1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.260 OF 1996 Oil & Natural Gas Corporation Ltd. .. Petitioner Versus Nippon Steel Corporation Ltd. (Japan) having its Registered office at 6-3, Otemachi, 2-Chem, Chiyoda Ku Tokyo – 100 71 – JAPAN. .. Respondent Mr.Dara Zaiwala, Senior Advocate with Ms.Snehal Paranjape and O.Mohandas i/b. Little & Co. for petitioner Mr.E.P.Bharucha, Senior Advocate with S.E.Bharucha i/b. D.Ferreira & Diwan for respondents. CORAM : S.C.DHARMADHIKARI, J. Reserved on : 3rd April 2009 Pronounced on : 20th August 2009. ORAL JUDGEMENT:- 1] In this matter the arguments concluded and Judgement was reserved. It could not be pronounced earlier because of the reasons that are set out in my order dated 3rd April 2009. 2 2] By this petition under Section 30 of the Arbitration & Conciliation Act, 1940, the Award dated 2nd March 1996 is challenged by the petitioner Oil & Natural Gas Corporation (ONGC for short). 3] This petition was filed in this Court on 12th July 1996. 4] It was placed before a Learned Single Judge of this Court, who by his Judgement and order dated 6th January 1997 held that the petition is time barred and, therefore, required to be rejected at the admission stage. He rejected it at the admission stage itself. 5] This order was challenged in Appeal being Appeal No.321 of 1997. This appeal was admitted on 19th June 1997. It was directed that pending hearing and final disposal of the Appeal the appellants/ petitioners are directed to deposit the principal amount awarded by the Arbitrator and it would be open for the respondents to withdraw the same by furnishing a Bank Guarantee of a Nationalised Bank. Further proceedings were stayed. 3 6] The appeal was then placed for hearing and final disposal before a Division Bench of this Court. The Division Bench by its judgement and order dated 6/8th December 2005 dismissed the said appeal. 7] The petitioner challenged this judgement and order of the Division Bench by filing a Special Leave Petition before the Supreme Court and after the necessary leave was granted, it came to be numbered as Civil Appeal No.4699 of 2006. By a judgement and order delivered on 7th November 2006, the Supreme Court allowed the appeal, set aside the judgement and order of the Division Bench and directed that the arbitration petition being not time barred should be heard on merits and in accordance with law. Pursuant to the order and direction of the Supreme Court, this Arbitration Petition was placed before me. 8] It is not in dispute that the respondent – original claimants invoked the jurisdiction of the Arbitrators pursuant to the Agreement between the parties. It is further not in dispute that in or about July 1983, a bid came to be issued by the petitioners for transportation and installation of the South Bassein field Central Facilities Complex, Bombay Offshore 4 project. There was an adendum to the to the said bid/ tender. A proposal was forwarded on 16th may 1984 by the respondents for the said works on lumpsum basis. There were five other bids received by the petitioner. After the joint meeting and discussions between the parties a Letter of Intent was issued and, thereafter, the respondents started work on the project. The petitioner further states that a contract was signed on 28th December 1985. Petitioners state that some issues were raised during the course of carrying out the work under the Contract. It is stated by the petitioner that works were completed in or about December 1986. It is also the case of the petitioner that extra sums were claimed by the respondents. It was the case of the respondent that there were certain works carried out and thus there is an increase in the scope of work. There were claims raised by the respondents and it is the case of the petitioner that discussion took place in April 1987. Respondents agreed to restrict the claim under the change order proposals to Japanese Yen (JY for short) 64,40,67,372. However, in correspondence the respondents tried to set up that there was no such agreement. It is stated that the petitioner informed respondent that an amount of JY 22,53,11575 would be paid in full and final settlement of all change order claims. 5 Respondents stated that this sum was not acceptable. However, petitioners remitted to the respondents’ bankers in Tokyo, Japan a sum of JY 203343696. This was after deduction of taxes and charges from the above sum to be paid in full and final settlement. This amount was accepted but the respondent purported to state that it is without prejudice. 9] It is the case of the petitioner that at no stage the amount was returned nor an offer was made to return the same. Thus, the petitioner contended that the amount was accepted in full and final settlement. There is complete accord and satisfaction of all claims. In such circumstances, there is no question of accepting the amounts under protest or tentatively or without prejudice. This being the position, the petitioner contended that there is no dispute which could be referred to arbitration. The respondents contended to the contrary. Therefore, petitioners were surprised to receive a communication from the Advocate for respondents with regard to commencement of Arbitration proceedings under clause 16.2 of the General Conditions of Contract. The respondents purported to nominate their Arbitrator. Ultimately, the disputes were referred to arbitration of Hon’ble Mr.Justice D.V.Patel 6 (Retd.Judge of this Court) and Dr.S.R.Jain, Consulting Engineer. The learned Arbitrators, after due notices took on record claims and counter claims. They allowed parties to lead evidence and produce documents. They made the impugned award rejecting the preliminary objections of petitioners and directing petitioners to pay to the respondents a sum of JY 95,286,240/-. The amount was to carry interest. 10] It is this Award which is subject matter of challenge in this petition. 