-1- IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO. 1229 OF 2001 IN ARBITRATION PETITION NO. 416 OF 2001 IN AWARD NO. 24 OF 2001. Oil and Natural Gas Corporation Limited, ) Bombay Regional Business Centre, ) Vasudhara Bhavan, Bandra (East), ) Mumbai-400 051 )..Appellants versus Dai Ichi Karkaria Limited, ) a Public Company incorporated under the ) Companies Act, 1956, having its Registered Office ) at Liberty Building, Sir Vithaldas Thackersey Marg, ) Mumbai-400 020 )..Respondents Sri Dara Zaiwala, Senior Advocate, with Sri K.H. Mody and Ms. Chandini Prakash, instructed by Little & Co., for the appellants. Mr. D.J. Khambatta, Senior Advocate, with Sarvasri Zuber Behram Kamdin, Vivek Vashi and Ms. Anuradha Agnihotri, instructed by Bharucha & Associates for the respondents. CORAM: SRI R.M.S. KHANDEPARKAR & SRI P.B. MAJMUDAR, JJ. DATE: JUNE 30, 2008 -2- JUDGMENT (Per Sri P.B. Majmudar, J.) This appeal is directed against the judgment and order dated 14th August, 2001, of the learned single Judge passed in Arbitration Petition No. 416 of 2001 by which the learned single Judge modified the award of the Arbitrator to the extent of rate of interest provided by the Arbitrator by reducing the same from 12 per cent to 10 per cent from February, 1993 upto the date of the award. The rest of the award was confirmed by the learned single Judge. 2. The facts in a nutshell are as under: 2.1 The respondent, Dai Ichi Karkaria Limited, is a Public Limited Company incorporated under the Companies Act, 1956, having its registered office in Mumbai. The respondent-claimant carries on business of manufacture and sale, inter alia, of Pour Point Depressant (“PPD” for short). The appellant is a Public Sector Undertaking engaged in oil exploration, development, production and treatment of oil and natural gas. The appellant floated a global tender for supply of 2,450 metric tons of PPD and ultimately the tender of the respondent was accepted and the appellant placed a supply order dated 2nd April, 1988 on the respondent. The respondent agreed to supply 2,450 metric tons of PPD at the aggregate rate of Rs. 8,19,10,850/- plus sales tax as applicable. Clause 29 of the supply order provided that the -3- appellant shall be entitled to place with the respondent repeat order for 50 per cent of the quantity of the supply order at the same price and on the same terms and conditions as stipulated in the supply order during the validity of the supply order or within six months from the date of supply order, whichever was later. 2.2 The appellant by its letters dated 13th April, 1988 and 3rd May, 1988 agreed that in case there was any Government notification allowing exchange rate fluctuation, the same should be complied with in accordance with the provisions therein. The appellant agreed to this aspect pursuant to the request made in this behalf by the respondent. Since the foreign exchange fluctuation had occurred in the meanwhile, the respondent requested the appellant to raise the price by absorbing the foreign exchange fluctuation. Correspondence ensued between the parties in that behalf. The appellant, however, refused to comply with the request made by the respondent and on 12th June, 1989, the appellant placed a repeat order at the same price and on the same terms and conditions as the original supply order without providing for foreign exchange fluctuation or assuring the respondent that its case would be referred to the concerned Ministry as per the circular issued by the Government of India, Ministry of Finance. Following upon the repeat order dated 12th June, 1989, a formal repeat order with some minor amendments was placed by the appellant on the respondent on 26th -4- February, 1990 and this amended repeat order also did not accept the request of the respondent to absorb foreign exchange fluctuation and insisted on maintaining the same price as set out in the original supply order. 2.3 The respondent was not prepared to accept the amended repeat order dated 26th February, 1990, as it was of the view that under the circular of the Government of India, Ministry of Finance, the appellant was bound to absorb the foreign exchange fluctuation or at least to forward the case of the respondent to the concerned Ministry with its recommendation. Thereafter negotiations went on between the parties in this regard and in the course of negotiations, the appellant acceded to the request of the respondent for revised price of PPD and to give foreign exchange fluctuation by its telex dated 27th July, 1990. The appellant thereafter by its letter dated 28th July, 1990 forwarded to the respondent certain amendments to the repeat order dated 26th February, 1990. These amendments related, inter alia, to the dates of delivery of PPD at Nhava Seva site of the appellant and the foreign exchange content for metric ton of PPD and also increased the price to Rs. 39,287.44 per metric ton from the original price of Rs. 33,433.51 per metric ton. The letter dated 28th July, 1990 made it clear that all other terms and conditions of the repeat order dated 26th February, 1990 will remain unaltered. The respondent, however, not prepared to accept the amended repeat order dated 28th July, 1990, since the amendments did not fully -5- concede the request made by the respondent in its letters dated 14th June, 1990 and 5th July, 1990, and accordingly the said repeat order dated 28th July, 1990 was not accepted by the respondent which resulted into further negotiations between the appellant and the respondent. Considerable correspondence ensued between the parties and in the course of which the appellant addressed a letter dated 31st January, 1992 clarifying its position in regard to the various issues. The appellant also set out a new delivery schedule for supplies of PPD