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2007 Supreme(Bom) 241
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
R. M. S.KHANDEPARKAR & DR.D.Y.CHANDRACHUD, JJ.
Oil and Natural Gas Corporation Ltd.- Appellant.
Vs.
Dailchi Karkaria Ltd.- Respondent.
O. O. C. J. APPEAL NO.1202 OF 1997
IN ARBITRATION PETITION NO.79 OF 1997
IN AWARD NO. 32 OF 1997
Decided on : February 22, 2007.
Headnote:Arbitration Act, 1940 - Section 30 - Setting aside and a ward. - Findings recorded by arbitrator on facts of case cannot be scrutinised by re-appreciating documentary evidence on record.
In assessing the interpretation to be placed on a clause which excepts or excludes certain matters from the jurisdiction of the arbitrator it is important for the Court to have due regard to the nature of the exception and the procedure which the contract enunciates for a decision on one of the excepted matter. The arbitral award in the present case entered a finding of fact that the loopline test which was actually carried out by ONGC was not in accordance with the terms of the contract. Para 5 of Annexure A contained a stipulation for evaluating the performance of the material and working out the compensation, if any, for substandard quality. The arbitrator held that the loopline test in the present case was not carried out by comparing the sample prepared in accordance with amended para 5 of Annexure-A. Consequently it could not be held that the dispute between the parties regarding the performance of the PPD supplied by DIK to ONGC was excluded from the scope of the arbitration clause. Interpretation placed by the arbitrator and by the single Judge on the provisions of Clause 17(ii) cannot be said to suffer from error. Clause 17(ii) postulated that it is the decision of ONGC on the exercise of option that would be final and binding. The option related to whether ONGC would (i) reject the material in full or in part, or (ii) accept it at a reduced rate. It was the exercise of that option which was final and binding. Clause 17(ii) does not stipulate a final and binding character to the question as to whether the loopline test was carried out in accordance with the specifications of the contract as agreed upon between the parties.
Arbitration Act, 1940 - Section 30 - Setting aside an award. - Under Section 30 of Act, an award cannot be set aside except on one or more of the following grounds.
The single Judge was dealing with a challenge to an arbitral award under Section 30 of the Arbitration Act, 1940. Under Section 30, an award could not be set aside except on one or more of the following grounds namely that : (i) The arbitrator has misconducted himself or the proceedings. (ii) The award has been made after the issuance of an order by the Court superseding the arbitration or after proceedings had become invalid under Section 35 and (iii) The award has been improperly procured or is otherwise invalid. An arbitral award is a decision of a domestic Tribunal chosen by the parties to facilitate arbitration. In the Union of India v. Rallia Ram, AIR 1963 SC 1685, the Supreme Court held that the Civil Courts which are entrusted with the power to facilitate arbitration and to effectuate arbitral awards cannot exercise appellate powers over the decision. The interference of the Court cannot be justified merely on the ground that the Judge perceives the decision to be wrong, but only where an error of law appears on the face of the award. That test postulates that there is in the award or a document actually incorporated thereto some legal proposition which is the basis of the award and which can then he said to be erroneous :
Wrong or right the decision is binding if it be reached fairly after giving adequate opportunity to the parties to place their grievances in the manner provided by the arbitration agreement. But it is now firmly established that an award is bad on the ground of error of law on the face of it, when in the award itself or in a document actually incorporated in it, there is found some legal proposition which is the basis of the award and which is erroneous. An error in law on the face of the award thereto as for instance a note appended by the arbitrator stating the reasons for his judgment some legal proposition which is the basis of the award and which one can then say is erroneous. It does not mean that if in a narrative a reference is made to a contention of one party that opens the door to setting first what that contention is and then going to the contract on which the parties’ rights depend to see if that contention is sound.
[Champsey Bhara and Co. v. Jivroj Balloo Spinning and Weaving Co. Ltd., 50 Ind App 324 : AIR 1923 PC 66].
