Indu
Engineering & Textiles Ltd. Vs. Delhi Development Authority [2001] Insc 316
(11 July 2001)
D.P.Mohapatro,
A.P.Misra D.P.Mohapatra, J.
Whether
the appellant, on the evidence on record, is entitled to the price of hard coke
supplied by it to the respondent at the enhanced rate, is the controversy
raised in this case. The dispute was referred to an arbitrator pursuant to the
arbitration clause in the agreement entered by the parties. The arbitrator held
in favour of the appellant and accepted its claim of Rs.234097.41. A single
Judge of the Delhi High Court rejecting the objections raised by the respondent
against the award, made it rule of the court. On appeal, the Division Bench of
the High Court reversed the order of the single Judge and set aside the award
passed by the arbitrator. As such the claimant is in appeal before this court
challenging the judgment of the Division Bench of the High Court.
The
factual matrix of the case leading to the present proceeding may be shortly
stated thus: The Delhi Development Authority (for short 'DDA'), respondent
herein, floated a tender enquiry on 30th January, 1981 for supply of hard coke. M/s.Indu
Engineering & Textiles Ltd., appellant herein, submitted its offer for
supply of the material in response to the said notice on 12th February, 1981. The offer letter contained a price
escalation clause to the following effect:
"Our
prices are based on the prevailing prices of pig iron, premium hard coke and ferro-
silicon as announced by the Joint Plant Committee, Bharat Coking Coal Ltd., or
any other agency authorised for this purpose, plus sales tax, cost of
transportation and handling from main producers to our works at Agra.
Any
upward revision in the prices of pig iron, hard coke and ferro-silicon shall
have corresponding effect on our prices as per formula given below.
Such
revision in prices shall be effective from all material in transit, or tendered
for inspection immediately from the date of announcement of revised prices by
J.P.C., Bharat Coking Coal Ltd., etc." The tenders were opened by the
respondent on 20th
February, 1981.
On 14th February, 1981 there was an escalation of the
price of hard coke notified by Coal India Ltd. (a subsidiary of Bharat Coking
Coal Ltd.). The price escalation was published in the newspapers on 1st March, 1981. On 16th April, 1981 negotiations were held with the parties who submitted
offers, pursuant to which rates in respect of supply of ferro-silicon and the
price escalation in respect of the same were reduced/dropped. However, the escalation
clause with regard to premium hard coke and pig iron (no dispute in this
proceeding) was maintained with certain modification. Regarding price
escalation it was stated as follows :
"Price
Escalation: We agree to modify this clause to the same form as accepted by the
Department in the previous tender with Indo- Swedish Pipes from whom this
factory was bought by us. Under that escalation clause, escalation is payable
only on statutory increase in prices of pig iron and premium hard coke."
On 6th May, 1981 the respondent communicated its
acceptance with the following clause regarding price escalation:
"Enhancement
and deduction in pipes to be regulated on the basis of the pig iron and hard
coke price of JPC and Bharat Coking Coal Ltd." This was followed by a
confirmation letter by the appellant in which it was specifically stated that
the escalation clause shall be effective for any increase/decrease after the
date of the tender i.e. 12th
February, 1981. The
agreement incorporating the price escalation clause was signed between the
parties on 14th May,
1981. When the
appellant submitted bills for the hard coke and pig iron supplied to the
respondent at the escalated price with effect from 14th February, 1981 the respondent denied its liability to pay the
enhanced price for hard coke while admitting the liability for the escalated
price in respect of pig iron. A dispute therefore, arose between the parties.
The
dispute was referred to the arbitrator - Shri Banarasi Dass, Superintendent
Engineer by Engineer Member, DDA. The arbitrator, by a reasoned award passed on
16.5.1985, accepted the claim of the appellant in respect of the three items of
claim including the claim in respect of hard coke (item no.2). The respondent
raised an objection to the award only in respect of item no.2 i.e. hard coke.
A
single Judge of the High Court by the order passed on 7.4.1989 remitted the
matter to the arbitrator for fresh decision after taking into consideration the
effect of the letter dated 9.6.1982. Pursuant to the said decision the
arbitrator passed the award dated 3.10.1989 after hearing both the parties. He
gave detailed reasons in support of the award accepting the claim of the
appellant in respect of item no.2.
He
gave reasons for not accepting the letter dated 9.6.1982 as binding on the
appellant holding that it was obtained after an year of the agreement and under
duress and that the offer dated 12th February, 1981 itself was sufficient to
justify the claim of the appellant. By the order dated 20th February, 1995 a
single Judge of the High Court rejected the objections filed by the respondent
against the award and made the award dated 3.10.1989 rule of the court.