without imposing liquidated damages, as a special case, and accordingly as per the new delivery schedule, delivery was to commence at 350 Metric ton per month from February, 1992 onwards. The appellant also made it clear that the respondent may accept 4 per cent price reduction if new specifications were to be applied or in the alternative the respondent may supply material as per the specifications indicated in the original supply order. The appellant also requested the respondent to convey its option immediately so that the supply order could be amended suitably, if necessary. The respondent by its letter dated 4th February, 1992, reiterated its contention that it was entitled to the benefit of foreign exchange fluctuations. Accordingly, the proposal made by the appellant in its letter dated 31st January, 1992 was not accepted by the respondent. This resulted into further negotiations between the parties and ultimately an amended repeat order dated 12th October, 1992 was issued by the appellant which was accepted by the respondent. As per the aforesaid amended order dated -6- 12th October, 1992, a clause was incorporated to the effect that “other terms and conditions of the subject order will remain unaltered”. So far as the orders dated 26th February, 1990 and 28th July, 1990 are concerned, both expressly stated that the sales tax was payable as “extra as applicable”. There was no delivery schedule specified in the amended order dated 12th October, 1992. The respondent actually completed the supplies under the amended order dated 12th October, 1992 by February, 1993. 2.4 While making payment of the price for the supplies made by the respondent, the appellant deducted an aggregate sum of Rs. 24,06,356.00 towards liquidated damages for delay in supplying PPD. The appellant also refused to grant foreign exchange fluctuations to the respondent and also failed to reimburse the difference of 6 per cent in sales tax payable under the Maharashtra Sales Tax Act which had increased from 4 per cent to 10 per cent with effect from 1st June, 1992. The respondent thereupon sought arbitration in respect of its claim against the appellant in accordance with the provisions in that behalf contained in the original supply order and the matter was referred to the sole Arbitrator to adjudicate upon the claim of the respondent. 2.5 Parties filed their respective pleadings before the Arbitrator and after hearing the parties, the learned Arbitrator came to the conclusion that -7- since no time for delivery was specified in the amended order dated 12th October, 1992, it is implied that the supplies should be made within reasonable time from the date of amended order. The sole Arbitrator found that the respondents had complied with this obligation and complied delivery of the supplies by February, 1993 and that there was no delay on the part of the respondent in making supplies of PPD to the appellant and, therefore, appellant was not entitled to deduct any amount by way of liquidated damages from the price payable to the respondent. The learned Arbitrator accordingly held that the respondent was entitled to recover the amount of Rs. 24,06,356/- from the appellant together with interest thereon at the rate of 12 per cent per annum from February, 1993 upto the date of the Award. The Arbitrator also granted difference of of 6 per cent sales tax under the Maharashtra Sales Tax Act on supplies of PPD made by the respondent. The Arbitrator found that the refusal by the appellant to pay the difference of 6 per cent by way of sales tax was not justified and accordingly awarded Rs. 28,87,627/- towards the difference in the sales tax together with interest at the rate of 12 per cent from 28th February, 1993 till the date of the Award. 2.6 So far as original claim of the respondent regarding foreign exchange fluctuation is concerned, the same was given up by the respondent before the Arbitrator. The Arbitrator accordingly, by his award dated 8th March, 2001, awarded an aggregate sum of Rs. 52,93,983/- -8- together with interest thereon at the rate of 12 per cent from 28th February, 1993 upto the date of the Award and thereafter at the rate of 9 per cent per annum till payment. 2.7 The appellant instituted Arbitration Petition under Section 30 of the Arbitration Act, 1940, challenging the award of the sole Arbitrator being Arbitration Petition No. 416 of 2001. The learned single Judge rejected the contention of the appellant in connection with the liquidated damages as well as the payment of difference in connection with the sales tax. The learned single Judge, however, modified the award to the extent of rate of interest by reducing interest from 12 per cent as awarded by the Arbitrator to 10 per cent from February, 1993 upto the date of the Award and the rest of the Award of the Arbitrator was confirmed and accordingly the Award as modified was made a decree of the Court. 2.8 It is the aforesaid order of the learned single Judge which is impugned in this appeal at the instance of the appellant. 3. At the time of hearing of this appeal, the learned counsel appearing for the appellant attacked the award of the Arbitrator on the following grounds: -9- 3.1 That in view of the delay in supplying the material, the respondent was liable to pay liquidated damages and, therefore, the appellant was justified in withholding the amount in question towards liquidated damages. 3.2 That the appellant was not required to pay the difference in connection with the increase in the rate of sales tax and the appellant was required to pay only 4 per cent of the sales tax irrespective of increase of the same subsequently. 3.3 There is no provision for payment of interest in the contract and that the Award in connection with the payment of interest is not sustainable and the respondent was not entitled to get any interest in connection with the amount awarded by the Arbitrator, and 3. 