Numaligarh
Refinery Ltd Vs. Daelim Industrial Company Ltd [2007] Insc 899 (6 September 2007)
A.K.Mathur
& Markandey Katju
CIVIL
APPEAL NO. 4079 OF 2007 [Arising out of S.L.P.(c) No.20989 of 2006] With :
Civil
Appeal No. 4080 of 2007 [ Arising out of S.L.P.(c) No. 4409 of 2007] A.K.
MATHUR, J.
1.
Leave granted.
2.
Both these appeals arise out of the order dated 24.8.2006 passed by the
Division Bench of the High Court of Gauhati at Guwahati in Arbitration Appeal
No.1 of 2002. Therefore they are taken up together and disposed of by this
common order.
3.
Brief facts which are necessary for disposal of these appeals are that the
respondent, Daelim Industrial Company (hereinafter to be referred to as 'DIC' )
is a company incorporated in Seoul, Korea having its registered office there.
During the pendency of the arbitration proceedings, Daelim Engineering Company
Limited (DEC) got merged with Daelim Industrial Company Limited (DIC), and
therefore DEC ceased to exist. For our convenience we will take up DIC for all
practical purpose. The appellant, Numaligarh Refinery Limited (hereinafter to
be referred to as 'NRL') is a Government of India undertaking incorporated
under the Companies Act, 1956, having its registered office at Guwahati, in the
State of Assam. NRL through its consultant Engineers India Limited (hereinafter
to be referred to as 'EIL'), also a Government of India undertaking, on
22.11.1993 invited global quotations for building of a Cogeneration Captive
Power Plant for its Petroleum Refinery at Numaligarh in Assam. DIC with its
consortium partner, Turbotecnica SPA of Italy, contested the global bid and after negotiation with NRL, the contract
was awarded to DIC by its fax of intent dated 31.1.1995. Three contract
agreements were signed between NRL and DIC and Turbotecnica. The total contract
price embodied in the above contract agreements dated 11.4.1995 was on a
Turnkey basis and the time schedule for completion of the works as per the
consolidated contract was as follows :
"(i)
First train of Gas Turbine Generator (GTG), Heat Recovery Steam Generator
(HRSG) and Utility Boiler (UB) within 21 months of the issue of Fax Intent i.e.
by 31.10.1996 and
(ii) balance
plant within 24 months of issue of the Fax Intent i.e. by 30.01.1997."
In
course of the execution of the project disputes arose between the parties and
therefore, in terms of Clause 9(b) of the Consolidated Agreement, DIC referred
the matter on 7.8.1997 before the International Chamber of Commerce;
International Court of Arbitration, Paris for resolution thereof and claimed
Rs.37.9 crore under different heads. NRL disputed the claim and submitted its
written reply on 20.9.1997 and a rejoinder was filed by the DIC on 4.11.1997.
In terms of the International Chamber of Commerce's Arbitration Rules, 1988,
(hereinafter to be referred to as the 'Rules') the DIC and NRL nominated their
Arbitrator. The International Court of Arbitration confirmed the appointment of
Arbitrators and nominated a third Arbitrator-cum-Chairman to constitute the
Arbitral Tribunal. Meanwhile, DIC updated its claim to be at Rs.55.8 crore to
which NRL submitted its written reply. DIC in response thereto, submitted its
rejoinder. However, no counter claim was made by NRL. The Tribunal framed
necessary issues. The majority award of the Arbitrators by the order dated
23.9.2000 held that the respondent was entitled to Rs.29.76 crore and further
an amount of US $ 170,000 being 50% of the cost of arbitration paid by it, in
addition to its share of the total cost of US$ 340,000. The appellant having
refused to pay its portion thereof interest at the rate of 12% per annum pendente
lite on Rs.29.76 crore from 7.8.1997 till the date of the award was also
sanctioned. In addition, the appellant, NRL was saddled with the liability of
post award interest at the rate of 18% per annum on the above awarded amounts
in case of its failure to make the payments within 60 days of the receipt the
award. However, Justice M.M.Dutt, Member of the Arbitral Tribunal gave a
dissenting award. He awarded DIC an amount of Rs.13,74,55,272/- with interest
at the rate of 10% till realization, in case of failure on the part of NRL to
disburse the sum. DIC was also further awarded an amount of Rs.1.65 crore to be
recovered from the Customs authorities exacted on goods not chargeable to duty.
Being aggrieved with the majority award dated 23.9.2000, NRL filed application
under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter to
be referred to as the' Act') in the Court of the District Judge at Golaghat
which was registered as Misc. Arbitration Case No.1 of 2001. Notice was issued
and in pursuance of such notice the respondent appeared. The learned District
Judge after hearing the parties and on consideration of the materials on record,
set aside the award. Aggreived against that order of the District Judge an
appeal was preferred by the DIC before the High Court. DIC itemized their
claims as under :
"
A. Transfer of US$ 6 million : Rs.9.6 crores B. Turbotecnica's Contract price :
Included in Item C C. Countervailing Duty : Rs.13.0 crores D. Excess Custsoms
Duty due to Fluctuation of exchange rate : Included in Item C E. Liquidated
damages for delay In approval of Design and Engineering : Rs.8.9 crores F.