The
respondent filed the appeal, FAO(OS) 219/95, against the said order which was
allowed by a Division Bench of the Court holding inter alia that the award of
the arbitrator accepting the claim of the appellant for escalated price of hard
coke was without evidence. The Division Bench held inter alia that in the
negotiations held on 16.4.1981 between the parties the price of hard coke as
quoted by the appellant was not increased. The Division Bench further held that
the price escalation clause agreed to on 16.4.1981 would have prospective
application i.e. increase in price after that date. Recording its finding that
there was no evidence or material before the arbitrator whatsoever for grant of
the escalation dated 14.2.1981 in price of hard coke the Division Bench
declined to accept the contention raised on behalf of the appellant that it had
no awareness of the increase dated 14.2.1981 when it submitted the tender on
12.2.1981 since the firm is very much in this line of business. It was further
held that the price escalation clause which was modified did not include the
enhancement made on 14.2.1981.
On
such discussion, the Division Bench held that the case was one of no evidence.
The Division Bench rejected the contention raised on behalf of the appellant
that the respondent in similar circumstances having accepted the escalation in
price of pig iron should not decline to grant similar claim in respect of hard
coke, holding that by conceding to the claim in respect of pig iron it could
not be said that the respondent agreed to pay the escalated price for hard
coke.
The
scope for interference by the court with an award passed by the arbitrator is
limited. Section 30 of the Arbitration Act, 1940 (for short 'the Act') provides
in somewhat mandatory terms that an award shall not be set aside except on one
or more of the grounds enumerated in the provision. The three grounds set out
in the Section are :
(a) that
an arbitrator or umpire has misconducted himself or the proceedings;
(b) that
an award has been made after the issue of an order by the Court superseding the
arbitration or after arbitration proceedings have become invalid under Section
35;
(c) that
an award has been improperly procured or is otherwise invalid.
Interpreting
the statutory provision Courts have laid stress on the limitations on exercise
of jurisdiction by the Court for setting aside or interfering with an award in
umpteen cases. Some of the well recognised grounds on which interference is
permissible are :
1)
Violation of principle of natural justice in passing the award;
2)
Error apparent on the face of the award;
3) The
arbitrator has ignored or deliberately violated a clause in the agreement
prohibiting dispute of the nature entertained;
4) The
award on the face of it is based on a proposition of law which is erroneous,
etc.
In U.P.Hotels
and Others vs. U.P.State Electricity Board, (1989) 1 SCC 359, this Court in paras
17& 18 observed as follows:
"17.
It appears that the main question that arises is : whether the decision of this
Court in Indian Aluminium co.vs. Kerala State Electricity Board (1975) 2 SCC
414 case was properly understood and appreciated by the learned Umpire and
whether he properly applied the agreement between the parties in the light of
the aforesaid decision. It was contended that the question whether the sums
payable under clause 9 included discounts.
On the
aforesaid basis it was contended that there was an error of law and such error
was manifest on the face of the award. Even assuming, however, that there was
an error of law in arriving at a conclusion, such an error is not an error
which is amenable to correction even in a reasoned award under the law.
Reference
may be made to the observations of this Court in Coimbatore District P.T.Samgam
v. Bala Subramania Foundry (1987) 3 SCC 723, where it was reiterated that an
award can only be set aside if there is an error on its face. Further, it is an
error of law and not mistake of fact committed by the arbitrator which is justiciable
in the application before the court. Where the alleged mistakes or errors, if
any, of which grievances were made were mistakes of facts if at all, and did
not amount to error of law apparent on the face of the record, the objections
were not sustainable and the award could not be set aside. See also the
observations of this Court Ashok Kumar, (1987) 4 SCC 497, where this Court
reiterated that reasonableness of the reasons given by an arbitrator in making
his award cannot be challenged. In that case before this Court, there was no
evidence of violation of any principle of natural justice, and in this case
also there is no violation of the principles of natural justice. It may be
possible that on the same evidence some court might have arrived at some
different conclusion than the one arrived at by the arbitrator but that by
itself is no ground for setting aside the award of an arbitrator. Also see the observations
in Halsbury's Laws of England, 4th edn., Vol.2, at pages 334 and 335, para 624,
where it was reiterated that an arbitrator's award may be set aside for error
of law appearing on the face of it, though that jurisdiction is not lightly to
be exercised. If a specific question of law is submitted to the arbitrator for
his decision and he decides it, the fact that the decision is erroneous does
not make the award bad on its face so as to permit it being set aside; and
where the question referred for arbitration is a question of construction,
which is, generally speaking, a question of law, the arbitrator's decision
cannot be set aside only because the court would itself have come to a
different conclusion; but if it appears on the face of the award that the
arbitrator has proceeded illegally, as, for instance, by deciding on evidence
which was not admissible, or on principles of construction which the law does
not countenance, there is error in law which may be ground for setting aside
the award.
