Ltd. Vs. Garware Shipping Corpn. Ltd.  Insc 1143 (14 November 2007)
Arijit Pasayat & S.H. Kapadia
out of SLP (C) No.15036 of 2005) Dr. ARIJIT PASAYAT, J.
Challenge in this appeal is to the judgment rendered by a Division Bench of the
Bombay High Court dealing with an appeal questioning the correctness of the
order passed by a learned Single Judge who dismissed the appellants appeal
under Section 34 of the Arbitration and Conciliation Act, 1996 (in short the
Act) questioning the Arbitrators award.
controversy lies within a very narrow compass.
factual background is almost undisputed and is essentially as follows:
for supplying material from its onshore bases to its offshore installations.
After initially meeting its requirements fleet of Indian Flag vessels. Various
Indian companies including the respondent and the Shipping Corporation of them
to the appellant. The respondent acquired five vessels- (named Garware I to Garware
V) which were handed over to the appellant in the months of November and
December, 1983 and January and March, 1984.
dispute pertains to the cost of repairs and sixteenth year of their operation.
Even though there is no dispute regarding the first two terms of five years
each, reference to the manner in which the rates for the same were arrived at
is necessary. A working group under the Director General of Shipping was
constituted by the Ministry of Petroleum to determine the floor day rate in
respect of the vessels keeping two objects in mind, i.e.
term availability of the OSVs for the appellant and
viability to ensure the respondents survival in the business.
report was submitted by the working group on 8.3.1984 suggesting the day rate
which comprised of two components, i.e.
recovery factor and
were accordingly entered into for the first five year period beginning from
1983-84. The Government of India by an order dated 18.8.1984 approved the
report in certain respects only. There is no dispute between the parties
regarding the payments of operating costs for the first five years. The charter
was extended by another five years. A committee presided over by Dr. A.N.Saxena
was formed to review the operating costs payable for the extended term. The
Government approved the report of the Committee on 5.8.1993. There is no
dispute between the parties in respect of the payments regarding the second
five year period also.
present dispute relates to the period beyond ten years so far as relates to the
basis for computing the rates for repairs and maintenance. By an order dated
29.4.1993 the charter was extended by a further six years. By an order dated
16.3.1995 and as modified by an order dated 14.9.1995, a committee also
presided over by Dr. A.N. Saxena was formed to recommend a suitable formula for
the charter rate for the further extended period.
committee submitted its report on 14.9.1997. This committee made recommendations
inter-alia in respect of repair and maintenance expenses. The reference to
arbitration was confined only to the payment of these repairs and maintenance
Government of India by a letter dated 15.6.1998 accepted the recommendations of
the second Dr. A.N. Saxena Committee only partially. Representations were
thereafter made by the Indian Shipping Companies including the respondent for
reconsideration of the recommendations.
thereto, the Government of India appointed a High Level Working Group presided
over by Mr. Naresh Narad for considering the outstanding pending issues. The
following recommendations of the High Power Committee are relevant:
Determination of year
to 5 years as per from which R & M payments already expenses are to be
made. Settled cases actualized. Not to be reopened.
b) 6 to 10 years as per norms fixed by Dr. Saxena Committee of
and 12 years to actualized on the basis recommended by Dr. Saxena Committee of
Disputes and differences arose between the appellant and inter-alia the
respondent and others regarding the method to the adopted for calculating rates
payable with reference to the eleventh to the sixteenth years. The respondent,
therefore, filed Writ Petition No.2788 of 2001 for various reliefs.
an order dated 7.12.2001 a Division Bench of the High Court recorded that the
Writ Petition involved certain contractual disputes and that both the parties
had agreed to refer the disputes raised in the Writ Petition to the sole
arbitration of Mr. Justice M.L.Pendse (a former Judge of the Bombay High Court
and the former Chief Justice of the Karnataka High Court). The order which is a
short one, reads as follows:
writ petition involves certain contractual disputes relating to repairs and
maintenance expenses etc. contract between the parties contain an arbitration
clause. Both the parties agree to refer the disputes raised in the writ
petition to sole arbitration of Justice M.L. Pendse (Retd.). Parties further
agree that in case Justice Pendse is not in a position to take up the
arbitration, Justice D.R. Rege (Retd.) shall be the arbitrator for the disputes
between the parties. Arbitrator is requested to dispose of the arbitration as
expeditiously as possible.
is disposed of.