11] Mr.Zaiwala, learned Senior Counsel appearing for petitioner contended that the Award is vitiated by serious errors apparent on the face of it and the Arbitrators have, over looking the objections and specific clauses of the contract, awarded the claims which should not have been done by them. Thus, the jurisdiction under section 30 of the Arbitration Act ought to be exercised in this case. 12] He submits that even if the Award is reasoned still it can be set aside if it is vitiated by errors apparent on the face of it. He submits that if the Arbitrators have chosen to assign the reasons, then, they cannot 7 ignore vital pleas and objections raised by parties. More so, when they pertain to the maintainability of the reference itself or Arbitrability of the disputes referred. He submits that in this case, a preliminary objection was specifically raised by the petitioners but while rejecting the same no reasons have been assigned. 13] Mr.Zaiwala submits that the Arbitrators have failed to consider an important aspect of the plea raised with regard to payment of a sum by the petitioners in full and final settlement. Although, the sum is accepted without prejudice by the respondents, yet, the retention of the said amount which was directly remitted to the bank account of the respondent has some significance in law. This fact has to be considered and cannot be brushed aside. In these circumstances, the Award cannot be sustained and must be set aside. 14] Without prejudice and arguing the matter claimwise, Mr.Zaiwala would urge that as far as Claim No.A(i)(A) is concerned, the Arbitrators rely upon Clause 25.1.4 of the Contract. However, they have ignored the proviso to the same completely. He submits that the claim under this 8 head was akin to extra payment. If there is variation in the work executed, then, there could be something which affords a basis for making the claim. However, the stand of O.N.G.C. is clear and deduction is permissible and, therefore, ignoring this aspect, the claim could not have been awarded. Inviting my attention to the statement of claim Mr.Zaiwala urged that there is an error in the reasoning on the face of it. 15] As far as claim A(i)(b) is concerned, Mr.Zaiwala urges that if this claim is rejected, then, there was no reason to allow the cost of 12 extra splices to the extent of JY 92400000/-. Similarly with regard to claim (2) is concerned, Mr.Zaiwala has invited my attention to para 11 page 37 of the Award and contended that if the finding is that there is no evidence and there being serious objections raised, the claim under this head could not have been awarded. There is absolutely no basis for the claim inasmuch as the work was not necessary, according to O.N.G.C. There is no finding of any actual loss for the work allegedly carried out. Everything is arrived at and awarded on ad hoc basis. He submits that even with regard to Claim A-11, the same is awarded without any basis 9 and evidence. If work is done allegedly but there is no quantification, then, some ad hoc sum could not have been awarded. 16] Mr.Zaiwala contended that as far as claim B-ii is concerned, once again the claim is awarded on the basis of equity. There is no question of granting any claims in equity. Unless there is clear proof the claim should have been awarded. In some cases (Claim No.B-iii), the Arbitrators have travelled beyond the contract which is impermissible in law. As far as claim B-2 is concerned, he submits that all arguments of the petitioners are accepted but still the amount is awarded to the respondents arbitrarily and when there being no basis for the claim. The findings are patently contradictory. With regard to several claims i.e. Claim No.B-VIII to XVI, XVII and XXI, Mr.Zaiwala submits that the same are awarded on the basis of guess work. If the claim is not accepted in part by ONGC, then, awarding the entire sum was impermissible. In some cases when there is no proof or material produced by the claimants – respondents, yet the sums have been awarded. At times when there is no quantification some ad hoc figure is determined and awarded. That is also not justified and permissible in law. As far as Claim B-XXII is 10 concerned, the procedure in the contract was not followed. The claims under this head had absolutely no basis nor was there any material to support them. Yet, the award in that behalf came to be made. 17] Mr.Zaiwala then urged that Claim No.E-I to E-V and E-IV (ii) is concerned, the Award is based on some calculations which themselves were ad hoc. If substantial portion of the claim is disallowed, then, awarding some amount on guess work is not at all permissible and justified. He submits that all claims must be established by the claimants/ respondents as the burden was on them. Similarly, wherever there was some shift in the same, all materials should have been properly weighed and just because a claim is made does not mean the same must be awarded. These are matters which pertain to public monies and the Arbitrators should have been careful while scrutinising the claims. There should not be any sympathy under any liberal principles. Unless strict proof was furnished, there is no justification for awarding the claims. He submits that with regard to claims under Clause F when part of the claim has been rejected, then, without any independent proof, no amount could have been directed to be paid to the respondents. They should have 11 furnished independent proof and not relied upon some correspondence or entries. In these circumstances, the claims awarded having not been at all proved, the Award must be set aside. 