2007 Supreme(SC) 1146

2007(6) Supreme 128
Supreme Court of india
(From Gauhati High Court)
A.K. Mathur & Markandey Katju, JJ.
Numaligarh Refinery Ltd. — Petitioner
versus
Daelim Industrial Company Ltd. — Respondent
Appeal (civil) 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]
Decided on : 06-09-2007

important points
In a case where the Arbitrator acts without jurisdiction and puts an interpretation of the clause of the agreement which is wholly contrary to law then in that case, the courts are duty bound to set things right.
When 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, adjudication has to be made on merit to put an end to the controversy.

Headnote:(a)Arbitration and Conciliation Act, 1996 – Section 34 – Clause 14.3 of Consolidated Agreement – When DIC 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 the NRL had conceded the amount to the extent of Rs.14.19 crores as the actual cost – Therefore, taking Rs.14.19 crores as the actual and Rs.12.19 crores having been paid out of that, the DIC held legitimately entitled to a sum of Rs.2 crores against their claim of Rs.9.6 crores – However, the minority Arbitrator rightly disallowed the charges relating to procurement service, inspection and expediting, overhead and claim of profit. (Para 4)

       AIR 1984 SC 1703 – Distinguished.

       (b)Arbitration and Conciliation Act, 1996 – Section 34 – Well settled that Court shall not ordinarily substitute its interpretation for that of the arbitrator and 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 – But in a case where the Arbitrator acts without jurisdiction and puts an interpretation of the clause of the agreement which is wholly contrary to law then in that case, the courts are duty bound to set things right – Instantly the provisions clearly lay down that all taxes, duties and levies have to be borne by the contracting party – Countervailing duty 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 cannot be any doubt that DIC has to pay the same. (Para 8)

       (2003) 8 SCC 593; [1959] SCR 379; (1992) 4 SCC 440; (1968) 3 SCR 387; (1989) 2 SCC 38; (1999) 4 SCC 214 – Relied upon.

       (c)Sale of Goods Act, 1930 – Section 64-A – 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 – A perusal of the contract shows that the intention is very clear that DIC is under obligation to pay the taxes, duties and levies. (Para 8)

       (d)Arbitration and Conciliation Act, 1996 – Section 34 – Well settled that Court should accept the interpretation of the terms of the agreement made by the arbitrator, and should not interfere – But when 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, adjudication has to be made on merit to put an end to the controversy. (Para 11)

       (2003) 8 SCC 593; (1984) 2 SCC 680 – Distinguished.

       (e)Arbitration and Conciliation Act, 1996 – Section 34 – Clause 14 of the agreement clearly stipulating that the price quoted for the entire work shall remain firm and fixed till the complete execution of the work – There is no scope for giving any benefit of fluctuation on the exchange rates. (Para 11)

       (f)Arbitration and Conciliation Act, 1996 – Section 34 – Liquidity damages – DIC claiming liquidity damages in terms of Clause 22.1 of the agreement – The majority award working out the damages after taking all aspects – No reason to interfere with that. (Para 13)

       (g)Arbitration and Conciliation Act, 1996 – Section 34 – Since there was delay on the part of NRL on account of which DIC had to pay interest 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, 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. (Para 14)

       (h)Arbitration and Conciliation Act, 1996 – Section 34 – 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 pendente lite. (Para 15)

       Facts of the case :

       The respondent, Daelim Industrial Company is a company incorporated in Seoul, Korea having its registered office there. The appellant, Numaligarh Refinery Limited (‘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.

       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, 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 in the Court of the District Judge at Golaghat. The learned District Judge set aside the award. Aggrieved against that order of the District Judge an appeal was preferred by the DIC before the High Court.

       The High Court however did not approve the same and 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.

       Findings of the Court :

       Charges relating to procurement service, inspection and expediting, overhead and claim of profit is not admissible. Similarly, fluctuation on the exchange rates is also not admissible. Rest items allowed, sometimes modified.

       Result : Appeal arising out of S.L.P.(c) No.20989 of 2006 partly allowed. Appeal arising out of S.L.P.(c) No. 4409 of 2007 filed by the DIC is dismissed.