Excess expenses due to lack of infrastructure : Rs.4.6 crores G. Additional
expenses cost by Schedule delay : Rs.12.0 crores H. Interest for borrowed
funds, Delayed opening of LC for Design : Rs.0.5 crore I. Escalation : Rs.4.1 crores
J. Change Order : No dispute K. Extra tax burden as per AGSI With effect from
1st May 1997 : Rs.3.1 crores L. Indian statutory taxes included in Item No.C.
(Total Claim of DEC) [Rs.55.8 crores ]"
No
counter claim was filed by NRL. With regard to transfer of US $6 million
equivalent to Rs.9.6 crore, the issue framed was to the following effect.
"Is
the claimant entitled to a sum of Rs.9.6 crores as claimed under heading
Transfer of US $ 6 million "
Under
this heading it was pleaded by the DIC that the overseas contract required
supply by it of various imported items priced at US $8,750,000. However, after
ascertaining the indigenous sourcing of a good number of such items to be
satisfactory, DIC vide its letter dated 13.9.1995, requiring the bidder to bid
on the basis of indigenization scope to the maximum extent possible. The
request was based on clause 14.3 of the ITB, which prescribed that items quoted
in the bid to be imported could be subsequently transferred to indigenous
supply for which NRL was to pay at actuals maximum whereof to be limited to the
computed value on site delivery basis on the pricings quoted originally for
that of the imported origin. Clause 14.3 of the Instructions to Bidders reads
as under:
"
In case any item, quoted as imported in the bid, but is subsequently
transferred to the Indian category, the total cost on project-site-delivery
basis for such item will be payable by Owner at actuals but maximum limited to
the computed value on site delivery basis based on the pricings quoted
originally for that of imported origin."
Though
this was agreed by NRL but it delayed the formal decision and DIC arranged
procurement of the substituted indigenous materials by undertaking market
survey, selecting Indian manufactures, supplying of design and drawing to the
manufacture, ensuring product with quality control and supplies of finished
project within a stipulated time frame for which it incurred cost and expenses
to the tune of Rs. 25.3 crore which included the cost borne by DIC towards
procurement , service charges, inspection and expediting charges, overhead expenses
and profit. NRL duly approved the indigenous manufacturers from whom the
substituted items were procured and permitted them to be incorporated in due
execution of the contract. NRL extended its formal approval for the
substitution eventually by its letter dated 13.3.1997. Though the DIC had
claimed Rs.25.3 crore incurred as the total cost, but it limited its claim to
Rs.21.7 crores being the procurement cost of indigenous materials by applying
the conversion rate of Rs. 36.28 per US $ as on 26.2.1996.
Rs.12 crores
was paid by NRL and therefore DIC registered its claim under the above head to
the extent of Rs.9.6 crores. For computing the actual cost of Rs. 25.3 crores,
the DIC took into consideration various factors; like bare cost, Excise duty,
Central Sales tax, freight and insurance, procurement service charges,
inspection and expediting charges, overhead expenses, profit and tax deduction
at source. The majority of the arbitrators after considering all the materials
placed before them came to the conclusion that since EIL was the prime
consultant of NRL for the execution of the project, assessed the value of
Rs.17.68 crores by applying its mind to the submission of DIC, the majority of
the Arbitrators accepted the value expressed by EIL by its communication dated
4.11.1996 and the majority of the Arbitrators as per clause 14.3 accepted, the
advice of EIL. Though NRL tried to withhold this letter, however same was
brought on record and the majority of the Arbitrators accepted it and they
added 15% profit margin and that worked out to Rs.2.65 crores State of Gujarat [AIR 1984 SC 1703]. The majority of
the Arbitrators accepted the claim of the DIC to the extent of Rs.20.33 crores
(Rs.17.65 crores + Rs.2.65 crores ). An amount of Rs.12.19 crores under this
head was already received by the DIC therefore, rest of the claim amount was
accepted and awarded in favour of DIC i.e.
Rs.8.14
crores with US $ exchange rate at $1 = Rs.36.28 as equivalent on 26.2.1996. As
against this, the minority Arbitrator, Justice M.M.Dutt held that the original
documents and vouchers were not produced by DIC as it was their duty to have
produced the whole vouchers to justify the purchases made in India for the substituted materials. The
minority arbitrator took the view that since the claim of the DIC was to the
tune of Rs.21.77 crores, Rs.12.19 crores having been paid, there remains only
Rs.9.58 crores. But according to the minority award, as per the cost given by
NRL their liability comes to Rs.14.19 crores and therefore, DIC is not entitled
to beyond this amount. NRL also contested the expenses on account of
procurement service, inspection and expediting for Rs.97 lakhs and overhead for
Rs.3.47 crores as well as the claim of profit for Rs.3.14 crores and tax
deduction at source for Rs.1.32 crores was not payable. After discussion,
Justice M.M.Dutt took the view that the claimant was entitled to
Rs.141,920,735.00 plus Rs.1,32,13,395.00 as tax deduction at source aggregating
to Rs.15,51,34,130.00 only out of which the claimant has received
Rs.10,69,83,850.00.