The learned arbitrator noted the respondents submission that while
calculating the payments due for the respondent, the appellant has overlooked
the important fact respondent, therefore, contended that it was not correct
that the corresponding years of SCI should be taken into account while
determining amounts payable to the respondent. The learned arbitrator rejected
the appellants contention. He held that the committee nowhere recommended
that irrespective of the period of induction, the years should be calculated of
that of the SCI. He held that the respondent had not questioned the
recommendations made by the High Level Working Group Report and the second Saxena
Committee Report but merely contended that the mode of implementation thereof
was incorrect. The arbitrator further observed and accepted that it was not
open for him to go behind the report and the only area of enquiry is whether or
not the report was correctly implemented. He came to the conclusion that on a
close scrutiny of the reports, it was clear that neither of the committees
examined whether the entitlement of each OSV is to be determined with reference
to the years of actual user or only with reference to the calendar years. He
also came to the conclusion that for the computation of repairs and maintenance
expenses, it was necessary to take into consideration the years of operation
and not the calendar years. It was held that the 12th year of operation of
SCIs interpretation suggested by the appellant would lead to great
injustice. For instance, the OSV of the respondent would would have operated
only for 10 years.
Appellant questioned correctness of learned Arbitrators conclusion by
filing an appeal under Section 34 of the Act.
Single Judge dismissed the appeal holding that the conclusion was rational. An
appeal filed was also dismissed.
According to the Division Bench, the learned arbitrator has considered and
construed the reports while arriving at his conclusions. The entire dispute in
the Writ Petition and before the learned arbitrator centered around this issue.
The basis of the calculation adopted by the learned arbitrator was, not only
logical but just and fair. The provisions of the said reports are not such that
they required no interpretation and were merely to be applied without anything
more. They called for a proper interpretation and construction before being
applied to the facts of the case. The learned arbitrator did so.
The learned Single Judge held that undoubtedly there was no reference so far as
the period of 13 to 16 years are concerned to the learned Arbitrator. But the
prayers and the writ petitions clearly indicated that even for that period an
issue was raised.
The Division Bench was of the view that even if the mode of calculation as
applied by the arbitrator is not very appropriate in its effect, that could not
be a ground for exercise of power under Section 34.
noted that the reference in fact did not include the 13th to the 16th year to
inspect that the arbitrator thought it improper to open the same. The High
Court was of the view that a narrow technical reading of the Award cannot be
support of the appeal, learned counsel for the appellant submitted that both
learned Single Judge and the Division Bench failed to notice that the Award
made by the Arbitrator was beyond the reference made. The arbitrators view
that the corresponding year could be a more appropriate factor is without
foundation. The Bench mark of SCI in a particular year could not be departed
from. There was no scope for shifting of figures. There is no rule of universal
application that the cost of maintenance would be more when the vehicle becomes
older. The normative figure for third period remained constant. The order of
operation is the operating order and the financial order is defining. Though in
the Writ Petition there was challenge to 13 to 16 years, a bare reading of the
writ petition shows that it did not relate to the said period.
response, learned counsel for the respondent submitted that two views are
possible and, therefore, High Courts view should not have interfered.
Arbitrator had accepted one view which is possible. No one says that it is de
hors the Committees report. It is a case where no interference is called
for under Article 136 of the Constitution of India, 1950 (in short the
Constitution) as substantive justice had been done, even though the
order may be wrong on some parts.
Some of relevant parts of the Report of HLWG need to be noted:
High Level Working Group therefore, concludes that R&M expenses are to be
actualized with effect from the 11th year of operation. It was further
noted as follows:
Committee was seized of the anomaly of lower rates being paid to those Owners
who exercised greater management effectiveness by ensuring lower capital costs,
lower interest rates and lower debt equity ratios.
