Pure
Helium India Pvt. Ltd. Vs. Oil & Natural Gas Commission [2003] Insc 515 (9 October 2003)
Cji
& S.B. Sinha.S.B. Sinha, J :
Whether
jurisdiction of an arbitrator to interpret a contract can be subject-matter of
an objection under Section 30 of the Arbitration Act, 1940 (hereinafter
referred to as 'the Act', for the sake of brevity) is in question in this
appeal which arises out of the judgment and order dated 24.2.2000 of the High
Court of Judicature at Bombay in Appeal No.612 of 1996 arising out of a judgment
and order of a learned Single Judge dated 13.10.1995 dismissing the said
objection of the respondent.
BACKGROUND
FACT:
The
parties hereto entered into a contract for supply of Helium Diving Gas pursuant
to a notice inviting global tender dated 2.5.1989.
In
terms of the said notice inviting tender, the respondent herein was to take
supply of Helium gas, which is one of the rare gases being not chemically
produced and is mainly extracted from the natural gas wells in mineral form.
The said gas is ordinarily imported from U.S.A., Algeria, Poland and Russia. In terms of the said notice
inviting tender, three different categories of rates were to be quoted by the tenderers
both foreign and Indian. Whereas the foreign tenderers were to quote their
prices in foreign currency, the Indian bidders could indicate the nature of
payment, i.e. if a part thereof was recoverable having foreign exchange
component. Pursuant to or in furtherance of the said notice inviting tenders,
the tenderers submitted their technical bids. The bidding was to be in two
stages; in terms whereof the technical bids were to be opened first whereafter
only final bids were to be considered. The appellant's bid was found to be the
lowest in that the appellant had bid a price of Rs.150/- per cubic meter out of
which US$ 5 was to be the foreign exchange component. The said bid of the
appellant having been found to be the lowest, the parties entered into a
negotiation; pursuant to or in furtherance whereof, the appellant lowered its
offer to Rs.149/- per cubic meter, out of which US$ 4.60 was to be the foreign
exchange component.
The
respondent having felt the need of Helium gas urgently, pending execution of
the contract, placed an order for ad hoc supply of 52000 cubic meters of Helium
gas with the appellant. The respondent again placed an order for supply of
300000 cubic meters of Helium gas on 25.5.1990.
The
Ministry of Petroleum and Natural Gas, Government of India, vide its letter
dated 21.5.1990 released foreign exchange for procurement of Helium gas, by
reason of letter addressed to the respondent stating :
"I
am directed to refer to your letter No.DlH/BOP/OBG/OS/30/90 dated 19.4.90 on
the above subject and to convey the approval of the President to the
procurement of 3,00,000 M3 of Helium Gas from M/s Pure Helium India Ltd.,
Bombay at a cost of Rs.4.47 crores including a foreign exchange component of
Rs.2.38 crores (US $ 1.380 million @ US$ 5.7875 = Rs.100/-)." The
respondent thereafter issued two supply orders on 12.6.1990 to the appellant
for supply of 52000 cubic meters and 300000 cubic meters Helium gas
respectively at a price of Rs.149 per cubic meter inclusive of foreign exchange
component of US$ 4.60. Having regard to the increase in price of the US dollar,
the appellant herein claimed the difference of price of US dollar as on the
date of the contract and the date of supply. The claim of the appellant was
recommended by the Secretary, Petroleum and Natural Gas Department as well as
by certain other senior officers. The respondent, however, rejected the claim
on or about 14.7.1992 whereafter the arbitration agreement was invoked.
The
arbitrators entered into a reference on 1.3.1993. A non-speaking award was made
by the arbitrators on 13.8.1993 holding that the respondent was liable to compensate
the appellant for Exchange Rate Fluctuation in the sum of Rs.1,03,41,309/- with
interest at the rate of 18% per annum from the date of the invoices till the
date of the award.
The
respondent herein questioned the validity of the said award by filing a
petition under Section 30 of the Act before the Bombay High Court which was
marked as Arbitration Petition No.52 of 1994. A learned Single Judge of the
High Court of Judicature at Bombay dismissed the said petition and directed the
award to be made a rule of the Court by an order dated 13.10.1995.
Aggrieved
by and dissatisfied therewith the respondent preferred an appeal thereagainst
which by reason of the impugned judgment has been allowed. The appellant is,
thus, in appeal before us.
