Full Judgment Text
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CASE NO.:
Appeal (civil) 6478 of 2001
PETITIONER:
Pure Helium India Pvt. Ltd.
RESPONDENT:
Oil & Natural Gas Commission
DATE OF JUDGMENT: 09/10/2003
BENCH:
CJI & S.B. Sinha.
JUDGMENT:
J U D G M E N T
S.B. SINHA, J :
Whether jurisdiction of an arbitrator to interpret a contract can
be subject-matter of an objection under Section 30 of the Arbitration
Act, 1940 (hereinafter referred to as ’the Act’, for the sake of
brevity) is in question in this appeal which arises out of the judgment
and order dated 24.2.2000 of the High Court of Judicature at Bombay in
Appeal No.612 of 1996 arising out of a judgment and order of a learned
Single Judge dated 13.10.1995 dismissing the said objection of the
respondent.
BACKGROUND FACT :
The parties hereto entered into a contract for supply of Helium
Diving Gas pursuant to a notice inviting global tender dated 2.5.1989.
In terms of the said notice inviting tender, the respondent herein was
to take supply of Helium gas, which is one of the rare gases being not
chemically produced and is mainly extracted from the natural gas wells
in mineral form. The said gas is ordinarily imported from U.S.A.,
Algeria, Poland and Russia. In terms of the said notice inviting
tender, three different categories of rates were to be quoted by the
tenderers both foreign and Indian. Whereas the foreign tenderers were
to quote their prices in foreign currency, the Indian bidders could
indicate the nature of payment, i.e. if a part thereof was recoverable
having foreign exchange component. Pursuant to or in furtherance of the
said notice inviting tenders, the tenderers submitted their technical
bids. The bidding was to be in two stages; in terms whereof the
technical bids were to be opened first whereafter only final bids were
to be considered. The appellant’s bid was found to be the lowest in
that the appellant had bid a price of Rs.150/- per cubic meter out of
which US$ 5 was to be the foreign exchange component. The said bid of
the appellant having been found to be the lowest, the parties entered
into a negotiation; pursuant to or in furtherance whereof, the appellant
lowered its offer to Rs.149/- per cubic meter, out of which US$ 4.60 was
to be the foreign exchange component.
The respondent having felt the need of Helium gas urgently,
pending execution of the contract, placed an order for ad hoc supply of
52000 cubic meters of Helium gas with the appellant. The respondent
again placed an order for supply of 300000 cubic meters of Helium gas
on 25.5.1990.
The Ministry of Petroleum and Natural Gas, Government of India,
vide its letter dated 21.5.1990 released foreign exchange for
procurement of Helium gas, by reason of letter addressed to the
respondent stating :
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"I am directed to refer to your letter
No.DlH/BOP/OBG/OS/30/90 dated 19.4.90 on the
above subject and to convey the approval of the
President to the procurement of 3,00,000 M3 of
Helium Gas from M/s Pure Helium India Ltd.,
Bombay at a cost of Rs.4.47 crores including a
foreign exchange component of Rs.2.38 crores (US
$ 1.380 million @ US$ 5.7875 = Rs.100/-)."
The respondent thereafter issued two supply orders on 12.6.1990 to
the appellant for supply of 52000 cubic meters and 300000 cubic meters
Helium gas respectively at a price of Rs.149 per cubic meter inclusive
of foreign exchange component of US$ 4.60. Having regard to the
increase in price of the US dollar, the appellant herein claimed the
difference of price of US dollar as on the date of the contract and the
date of supply. The claim of the appellant was recommended by the
Secretary, Petroleum and Natural Gas Department as well as by certain
other senior officers. The respondent, however, rejected the claim on
or about 14.7.1992 whereafter the arbitration agreement was invoked.
The arbitrators entered into a reference on 1.3.1993. A non-speaking
award was made by the arbitrators on 13.8.1993 holding that the
respondent was liable to compensate the appellant for Exchange Rate
Fluctuation in the sum of Rs.1,03,41,309/- with interest at the rate of
18% per annum from the date of the invoices till the date of the award.
The respondent herein questioned the validity of the said award by
filing a petition under Section 30 of the Act before the Bombay High
Court which was marked as Arbitration Petition No.52 of 1994. A learned
Single Judge of the High Court of Judicature at Bombay dismissed the
said petition and directed the award to be made a rule of the Court by
an order dated 13.10.1995.
Aggrieved by and dissatisfied therewith the respondent preferred
an appeal thereagainst which by reason of the impugned judgment has been
allowed. The appellant is, thus, in appeal before us.
