Full Judgment Text
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CASE NO.:
Appeal (civil) 2881 of 1996
PETITIONER:
INDU ENGINEERING & TEXTILES LTD.
Vs.
RESPONDENT:
DELHI DEVELOPMENT AUTHORITY
DATE OF JUDGMENT: 11/07/2001
BENCH:
D.P.Mohapatro, A.P.Misra
JUDGMENT:
D.P.Mohapatra, J.
Whether the appellant, on the evidence on record, is
entitled to the price of hard coke supplied by it to the respondent at
the enhanced rate, is the controversy raised in this case. The dispute
was referred to an arbitrator pursuant to the arbitration clause in the
agreement entered by the parties. The arbitrator held in favour of the
appellant and accepted its claim of Rs.234097.41. A single Judge of
the Delhi High Court rejecting the objections raised by the respondent
against the award, made it rule of the court. On appeal, the Division
Bench of the High Court reversed the order of the single Judge and
set aside the award passed by the arbitrator. As such the claimant is
in appeal before this court challenging the judgment of the Division
Bench of the High Court.
The factual matrix of the case leading to the present
proceeding may be shortly stated thus: The Delhi Development
Authority (for short ’DDA’), respondent herein, floated a tender
enquiry on 30th January, 1981 for supply of hard coke. M/s.Indu
Engineering & Textiles Ltd., appellant herein, submitted its offer for
supply of the material in response to the said notice on 12th
February, 1981. The offer letter contained a price escalation clause
to the following effect:
"Our prices are based on the prevailing prices
of pig iron, premium hard coke and ferro-
silicon as announced by the Joint Plant
Committee, Bharat Coking Coal Ltd., or any
other agency authorised for this purpose, plus
sales tax, cost of transportation and handling
from main producers to our works at Agra.
Any upward revision in the prices of pig iron,
hard coke and ferro-silicon shall have
corresponding effect on our prices as per
formula given below.
Such revision in prices shall be effective from
all material in transit, or tendered for
inspection immediately from the date of
announcement of revised prices by J.P.C.,
Bharat Coking Coal Ltd., etc."
The tenders were opened by the respondent on 20th February, 1981.
On 14th February, 1981 there was an escalation of the price of hard
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coke notified by Coal India Ltd. (a subsidiary of Bharat Coking Coal
Ltd.). The price escalation was published in the newspapers on 1st
March, 1981. On 16th April, 1981 negotiations were held with the
parties who submitted offers, pursuant to which rates in respect of
supply of ferro-silicon and the price escalation in respect of the same
were reduced/dropped. However, the escalation clause with regard
to premium hard coke and pig iron (no dispute in this proceeding)
was maintained with certain modification. Regarding price escalation
it was stated as follows :
"Price Escalation: We agree to modify this
clause to the same form as accepted by the
Department in the previous tender with Indo-
Swedish Pipes from whom this factory was
bought by us. Under that escalation clause,
escalation is payable only on statutory
increase in prices of pig iron and premium
hard coke."
On 6th May, 1981 the respondent communicated its acceptance with
the following clause regarding price escalation:
"Enhancement and deduction in pipes to be
regulated on the basis of the pig iron and hard
coke price of JPC and Bharat Coking Coal
Ltd."
This was followed by a confirmation letter by the appellant in which it
was specifically stated that the escalation clause shall be effective for
any increase/decrease after the date of the tender i.e. 12th February,
1981. The agreement incorporating the price escalation clause was
signed between the parties on 14th May, 1981. When the appellant
submitted bills for the hard coke and pig iron supplied to the
respondent at the escalated price with effect from 14th February, 1981
the respondent denied its liability to pay the enhanced price for hard
coke while admitting the liability for the escalated price in respect of
pig iron. A dispute therefore, arose between the parties.
The dispute was referred to the arbitrator - Shri Banarasi
Dass, Superintendent Engineer by Engineer Member, DDA. The
arbitrator, by a reasoned award passed on 16.5.1985, accepted the
claim of the appellant in respect of the three items of claim including
the claim in respect of hard coke (item no.2). The respondent raised
an objection to the award only in respect of item no.2 i.e. hard coke.
A single Judge of the High Court by the order passed on 7.4.1989
remitted the matter to the arbitrator for fresh decision after taking into
consideration the effect of the letter dated 9.6.1982. Pursuant to the
said decision the arbitrator passed the award dated 3.10.1989 after
hearing both the parties. He gave detailed reasons in support of the
award accepting the claim of the appellant in respect of item no.2.
He gave reasons for not accepting the letter dated 9.6.1982 as
binding on the appellant holding that it was obtained after an year of
the agreement and under duress and that the offer dated 12th
February, 1981 itself was sufficient to justify the claim of the
appellant. By the order dated 20th February, 1995 a single Judge of
the High Court rejected the objections filed by the respondent against
the award and made the award dated 3.10.1989 rule of the court.