Therefore,
the claimant was entitled to receive the balance amount of Rs.4,81,50,272.00
only and not Rs.9.6 crores as claimed. The District Court disapproved the
approach of the arbitrators and emphasized that the word 'actual' occurring in
Clause 14.3 means that the party should have produced the necessary evidence to
substantiate it. The High Court however did not approve the same and took into
consideration the letter dated 4.11.1996 of the EIL as the basis and observed that
the Tribunal has rightly accepted the letter and set aside the order of the
District Court. The High Court further held that while construing the 'actuals'
under Clause 14.3. the DIC in addition to the charges is also entitled to
reasonable margin of profit amounting to 15 per cent of the cost amount of
Rs.17.68 crores which does not appear to be illogical or arbitrary and
confirmed the finding of the majority award of the Arbitrators.
4.
After considering the findings given by the majority and minority Arbitrators
and the view taken by the High Court on the interpretation of Clause 14.3, in
normal course the parties should have led evidence to substantiate their claims
with reference to vouchers and other documents in evidence in order to justify
their claim, but in the present case we find that when NRL through the
communication dated 4.11.1996 have accepted the total value to the extent of
Rs.14.19 crores, then there is no reason why this should not have been accepted
as they have examined all the items in their letter. Be that as it may, the
fact remains that the DIC has purchased the indigenous materials and
substituted that as permissible under Clause 14.3, then there is no reason to
deny them the cost for the same especially when intrinsic evidence is available
i.e. an independent body NRL which is a Government of India undertaking and
conceded the amount to the extent of Rs.14.19 crores as the actual cost.
Therefore, taking that Rs.14.19 crores as the actual and Rs.12.19 crores having
been paid, we think under this head, the DIC is legitimately entitled to a sum
of Rs.2 crores against their claim of Rs.9.6 crores. However, the view taken by
the minority Arbitrator with regard to procurement service, inspection and
expediting, overhead and claim of profit appears to be correct and that has
been rightly disallowed by the minority Arbitrator and we uphold that view.
M/s. Brij Paul's case (supra) related to breach of contract under section 73 of
the Contract Act and while allowing the petition, 15% was assessed as loss of
fright. This case was decided on peculiar facts, it cannot provide any
assistance to the contractor.
Hence,
so far as the claim under Item No.1 for the substituted material the respondent
DIC is entitled to a sum of Rs.2 crores. [Rs.2 crores allowed under item No.1]
5.
Now, coming to another head Turbo technical price, under this head Turbocechnica
SPA of Italy, a consortium partner of DIC in the
contract agreement with NRL, had to supply various imported items for a
consideration of US $4150000 and DM 22990000 as specified in the Price Schedule
of the Overseas Contract. The said consideration under Item No.2.1.1 was a
consolidated figure including payment on account of service like third party
inspection charges, ocean fright and marine insurance. Note 1 of the above
Price Schedule permitted DIC / Turbotechnica to furnish list of goods with CIF
(cost insurance and freight) value of NRL for availing concession in payment of
customs duty payable in respect of import from overseas. Note 2 reiterated that
third party inspection charges were included in the above price. DIC vide
letter dated 13.9.1995 requested NRL to bifurcate the total consideration of
the import items into CIF cost and service cost and to amend the contract
agreement for that purpose but no amendment was made. It was pointed out that
if no amendment was made for the relevant portion, Turnotechnica shall have to
declare the entire contract value as CIF cost to the customs authority and
since payment of customs duty was DIC's responsibility, DIC will have to pay
customs duty on service portion also. DIC vide letter dated 25.11.1995 pointed
out to NRL that contract price consisted of CIF value, cost of design and
engineering and supervision and other incidental costs and requested for
break-up of costs, so that DIC may not pay customs duty on the total contract
price when such duty was payable on CIF value by the owner. Therefore, the
amendment not being carried out by the NRL, DIC could not avail necessary
concession in customs duty.
Therefore,
they claimed under this head a sum of Rs.1.65 crores and the same was accepted
by the majority of the Arbitrators. The majority took the view that DIC had to
unnecessarily pay the customs duty on service portion of the price consideration
and as such allowed the claim. As against this, Justice M.M.Dutt in minority
took a contrary view and held that NRL was not responsible for framing of such
agreement and it was held that it was the fault of DIC and as such the claim
was turned down. However, it was observed that DIC could justify and claim the
said amount from the Customs department but NRL could not be held responsible
for the extra duty paid by the DIC. The District Judge agreed with the minority
award. However, the Division Bench of the High Court reversed the finding and
approved the view taken by the majority of the Arbitrators. We have heard
learned counsel for the parties and find that it depends upon the framing of
the terms of the agreement, if the DIC would have been vigilant then they could
have excluded the service charges; like design engineering etc. It was their
duty to have excluded the services charges but they have not properly framed
the contract and they cannot insist on amendment of the contract. If all the
services were subjected to duty which they could have segregated the same but
since they did not do this, therefore they could claim the benefit.