However where a question of law is specifically referred to the arbitrator for a decision the award of the arbitrator is binding on the parties for, by referring a specific question the parties evince an intention to have a decision of the arbitrator rather then from the Court. In such a case, the Court would not interfere unless it is satisfied that the arbitrator has proceeded illegality.
(PER DR. D.Y. CHANDRACHUD, J.):
I
An Arbitration Petition was instituted by the Oil and Natural Gas Corporation Ltd (ONGC) under Section 30 of the Arbitration Act, 1940, in order to challenge an award of a sole Arbitrator. The Arbitration Petition was dismissed by a Learned Single Judge on 1st October 1997. ONGC is in appeal. At the hearing of the appeal, submissions have been confined to four grounds of challenge, these being: (i) The Arbitrator adjudicated upon matters excepted from the arbitration clause and assumed jurisdiction where he had none; (ii) The award is contrary to contractual provisions; (iii) There was an error apparent on the face of the record by the Arbitrator in rejecting the claim for liquidated damages as not proved; and (iv) The award of interest is contrary to the provisions of the contract. Upon hearing Counsel for the parties, our conclusion is that there is no merit in the challenge and the appeal must fail.
II
2. ONGC is a Public Sector Undertaking which engages in oil exploration, and in the development, production and treatment of oil and natural gas. The Respondent (DIK) is a Company incorporated under the Companies' Act, 1956 and carries on the business of the manufacture and supply of chemicals. In pursuance of a bid submitted by DIK, in response to global tenders floated by ONGC, an order was placed by ONGC on 2nd April 1988 upon DIK for the supply of 2450 MT of “Daitrolite MNF – 1206”, which is a pour point depressant (“PPD”). PPD is a chemical additive that is used to decrease the viscosity and increase the fluidity of crude oil in order to facilitate the process of pumping oil through a pipeline. The pour point is the lowest temperature at which oil or other liquid will pour, without excessive amounts of wax crystals forming and so preventing the flow. The quantity of PPD for which the order was placed by ONGC upon DIK was to be used by ONGC in its pipeline at Bombay High.
The contract.
3. The Supply Order contained the terms and conditions of contract:
(i) Under Clause 6 of the order, a quantity between 450 and 500 MT was to be supplied in September 1988 followed by a similar quantity every month so as to complete supplies by February 1989.
(ii) Under Clause 8(a), DIK was to effect free delivery in ONGC's Godown at Nhava after sampling/bonding and testing, including loopline testing and acceptance after debonding by ONGC. Under Clause 8(c), the material was to be despatched only after “satisfactory laboratory test and loopline test and approval and debonding by ONGC”.
(iii) Clause 10 of the Supply Order provided that the material would be (i) Sampled/bonded by ONGC and a random sample would be drawn (the “reference sample”); (ii) From the reference sample, 50 litres would be tested in ONGC's Laboratory; (iii) From the reference sample, 50 litres would be tested on the loopline at the BHS platform for pour point, plastic viscosity and yield value; and (iv) If the 50 litres' sample met the specifications of the order, the material would be debonded for despatch to the Nhava Godown.
(iv) Clause 13 of the Supply Order provided that the PPD is guaranteed to achieve a pour point of 18 degrees centigrade at 350 parts per million (“ppm”) at the BHS platform. The other parameters of the specifications were contained in Annexure-A to the order. In the event that the dosage required in the loopline were to exceed 350 ppm to achieve the specified parameters of the order, the supplier was to compensate ONGC for the corresponding excess quantity of PPD required by paying to ONGC the price of such excess quantity of PPD or supplying such excess quantity of PPD. DIK was also required to furnish a performance guarantee amounting to 10% of the value of the order (Rs.8,19,10,850/-) and a Bank Guarantee of 2.5% as security deposit.
(v) Clause 17 of the Supply Order contained “Special instructions/conditions” and sub-clause (ii) thereof provided as follows:
“(ii) If the material sampled/bonded is found