SUBMISSIONS:
Mr. Dipankar
P. Gupta, learned Senior Counsel appearing on behalf of the appellant, would
contend that the Division Bench of the High Court committed a manifest error
insofar as it proceeded to determine the dispute on the premise that the claim
could not have been preferred under any clause of the contract. The learned
counsel would contend that the arbitrators had, having regard to the scope and
purport of the arbitration agreement entered into by and between the parties
were entitled to go into the question of the construction of contract and they,
thus, having the requisite jurisdiction therefor, the High Court could not have
independently construe the same.
Drawing
our attention to various clauses of the contract as also the claim petition,
the learned counsel would contend that the arbitrator had analyzed the terms
and conditions of the contract having regard to the facts and circumstances of
this case as also keeping in view the pleadings of the parties and in that view
of the matter the High Court while exercising its jurisdiction under Section 30
of the Act could not have interfered therewith particularly as the award was a
non- speaking one. It was urged that such a claim was also maintainable having
regard to a circular letter dated 25.9.1989 issued by the Government of India.
Mr.
Gupta would submit that the approach of the respondent in denying the just
claim of the appellant must be held to be arbitrary and unfair insofar as
payments on similar terms as claimed by the appellant had been made not only to
the foreign bidders but in fact had been made to the other Indian bidders where
the price was payable in the Indian currency. By preferring such a claim, the
learned counsel would urge, the appellant had not asked for any escalation in
the price but merely claimed damages in terms of the provisions of the contract
occasioned by fluctuation in the rate of dollar in terms of the notification
issued by the Reserve Bank of India under Section 40 of the Reserve Bank of
India Act and such revision was permissible also in terms of clause 23 of the
contract.
In
support of the said contentions, Mr. Gupta strongly relied upon W.B. State
Warehousing Corporation and Another vs. Sushil Kumar Kayan and Others [(2002) 5
SCC 679], K.R. Raveendranathan vs. State of Kerala [(1998) 9 SCC 410], P.V. Subba
Naidu and Others vs. Government of A.P. and Others [(1998) 9 SCC 407], H.P.
State Electricity Board vs.R.J. Shah and Company [(1999) 4 SCC 214], Shyama Charan
Agarwala & Sons etc. vs. Union of India
etc. [(2002) 6 SCC 201].
The
learned counsel would further argue that for the purpose of interpretation of a
contract not only the terms thereof but also the conduct of the parties and
surrounding circumstances are relevant.
Reliance
has been placed on Khardah Company Ltd. vs. Raymon & Co.(India) Private Ltd. [(1963) 3 SCR 183].
In any event, the learned counsel would contend that the respondent was bound
by the policy decision of the Central Government in the matter of payment of
difference in the rupee value owing to fluctuation in the rate of US dollar.
Mr. Mukul
Rohtagi, learned Additional Solicitor General, on the other hand, would submit
that the bid price for supply of Helium gas made by the appellant herein in
terms of the contract being firm, the appellant was not entitled to any
escalation in the price and, thus, in the event, the contention of the
appellant is accepted, the same would run counter to the clause in the contract
prohibiting escalation in the price of the goods.
Mr. Rohtagi
would contend that disclosure of the foreign exchange component in the price to
be paid in Indian currency was sought for only for the purpose of evaluation of
bids. He would urge that for all intent and purport, the foreign exchange
component had nothing to do with the payment of the price for supply of Helium
gas to the appellant.
In
support of his contention, Mr. Rohtagi relied upon Rajasthan State [(1999) 9 SCC 283].
The
learned counsel would further argue that the notifications issued by the
Reserve Bank of India do not constitute 'any change in law' in terms of the
provision of Section 40 of the Reserve Bank of India Act or otherwise.
RELEVANT
CLAUSES IN THE CONTRACT:
"1.16
Prices :
1.16.1
In cases where payments are required in Indian Rupees, the bidder should
clearly indicate if it shall need any foreign exchange for completing the
supplies/services that may be ordered on him. For this purpose they should
quote the total price along with its breakdown between Indian Currency portion
and the foreign currency indicating the specific currency.
The
bidder shall also indicate the nature of payments which it intends to cover
foreign exchange payments, viz., whether it is towards acquisition/hiring of
equipment/services, payments of personnel or acquisition of sub-assemblies,
spare parts or purchase of raw materials or for any other purpose.
A
bidder who would not need any foreign exchange for completion of the order
should state this categorically.
In
case the bidder would require any assistance/certification from ONGC to help
him secure the required foreign exchanges it should be so stated."
"1.16.3 Price preference for supplies :
Domestic
manufactures are entitled to get price preference over the foreign supplier.
The
price preference is admissible over the CIF price of the lowest technically
acceptable foreign offer received in international competition.