No
direction could be given to the contracting party to amend their agreement. It
is a mutual affair of the contracting party. The view taken by the High Court
does not appear to be correct. Secondly, it was not possible for the NRL to
amend the agreement as the same has already been registered with the Customs
authorities and the Reserve Bank of India/ Hence, the DIC is not entitled to the aforesaid amount of Rs.1.65 crores
under this head. {Claim of Rs.1.65 crores under this head not allowed]
6.
Next issue is with regard to countervailing duty. DIC claimed a sum of Rs.8.78 crores
which was paid on account of excise duty.
The
claim of the DIC was that in fact at the time when the agreement was executed
between the parties, countervailing duty was not there and it was introduced
with effect from 1.1.1995 by Customs Tariff (Amendment) Ordinance, 1994. New
Sections 9, 9A and 9B were introduced. This Ordinance was subsequently replaced
by Customs Tariff (Amendment) Act, 1995 which was deemed to have come into
force with effect from 1.1.1995. DIC submitted its initial bid on 16.3.1994 and
final bid on 23.11.1994 by taking into consideration customs duty on imported
materials at 25% as operative then. DIC could not have imagined the levy of
countervailing duty at 12.5 % brought into force with effect from 1.1.1995. Bid
settlement was made on 24.1.1995 and NRL finally awarded the contract to DIC by
fax of intent dated 31.1.1995. Therefore, the submission of DIC was that at the
relevant time there was no countervailing duty and it came into force
subsequent to the contract, therefore as per Section 64-A of the Sale of Goods
Act, 1930, the DIC is entitled to get this claim reimbursed. NRL contended that
as per Clause 14.1 in the statement of claim pertaining to the contract clear
instructions were given to the bidders under clauses 15, 15.1, 15.2, 15.3 that
entire customs duties or levies including the stamp duty and import licence fee
levied on the equipments by Government of India or any State Government will
have to be borne by DIC. The payment of countervailing duty was allowed by both
the Arbitrators i.e. the Majority and Minority. But the Division Bench of the
High Court reversed the finding. Aggrieved against this part of the order,
appeal has been filed by DIC which has been registered as Civil Appeal arising
out of S.L.P.(c) No.4409 of 2007.
7. In
order to appreciate the submission of rival parties it will be appropriate to
refer to necessary clauses of the agreement; Clause 6 of the Consolidated
Agreement read with Clauses 1.8, 13.2, 15.3.
The
crucial clause is Clause 6 which reads as under:
"It
is specifically understood and agreed between the parties hereto that if there
is any liability towards taxes/ duties (including custom duty on foreign
component of supply portion) as may be assessed/ claimed/ demanded by the
concerned Indian or Foreign authorities, it shall be the sole responsibility/
liability of the contractor to pay all such taxes/ duties and that the owner
shall not be responsible at all the payment of such taxes/ duties."
Mr.Ganguli,
learned senior counsel for the appellant in this case submitted that the view taken
by the High Court is not correct and as per Section 64-A of the Sale of Goods
Act, 1930, if there is no contract to the contrary, then the parties are
entitled to include the amount of duties to the contract the equivalent amount
paid. It was submitted that both the majority and minority view of the
Arbitrators has upheld the claim and in that connection learned counsel has
placed reliance on a decision of this Court in Pure Helium India (P) Ltd. v.
Oil & Natural Gas Commission [ (2003) 8 SCC 593]. As against this, learned
counsel for the respondent herein has supported the view taken by the High
Court. The Division Bench of the High Court after considering all the relevant
provisions came to the conclusion that as per various clauses of the contract since
it was the duty of the DIC to pay all taxes and customs duty and levies, they
cannot escape their liability to bear the countervailing duty imposed by the
Government. Mr. Ganguli, learned senior counsel for the appellant in this
appeal argued that in fact this was a new levy and at the time when the
negotiation was entered into it was not in contemplation and in that connection
learned senior counsel invited our attention to a decision of this Court in The
State of Madras v. Gannon Dunkerley & Co., (Madras) Ltd. ( [1959] SCR 379).
Mr.Ganguli,
learned senior counsel for the appellant submitted that so far as
interpretation of contract is concerned, the arbitrator is the best judge
because he has the jurisdiction to interpret the contract having regard to the
terms and conditions of the contract, the circumstances of the case, the
pleadings of the parties, the High Court should not substitute its
interpretation. In this connection, learned senior counsel has invited our
attention to the following decisions of this Court.
(i)
(1992) 4 SCC 440 Thermax Private Limited. V. Collector of Customs (Bombay) New Customs House.
(ii)
(1968) 3 SCR 387 Kollipara Sriramulu v. T.Aswathanarayana & Ors.
(iii)
(1989) 2 SCC 38 M/s. Sudarsan Trading Co. v. Government of Kerala & Anr.
