The main legal point established in the judgment is that the court can quash an arbitral award if it is found to be illegal and against public policy, and the decision is influenced by the interpretation of relevant legal provisions.

JUDGMENT :

Lok Pal Singh, J.

This appeal, under Section 37 of the Arbitration and Conciliation Act, 1996, has been preferred against the majority Award dated 18.10.2007 passed by Sri S.K. Goyal and Sri G. Saran, Arbitrators in Arbitration Case No.04 of 2008 Oil & Natural Gas Corporation vs. M/s SIV Magcobar Lignins Ltd.

2. Facts leading to the present case are that the appellant invited tenders to supply of 551 MTs of chrome lingo Sulphonate. Respondent participated in the tender process and was declared successful. As per the agreement, the appellant placed a purchased order dated 3.4.2001 on the respondent for sale and supply of 551 MTs of chrome lingo Sulphonate. Supply was to be completed in 32 weeks by 14.11.2001. Respondent was asked to submit a bank guarantee of Rs.16,33,885/- in case of failure of contract. Out of 551 MTs, 276 MTs offered and supplied by the respondent was failed in the first test report dated 12.7.2001 as the same was not with the conformity with specifications mentioned in the purchase order. Appellant sent a letter dated 30.10.2001 to the respondent conveying that the supplier has option to get it tested on payment basis in line with clause 9, but the respondent refused for the same and replied that they have already started reprocessing of 276 MTs. Respondent offered and supplied the material second time but the same again could not pass the laboratory test. The test report was communicated to the respondent. As the respondent failed to comply with the conditions of Supply Order, the appellant invoked Performance Bank Guarantee of Rs. 16,33,885/-, vide letter dated 17.7.2002, and subsequently cancelled the supply order. Being dissatisfied, the respondent invoked the arbitration clause to adjudicate the dispute between the parties. Mr. S.K. Goyal, Mr. A.K. Garde and Mr. G. Saran were appointed as Arbitrators. It was contended that respondent was precluded from making a request for an independent evaluation of the material due to the onerous and one sided clauses of the Order; respondent was also not enable to offer the balance quantity of 276 MTs of CLS for the third test; the appellant unilaterally invoked the performance bank guarantee for its full sum of Rs.16,33,885/-.

3. Appellant filed the written statement and also raised a counter claim for an amount of Rs. 83,022/- alongwith interest @ 18 % per annum. Appellant contended that neither the respondent challenged the first and second test report conducted by the appellant nor it prayed for re-examination of the material through an independent agency. In support of its counter claim, the appellant contended that due to non-performance of the contract, the appellant suffered huge loss and thus constrained to invoke the performance bank guarantee. It was claimed that the appellant incurred additional losses in procuring the material from in house sources in the absence of supplies expected from the respondent and that this loss was over and above the amount of performance bank guarantee.

4. On the basis of pleadings of parties, the Arbitral Tribunal framed the following preliminary issue in the matter:-

“Whether the claim of the petitioner is barred by the principles of estoppel and acquiescence?”

5. Preliminary issue was decided against the appellant vide order dated 25.11.2004. Thereafter, the claim and counter claim were decided by the majority of Arbitral Tribunal by its award dated 18.10.2007. Another Arbitrator Mr. A.K. Garde passed separate Award thereby dismissing the claim petition of the respondent vide Award dated 21.9.2007. Mr. A.K. Garde learned Arbitrator while dismissing the claim petition by the respondent has categorically recorded its findings that the bank guarantee was given for careful performance of the contract and the bank guarantee is irrevocable. With regard to the submission that the bank guarantee should not have encashed to the full extent as loss was only to the tune of Rs.83,022/- as per the respondent version, it was held