The
criteria for giving price preference is domestic value added Domestic value
added to an indigenous offer will be as follows :
CIF
price of lowest Acceptable foreign Tendered Direct import requirement of raw
material components & consumable of Indian bidder Domestic value =
-------------------------- CIF price of lower acceptable foreign tender The
price preference admissible to indigenous manufacturer will be as under :
Extent
of domestic Extent of price Value preference --------- ---------- -------------
1. Upto
20% Nil
2.
More than 20% upto 50% upto 15%
3.
More than 50% and upto 70% upto 25%
4.
More than 70% upto 35%
2.6
Bidder shall quote a firm price and they shall be bound to keep this price firm
without any escalation for any ground whatsoever until they compete the work
against this tender or any extension thereof.
2.7
The prices shall be given in the currency of the country of the bidder. If the
bidder expects to incur a portion of this expenditure in currencies other than
those stated in his bid, and so indicates in his bid payment of the
corresponding portion of the prices as so expended will be made in these other
currencies.
6.2 In
case the price quoted by two or more domestic bidders are within the price
preference limits and only Indian bidders remain in contention for award of
contract, then the foreign exchange component of their bid would be loaded by a
factor of 25% for the purpose of relative compensation of such domestic bids.
Domestic bidders are required to quote the prices in the price schedule and
indicate the import content in their offer. If there is no import content in
the offer then it should be specifically stated as NIL".
"12.
(i) Commission shall pay for Helium at the rate of Rs.149 per M3 all inclusive
for offshore supply as indicated in Anneuxre II.
(ii)
The invoice with the following support documents, should be submitted in
triplicate immediately after receipt of material by Commission to DGM (F&A)
712 B, Vasudhara Bhavan, Bandra (E), Bombay-400 051.
a) The
quantity of gas received duly certified by Commission's representative.
b) The
computer analysis of the gas chromatograph showing the purity of the gas."
"21.
Arbitration If any dispute, difference or question shall at any time arise
between the parties herein or their respective representative or assignees in
respect of these present or concerning anything hereto contained or arising out
of these present or as to the rights liabilities or duties of the said parties
hereunder which cannot be mutually resolved by the parties, the same shall be
referred to arbitration, the proceedings of which shall be held at Bombay,
India within thirty (30) days of the receipt of the notice of intention of
appointing arbitrators.
Each
party shall appoint an arbitrator of its own choice and inform the other party.
Before entering upon the arbitration, the two arbitrators shall appoint the
Umpires. In case either of the parties fail to appoint its arbitrator within
thirty (30) days from the date of receipt of a notice from the other party in
this behalf or the two arbitrator fail to appoint the Umpire, the Chief Justice
of the Supreme Court of India shall appoint the arbitrator and/ or the Umpire
as the case may be.
The
decision of the arbitration and in the event of the arbitrators failing to
regain an agreed decision then the decision of Umpire shall be final and
binding on the parties hereto.
The
arbitration proceedings shall be held in accordance with the or provisions of
Indian Arbitration Act, 1940 and the rules made thereunder as amended from time
to time.
The
arbitration or the Umpire as the case may be shall decide by whom and what
proportions the arbitrators or Umpire fee as well as costs incurred in
arbitration shall be borne.
The
arbitrator or the Umpire may with the consent of the parties enlarge the time,
from time to time to make an publish their or his award. Arbitration will be
conducted in English language and either party may be represented by persons
not admitted to practice law in India."
"23.
In the event of any change or amendment of any Act or law including Indian
Income Tax Acts, rules or regulations of Govt. of India or Public Body or any
change in the interpretation or enforcement of any said Act or law, rules or
regulations by Indian Govt. or public body which becomes effective after the
date as advised by the Commission for submission of final price bid for this
contract and which results in increased cost of works under the contract,
through increased cost by the Commission subject to production of documentary
proof to the satisfaction of the Commission to the extent which is directly
attributable to such change or amendment as mentioned above. Similarly, if any
change or amendment of any Act or law including Indian Income Tax Acts, Rules
or Regulation of any Govt. or Public Body or any change in the interpretation
or enforcement of any said Act or law, rules or regulations by Indian Govt. or
public body becomes effective after the date as advised by the Commission for
submissions of final price bid for this Contract and which results in any
decrees in the cost of the project through reduced liability of taxes, (other
than personnel taxes) duties, the Contractor shall pass on the benefits of such
reduced costs, taxes or duties to the Commission.
Notwithstanding
the abovementioned provisions, Company shall not bear any liability in respect
of:
i)
Personnel taxes, customs, duty and corporate tax".