(iv)
(1999) 4 SCC 214 H.P.State Electricity Board v. R.J.Shah & Company Learned
senior counsel for the appellant also invited our attention to Section 64-A of
the Sale of Goods Act, 1930 and Section 69 of the Contract Act, 1872 and
submitted that the contract party is entitled to reimbursement of tax
liability. As against this, learned counsel for the respondent submitted that
Clause 2 (b) & Clause 6 of the Consolidated Agreement read with Clause 2.1
(g) of the Instructions to Bidders and Clause 13(f) of the Bid Document, leave
no manner of doubt that it is the duty of the contracting party to pay all
taxes, duties and levies. Relevant provisions are reproduced below :
"
"Clause 2(b) all taxes and duties in respect of job mentioned in the
aforesaid contracts shall be the entire responsibility of the contractor "
"Clause
6. It is specifically understood and agreed between the parties hereto that if
there is any liability towards taxes/ duties (including custom duty on foreign
component of supply portion) as may be assessed/ claimed/ demanded by the
concerned Indian or foreign authorities, it shall be the sole responsibility/
liability of the contractor to pay all such taxes/ duties and that the owner
shall not be responsible at all for the payment of such taxes/ duties"
"Clause
2.1(g). The scope of this proposal will include the following (g) payment of
customs duty, port clearance charges etc. and customs clearance at Indian port
of entry"
"Clause
13(f) , Bid Documents:
..
Prices for the entire scope of work on divisible contract basis and indicate
the following break-up: (f) lump sum charges on accounts of customs duty, port
charges etc. for imported equipment and materials""
Reading of these documents leave s no
manner of doubt that all the taxes and levies shall be borne by the contracting
party i.e. DIC.
8. We
have considered the rival submissions of the parties. So far as the legal
proposition as enunciated by this Court in various decisions mentioned above,
it is correct that Courts shall not ordinarily substitute its interpretation
for that of the arbitrator. It is also true that if the parties with their eyes
wide open have consented to refer the matter to the arbitration, then normally
the finding of the arbitrator should be accepted without demur. There is no
quarrel with this legal proposition. But in a case where it is found that the
Arbitrator has acted without jurisdiction and has put an interpretation of the
clause of the agreement which is wholly contrary to law then in that case,
there is no prohibition for the Courts to set things right. In the present
case, the aforesaid clauses reproduced above, clearly lays down that all taxes,
duties and levies have to be borne by the contracting party. Countervailing
duty which came into force with effect from 1.1.1995 by way of ordinance
(subsequently converted into an Act) is a duty enforced by the Statute and
hence in face of Clause 2(b) and Clause 6 of the Consolidated Agreement read
with Clause 2.1 (g) of the Instructions to Bidders and Clause 13 (f) of the Bid
Document. There is leaves no manner of doubt that DIC has to pay the same.
Therefore, this levy has to be borne by the DIC and they cannot escape from
this situation. In this connection, learned counsel has invited our attention
to Section 64-A of the Sale of Goods Act, 1930 which reads as under:
"64-A.
In contracts of sale, amount of increased or decreased taxes to be added or
deducted.- (1) Unless a different intention appears from the terms of the
contract, in the event of any tax of the nature described in sub-section (2)
being imposed, increased, decreased or remitted in respect of any goods after
the making of any contract for the sale or purchase of such goods without
stipulation as to the payment of tax where tax was not chargeable at the time
of the making of the contract, or for the sale or purchase of such goods
tax-paid where tax was chargeable at that time,-
(a) if
such imposition or increase so takes effect that the tax or increased tax, as
the case may be, or any part of such tax is paid or is payable, the seller may
add so much to the contract price as will be equivalent to the amount paid or
payable in respect of such tax or increase of tax, and he shall be entitled to
be paid and to sue for and recover such addition; and
(b) if
such decrease or remission so takes effect that the decreased tax only, or no
tax, as the case may be, is paid or is payable, the buyer may deduct so much
from the contract price as will be equivalent to the decrease of tax or
remitted tax, and he shall not be liable to pay, or be sued for, or in respect
of, such deduction.
(2)
The provisions of sub-section (1) apply to the following taxes, namely;-
(a) any
duty of customs or excise on goods;
(b) any
tax on the sale or purchase of goods."
This
section also clearly says that unless a different intention appears from the
terms of the contract, in case of the imposition or increase in the tax after
the making of a contract, the party shall be entitled to be paid such tax or
such increase. In this connection, the intention of the parties is to be
ascertained, as per the clauses mentioned above. A perusal of the contract
makes it clear that DIC is under obligation to pay the taxes, duties and
levies. Therefore, the intention is very clear that taxes and duties will be
the obligation of the DIC. Section 69 of the Indian Contract Act, 1872 deals
with reimbursement of a person paying money due by another, in payment of which
he is interested. Section 69 has no role to pay in the present case in view of
the clear terms of the agreement that the taxes, levies have to be paid by the
DIC. Therefore, nothing turns on Section 69 of the Contract Act. In view of the
above discussion, we are of opinion that so far as the payment of
countervailing duty is concerned, it was the obligation of the DIC and the view
taken by the Division Bench of the Act appears to be correct and there is no
ground to interfere with this part of the order. Consequently, we uphold the
judgment of the High Court and dismiss the appeal arising out of S.L.P.(c)
No.4409 of 2007 filed by the DIC.