SUBMISSIONS :
Mr. Dipankar P. Gupta, learned Senior Counsel appearing on behalf
of the appellant, would contend that the Division Bench of the High
Court committed a manifest error insofar as it proceeded to determine
the dispute on the premise that the claim could not have been preferred
under any clause of the contract. The learned counsel would contend that
the arbitrators had, having regard to the scope and purport of the
arbitration agreement entered into by and between the parties were
entitled to go into the question of the construction of contract and
they, thus, having the requisite jurisdiction therefor, the High Court
could not have independently construe the same.
Drawing our attention to various clauses of the contract as also
the claim petition, the learned counsel would contend that the
arbitrator had analyzed the terms and conditions of the contract having
regard to the facts and circumstances of this case as also keeping in
view the pleadings of the parties and in that view of the matter the
High Court while exercising its jurisdiction under Section 30 of the Act
could not have interfered therewith particularly as the award was a non-
speaking one. It was urged that such a claim was also maintainable
having regard to a circular letter dated 25.9.1989 issued by the
Government of India.
Mr. Gupta would submit that the approach of the respondent in
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denying the just claim of the appellant must be held to be arbitrary and
unfair insofar as payments on similar terms as claimed by the appellant
had been made not only to the foreign bidders but in fact had been made
to the other Indian bidders where the price was payable in the Indian
currency. By preferring such a claim, the learned counsel would urge,
the appellant had not asked for any escalation in the price but merely
claimed damages in terms of the provisions of the contract occasioned by
fluctuation in the rate of dollar in terms of the notification issued by
the Reserve Bank of India under Section 40 of the Reserve Bank of India
Act and such revision was permissible also in terms of clause 23 of the
contract.
In support of the said contentions, Mr. Gupta strongly relied
upon W.B. State Warehousing Corporation and Another vs. Sushil Kumar
Kayan and Others [(2002) 5 SCC 679], K.R. Raveendranathan vs. State of
Kerala [(1998) 9 SCC 410], P.V. Subba Naidu and Others vs. Government of
A.P. and Others [(1998) 9 SCC 407], H.P. State Electricity Board vs.
R.J. Shah and Company [(1999) 4 SCC 214], Shyama Charan Agarwala & Sons
etc. vs. Union of India etc. [(2002) 6 SCC 201].
The learned counsel would further argue that for the purpose of
interpretation of a contract not only the terms thereof but also the
conduct of the parties and surrounding circumstances are relevant.
Reliance has been placed on Khardah Company Ltd. vs. Raymon & Co.
(India) Private Ltd. [(1963) 3 SCR 183]. In any event, the learned
counsel would contend that the respondent was bound by the policy
decision of the Central Government in the matter of payment of
difference in the rupee value owing to fluctuation in the rate of US
dollar.
Mr. Mukul Rohtagi, learned Additional Solicitor General, on the
other hand, would submit that the bid price for supply of Helium gas
made by the appellant herein in terms of the contract being firm, the
appellant was not entitled to any escalation in the price and, thus, in
the event, the contention of the appellant is accepted, the same would
run counter to the clause in the contract prohibiting escalation in the
price of the goods.
Mr. Rohtagi would contend that disclosure of the foreign exchange
component in the price to be paid in Indian currency was sought for only
for the purpose of evaluation of bids. He would urge that for all
intent and purport, the foreign exchange component had nothing to do
with the payment of the price for supply of Helium gas to the appellant.
In support of his contention, Mr. Rohtagi relied upon Rajasthan State
Mines & Minerals Ltd. Vs. Eastern Engineering Enterprises and Another
[(1999) 9 SCC 283].
The learned counsel would further argue that the notifications
issued by the Reserve Bank of India do not constitute ’any change in
law’ in terms of the provision of Section 40 of the Reserve Bank of
India Act or otherwise.
RELEVANT CLAUSES IN THE CONTRACT :
"1.16 Prices :
1.16.1 In cases where payments are required in Indian
Rupees, the bidder should clearly indicate
if it shall need any foreign exchange for
completing the supplies/services that may
be ordered on him. For this purpose they
should quote the total price along with its
breakdown between Indian Currency portion
and the foreign currency indicating the
specific currency.
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The bidder shall also indicate the nature
of payments which it intends to cover
foreign exchange payments, viz., whether it
is towards acquisition/hiring of
equipment/services, payments of personnel
or acquisition of sub-assemblies, spare
parts or purchase of raw materials or for
any other purpose.
A bidder who would not need any foreign
exchange for completion of the order should
state this categorically.
In case the bidder would require any
assistance/certification from ONGC to help
him secure the required foreign exchanges
it should be so stated."
"1.16.3 Price preference for supplies :
Domestic manufactures are entitled to get
price preference over the foreign
supplier.