4 That the award of the Arbitrator is contrary to the terms of the contract which would necessitate interference of the court on the ground of an error apparent on the face of record. 4. To substantiate the argument, the learned counsel for the appellant relied upon the decision of the Supreme Court in the case of Oil -10- and Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.1. On behalf of the respondent, the learned counsel has supported the order of the learned single Judge as well as the Award of the Arbitrator. 5. It is submitted on behalf of the respondent that the powers of the Court in a petition under Section 30 of the Arbitration Act, 1940 (hereinafter referred to as “the Act”) is very limited as it is neither an appeal on facts nor an appeal on law and the Court is required to consider only whether the Arbitrator has committed an error apparent on the face of record and while doing so, the Court cannot re-appreciate the evidence on record. It is further submitted that from the material on record, the respondent has clearly established that the appellant was not entitled to withhold any amount towards liquidated damages especially when no delivery schedule was fixed. It is also submitted that the appellant was bound to reimburse the difference in the payment of sales tax. On the question regarding grant of interest, it is submitted that the Arbitrator was within his right in awarding interest for which a reference was made to the decision of the Supreme Court in the case of Board of Trustees for the Port of Calcutta vs. Engineers-De- Space-Age2 , the decision of a single Judge of this Court in the case of Oil and 1 (2003) 5 SCC 705 2 (1996) 1 SCC 516 -11- Natural Gas Commission vs. Macqreqor-Navire Port Equipment and others3 and the decision of another single Judge of this Court in the case of Oil and Natural Gas Corporation Ltd. vs. Western Geco International Ltd.4 6. The learned counsel for the appellant relied on the decision of the Supreme Court in the case of Sikkim Subba Associates vs. State of Sikkim5, to substantiate the argument on the ground that if there is an error apparent on the face of record, the order of the Arbitrator can be set aside by the Court. The Arbitrator having acted beyond his jurisdiction is a ground which is different from an error apparent on the face of record. The appellant has also relied upon various other judgments on the ground that if the Arbitrator has committed any error apparent on the face of record, or if he has exceeded his jurisdiction, the Court can interfere with such an Award. It is also submitted that the Arbitrator cannot act arbitrarily, irrationally, capriciously or beyond the contractual terms. 7. We have heard the learned counsel for the parties. We have perused the documentary evidence placed on record, the Award of the Arbitrator as well as the order of the learned single Judge. We have also 3 2002 (1) Bom.C.R. 278 4 2006 (3) Bom.C.R. 848. 5 2001 (2) Arb. LR 17 (SC)17 -12- considered the rival submissions advanced by the counsel appearing for the parties. The first point which is required to be considered is as to whether the Arbitrator has exceeded his jurisdiction in awarding the amount deducted by the appellant towards liquidity damages. After considering the voluminous documentary evidence on record, the Arbitrator has found that considering the amended order dated 12th October, 1997, no time limit was fixed for supply and in that view of the matter there was no delay on the part of the respondent. It is required to be noted that the appellant at the first instance placed reliance on the supply order issued to the respondent on 2nd April, 1998. Under clause (6) delivery in respect of that supply order was to be completed by February, 1989. As per clause 18, the expression used in the same is that “Sales tax extra as applicable”. Clause 20 provided that in the event the Contractors failed to deliver or any instalments thereto within the period fixed for such delivery in the schedule or at any time of contract before expiry of such period, the purchaser without prejudice to any other remedy available to him, may recover damages in breach of the contract. Clause 29 provides as under: “Repeat order can also be placed with the supplier upto 50% of the quantity of this order on the same terms and conditions as stipulated in this original supply order during the validity of that supply order or within 6 months from the date of this supply order whichever is latter. It is the condition of this order which will be obligatory on the part of the supplier to execute such repeat order also as the consideration of this dealing in favour -13- of the purchaser forms part of the main consideration in its order.” 8. The appellant thereafter placed repeat order on 13th June, 1989 and the delivery was to be made upto March, 1990. Subsequently correspondence ensued between the parties. On 31st January, 1992, the appellant wrote a letter to the respondent informing them that the case of the respondent had been examined in detail taking into consideration various letters and that, as a special case, appellant agreed for reimbursement of excise duty on production of proof of payment of excise duty. The said letter further states that the delivery was to commence against the order at the rate of 150 metric tonnes per month from February, 1992 onwards. 