The High Level Working Group, therefore, felt that though it is now not
possible to correct any anomalies that may have crept in during the first
twelve years, at least for the last term of four years the formula should
reflect, as far as practicable, the principle of equal pay for equal work.
is to be noted that the anomalies referred to in the subsequent paragraphs
relate to the anomaly of lower rates being paid to owners to exercise greater
management effectiveness by ensuring lower capital because of lower interest
rate and lower rate equality ratio.
The recommendations of the HLWG are as follows:
Determination of year from which R&M expenses are to be actualized
to 5th year as per payments already made. Settled cases not to be reopened.
to 10th year as per norms fixed by the Dr. Saxena Committee of 1995-97.
11th and 12th years to be actualised on the recommended by the Dr. Saxena
Committee of 1995-97.
Ceiling rates forA type Vessels only pertaining to the period beyond
12 years of operation
From 1st to 5th year ceiling rates as already paid by ONGC.
6th to 1Oth year floor rates to be paid by ONGC.
the 11th and 12th years ceiling rates to be paid by ONGC
Compensation in lieu of CRF a. The Operating Expenses (including Crew Salary
& Wages covering agreements between INSA and MUI/ NUSI) as determined on
the last day of the 12th year of operation for each vessel, (as per
recommendations of the Dr. Saxena Committee and further modified by this
Working Group) to be fixed and made applicable for the next four year i.e. from
the 13th to the 16th year.
Operating costs are to be calculated on the basis of for full (first) one year
The committee observed that the actual expenses of SCI have not followed any
uniform pattern. The scale to be suggested by the committee needed to be based
on some normative amount for a base year over which an escalation of 9.5% per
annum may be considered for a block of five years and for subsequent block of
five year the base may be changed in the same pattern as that of victualling
cost. The committee observed that the total cost of repair and maintenance for the
is Rs.106.482 lacs per OSV as against the recommended amount of Rs.97.618 lacs
given in the JS & FA committee report. The committee considered that the
SCIs audited statement of R&M expenses may be considered as
appropriate amount for reimbursement to Shipowners. The difference between
SCIs audited R&M expenses and the normative amount was to be
reimbursed to the Shipowners on receipt of SCIs audit statement from time
to time in proportion to the
the concept of reimbursement is the measure fixed, the year of operation can
vary is an irrelevant factor. The repair and maintenance expenses have also
been dealt by the Committee.
accordance with the deliberation of the Committee on this at para 3.5.5, the
committee recommended the normative R&M expenses of OSV of 5400 BHP for the
year 1988-89 to 1993-94 to be same as given in the JS&FA Committee report.
R&M expenses for the subsequent years were recommended at the rate of 9.5%
escalation per annum on the expense of the year 1993-94 upto 1998-99 and the
amount for of subsequent years @ 9.5% escalation per annum. The difference
between the recommended normative amount given (Audited statements) were to be
reimbursed on year to year basis after receipt of the audited statement from
SCI additional reimbursement of corresponding overhead expenses in the ratio of
15:85 of the differential amount will also be recommended to be calculated pro
rata basis of the BHP of the 5400 BHP.
Though there was some controversy as to whether the year referred to is the
financial year as reimbursement was on year to year basis after receipt of the
auditors statement from SCI the norms obviously relate to financial year.
few factual aspects need to be noted. So far as Essar is concerned, the year is
same as SCI. In case of Bann, there was one time settlement and it is only
JESCO which challenged the report. SCIs first year of operation was
1984-85. The figures for that year provide some material for rationalization.
to be noted that stress is on re-imbursement. Thus the measure is fixed and,
therefore, year of operation is immaterial. It needs no reiteration that claim
was for 11th and 12th years and the award also covered from 13th to 16th year.
It is also to be noted that the HLWG referred to certain anomalies. But they
related to the previous years. The Bench Mark is the figure of SCI of
particular year. So when entry to business was made is irrelevant.
There is no proposition that the courts could be slow to interfere with the
arbitrators Award, even if the conclusions are perverse, and even when the
very basis of the Arbitrators award is wrong. In any case this is a case
where interference is warranted and we set aside the norms prescribed by the
Arbitrator as upheld by the learned Single Judge and the Division Bench.
The appeal is allowed to the aforesaid extent with no order as to costs.