RELEVANT
PARAGRAPHS OF STATEMENT OF CLAIM OF THE APPELLANT:
In its
statement of claim, the appellant, inter alia, contended :
"...The
claimant has reason to believe that the Bombay Regional Office of the
respondent had recommended that the respondent be made such payments as they
rightly believed that such payments were legitimately due to the claimant under
the terms of contract.
That
apart from the reason that the said amounts were due to the claimant under the
contract terms itself, the same is also supported by virtue of a notification
of the Government of India setting out internal guidelines as contained in
Notification No.D-19011/7/87-ONG- UA(EO) dated 25th of September 1989 issued by
the Ministry of Petroleum and Natural Gas. A copy of this notification is
placed at Document No.27 and its relevant contents are reproduced hereinbelow :-
"It has now been decided that...the Indian bidder's foreign exchange
component may be allowed to be quoted in foreign currency for purposes of
actual payment and the actual payment made in rupee equivalent to the foreign
exchange component as per the BC selling rates on the date of actual payment
for the imported supplies." Subsequently, the respondent issued a circular
No.74/89 dated 8th
November, 1989 in
compliance of the abovesaid Ministerial Notification, a copy of which is
Documents. This Circular was to be implemented in all regions and be applicable
to all contracts." The appellant in the said statement of claim, inter alia,
made the following submissions before the arbitrator :
"2.
It is submitted that the foreign exchange rate fluctuations did not and cannot
result into a price variation/increase.
It is
submitted that the firm price relative to this contract was a composite price
stated in Rupees and Dollars and it was that which was and has been held firm,
by the claimant. The claimant is not seeking additional benefit or profit but
is merely seeking to recover a specified contract consideration.
3.
That the ministry notification dated 25.09.1989 has the force of law and the
respondent is not entitled to act in violation of the same.
5.
That it is further submitted that this very respondent has in other suppliers
entered into prior to the conclusion of this contract applied this notification
in the manner in which it ought to have been applied and has given due benefit
to various other suppliers. It is also significant that the respondent has had
no hesitation in applying the said notification to the claimant's benefit in a
subsequent contract.
6.
That without prejudice to what is stated above, it is further submitted that
the contract between the claimant and respondent was concluded subsequent to
the issuance of the notification and, therefore, any endeavour on the part of
the respondent to construe the effective date of the notification as subsequent
thereto is misconceived and factually incorrect.
7. It
is submitted that exchange rate fluctuations brought into effect in exercise of
powers conferred on the Reserve Bank of India under Section 40 of the Reserve Bank of India Act 1934 and upon
directions given by the Government of India has the complete force of law. That
being the position, any change arising therefrom is clearly covered under
clause 23 of the Tender Document. Being so, the respondent is bound under the
contract to compensate the claimant as to such increased costs arising out of
such exchange rate fluctuations. It is further submitted that refusal on the
part of the respondent to compensate the claimant without disclosing any
reasons itself is arbitrary.
8.
...Any interpretation of the contract wherein foreign suppliers would be paid
in foreign currency at the current rate while Indian suppliers would be paid at
the rate of exchange prevailing on the date of the submission of the Price Bid
would discriminate against the Indian suppliers in as much as any increase in
the value of the dollar against the Indian rupee would destroy the costing of
the Indian suppliers. The claimant states that this interpretation of the
contract is discriminatory against the Indian suppliers, violative of public
policy and against stated government guidelines, objectives and
intentions."
ISSUES
BEFORE THE ARBITRATORS:
The
respondent in their rejoinder having joined issues with the aforementioned
contentions of the appellant, the following issues which were raised by the
appellant herein, fell for consideration by the learned arbitrators.
"1.Whether
the proper interpretation of terms of the contract entitle the claimant to be
compensated for all consequences arising out of exchange rate variations
between the date of the submission of the Price Bid and the completion of all
supplies.
2.
Whether, in addition or in the alternative, the claimant is, under clause 23 of
the Tender Document entitled to be compensated for all exchange rate variations
between the date of the submission of the Price Bid and the completion of all
supplies.
3.
Whether, in the alternative, the respondent is bound to effectuate in favour of
the claimant notified State policy as contained in the Ministerial notification
dated 25.09.1989.
4.
Whether, the respondent's circular No.74/89 dated 8th November, 1989 estoppes the respondent from any interpretation of
the contract contrary thereto."
AWARD:
By
reason of the impugned award, the learned arbitrators held :
"1.