The respondent filed the appeal, FAO(OS) 219/95,
against the said order which was allowed by a Division Bench of the
Court holding inter alia that the award of the arbitrator accepting the
claim of the appellant for escalated price of hard coke was without
evidence. The Division Bench held inter alia that in the negotiations
held on 16.4.1981 between the parties the price of hard coke as
quoted by the appellant was not increased. The Division Bench
further held that the price escalation clause agreed to on 16.4.1981
would have prospective application i.e. increase in price after that
date. Recording its finding that there was no evidence or material
before the arbitrator whatsoever for grant of the escalation dated
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14.2.1981 in price of hard coke the Division Bench declined to
accept the contention raised on behalf of the appellant that it had no
awareness of the increase dated 14.2.1981 when it submitted the
tender on 12.2.1981 since the firm is very much in this line of
business. It was further held that the price escalation clause which
was modified did not include the enhancement made on 14.2.1981.
On such discussion, the Division Bench held that the case was one of
no evidence. The Division Bench rejected the contention raised on
behalf of the appellant that the respondent in similar circumstances
having accepted the escalation in price of pig iron should not decline
to grant similar claim in respect of hard coke, holding that by
conceding to the claim in respect of pig iron it could not be said that
the respondent agreed to pay the escalated price for hard coke.
The scope for interference by the court with an award
passed by the arbitrator is limited. Section 30 of the Arbitration Act,
1940 (for short ’the Act’) provides in somewhat mandatory terms that
an award shall not be set aside except on one or more of the grounds
enumerated in the provision. The three grounds set out in the Section
are :
(a) that an arbitrator or umpire has misconducted himself or
the proceedings;
(b) that an award has been made after the issue of an order
by the Court superseding the arbitration or after
arbitration proceedings have become invalid under
Section 35;
(c) that an award has been improperly procured or is
otherwise invalid.
Interpreting the statutory provision Courts have laid stress on the
limitations on exercise of jurisdiction by the Court for setting aside or
interfering with an award in umpteen cases. Some of the well
recognised grounds on which interference is permissible are :
1) Violation of principle of natural justice in passing the
award;
2) Error apparent on the face of the award;
3) The arbitrator has ignored or deliberately violated a
clause in the agreement prohibiting dispute of the nature
entertained;
4) The award on the face of it is based on a proposition of
law which is erroneous, etc.
In U.P.Hotels and Others vs. U.P.State Electricity Board, (1989) 1
SCC 359, this Court in paras 17& 18 observed as follows:
"17. It appears that the main question that
arises is : whether the decision of this Court in
Indian Aluminium co.vs. Kerala State
Electricity Board (1975) 2 SCC 414 case was
properly understood and appreciated by the
learned Umpire and whether he properly
applied the agreement between the parties in
the light of the aforesaid decision. It was
contended that the question whether the sums
payable under clause 9 included discounts.
On the aforesaid basis it was contended that
there was an error of law and such error was
manifest on the face of the award. Even
assuming, however, that there was an error of
law in arriving at a conclusion, such an error is
not an error which is amenable to correction
even in a reasoned award under the law.
Reference may be made to the observations
of this Court in Coimbatore District
P.T.Samgam v. Bala Subramania Foundry
(1987) 3 SCC 723, where it was reiterated
that an award can only be set aside if there is
an error on its face. Further, it is an error of
law and not mistake of fact committed by the
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arbitrator which is justiciable in the application
before the court. Where the alleged mistakes
or errors, if any, of which grievances were
made were mistakes of facts if at all, and did
not amount to error of law apparent on the
face of the record, the objections were not
sustainable and the award could not be set
aside. See also the observations of this Court
in Delhi Municipal Corpn. Vs. M/s.Jagan Nath
Ashok Kumar, (1987) 4 SCC 497, where this
Court reiterated that reasonableness of the
reasons given by an arbitrator in making his
award cannot be challenged. In that case
before this Court, there was no evidence of
violation of any principle of natural justice, and
in this case also there is no violation of the
principles of natural justice. It may be possible
that on the same evidence some court might
have arrived at some different conclusion than
the one arrived at by the arbitrator but that by
itself is no ground for setting aside the award
of an arbitrator. Also see the observations in
Halsbury’s Laws of England, 4th edn., Vol.2, at
pages 334 and 335, para 624, where it was
reiterated that an arbitrator’s award may be
set aside for error of law appearing on the
face of it, though that jurisdiction is not lightly
to be exercised. If a specific question of law is
submitted to the arbitrator for his decision and
he decides it, the fact that the decision is
erroneous does not make the award bad on
its face so as to permit it being set aside; and
where the question referred for arbitration is a
question of construction, which is, generally
speaking, a question of law, the arbitrator’s
decision cannot be set aside only because the
court would itself have come to a different
conclusion; but if it appears on the face of the
award that the arbitrator has proceeded
illegally, as, for instance, by deciding on
evidence which was not admissible, or on
principles of construction which the law does
not countenance, there is error in law which
may be ground for setting aside the award.