The price preference is admissible over
the CIF price of the lowest technically
acceptable foreign offer received in
international competition.
The criteria for giving price preference
is domestic value added Domestic value
added to an indigenous offer will be as
follows :
CIF price of lowest
Acceptable foreign
Tendered
Direct import requirement of
raw material components &
consumable of Indian bidder
Domestic value = --------------------------
CIF price of lower acceptable foreign tender
The price preference admissible to indigenous
manufacturer will be as under :
Extent of domestic Extent of price
Value preference ---------
---------- -------------
1. Upto 20% Nil
2. More than 20% upto 50% upto 15%
3. More than 50% and upto 70% upto 25%
4. More than 70% upto 35%
2.6 Bidder shall quote a firm price and they
shall be bound to keep this price firm
without any escalation for any ground
whatsoever until they compete the work
against this tender or any extension
thereof.
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2.7 The prices shall be given in the currency
of the country of the bidder. If the
bidder expects to incur a portion of this
expenditure in currencies other than those
stated in his bid, and so indicates in his
bid payment of the corresponding portion
of the prices as so expended will be made
in these other currencies.
6.2 In case the price quoted by two or more
domestic bidders are within the price
preference limits and only Indian bidders
remain in contention for award of
contract, then the foreign exchange
component of their bid would be loaded by
a factor of 25% for the purpose of
relative compensation of such domestic
bids. Domestic bidders are required to
quote the prices in the price schedule and
indicate the import content in their
offer. If there is no import content in
the offer then it should be specifically
stated as NIL".
"12. (i) Commission shall pay for Helium at
the rate of Rs.149 per M3 all
inclusive for offshore supply as
indicated in Anneuxre II.
(ii) The invoice with the following
support documents, should be
submitted in triplicate immediately
after receipt of material by
Commission to DGM (F&A) 712 B,
Vasudhara Bhavan, Bandra (E),
Bombay-400 051.
a) The quantity of gas received
duly certified by Commission’s
representative.
b) The computer analysis of the
gas chromatograph showing the
purity of the gas."
"21. Arbitration
If any dispute, difference or question shall at
any time arise between the parties herein or
their respective representative or assignees in
respect of these present or concerning anything
hereto contained or arising out of these present
or as to the rights liabilities or duties of the
said parties hereunder which cannot be mutually
resolved by the parties, the same shall be
referred to arbitration, the proceedings of
which shall be held at Bombay, India within
thirty (30) days of the receipt of the notice of
intention of appointing arbitrators.
Each party shall appoint an arbitrator of its
own choice and inform the other party. Before
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entering upon the arbitration, the two
arbitrators shall appoint the Umpires. In case
either of the parties fail to appoint its
arbitrator within thirty (30) days from the date
of receipt of a notice from the other party in
this behalf or the two arbitrator fail to
appoint the Umpire, the Chief Justice of the
Supreme Court of India shall appoint the
arbitrator and/ or the Umpire as the case may
be.
The decision of the arbitration and in the event
of the arbitrators failing to regain an agreed
decision then the decision of Umpire shall be
final and binding on the parties hereto.
The arbitration proceedings shall be held in
accordance with the or provisions of Indian
Arbitration Act, 1940 and the rules made
thereunder as amended from time to time.
The arbitration or the Umpire as the case may be
shall decide by whom and what proportions the
arbitrators or Umpire fee as well as costs
incurred in arbitration shall be borne.
The arbitrator or the Umpire may with the
consent of the parties enlarge the time, from
time to time to make an publish their or his
award. Arbitration will be conducted in English
language and either party may be represented by
persons not admitted to practice law in India."
"23. In the event of any change or amendment of
any Act or law including Indian Income Tax Acts,
rules or regulations of Govt. of India or Public
Body or any change in the interpretation or
enforcement of any said Act or law, rules or
regulations by Indian Govt. or public body which
becomes effective after the date as advised by
the Commission for submission of final price bid
for this contract and which results in increased
cost of works under the contract, through
increased cost by the Commission subject to
production of documentary proof to the
satisfaction of the Commission to the extent
which is directly attributable to such change or
amendment as mentioned above. Similarly, if any
change or amendment of any Act or law including
Indian Income Tax Acts, Rules or Regulation of
any Govt. or Public Body or any change in the
interpretation or enforcement of any said Act or
law, rules or regulations by Indian Govt. or
public body becomes effective after the date as
advised by the Commission for submissions of
final price bid for this Contract and which
results in any decrees in the cost of the
project through reduced liability of taxes,
(other than personnel taxes) duties, the
Contractor shall pass on the benefits of such
reduced costs, taxes or duties to the
Commission.
Notwithstanding the abovementioned provisions,
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Company shall not bear any liability in respect
of:
i) Personnel taxes, customs, duty and
corporate tax".