We hold that the Claimants are entitled to be compensated for increase in cost
arising out of Foreign Exchange Rate Fluctuations in respect of payment made by
the Respondents to the Claimants on the from the respective dated of
devaluation of the Indian Rupee, namely 8.7.1991 and 28.2.1998 and not on payments
made before the said dates. Accordingly we direct that the Respondent do pay to
the Claimants a sum of Rs.1,03,41,309/- only (in words Rupee One crore three lakhs
forty one thousand three hundred and nine) Rs.24,97,905/- under Invoice
dt.9.10.1991, Rs.25,20,160/- under Invoice dt. 15.1.1998 and Rs.53,23,241/-
under Invoice dt. 22.6.1998) in full and final settlement of their claim under
their aforesaid three invoices.
2.
Respondents do further pay to the Claimants interest at the rate of 185 per
annum on the aforesaid three amounts awarded to them under the said invoices
from the respective dates of those invoices till the date of this Award."
(1)
The subject-matter of the arbitration was not arbitrable in view of the terms
of the contract;
(2)
The appellant was not entitled to any escalation in price.
The
Division Bench of the High Court set aside the award holding that the same was
without jurisdiction wherefor two questions were framed.
(a)
Whether a claim of the nature preferred by the respondent is specifically
barred under the contract?
(b)
Whether there is any clause in the contract, under which such a claim could be
preferred?
OUR
CONCLUSION:
The
questions framed are self-contradictory and inconsistent.
Whereas
in framing question (a) a right approach had been adopted by the Division
Bench, a wrong one had been adopted in framing question (b).
It is
not in dispute that there were three different nature of bids;
which
were required to be made in terms of the notice inviting tenders :
(i) by
foreign bidders;
(ii) by
Indian bidders quoting Indian price with the foreign exchange component therefor
as import was required to be made;
(iii) payable
only in Indian rupee without foreign exchange component.
Before
the arbitrators apart from construction of the contract agreement, the
questions which, inter alia, arose were :
(a) the
effect and purport of circular letter dated 25.9.1989 issued by the Central
Government:
(b) the
conduct of the respondent in making the payments to the persons similarly
situated.
Construction
of a deed sometimes pose a great problem.
Justice
Frankfurter said : "there is no surer way to misread a document than to
read it literally." [Massachusetts
B. & Insurance Co.vs. U.S. (1956) 352 US 128 at p. 138].
We,
however, as discussed in details a little later are strictly not concerned as
regard true import and purport of the relevant clauses of the contract
agreement. Our concern is merely to see as to whether the learned arbitrators
exceeded their jurisdiction in making the award.
The
learned arbitrators, as noticed hereinbefore, in making the award took into
consideration the documentary as well as circumstantial evidence including
rival pleadings of the parties. It is trite that the terms of the contract can
be express or implied. The conduct of the parties would also be a relevant
factor in the matter of construction of a contract.
In Khardah
Company Ltd. (supra), this Court held :
"...We
agree that when a contract has been reduced to writing we must look only to
that writing for ascertaining the terms of the agreement between the parties
but it does not follow from this that it is only what is set out expressly and
in so many words in the document that can constitute a term of the contract
between the parties. If on a reading of the document as a whole, it can fairly
be deduced from the words actually used herein that the parties had agreed on a
particular term, there is nothing in law which prevents them from setting up
that term. The terms of a contract can be expressed or implied from what has
been expressed. It is in the ultimate analysis a question of construction of
the contract. And again it is well established that in construing a contract it
would be legitimate to take into account surrounding circumstances...."
Construction of the contract agreement, therefore, was within the jurisdiction
of the learned arbitrators having regard to the wide nature, scope and ambit of
the arbitration agreement and they cannot, thus, be said to have misdirected
themselves in passing the award by taking into consideration the conduct of the
parties as also the circumstantial evidence.
A
dispute as regard the construction of clause 23 of the contract vis-à-vis the
notification issued under Section 40 of the Reserve Bank of India Act also fell
for their consideration. Such a question of law, it is trite, is also arbitrable
and was specifically raised by the appellant. The learned arbitrators were
further entitled to consider the question as to whether the appellant had been
discriminated against insofar as similar claims have been allowed by the
respondent.
CASE
LAWS ON THE POINT:
In
State of U.P. vs. Allied Constructions [2003 (6) SCALE 265], this Court held :
"...Interpretation
of a contract, it is trite, is a matter for arbitrator to determine (see M/s Sudarsan
Trading Co. vs. The Government of Kerala, AIR 1989 SC 890). Section 30 of the
Arbitration Act, 1940 providing for setting aside an award is restrictive in
its operation.
