2006 Supreme(SC) 317

2006(4) Supreme 120
SUPREME COURT OF INDIA
(From Rajasthan High Court)
Arun Kumar and R.V. Raveendran, JJ.
Hindustan Zinc Ltd.—Appellant
versus
M/s. Friends Coal Carbonisation—Respondent
Civil Appeal No. 3134 of 2002
Decided on 4-4-2006
Counsel for the Parties :
For the Appellant : C.A. Sundram, Sr. Advocate, Shailendra Swarup, Ms. Bindu Saxena, Mrs. Puja Mishra, Anish Bhatnagar, Harsh Walia, Ms. Roshni Musa, S. Santhanan, Swamynadhan, Advocates.
For the Respondent : Ajit Kumar Sinha, Advocate.

IMPORTANT POINT
In petition filed u/s 34 of the Arbitration and Conciliation Act, 1996, it is open to the court to consider whether the arbitration award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India.

Headnote:Arbitration and Conciliation Act, 1996—Section 34—Arbitration award —Petition for setting aside arbitration award—Scope of powers of Court u/s 34 of the Act—Tender invitation issued by appellant for supply of Metallurgical coke—Appellant accepted respondent’s offer and placed a purchase order for supply of coke—Contract did not specify use of any particular quality of coal for producing coke of the required specification—Respondent claimed that it used Washery Grade II coal for the supplies made between the period 18.12.1991 and 13.7.1992—Respondent’s claim that it switched over to the use of Washery Grade I coal as it found that Washery Grade II coal was not suitable for producing the Metallurgical Coke of the specifications required by appellant—Appellant granted escalations in price of coke from time to time by increasing basic price of coke—Appellant, however, granted escalations only on basis of price variation of Washery Grade II coal and not with reference to Washery Grade I coal—Respondent sought reference to arbitration in regard to its claims—Arbitral Tribunal passed a reasoned award allowing escalations claimed—On challenge, trial Court allowed appellant’s petition in part, filed u/s 34 of the Act—On appeal filed u/s 37 of the Act, High Court set aside judgment of the trial Court—Whether High Court was justified in holding that Court could not interfere with the award—(No).

       Held : The dispute arose on account of the fact the respondent who was earlier using Washery Grade II coal [in regard to the supplies upto 13.7.1992] started using washery grade I coal from 14.7.1992, on the ground that it found it difficult to produce the coke of the required specifications, by using washery grade II coal. The appellant initially contended that as respondent was earlier using washery grade II coal, it will escalate the price only with reference to the price increase of washery grade II coal and not washery grade I coal. On the other hand, the respondent contended that as washery grade I coal was used, which was costlier, they should be paid escalation with reference the price of washery grade I coal and not with reference to washery grade II coal. The arbitrators, as notice above, made an award which in principle, was correct. They held that the respondent was entitled to escalation in the price of metallurgical coke, by applying the price variation formula contained in clause (5) of the Purchase Order relating to the Washery Grade I, with effect from 14.7.1992. They rejected the contention of the appellant that the escalation should be worked out only with reference to the prevailing price of washery grade II coal, even if Washery Grade I was used. They also rightly stated that the difference in price for purposes of escalation should be worked out with reference to the base price of coal on 8.11.1991. Where they apparently committed a mistake is in stating that escalation should be worked out with reference to the base of washery grade II, even when respondent was using washery grade I.(Para 18)

       The contract only mentioned the specifications of metallurgical coke and did not specify the quality of coal to be used for producing the metallurgical coke. It was open to the respondent to use any grade of coal, provided it supplied the coke of the quality specified. The purchaser was concerned with the specifications of the product it purchased, namely, metallurgical coke. It was not concerned with the quality of the raw material (that is coal) used for producing the metallurgical coal. The price of mettlurgical coke was not linked to or based on the basic price of any particular quality of washery coal. Therefore, neither the respondent nor the Arbitral Tribunal could assume that the contract price of Rs. 2231/- was based on the base price of washery grade II as on 8.11.1991. Having regard to the escalation clause, the price increase should be with reference to the coal that is used. It cannot be worked out by taking the difference between the higher cost of superior quality coal and lower base price of inferior quality of coal.(Para 21)

       The appellant has given calculation fully and correctly which shows that the escalation was only 11,42,203.90. This was what was awarded by the trial court and this amount had been paid with interest of Rs. 12,75,442 in all Rs.24,17,646 on 6.2.1999. In spite of our directions on 21.3.2006, the respondent has not given the actual calculations but has furnished only the final figure of claim. The respondent’s memo makes it clear that the respondent wants the escalation to be calculated for supplies from 14.7.1992 with reference to the base price of washery grade II coal and not with reference to washery grade I coal. This is impermissible. The order of the Division Bench is unsustainable as it failed to interfere with the portion of the award which is opposed to the specific terms of the contract. On the other hand, the trial court had correctly decided the matter.(Para 23)