RELEVANT PARAGRAPHS OF STATEMENT OF CLAIM OF THE APPELLANT :
In its statement of claim, the appellant, inter alia, contended :
"...The claimant has reason to believe that the
Bombay Regional Office of the respondent had
recommended that the respondent be made such
payments as they rightly believed that such
payments were legitimately due to the claimant
under the terms of contract.
That apart from the reason that the said amounts
were due to the claimant under the contract
terms itself, the same is also supported by
virtue of a notification of the Government of
India setting out internal guidelines as
contained in Notification No.D-19011/7/87-ONG-
UA(EO) dated 25th of September 1989 issued by the
Ministry of Petroleum and Natural Gas. A copy
of this notification is placed at Document No.27
and its relevant contents are reproduced
hereinbelow :-
"It has now been decided that...the Indian
bidder’s foreign exchange component may be
allowed to be quoted in foreign currency for
purposes of actual payment and the actual
payment made in rupee equivalent to the foreign
exchange component as per the BC selling rates
on the date of actual payment for the imported
supplies."
Subsequently, the respondent issued a circular
No.74/89 dated 8th November, 1989 in compliance
of the abovesaid Ministerial Notification, a
copy of which is Documents. This Circular was
to be implemented in all regions and be
applicable to all contracts."
The appellant in the said statement of claim, inter alia, made the
following submissions before the arbitrator :
"2. It is submitted that the foreign exchange
rate fluctuations did not and cannot
result into a price variation/increase.
It is submitted that the firm price
relative to this contract was a composite
price stated in Rupees and Dollars and it
was that which was and has been held firm,
by the claimant. The claimant is not
seeking additional benefit or profit but
is merely seeking to recover a specified
contract consideration.
3. That the ministry notification dated
25.09.1989 has the force of law and the
respondent is not entitled to act in
violation of the same.
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5. That it is further submitted that this
very respondent has in other suppliers
entered into prior to the conclusion of
this contract applied this notification in
the manner in which it ought to have been
applied and has given due benefit to
various other suppliers. It is also
significant that the respondent has had no
hesitation in applying the said
notification to the claimant’s benefit in
a subsequent contract.
6. That without prejudice to what is stated
above, it is further submitted that the
contract between the claimant and
respondent was concluded subsequent to the
issuance of the notification and,
therefore, any endeavour on the part of
the respondent to construe the effective
date of the notification as subsequent
thereto is misconceived and factually
incorrect.
7. It is submitted that exchange rate
fluctuations brought into effect in
exercise of powers conferred on the
Reserve Bank of India under Section 40 of
the Reserve Bank of India Act 1934 and
upon directions given by the Government of
India has the complete force of law. That
being the position, any change arising
therefrom is clearly covered under clause
23 of the Tender Document. Being so, the
respondent is bound under the contract to
compensate the claimant as to such
increased costs arising out of such
exchange rate fluctuations. It is further
submitted that refusal on the part of the
respondent to compensate the claimant
without disclosing any reasons itself is
arbitrary.
8. ...Any interpretation of the contract
wherein foreign suppliers would be paid in
foreign currency at the current rate while
Indian suppliers would be paid at the rate
of exchange prevailing on the date of the
submission of the Price Bid would
discriminate against the Indian suppliers
in as much as any increase in the value of
the dollar against the Indian rupee would
destroy the costing of the Indian
suppliers. The claimant states that this
interpretation of the contract is
discriminatory against the Indian
suppliers, violative of public policy and
against stated government guidelines,
objectives and intentions."
ISSUES BEFORE THE ARBITRATORS :
The respondent in their rejoinder having joined issues with the
aforementioned contentions of the appellant, the following issues which
were raised by the appellant herein, fell for consideration by the
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learned arbitrators.
"1. Whether the proper interpretation of terms
of the contract entitle the claimant to be
compensated for all consequences arising
out of exchange rate variations between
the date of the submission of the Price
Bid and the completion of all supplies.
2. Whether, in addition or in the alternative,
the claimant is, under clause 23 of the
Tender Document entitled to be compensated
for all exchange rate variations between
the date of the submission of the Price Bid
and the completion of all supplies.
3. Whether, in the alternative, the respondent
is bound to effectuate in favour of the
claimant notified State policy as contained
in the Ministerial notification dated
25.09.1989.
4. Whether, the respondent’s circular
No.74/89 dated 8th November, 1989 estoppes
the respondent from any interpretation of
the contract contrary thereto."