Unless
one or the other condition contained in Section 30 is satisfied, an award
cannot be set aside. The arbitrator is a Judge chosen by the parties and his
decision is final. The Court is precluded from reappraising the evidence. Even
in a case where the award contains reasons, the interference therewith would
still be not available within the jurisdiction of the Court unless, of course,
the reasons are totally perverse or the judgment is based on a wrong
proposition of law. As error apparent on the face of the records would not
imply closer scrutiny of the merits of documents and materials on record. One
it is found that the view of the arbitrator is a plausible one, the Court will
refrain itself from interfering..." In K.R. Raveendranathan (supra), the
law was laid down in the following terms :
"2.
The learned counsel for the appellant points out that the question in issue in
the present appeals is squarely covered by the decision of this Court in
Hindustan Construction Co. Ltd. v.State of J&K ((1992) 4 SCC 17). In
particular, it drew our attention to para 10 of the judgment and the portion
extracted from the decision in Sudarsan Trading Co. case (Sudarsan Trading Co.v.
Govt. of Kerala, (1989) 2 SCC 38) wherein it was said that by purporting to
construe the contract the Court could not take upon itself the burden of saying
that this was contrary to the contract and, as such, beyond jurisdiction.
That
is exactly what the Court has done in the instant case..." K.R. Raveendranathan
(supra) has been followed by this Court in P.V. Subba Naidu (supra) stating :
"4.
The entire thrust of the judgment is on examining the terms of the contract and
interpreting them. The terms of the arbitration clause, however, are very wide.
The arbitration clause is not confined merely to any question of interpretation
of the contract. It also covers any matter or thing arising thereunder.
Therefore,
all disputes which arise as a result of the contract would be covered by the
arbitration clause. The last two lines of the arbitration clause also make it
clear that the arbitrator has power to open up, review and revise any
certificate, opinion, decision, requisition or notice except in regard to those
matters which are expressly excepted under the contract, and that the
arbitrator has jurisdiction to determine all matters in dispute which shall be
submitted to the arbitrator and of which notice shall have been given.
5. In
the present case all the claims in question were expressly referred to
arbitrator and were raised before the arbitrator. The High Court was,
therefore, not right in examining the terms of the contract or interpreting
them for the purpose of deciding whether these claims were covered by the terms
of the contract."
The
same view has been reiterated in H.P.
State Electricity Board (supra). Upon
taking into consideration a large number of decisions and referring to K.R.Ravendranathan
(supra), this Court held that the court would not be justified in construing
the contract in a different manner and then to set aside the award by observing
that the arbitrator had exceeded the jurisdiction in making the award, when the
arbitrator is required to construe a contract, only because another view is
possible.
It was
stated :
"26.
In order to determine whether the arbitrator has acted in excess of
jurisdiction what has to be seen is whether the claimant could raise a
particular dispute or claim before an arbitrator. If the answer is in the
affirmative then it is clear that the arbitrator would have the jurisdiction to
deal with such a claim. On the other hand if the arbitration clause or a
specific term in the contract or the law does not permit or give the arbitrator
the power to decide or to adjudicate on a dispute raised by the claimant or
there is a specific bar to the raising of a particular dispute or claim then
any decision given by the arbitrator in respect thereof would clearly be in
excess of jurisdiction. In order to find whether the arbitrator has acted in
excess of jurisdiction the court may have to look into some documents including
the contract as well as the reference of the dispute made to the arbitrators
limited for the purpose of seeing whether the arbitrator has the jurisdiction
to decide the claim made in the arbitration proceedings." Yet again in Sushil
Kumar Kayan (supra), it was held :
"...In
order to determine whether the arbitrator has acted in excess of his
jurisdiction what has to be seen is whether the claimant can raise a particular
claim before the arbitrator. If there is a specific term in the contract or the
law which does not permit the parties to raise a point before the arbitrator
and if there is a specific bar in the contract to the raising of the point,
then the award passed by the arbitrator in respect thereof would be in excess
of his jurisdiction..." Some of the aforementioned decisions have been
considered by us in Bharat Coking Coal Ltd. vs. M/s Annapurna Construction
[2003 (7) SCALE 20].
Rajasthan
State Mines & Minerals Ltd. (supra) whereupon Mr.Rohtagi placed strong
reliance, this Court held that the dispute to the arbitrator could not be
termed as without jurisdiction but proceeded to consider the question as to
whether he will have authority or jurisdiction to grant damages or compensation
in the teeth of the stipulation providing that no escalation would be granted
and that the contractor would only be entitled to payment of the composite rate
as mentioned and no other or further payment of any kind or item whatsoever
shall be due and payable by the Company to the contractor.
It was
concluded :
"(a)
It is not open to the Court to speculate, where on reasons are given by the
arbitrator, as to what impelled the arbitrator to arrive at his conclusion.