9. The
next question is with regard to payment of extra customs duty due to
fluctuation of the exchange rate. In this connection, the majority of the
Arbitrators took the view that the DIC was entitled to Rs.2.09 crores on
account of excess payment of customs duty on account of fluctuation of the
exchange rate. As against this, the minority view taken by Justice MM Duty was
to the contrary. He has observed that the NRL had entered into a turnkey
firm-price contract with the sole object of avoiding any future additional
burden till the completion of the contract. He has also observed that the price
quoted in the bid documents is fixed and cannot be varied according the
variation of the fluctuation of the exchange rate of US dollar. He has also
observed that this also holds good both for upward and downward variations.
Therefore, he found that the claim of DIC cannot be acceded to and accordingly
rejected the claim of DIC. The Division Bench of the High Court has affirmed
the majority view.
10. We
have heard learned counsel for the parties and perused both the views expressed
by majority as well as minority. In this connection, it is relevant to mention
Clause 12.2 of the Instructions to the Bidders which clearly stipulates that it
must be understood and agreed that such factors have properly been investigated
and considered while submitting the bids. It also clearly stipulates that no
financial adjustments arising thereof shall be permitted by the owner. Clause
12.2. of the Instructions to Bidders is reproduced as under :
"12.2.
It must be understood and agreed that such factors have properly been
investigated and considered while submitting the bids. No claim for financial
adjustment to the contract awarded under these specifications and documents
will be entertained by the owner. Neither any change in the time schedule of
the contract nor any financial adjustments arising thereof shall be permitted
by the owner, which are based on the lack of such clear information of its
effect on the cost of the works to the bids."
Similarly,
clause 13 which deals with price scope and basis clearly stipulates that price
for the entire scope of work on divisible contract basis, break up has been
given in the schedule. In this connection, clause 13 which is most relevant
reads as under :
"13.0.
Price Scope & Basis:
The
Bidders shall quote in their proposals, Prices for the entire scope of work on
divisible contract basis and indicate the following break-up schedule:
a)
Dosing and Engineering charges for the complete works.
b)
Lump sum Price on F.O.B.port of Shipment basis for all Imported equipment and
materials.
c)
Lump sum ocean fright and Insurance for the above imported goods.
d)
Lump sum Price on FOR/FOT dispatch point basis for5 all indigenous equipment/
material, cement and steel, inclusive of taxes, duties, levies, licence feee
etc.
e)
Lump sum service charges towards documentations, handling, forwarding, payment
of customs duty, inland transportations, transit insurance of all the imported
goods.
f)
Lump sum charges on account of customs duty, port charges etc. for Imported
equipment and materials.
g)
Lump sum charges, forwards, transportations through waterways for over
Dimensional consignment inclusive or en route Indian/ Bangladesh Custom
clearance to Project site.
h)
Lump sum charges toward clearance, handling, transportation (other than ODCS)
storage, preservation and conservation of all equipment at project site.
i)
Lump sum cost of all civil works.
j)
Lump sum charges toward pre-assembly, if any, erection, testing and
commissioning of the complete system.
k)
LIST OF RECOMMENDED SPARES for two years normal operation indicating Parts
name, cagalogues No., quantity and Unit Prices.
l)
List o components with itemized unit rate for all individual equipment and
materials, to enable Price Adjustment, if required during detailed engineering
and execution of the work.
m)
Fees/ Charges payable, if Owner/ Consultant opts for inspection by Lloyds Register
or third party inspection for IMPORTED equipment.
n)
Agency commission if any, included for Indian Agents."
Clause
14 deals with pricing and currency changes. Clause 14.1. reads as under :
"The
prices quoted for the entire scope of work shall remain firm and fixed till
complete execution of the work."
In
these parameters of the terms and conditions, that the price quoted for the
entire work shall remain firm and fixed till the complete execution of the
work, the heading pricing and currency changes leaves no manner of doubt that
there is no scope for giving any benefit of fluctuation on the exchange rates.
Once the price is fixed there is no provision for giving any benefit for
fluctuation in terms of the contract then in that case, the claimant DIC cannot
raise this claim of excess payment made towards customs duty on account of
fluctuation on exchange rate. The minority view expressed by Justice M.M.Dutt
appears to be correct. Had there been downward trend in the exchange rate, then
the DIC would not have slashed the exchange rate. If the downward trend cannot
benefit either party then equally the up-ward trend cannot benefit the DIC for
claiming the payment of the higher customs duty on account of fluctuation in
exchange rate. Therefore, the expression, 'firm and fixed' is clear answer to
the question if during the course of contract certain fluctuation has taken
place in the market then on that count the claimant cannot raise extra demand
on account of upward trend in the exchange rate. In this connection, reliance
was placed on a decision of this Court in Pure Helium India (P) Ltd. v. Oil
& Natural Gas Commission [(2003) 8 SCC 593]. In this case this Court
granted the contractor's claim for being compensated for foreign exchange
fluctuation and not for any escalation in the price. This Court held that the
claimant does not violate any terms of contract. In the present case, in view
of the fact that the price is firmly fixed and DIC has clearly understood and
agreed the terms of the contract, and it was clearly stipulated in Clause 12.2.
that no financial adjustment arising there from shall be permitted by the
owner. In these circumstances, the minority view taken by the Arbitrator,
Justice M.M.Dutt appears to be well founded. Pure Helium India (P) Ltd. (supra) was decided on
peculiar facts. As such, it cannot provide us any assistance.