AWARD :
By reason of the impugned award, the learned arbitrators held :
"1. We hold that the Claimants are entitled to
be compensated for increase in cost
arising out of Foreign Exchange Rate
Fluctuations in respect of payment made by
the Respondents to the Claimants on the
from the respective dated of devaluation
of the Indian Rupee, namely 8.7.1991 and
28.2.1998 and not on payments made before
the said dates. Accordingly we direct
that the Respondent do pay to the
Claimants a sum of Rs.1,03,41,309/- only
(in words Rupee One crore three lakhs
forty one thousand three hundred and nine)
Rs.24,97,905/- under Invoice dt.
9.10.1991, Rs.25,20,160/- under Invoice
dt. 15.1.1998 and Rs.53,23,241/- under
Invoice dt. 22.6.1998) in full and final
settlement of their claim under their
aforesaid three invoices.
2. Respondents do further pay to the
Claimants interest at the rate of 185 per
annum on the aforesaid three amounts
awarded to them under the said invoices
from the respective dates of those
invoices till the date of this Award."
OBJECTIONS TO THE AWARD BY THE RESPONDENT :
(1) The subject-matter of the arbitration was not arbitrable in
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view of the terms of the contract;
(2) The appellant was not entitled to any escalation in price.
IMPUGNED JUDGMENT :
The Division Bench of the High Court set aside the award holding
that the same was without jurisdiction wherefor two questions were
framed.
(a) Whether a claim of the nature preferred by the
respondent is specifically barred under the
contract?
(b) Whether there is any clause in the contract, under
which such a claim could be preferred?
OUR CONCLUSION :
The questions framed are self-contradictory and inconsistent.
Whereas in framing question (a) a right approach had been adopted by the
Division Bench, a wrong one had been adopted in framing question (b).
It is not in dispute that there were three different nature of bids;
which were required to be made in terms of the notice inviting tenders :
(i) by foreign bidders; (ii) by Indian bidders quoting Indian price
with the foreign exchange component therefor as import was required to
be made; (iii) payable only in Indian rupee without foreign exchange
component.
Before the arbitrators apart from construction of the contract
agreement, the questions which, inter alia, arose were : (a) the effect
and purport of circular letter dated 25.9.1989 issued by the Central
Government: (b) the conduct of the respondent in making the payments to
the persons similarly situated.
Construction of a deed sometimes pose a great problem.
Justice Frankfurter said : "there is no surer way to misread a
document than to read it literally." [Massachusetts B. & Insurance Co.
vs. U.S. (1956) 352 US 128 at p. 138].
We, however, as discussed in details a little later are strictly
not concerned as regard true import and purport of the relevant clauses
of the contract agreement. Our concern is merely to see as to whether
the learned arbitrators exceeded their jurisdiction in making the award.
The learned arbitrators, as noticed hereinbefore, in making the
award took into consideration the documentary as well as circumstantial
evidence including rival pleadings of the parties. It is trite that the
terms of the contract can be express or implied. The conduct of the
parties would also be a relevant factor in the matter of construction of
a contract.
In Khardah Company Ltd. (supra), this Court held :
"...We agree that when a contract has been
reduced to writing we must look only to that
writing for ascertaining the terms of the
agreement between the parties but it does not
follow from this that it is only what is set out
expressly and in so many words in the document
that can constitute a term of the contract
between the parties. If on a reading of the
document as a whole, it can fairly be deduced
from the words actually used herein that the
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parties had agreed on a particular term, there
is nothing in law which prevents them from
setting up that term. The terms of a contract
can be expressed or implied from what has been
expressed. It is in the ultimate analysis a
question of construction of the contract. And
again it is well established that in construing
a contract it would be legitimate to take into
account surrounding circumstances...."
Construction of the contract agreement, therefore, was within the
jurisdiction of the learned arbitrators having regard to the wide
nature, scope and ambit of the arbitration agreement and they cannot,
thus, be said to have misdirected themselves in passing the award by
taking into consideration the conduct of the parties as also the
circumstantial evidence.
A dispute as regard the construction of clause 23 of the contract
vis-Ã -vis the notification issued under Section 40 of the Reserve Bank
of India Act also fell for their consideration. Such a question of law,
it is trite, is also arbitrable and was specifically raised by the
appellant. The learned arbitrators were further entitled to consider
the question as to whether the appellant had been discriminated against
insofar as similar claims have been allowed by the respondent.
CASE LAWS ON THE POINT :
In State of U.P. vs. Allied Constructions [2003 (6) SCALE 265],
this Court held :
"...Interpretation of a contract, it is trite,
is a matter for arbitrator to determine (see M/s
Sudarsan Trading Co. vs. The Government of
Kerala, AIR 1989 SC 890). Section 30 of the
Arbitration Act, 1940 providing for setting
aside an award is restrictive in its operation.
