co. Ltd. v. State of Jammu & Kashmir,<\/a>
\n[1992] 4 SCC 217. It was held there that an arbitrator is competent to
\naward interest for the period from the date of the award to the date of
\ndecree or date of realization, whichever is earlier.\n<\/p>\n
In view of the aforesaid decisions, we hold that it was within the power of
\nArbitrator to award interest. As to the rate of interest, the contention of
\nHCL is that it ought to have been at the rate of six per cent only. The
\nlearned counsel for HCL has strongly relied upon the decision of this Court
\nin Nav Bharat Construction Co. In that case, interest was awarded by the
\nArbitrator at the rate of fifteen per cent. The said action was challenged
\nby the State Government as well as the Contractor. The contention of the
\nState Government was that the Arbitrator could not have awarded interest at
\nthe rate of fifteen per cent and it was exorbitant. The Contractor, on the
\nother hand, urged that interest ought to have awarded at the rate of
\neighteen per cent. This Court held that it would be appropriate if interest
\nat the rate of six per cent is awarded.\n<\/p>\n
In our view, however, a relevant and germane factor weighed with the
\nArbitrator in awarding eighteen per cent interest that at that rate HCL had
\ngiven advance to BOL. In view of the said circumstance, in our opinion,
\neven that part of the award passed by the Arbitrator did not deserve
\ninterference and learned single Judge and the Division Bench were not right
\nin reducing the rate of interest.\n<\/p>\n
For the foregoing reasons, the appeals filed by BOL deserve to be allowed
\nand are accordingly allowed by setting aside the order passed by the
\nlearned single Judge and confirmed by the Division Bench and by restoring
\nthe award passed by the Arbitrator. In view of the order passed in the
\nappeals of BOL, the appeal filed by HCL deserves to be dismissed and is
\naccordingly dismissed. However, in the facts and circumstances of the case,
\nthere shall be no order as to costs.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Bhagawati Oxygen Ltd vs Hindustan Coper Ltd on 5 April, 2005 Author: C Thakker Bench: Ruma Pal, C.K. Thakker CASE NO.: Appeal (civil) 2412-2413 of 2005 PETITIONER: Bhagawati Oxygen Ltd. RESPONDENT: Hindustan Coper Ltd. DATE OF JUDGMENT: 05\/04\/2005 BENCH: RUMA PAL & C.K. THAKKER JUDGMENT: JUDGMENT C.K. Thakker, J. Leave granted. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-128221","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nBhagawati Oxygen Ltd vs Hindustan Coper Ltd on 5 April, 2005 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/bhagawati-oxygen-ltd-vs-hindustan-coper-ltd-on-5-april-2005\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Bhagawati Oxygen Ltd vs Hindustan Coper Ltd on 5 April, 2005 - 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