(b) It
is not open to the Court to admit to probe the mental process by which the
arbitrator has reached his conclusion where it is not disclosed by the terms of
the award.
(c) If
the arbitrator has committed a mere error of fact or law in reaching his
conclusion on the disputed question submitted for his adjudication then the
Court cannot interfere.
(d) If
no specific question of law is referred, the decision of the Arbitrator on that
question is not final, however much it may be within his jurisdiction and
indeed essential for him to decide the question incidentally. In a case where
specific question of law touching upon the jurisdiction of the arbitrator was
referred for the decision of the arbitrator by the parties, then the finding of
the arbitrator on the said question between the parties may be binding.
(e) In
a case of non-speaking award, the jurisdiction of the Court is limited. The
award can be set aside if the arbitrator acts beyond his jurisdiction.
(f) To
find out whether the arbitrator has travelled beyond his jurisdiction, it would
be necessary to consider the agreement between the parties containing the
arbitration clause.
Arbitrator
acting beyond his jurisdiction is a different ground from the error apparent on
the face of the award.
(g) In
order to determine whether arbitrator has acted in excess of his jurisdiction
what has to be seen is whether the claimant could raise a particular claim
before the arbitrator. If there is a specific term in the contract or the law
which does not permit or give the arbitrator the power to decide the dispute
raised by the claimant or there is a specific bar in the contract to the
raising of the particular claim then the award passed by the arbitrator in
respect thereof would be in excess of jurisdiction." With respect we agree
with the conclusions arrived at in Rajasthan State Mines & Minerals Ltd.
(supra).
Clause
(g) of the conclusion in the said case, as quoted supra, is not applicable in
the instant case inasmuch as there does not exist any provision which does not
permit or give the arbitrator the power to decide the dispute raised by the
claimant nor there exist any specific bar in the contract to raise such claim.
To the
same effect is the decision of this Court in Food Corporation of India vs. Surendra, Devendra & Mahendra
Transport Co.{(2003) 4 SCC 80].
In Shyama
Charan Agarwala (supra), this Court observed :
"19.
Testing the case on hand on the touchstone of well-settled principles laid down
by courts, we are unable to hold that the High Court exceeded its jurisdiction
in interfering with the award or failed to exercise the jurisdiction vested in
it to set aside the award. The approach of the High Court cannot be said to be
contrary to the well-settled principles governing the scope of interference
with an award of the arbitrator under the old Act. As regards the first item,
the question was whether the contract contemplates the use of stone aggregate
and stone metal from the local sources only, the source of supply being silent
in the relevant clause. The arbitrator was of the view that the unprecedented
situation of the Contractor being put to the necessity of procuring the stone
material from far-off places was not visualized and the parties proceeded on
the basis that such material was available locally. He further noted that the
sample kept in the office of the Engineer concerned admittedly pertained to the
material procured from local sources. A letter addressed by the Chief Engineer
in support of the Contractor's claim was also relied on in this context. Hence,
in these circumstances, the arbitrator can be said to have taken a reasonably
possible view and therefore the High Court rightly declined to set aside the
award insofar as the quantity of stone aggregate/stone metal brought to the
site up to 24-1-1994 is concerned. The arbitrator acted within the confines of
the jurisdiction in making the award on this part of the claim."
ANALYSIS
OF THE CASE LAWS :
The
principles of law laid down in the aforementioned decisions leave no manner of
doubt that the jurisdiction of the court in interfering with a non-speaking
award is limited.
The
upshot of the above decisions is that if the claim of the claimant is not arbitrable
having regard to the bar/prohibition created under the contract, the court can
set aside the award but unless such a prohibition/bar is found out, the court
cannot exercise its jurisdiction under Section 30 of the Act. The High Court,
therefore, misdirected itself in law in posing a wrong question. It is true
that where such prohibition exists, the court will not hesitate to set aside
the award.
In the
instant case, the appellant did not ask for any enhancement in the price. It
only asked for the difference in price occurred owing to fluctuation in the
rate of dollar.
It is
true that by taking recourse to the interpretation of documents, the appellant
did not become entitled to claim a higher amount than Rs.149/- but, thereby the
appellant had not unjustly enriched itself. Had the price of the dollar fallen,
the respondent would have become entitled to claim the difference therefor.
The
appellant quoted the foreign exchange component in its bids in terms of the
notice inviting tenders. The same was asked for by the respondent itself for a
definite purpose. A contract between the parties must be construed keeping in
view the fact that the fluctuation in the rate of dollar was required to be
kept in mind by the respondent having regard to the fact that the tender was
global in nature and in the event the respondent was required to pay in foreign
currency, the same would have an impact on the cost factor.