11.
Similarly, our attention was invited to a decision of this Court in Tarapore
and Company v. Cochin Shipyard Ltd., Cochin & Anr. [ (1984) 2 SCC 680]. In this case, their Lordships held that
if a question of law is specifically referred by the parties to the arbitrator
for decision, award of the arbitrator would be binding on the parties and court
will have no jurisdiction to interfere with the award even on ground of error
of law apparent on the face of award. We have no quarrel with this proposition.
So far as other decisions of this Court mentioned above, that the Court should
accept the interpretation of the terms of the agreement made by the arbitrator,
and should not interfere, there is no two opinion on that question but in the
present case, we are faced with a peculiar situation that the three Arbitrators
out of whom two has taken one view of the matter and the third has taken
another view of the matter. The District Judge has also set aside the award on
some issues and the High Court has also accepted some items of the majority
award of the Arbitrators and some items of the minority award of the
Arbitrator. Therefore, in the peculiar state of affairs in the present case
when there is variation of views ; the majority award takes one view and the
minority award takes another view, the District Judge takes the third view and
the High Court takes the fourth view, in the state of these conflicting views
on the subject, we have to enter into the merit to put an end to the
controversy by adjudicating the conflicting views of various Forum. However,
general consensus of the view emerging from various judgments of this Court is
there is no two opinion that the Court should not sit in appeal and normally
should not interfere with the views of the Arbitrator in interpretation of the
terms of agreements interpreted by the Arbitrator when the Arbitrator is
appointed with consent of parties. However, in peculiar facts and circumstances
of the case, the view taken by the High Court in accepting the majority view of
the arbitrators cannot be accepted. We overrule the view taken by the High
Court in accepting the majority view and accept the minority view taken by
Justice M.M.Dutt and decline the claim of DIC in the sum of Rs.2.9 crores on
account of fluctuation in the exchange rate.
[Claim
of Rs.2.9 crores on account of fluctuation on exchange rate declined]
12.
The next item is with regard to liquidity damages for delay of 929 days. So far
as this liquidity damages is concerned, it was decided purely on the question
of fact. The majority of the Arbitrators after review of the factual aspect
held that whole contract was time bound delay occurred at various level, like
delay in approval of drawing and designs submitted by DIC, delay in opening of
letter of credit. After review of all these factual aspects, the Tribunal
concluded that on account of delay for about 929 days, the contractor had
suffered loss on account of fluctuation in the prices as well as fluctuation in
the exchange rates and therefore, the claimant claimed liquidity damages to the
extent of Rs.8.9 crores under this head. The question is whether the case of
DIC for such liquidity damages was covered under Clause 18 or Clause 22 of the
General terms and conditions of the contract. Clause 18 stipulates the price
reduction schedule for delay in co-operation. In case the contractor fails to
complete successfully the system within the time fixed under the contract, the contract
price shall be reduced at the rate of 1% of the contract value per week of
delay or part thereof subject to the maximum of 15% of the contract value.
Clause 18 of the General conditions of the contract reads as under :
"18.0
Price Reduction Schedule for delay in Co-operation: If the Contractor fails to
successfully commission the complete system within the time fixed under the
Contract, the Contract Price shall be reduced at the rate of 1% of the Contract
value per week of delay or part thereof subject to the maximum of 15% of the
Contract value. "
But
this clause was amended subsequently and one percent was reduced to = percent
and 15 percent was reduced to 5 per cent as per the consolidated agreement. The
said amendment reads as under:
"II)
PRICE REDUCTION SCHEDULE IN THE ENVENT OF DELAYS:
If the
contractor fails to comply any of the time schedule mentioned hereinabove, the
Contract price shall be reduced @ =% of the total contract value per week of
delay or part thereof subject to a maximum of 5% of the total contract value
i.e. total aggregate contract value of Contract Nos.3244-00- LZ-PO-7012/10091
and 3244-00-LZ-PO-7013/10092 mentioned hereinabove. Price reduction as set
forth in this clause shall be the sole remedy available to owner and the sole
liability of the contractor for delay.
In the
event of delay of over 10 weeks, owner may exercise their rights to invoke any
or all provisions under this agreement."
This
was for the contractor's failure to complete the contract.
13.
However in this connection, our attention was invited to clause 22. This
relates to delay on the part of the owner or its various agents. Clause 22
reads as under :
"22.0
Delay by Owner or his Authorised Agents :
22.1.