Unless one or the other condition contained in
Section 30 is satisfied, an award cannot be set
aside. The arbitrator is a Judge chosen by the
parties and his decision is final. The Court is
precluded from reappraising the evidence. Even
in a case where the award contains reasons, the
interference therewith would still be not
available within the jurisdiction of the Court
unless, of course, the reasons are totally
perverse or the judgment is based on a wrong
proposition of law. As error apparent on the
face of the records would not imply closer
scrutiny of the merits of documents and
materials on record. One it is found that the
view of the arbitrator is a plausible one, the
Court will refrain itself from interfering..."
In K.R. Raveendranathan (supra), the law was laid down in the
following terms :
"2. The learned counsel for the appellant points
out that the question in issue in the present
appeals is squarely covered by the decision of
this Court in Hindustan Construction Co. Ltd. v.
State of J&K ((1992) 4 SCC 17). In particular,
it drew our attention to para 10 of the judgment
and the portion extracted from the decision in
Sudarsan Trading Co. case (Sudarsan Trading Co.
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v. Govt. of Kerala, (1989) 2 SCC 38) wherein it
was said that by purporting to construe the
contract the Court could not take upon itself
the burden of saying that this was contrary to
the contract and, as such, beyond jurisdiction.
That is exactly what the Court has done in the
instant case..."
K.R. Raveendranathan (supra) has been followed by this Court in
P.V. Subba Naidu (supra) stating :
"4. The entire thrust of the judgment is on
examining the terms of the contract and
interpreting them. The terms of the arbitration
clause, however, are very wide. The arbitration
clause is not confined merely to any question of
interpretation of the contract. It also covers
any matter or thing arising thereunder.
Therefore, all disputes which arise as a result
of the contract would be covered by the
arbitration clause. The last two lines of the
arbitration clause also make it clear that the
arbitrator has power to open up, review and
revise any certificate, opinion, decision,
requisition or notice except in regard to those
matters which are expressly excepted under the
contract, and that the arbitrator has
jurisdiction to determine all matters in dispute
which shall be submitted to the arbitrator and
of which notice shall have been given.
5. In the present case all the claims in
question were expressly referred to arbitrator
and were raised before the arbitrator. The High
Court was, therefore, not right in examining the
terms of the contract or interpreting them for
the purpose of deciding whether these claims
were covered by the terms of the contract."
The same view has been reiterated in H.P. State Electricity Board
(supra). Upon taking into consideration a large number of decisions and
referring to K.R.Ravendranathan (supra), this Court held that the court
would not be justified in construing the contract in a different manner
and then to set aside the award by observing that the arbitrator had
exceeded the jurisdiction in making the award, when the arbitrator is
required to construe a contract, only because another view is possible.
It was stated :
"26. In order to determine whether the
arbitrator has acted in excess of jurisdiction
what has to be seen is whether the claimant
could raise a particular dispute or claim before
an arbitrator. If the answer is in the
affirmative then it is clear that the arbitrator
would have the jurisdiction to deal with such a
claim. On the other hand if the arbitration
clause or a specific term in the contract or the
law does not permit or give the arbitrator the
power to decide or to adjudicate on a dispute
raised by the claimant or there is a specific
bar to the raising of a particular dispute or
claim then any decision given by the arbitrator
in respect thereof would clearly be in excess of
jurisdiction. In order to find whether the
arbitrator has acted in excess of jurisdiction
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the court may have to look into some documents
including the contract as well as the reference
of the dispute made to the arbitrators limited
for the purpose of seeing whether the arbitrator
has the jurisdiction to decide the claim made in
the arbitration proceedings."
Yet again in Sushil Kumar Kayan (supra), it was held :
"...In order to determine whether the arbitrator
has acted in excess of his jurisdiction what has
to be seen is whether the claimant can raise a
particular claim before the arbitrator. If there
is a specific term in the contract or the law
which does not permit the parties to raise a
point before the arbitrator and if there is a
specific bar in the contract to the raising of
the point, then the award passed by the
arbitrator in respect thereof would be in excess
of his jurisdiction..."
Some of the aforementioned decisions have been considered by us in
Bharat Coking Coal Ltd. vs. M/s Annapurna Construction [2003 (7) SCALE
20].
Rajasthan State Mines & Minerals Ltd. (supra) whereupon Mr.
Rohtagi placed strong reliance, this Court held that the dispute to the
arbitrator could not be termed as without jurisdiction but proceeded to
consider the question as to whether he will have authority or
jurisdiction to grant damages or compensation in the teeth of the
stipulation providing that no escalation would be granted and that the
contractor would only be entitled to payment of the composite rate as
mentioned and no other or further payment of any kind or item whatsoever
shall be due and payable by the Company to the contractor.