Clauses
2.6 and 2.7 aforementioned must be construed in such a manner so that effect to
both of them may be given. Whereas Clause 2.6 prohibits escalation; Clause 2.7
makes the bidder liable for exchange fluctuations which does not amount to an
escalation of the price or disturb their cost evaluation. The bid of the
appellant had two components, namely, Indian currency component and US Dollar
component.
The
appellant claimed $ 4.60 within the total price of Rs. 149/- which was to be
paid in Indian currency. In any manner, the claim did not violate clause 2.6.
The appellant merely claimed foreign exchange component at the rate of $ 4.60
and no more.
The
very fact that three different types of quotations were invited from the
bidders itself is suggestive of the fact that each one of them was required to
be construed in such a manner so as to apply in different situations. The
submission of Mr. Rohtagi, the learned Additional Solicitor General to the
effect that if such a factor was to be taken into consideration, the person who
had quoted only in terms of Indian rupee would be at a disadvantage is stated
to be rejected. The question as to whether suppliers quoting their bid in
Indian currency alone would face disadvantage or not will depend upon the
question as to whether they were similarly situated. One bidder may have to
import the raw-materials; other may not have to. This itself will lead to a
difference. In fact, those who did not bid with the amount of foreign exchange
component cannot be placed on equal footing to those who in their bid pursuant
to the notice inviting tender disclosed that they would have to make import wherefor
only the foreign exchange component in the price had to be disclosed.
Furthermore,
the circular letter dated 25.9.1989 issued by the Government of India itself
clearly shows that a decision had been taken to make such payments. The
contract having not been entered into by the parties herein as on the said
date, the decision to include the said term would mean that the same shall be
incorporated in the contracts which were to be executed in future.
It is
further not in dispute that the respondent is bound by the directives issued by
the Union of India. In fact from the letter dated 21.5.1990 it is evident that
even for the purpose of entering into the contract approval of the Central
Government was sought for and granted.
Such a
directive of the Central Government was not required to be made by way of a
notification nor the same was required to have the force of law as the matter
involved a contract between the parties.
Mr. Rohtagi
is not correct in his contention that such condition was required to be
incorporated in the NIT inasmuch as from a plain reading of the said letter, it
is evident that such a clause was to be incorporated in the notice inviting
tenders ex majori cautela.
As
regard the contention as to whether the notification issued under Section 40 of
the Reserve Bank of India would be rules or regulations
having an impact in the cost factor is concerned, the arbitrator had
jurisdiction to decide the same, subject of course to application of correct
principles of law in relation thereto.
Even
assuming that the arbitrators faulted in that regard, it must be borne in mind
that such a contention was raised on behalf of the appellant, only for the
purpose of showing that several aspects of the matter arose before the learned
arbitrators for making the award and any-one of them would be sufficient to
uphold the award.
The
court, having regard to the proposition of law that the jurisdiction of the
arbitrator will be ousted only in the event that there exists a specific bar in
the contract as regard raising of a particular claim must necessarily hold that
the award was sustainable.
As in
the instant case there did not exist any such bar, it is enforceable in law.
Furthermore, in the event the ratio of the decision of the High Court is
accepted, the same would amount to re-hearing of the entire arguments once over
again by the court as regard construction of a contract which is impermissible
in law.
The
arbitrators were called upon to determine a legal issue which included
interpretation of the contract. The arbitrators, therefore, cannot be said to
have been travelled beyond jurisdiction in making the award.
CONCLUSION
:
We,
for the reasons aforementioned, are of the opinion that the judgment of the
High Court is not sustainable.
However,
one aspect of the matter which requires our consideration. The respondent
rejected the claim of the appellant as far back as on 14.7.1992 whereafter the
disputes and differences between the parties were referred to the arbitrators.
The arbitrators entered into the reference on 1.3.1993 and passed an award on
13.8.1993. The said award was set aside by the High Court. If the award is to
be satisfied in its entirety, the respondent will have to pay a huge amount by
way of interest.
In
order to do the complete justice to the parties, in exercise of our
jurisdiction under Article 142 of the Constitution of India, we think it
appropriate to direct that the award shall carry interest at the rate of 6% per
annum instead and in place of 18% per annum. This order shall, however, not be
treated as precedent.
For
the reasons aforementioned, the impugned judgment is set aside. The appeal is
allowed with the aforementioned modifications.
However,
in the facts and circumstances of the case, there shall be no order as to
costs.
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