18. It
was contended by Mr.F.S.Nariman, counsel for the appellant, that a specific
question of law being a question of construction had been referred to the
Umpire and, hence, his decision, right or wrong, had to be accepted. In view of
Clause 18, it was submitted that in this case a specific reference had been
made on the interpretation of the agreement between the parties, hence, the
parties were bound by the decision of the Umpire. Our attention was drawn to
the observations of this Court in M/s.Hindustan Tea Co. v. M/s.K.Sashikant
& Co.,1986 Supp SCC 506, where this Court held that under the law, the
arbitrator is made the final arbiter of the dispute between the parties,
referred to him. The award is not open to challenge on the ground that the
arbitrator has reached a wrong conclusion or has failed to appreciate facts.
Where the award which was a reasoned one was challenged on the ground that the
arbitrator had acted contrary to the provisions of Section 70 of the Contract
Act, it was held that the same could not be set aside." This Court, while
dealing with the power of courts to interfere with an award passed by
arbitrator, had consistently laid stress on the position that an arbitrator is
a Judge appointed by the parties and as such the award passed by him is not to
be lightly interfered with. In the case on hand the only question that arose
for consideration was whether the appellant was entitled to claim the enhanced
price of hard coke for the quantity supplied by it to the respondent. Under the
contract a specific quantity of the material was to be supplied during the
period fixed under the agreement.
Right
from the beginning while submitting the tender the appellant had included a
price escalation clause in which it was stipulated that any escalation of the
price after submission of the tender will entitle the supplier to claim higher
price from the other party. This clause was subsequently revised only to the
effect that the price escalation will be applicable when there is statutory
enhancement in the price of the commodity. No dispute was raised before the
arbitrator or the court that the escalated price claimed by the appellant was
not the statutorily enhanced price of hard coke. It was also not in dispute
that even accepting the appellant's claim for escalated price of the commodity,
it was entitled to the claim only in respect of a part of the quantity supplied
and not the entire quantity. In these circumstances, the arbitrator had not
attached importance to the non-mention of the enhanced price of hard coke in
course of negotiations between the parties. The view taken by the arbitrator,
in the circumstances of the case, was a plausible one and the same could not be
said to be suffering from any manifest error on the face of the award or wholly
improbable or perverse one. As such it was not open to the court to interfere
with the award within the statutory limitations laid down in Section 30 of the
Act. The single Judge, therefore, rightly declined to interfere with the award
passed by the arbitrator and made it rule of the court.
As
noted earlier, the Division Bench in appeal filed under Section 39 of the Act,
reversed the order passed by the single Judge and set aside the award holding
that there was no material before the arbitrator for accepting the claim of the
appellant. The Division Bench exceeded the limits of its jurisdiction in
entering into the facts of the case and in interpreting the agreement between
the parties and correspondence which was a part of the said agreement. What was
the price of the commodity to be paid by the respondent to the appellant was
essentially a question of fact. Even assuming that the arbitrator had committed
an error in coming to the conclusion that the appellant was entitled to the
claim of the escalated price of the commodity (hard coke) under the terms of
the agreement and the Division Bench felt that the conclusion should have been
otherwise, it was not open to it to interfere with the award on that score.
Another fallacy committed by the Division Bench in the judgment is recording
the finding that the escalation clause in the agreement had prospective
operation with effect from 14.5.1981 i.e. the date on which the agreement was
entered into by the parties. As noted earlier, under the agreement a specified
quantity of the commodity was to be supplied by the appellant to the respondent
within the period specified in the agreement and the appellant, while
submitting its tender, had made it clear that any subsequent upward change in
price of the commodity will entitle it to claim at such rate and subsequently
the price escalation clause was modified in a manner not relevant for deciding
the dispute referred to the arbitrator, the question of the price escalation
clause having prospective effect was of no consequence. If the claimant was
entitled to the enhanced price the respondent was liable to pay the same for
the entire stock supplied. If the position was otherwise, the claim of the
appellant was to be rejected in toto.
On the
discussions in the foregoing paragraphs, we are clearly of the view that the
Division Bench of the High Court erred in setting aside the award passed by the
arbitrator which was made rule of the court by the single Judge. In the result,
the appeal is allowed. The judgment dated 15.5.1996 in FAO (OS) 219/95 is set
aside and the order of the single Judge dated 20.2.1995 in Suit No.944 of 1985
is confirmed. No costs.
Back