In case the Contractor's performance is delayed due to any act of omission on
the part of the Owner or his authorized agents, then the Contractor shall be
given due extension of time for the completion of the works, to the extent such
omission on the part of the owner has caused delay in the Contractor's
performance of his work.
22.2.
In addition, the Contractor shall be entitled to claim demonstrable and
reasonable compensation if such delays have resulted in any increase in the
cost. The owner shall examine the justification for such a request for claim,
and if satisfied, the extent of compensation shall be mutually agreed depending
upon the circumstances at the time of such an occurrence."
In
terms of this clause if delay has been caused to the contractor on account of
the omission or commission on the part of the owner or its authorized agent
then the contractor is entitled to claim demonstrable and reasonable
compensation if such delay has resulted in any increase in the cost. In that
case, the owner shall examine the justification for such claim and if satisfied
then compensation shall be mutually agreed depending upon the circumstances at
the time of such an occurrence. Since DIC's claim for compensation was on
account of delay on the part of the owner, therefore, it was the obligation on
the part of DIC to demonstrate as to how delay has escalated the loss to it.
Then and then alone the claimant will be entitled to the compensation for this
delay. The minority Arbitrator has taken the view that since the claimant has
nothing to demonstrate therefore, it is not entitled to any compensation
whatsoever. However, the majority has taken the factum of delay by reviewing
all evidence on record and has come to the conclusion that there was a delay of
929 days and on the basis of factual assessment has granted damages to the
extent of 5 % of the total contract value. An argument was raised that in fact
5 % damages could be granted under clause 18 to the owner for the delays on
account of the contractor and the contractor has to demonstrate reasonably how
loss has occurred to him. However, the majority of the Arbitrators has taken
into consideration the parameter that in case the delay was occasioned on the
part of the contractor, then the owner would have been entitled to the damages
to the extent of 5%. This has been taken as the yardstick and the compensation
has been worked out at 5% of the contract value and damages to the tune of
Rs.8.9 crores has been awarded to the claimant. We are of opinion that this
issue is purely dependent on the factual controversy of the matter and the
majority of the arbitrators has assessed the loss on account of the delays on
the part of the owner and awarded 5% of the contract value as a measure to
award compensation to the owner on account of the delay on the part of the owner
in completing the work and no exception can be taken to this approach. The
amount cannot be said to be a wrong assessment of the situation. We cannot sit
over the finding of fact arrived at by the majority of Arbitrators and affirmed
by the High Court. Therefore, we accept the view taken by the Division Bench of
the High Court in accepting the view the majority of the Arbitrators in
granting damages to the tune of Rs.8.9 crores in favour of the claimant- DIC.
[Rs.8.9
crores granted as damages for delay of 929 days ]
13.
Next item relates to interest on borrowing of the funds.
Under
this head, the DIC has claimed Rs.6.5 crores. The majority of the Arbitrators has
granted Rs.0.2 crores. However, the minority award has denied the claim. The
High Court has affirmed the majority view of the Tribunal. Since in view of our
finding on the issue of delay in liquidity damages we are of opinion that the
view taken by the majority of the arbitrators is correct as there was delay on
the part of the owner NRL and therefore, DIC had to pay interested on the
delayed sum. Therefore, the view taken by the majority of the arbitrators
cannot be said to be wrong as it is a pure question of fact and therefore, we
are of opinion that the grant of Rs.0.2 crore towards interest on delayed
amount has been rightly held by the majority of the arbitrators and affirmed by
the High Court.
[Rs.0.2
crores granted as interest paid on delayed funds]
14.
The next claim is with regard to interest. The majority of the arbitrators have
granted interest on the amount at the rate of 12 per cent pendente lite and
post pendente lite at rate of 18 per cent but the minority arbitrator, Justice M.M.Dutt
has granted 10 per cent interest uniformally. The grant of interest is
discretionary and the majority of the arbitrators has rightly granted interest
at the rate of 12 per cent pendente lite and at the rate of 18 per cent post
pendent lite. Therefore, no exception can be taken to grant of such interest.
Consequently,
we affirm this finding of the majority of the Arbitrators and of the High
Court.
[Interest
at the rate of 12% P.I. & at the rate of 12% post P.I.]
15.
Hence, as a result of our above discussion, we are of opinion that the claimant
DIC is entitled to Rs.2 crores for substituted material, Rs.8.9 crores for
liquidity damages, Rs.0.2 crore as interest paid on the delayed funds i.e.
Rs.11.1 crore ( Rs.2 crore + Rs.8.9 crore + Rs.02 crore) and finally interest
at the rate of 12 per cent pendente lite from the date of the claim petition
till realization.
The
payment should be made within a period of six months from today failing which
it will carry interest at the rate of 15 per cent per annum. The appeal arising
out of S.L.P.(c) No.20989 of 2006 is partly allowed. The order passed by the
High Court is modified as indicated above. The claim of the DIC is decreed to
the extent indicated above. However, the appeal arising out of S.L.P.(c)
No.4409 of 2007 filed by the DIC is dismissed. No order as to costs.
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