18. It was contended by Mr.F.S.Nariman,
counsel for the appellant, that a specific
question of law being a question of
construction had been referred to the Umpire
and, hence, his decision, right or wrong, had
to be accepted. In view of Clause 18, it was
submitted that in this case a specific reference
had been made on the interpretation of the
agreement between the parties, hence, the
parties were bound by the decision of the
Umpire. Our attention was drawn to the
observations of this Court in M/s.Hindustan
Tea Co. v. M/s.K.Sashikant & Co.,1986 Supp
SCC 506, where this Court held that under the
law, the arbitrator is made the final arbiter of
the dispute between the parties, referred to
him. The award is not open to challenge on
the ground that the arbitrator has reached a
wrong conclusion or has failed to appreciate
facts. Where the award which was a
reasoned one was challenged on the ground
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that the arbitrator had acted contrary to the
provisions of Section 70 of the Contract Act, it
was held that the same could not be set
aside."
This Court, while dealing with the power of courts to
interfere with an award passed by arbitrator, had consistently laid
stress on the position that an arbitrator is a Judge appointed by the
parties and as such the award passed by him is not to be lightly
interfered with. In the case on hand the only question that arose for
consideration was whether the appellant was entitled to claim the
enhanced price of hard coke for the quantity supplied by it to the
respondent. Under the contract a specific quantity of the material
was to be supplied during the period fixed under the agreement.
Right from the beginning while submitting the tender the appellant
had included a price escalation clause in which it was stipulated that
any escalation of the price after submission of the tender will entitle
the supplier to claim higher price from the other party. This clause
was subsequently revised only to the effect that the price escalation
will be applicable when there is statutory enhancement in the price of
the commodity. No dispute was raised before the arbitrator or the
court that the escalated price claimed by the appellant was not the
statutorily enhanced price of hard coke. It was also not in dispute that
even accepting the appellant’s claim for escalated price of the
commodity, it was entitled to the claim only in respect of a part of the
quantity supplied and not the entire quantity. In these circumstances,
the arbitrator had not attached importance to the non-mention of the
enhanced price of hard coke in course of negotiations between the
parties. The view taken by the arbitrator, in the circumstances of the
case, was a plausible one and the same could not be said to be
suffering from any manifest error on the face of the award or wholly
improbable or perverse one. As such it was not open to the court to
interfere with the award within the statutory limitations laid down in
Section 30 of the Act. The single Judge, therefore, rightly declined to
interfere with the award passed by the arbitrator and made it rule of
the court.
As noted earlier, the Division Bench in appeal filed under
Section 39 of the Act, reversed the order passed by the single Judge
and set aside the award holding that there was no material before the
arbitrator for accepting the claim of the appellant. The Division Bench
exceeded the limits of its jurisdiction in entering into the facts of the
case and in interpreting the agreement between the parties and
correspondence which was a part of the said agreement. What was
the price of the commodity to be paid by the respondent to the
appellant was essentially a question of fact. Even assuming that the
arbitrator had committed an error in coming to the conclusion that the
appellant was entitled to the claim of the escalated price of the
commodity (hard coke) under the terms of the agreement and the
Division Bench felt that the conclusion should have been otherwise, it
was not open to it to interfere with the award on that score. Another
fallacy committed by the Division Bench in the judgment is recording
the finding that the escalation clause in the agreement had
prospective operation with effect from 14.5.1981 i.e. the date on
which the agreement was entered into by the parties. As noted
earlier, under the agreement a specified quantity of the commodity
was to be supplied by the appellant to the respondent within the
period specified in the agreement and the appellant, while submitting
its tender, had made it clear that any subsequent upward change in
price of the commodity will entitle it to claim at such rate and
subsequently the price escalation clause was modified in a manner
not relevant for deciding the dispute referred to the arbitrator, the
question of the price escalation clause having prospective effect was
of no consequence. If the claimant was entitled to the enhanced
price the respondent was liable to pay the same for the entire stock
supplied. If the position was otherwise, the claim of the appellant was
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to be rejected in toto.
On the discussions in the foregoing paragraphs, we are
clearly of the view that the Division Bench of the High Court erred in
setting aside the award passed by the arbitrator which was made
rule of the court by the single Judge. In the result, the appeal is
allowed. The judgment dated 15.5.1996 in FAO (OS) 219/95 is set
aside and the order of the single Judge dated 20.2.1995 in Suit
No.944 of 1985 is confirmed. No costs.