9. So far as the delivery schedule set out in the letter dated 31st January, 1992 is concerned, the same was never accepted by the respondent as the respondent did not accept the proposal contained in the said letter dated 31st January, 1992. It resulted into further correspondence between the parties. In our view, therefore, the Arbitrator was perfectly justified in holding that the delivery schedule set out in the letter dated 31st January, 1992 did not bind on the respondent and on the contrary negotiations went on between the parties and ultimately on 12th October, 1992 an amended order was agreed to between the parties. It has been rightly held by the Arbitrator that liabilities of the parties in regard to supplies -14- of PPD came to be governed exclusively by the amended order dated 12th October, 1992. The amended order dated 12th October, 1992 made certain amendments in the “Subject Supply Order”. It is required to be noted that the subject order referred to the amended repeat orders dated 12th June, 1989, 26th February, 1990 as amended by the amendment repeat order dated 26th July, 1990 did not make any reference to the appellant's letter dated 31st January, 1992. Considering the said documents on record, the Arbitrator found that no delivery schedule was set out in the amended order dated 12th October,1992 and, therefore, ultimately it was required to consider whether the supply was made within reasonable time from the date of the amended order dated 12th October, 1992 and the Respondent ultimately completed the delivery of supplies by February, 1993. On the aforesaid basis it was found that there was no unreasonable delay on the part of the respondent in supplying the material and that the appellant, therefore, was not entitled to deduct any amount towards liquidated damages from the price payable to the respondent for the supplies made to the appellant. In our view, considering the aforesaid factual aspect of the matter and considering the fact that after voluminous correspondence ensued between the parties, it can never be said that the Arbitrator has exceeded his jurisdiction or has misdirected himself in coming to the conclusion that the appellant was not entitled to withhold any amount towards liquidated damages from the price payable to the respondent. It is required to be noted that in a petition under Section 30 -15- of the Act, the Court is not sitting in appeal over the Award of the Arbitrator. The Court while examining the objections taken to an award filed by the Arbitrator is not required to examine the correctness of the claim on merits with reference to the materials produced before the Arbitrator. This Court can interfere with the Award, if the Arbitrator has exceeded his jurisdiction or has committed an error apparent on the face of record in interpreting the contract and that the award is contrary to the terms of the contract. 10. The learned Arbitrator after considering the documents and clauses contained in the contract between the parties has held that there was no delay on the part of the respondent in supplying the material and, therefore, appellant was not entitled to withhold the amount towards liquidated damages. It is not in dispute that there was no time specified in the amended order dated 12th October, 1992 for supply of material in question as ultimately the respondent started supplying the material to the appellant under the amended repeat order dated 12th October, 1992. In our view, the learned Arbitrator has not committed any error apparent on the face of record on this aspect and, therefore, the contention of the appellant, therefore, in this behalf is rejected. 11. So far as the claim regarding difference in the payment of sales tax is concerned, it is to be noted that the sales tax payable on the date of -16- delivery of the supplies was 10 per cent, since supplies were made after 1st June, 1992. The Arbitrator has rightly found that the appellant was not justified in reimbursing the claim towards the sales tax only to the extent of 4 per cent as at the time when the supply was made, the sales tax payable was 10 per cent as per Maharashtra Sales tax Act. The appellant was accordingly bound to reimburse the total amount paid by the respondent towards Sales Tax. As the sales tax was to be borne by the purchaser and if there is change in the quantum of sales tax in between, whatever amount paid by the respondent towards sales tax, the entire amount towards the same was reimbursed and accordingly the Arbitrator has rightly awarded the difference of 6 per cent of payment of sales tax. It cannot be said that the Arbitrator has committed any error much less any error of law or any other error apparent on the face of record while awarding the said amount. The learned counsel for the appellant has placed reliance on the decision of the Supreme Court in the case of Associated Engineering Company vs. Government of Andhra Pradesh and another6 wherein the Supreme Court has held in paragraph 24 as under: “24. The arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled outside the bounds of the 6 (1991) 4 SCC 93 -17- contract, he has acted without jurisdiction. But if he has remained inside the parameters of the contract and has construed the provisions of the contract, his award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the face of it”. In the case of Saw Pipes (supra) the Supreme Court has held that if an award is contrary to substantive provisions of law or the provisions of the Act of 1940 or against the terms of contract, it would be patently illegal and the same would be subject to interference under Section 34 (2) (a) (v) of the Act of 1940. On the other hand, the learned counsel for the respondent has referred to a decision rendered by a Division Bench of this Court to which one of us (R.M.S. Khandeparkar, J.) is a party in Appeal No. 1202 of 1997 (Oil and Natural Gas Corporation Ltd. vs. Dai Ichi Karkaria Ltd. The Division Bench after considering various judgments of the Supreme Court, summarised the propositions as under: “(i) A Court while examining the objections taken