It was concluded :
"(a) It is not open to the Court to speculate,
where on reasons are given by the arbitrator, as
to what impelled the arbitrator to arrive at his
conclusion.
(b) It is not open to the Court to admit to
probe the mental process by which the arbitrator
has reached his conclusion where it is not
disclosed by the terms of the award.
(c) If the arbitrator has committed a mere error
of fact or law in reaching his conclusion on the
disputed question submitted for his adjudication
then the Court cannot interfere.
(d) If no specific question of law is referred,
the decision of the Arbitrator on that question
is not final, however much it may be within his
jurisdiction and indeed essential for him to
decide the question incidentally. In a case
where specific question of law touching upon the
jurisdiction of the arbitrator was referred for
the decision of the arbitrator by the parties,
then the finding of the arbitrator on the said
question between the parties may be binding.
(e) In a case of non-speaking award, the
jurisdiction of the Court is limited. The award
can be set aside if the arbitrator acts beyond
his jurisdiction.
(f) To find out whether the arbitrator has
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travelled beyond his jurisdiction, it would be
necessary to consider the agreement between the
parties containing the arbitration clause.
Arbitrator acting beyond his jurisdiction is a
different ground from the error apparent on the
face of the award.
(g) In order to determine whether arbitrator has
acted in excess of his jurisdiction what has to
be seen is whether the claimant could raise a
particular claim before the arbitrator. If there
is a specific term in the contract or the law
which does not permit or give the arbitrator the
power to decide the dispute raised by the
claimant or there is a specific bar in the
contract to the raising of the particular claim
then the award passed by the arbitrator in
respect thereof would be in excess of
jurisdiction."
With respect we agree with the conclusions arrived at in Rajasthan
State Mines & Minerals Ltd. (supra).
Clause (g) of the conclusion in the said case, as quoted supra, is
not applicable in the instant case inasmuch as there does not exist any
provision which does not permit or give the arbitrator the power to
decide the dispute raised by the claimant nor there exist any specific
bar in the contract to raise such claim.
To the same effect is the decision of this Court in Food
Corporation of India vs. Surendra, Devendra & Mahendra Transport Co.
{(2003) 4 SCC 80].
In Shyama Charan Agarwala (supra), this Court observed :
"19. Testing the case on hand on the touchstone
of well-settled principles laid down by courts,
we are unable to hold that the High Court
exceeded its jurisdiction in interfering with
the award or failed to exercise the jurisdiction
vested in it to set aside the award. The
approach of the High Court cannot be said to be
contrary to the well-settled principles
governing the scope of interference with an
award of the arbitrator under the old Act. As
regards the first item, the question was whether
the contract contemplates the use of stone
aggregate and stone metal from the local sources
only, the source of supply being silent in the
relevant clause. The arbitrator was of the view
that the unprecedented situation of the
Contractor being put to the necessity of
procuring the stone material from far-off places
was not visualized and the parties proceeded on
the basis that such material was available
locally. He further noted that the sample kept
in the office of the Engineer concerned
admittedly pertained to the material procured
from local sources. A letter addressed by the
Chief Engineer in support of the Contractor’s
claim was also relied on in this context. Hence,
in these circumstances, the arbitrator can be
said to have taken a reasonably possible view
and therefore the High Court rightly declined to
set aside the award insofar as the quantity of
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stone aggregate/stone metal brought to the site
up to 24-1-1994 is concerned. The arbitrator
acted within the confines of the jurisdiction in
making the award on this part of the claim."
ANALYSIS OF THE CASE LAWS :
The principles of law laid down in the aforementioned decisions
leave no manner of doubt that the jurisdiction of the court in
interfering with a non-speaking award is limited.
The upshot of the above decisions is that if the claim of the
claimant is not arbitrable having regard to the bar/prohibition created
under the contract, the court can set aside the award but unless such a
prohibition/bar is found out, the court cannot exercise its jurisdiction
under Section 30 of the Act. The High Court, therefore, misdirected
itself in law in posing a wrong question. It is true that where such
prohibition exists, the court will not hesitate to set aside the award.
In the instant case, the appellant did not ask for any enhancement
in the price. It only asked for the difference in price occurred owing
to fluctuation in the rate of dollar.
It is true that by taking recourse to the interpretation of
documents, the appellant did not become entitled to claim a higher
amount than Rs.149/- but, thereby the appellant had not unjustly
enriched itself. Had the price of the dollar fallen, the respondent
would have become entitled to claim the difference therefor.
The appellant quoted the foreign exchange component in its bids in
terms of the notice inviting tenders. The same was asked for by the
respondent itself for a definite purpose. A contract between the
parties must be construed keeping in view the fact that the fluctuation
in the rate of dollar was required to be kept in mind by the respondent
having regard to the fact that the tender was global in nature and in
the event the respondent was required to pay in foreign currency, the
same would have an impact on the cost factor.
Clauses 2.6 and 2.7 aforementioned must be construed in such a
manner so that effect to both of them may be given. Whereas Clause 2.6
prohibits escalation; Clause 2.7 makes the bidder liable for exchange
fluctuations which does not amount to an escalation of the price or
disturb their cost evaluation. The bid of the appellant had two
components, namely, Indian currency component and US Dollar component.
The appellant claimed $ 4.60 within the total price of Rs. 149/- which
was to be paid in Indian currency. In any manner, the claim did not
violate clause 2.6. The appellant merely claimed foreign exchange
component at the rate of $ 4.60 and no more.
The very fact that three different types of quotations were
invited from the bidders itself is suggestive of the fact that each one
of them was required to be construed in such a manner so as to apply in
different situations. The submission of Mr. Rohtagi, the learned
Additional Solicitor General to the effect that if such a factor was to
be taken into consideration, the person who had quoted only in terms of
Indian rupee would be at a disadvantage is stated to be rejected. The
question as to whether suppliers quoting their bid in Indian currency
alone would face disadvantage or not will depend upon the question as to
whether they were similarly situated. One bidder may have to import the
raw-materials; other may not have to. This itself will lead to a
difference. In fact, those who did not bid with the amount of foreign
exchange component cannot be placed on equal footing to those who in
their bid pursuant to the notice inviting tender disclosed that they
would have to make import wherefor only the foreign exchange component
in the price had to be disclosed.
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Furthermore, the circular letter dated 25.9.1989 issued by the
Government of India itself clearly shows that a decision had been taken
to make such payments. The contract having not been entered into by the
parties herein as on the said date, the decision to include the said
term would mean that the same shall be incorporated in the contracts
which were to be executed in future.
It is further not in dispute that the respondent is bound by the
directives issued by the Union of India. In fact from the letter dated
21.5.1990 it is evident that even for the purpose of entering into the
contract approval of the Central Government was sought for and granted.
Such a directive of the Central Government was not required to be made
by way of a notification nor the same was required to have the force of
law as the matter involved a contract between the parties.
Mr. Rohtagi is not correct in his contention that such condition
was required to be incorporated in the NIT inasmuch as from a plain
reading of the said letter, it is evident that such a clause was to be
incorporated in the notice inviting tenders ex majori cautela.
As regard the contention as to whether the notification issued
under Section 40 of the Reserve Bank of India would be rules or
regulations having an impact in the cost factor is concerned, the
arbitrator had jurisdiction to decide the same, subject of course to
application of correct principles of law in relation thereto.
Even assuming that the arbitrators faulted in that regard, it must
be borne in mind that such a contention was raised on behalf of the
appellant, only for the purpose of showing that several aspects of the
matter arose before the learned arbitrators for making the award and
any-one of them would be sufficient to uphold the award.
The court, having regard to the proposition of law that the
jurisdiction of the arbitrator will be ousted only in the event that
there exists a specific bar in the contract as regard raising of a
particular claim must necessarily hold that the award was sustainable.
As in the instant case there did not exist any such bar, it is
enforceable in law. Furthermore, in the event the ratio of the decision
of the High Court is accepted, the same would amount to re-hearing of
the entire arguments once over again by the court as regard construction
of a contract which is impermissible in law.
The arbitrators were called upon to determine a legal issue which
included interpretation of the contract. The arbitrators, therefore,
cannot be said to have been travelled beyond jurisdiction in making the
award.
CONCLUSION :
We, for the reasons aforementioned, are of the opinion that the
judgment of the High Court is not sustainable.
However, one aspect of the matter which requires our
consideration. The respondent rejected the claim of the appellant as
far back as on 14.7.1992 whereafter the disputes and differences between
the parties were referred to the arbitrators. The arbitrators entered
into the reference on 1.3.1993 and passed an award on 13.8.1993. The
said award was set aside by the High Court. If the award is to be
satisfied in its entirety, the respondent will have to pay a huge amount
by way of interest.
In order to do the complete justice to the parties, in exercise of
our jurisdiction under Article 142 of the Constitution of India, we
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think it appropriate to direct that the award shall carry interest at
the rate of 6% per annum instead and in place of 18% per annum. This
order shall, however, not be treated as precedent.
For the reasons aforementioned, the impugned judgment is set
aside. The appeal is allowed with the aforementioned modifications.
However, in the facts and circumstances of the case, there shall be no
order as to costs.