18] Lastly Mr.Zaiwalla urged that rejection of the counter claim to the extent indicated is also vitiated by errors apparent. He submits that there is nothing like symbolic damages. If the breach and the loss sustained is proved, the entire sum should have been awarded. No reasons have been assigned as to why this approach has been adopted to award some ad hoc figure. The approach is totally perfunctory. He submits that insofar as award of interest is concerned as well, clause 12.2.4 of the Contract has been ignored. For disputed amount, there is no question of awarding any interest. The interest could have been awarded only if the undisputed sum had been withhold without any justification. In that case, interest could have been awarded as measure of compensation. Overlooking the fundamental principles with regard to award of interest, the Arbitrators proceeded to grant interest on the claims awarded. Therefore, the award as a whole is required to be set aside. 12 19] Mr.Zaiwala has placed reliance upon the following decisions in support of his above contentions:- (A) (2003) 5 S.C.C. 705 (Oil & Natural Gas Corporation Vs. SAW Pipes Ltd.) (B) A.I.R. 1960 S.C. 588 (M/s.Alopi Parshad and Sons Ltd. Vs. Union of India) (C) (1997) 4 S.C.C. 121 (T.N.Electricity Board Vs. Bridge Tunnel Constructions and Ors) (D) A.I.R. 1992 S.C. 232 (Associated Engineering Co. Vs. Government of Andhra Pradesh and Anr.) 20] Mr.Bharucha, learned Senior Counsel appearing for respondents on the other hand supported the Award. He submitted that this petition is not an appeal against the Award. The award can be challenged on limited grounds. However, the present petition is an attempt to reopen the arbitral proceedings. He submits that there is no prohibition in the contract which has been pointed out so as to arrive at a conclusion that the Arbitrator had no jurisdiction to go into the disputes and make an 13 Award. Even otherwise, the petitioners have accepted the Award. In this behalf, he invites my attention to page 134 (Exh.1 and 2) to the affidavit in reply of the respondents. He submits that the Award is made in March 1996 and the Letters of ONGC are of July 1996. ONGC has agreed to pay the award amount and thus accepted the award completely. In these circumstances, the petition is not maintainable at all and should be dismissed on the above ground alone. 21] As far as the merits are concerned, Mr.Bharucha submits that there is no accord and satisfaction. The matter of accord and satisfaction is for the arbitrators to decide. As to whether the claim has been accepted or not can be decided on the basis of the documents produced. There is nothing in the record which would indicate that the respondents have accepted any sum in full and final settlement. On the other hand, the petitioner adopted unique method of directly remitting some amount in the bank account of respondents. Merely because that amount is retained in the said bank account and the bank account is that of the respondents does not mean that there is any acceptance much less accord and satisfaction of all claims. Therefore, it is for the Arbitrators to decide as 14 to whether claims are arbitrable on the basis of the entire materials. They have held that they are so arbitrable. In these circumstances, their conclusion cannot be faulted and should not be interfered with. Further, reasonableness or adequacy of the reasons is not for this Court to decide. Sufficiency or otherwise of the reasons assigned is not a ground to set aside the Award. If the Award and the conclusions are plausible and some reasons are being assigned to reach that conclusion, then, the Award cannot be interfered with. More so, when the view taken is not perverse. He submits that the entire correspondence must be seen on the aspect of accord and satisfaction and if so seen it is apparent that the claims of respondents was satisfied. They had not accepted any amount in full and final settlement. Therefore, the award is justified. 22] Mr.Bharucha submits that it is not necessary to go claimwise as has been attempted by Mr.Zaiwala. He submits that the petitioners are calling upon this Court to re-appreciate this evidence. They are seeking re- appraisal of the same. This is not permissible in law. Once there is some material and evidence before the Tribunal, then, the Award granting the claim is not liable to be set aside. Merely because the reasons are not 15 elaborate or detailed is no ground to interfere. Once the Court is satisfied that the necessary documents have been considered so also parties have been permitted to place their case, then, ultimate Award must be upheld. 23] As far as some claims are concerned and more particularly those at paras 80 and 85 of the Award, Mr.Bharucha would urge that the amounts are awarded on admission of ONGC. The award is restricted to the admitted amount. Everything claimed more than that is rejected. As to why the amount is awarded and whether the evidence was sufficient or not cannot be seen by this Court as that is not permissible in law. In such circumstances, the Award cannot be disturbed. Even as far as the counter claim is concerned, reasons have been assigned for partly granting it. 24] Mr.Bharucha was at pains to point out that clause 25.1.4 has been construed and interpreted by the Arbitrators properly. Their interpretation is reasonable and plausible. There is no issue that no work was done as per the approved drawings and specifications. If that is the case, then, no fault could be found with the conclusion of the Arbitrators. As far as the work beyond the scope of the contract is concerned, Mr.Bharucha invites 16 my attention to clause 25 and urges that the Arbitrators have neither ignored the contract nor travelled beyond the same. In such circumstances, their conclusion is not liable to be set aside. Any scope for interpretation or construction of a particular clause to resolve any ambiguity therein is also not permissible and if the Arbitrators placed a construction thereof which is possible, even then, the Award cannot be set aside. 25] There is no prohibition in law to grant interest and clause 12.2.4 is clear. The Arbitrator has power to Award interest at all three stages as that is the law of the land. The clauses in question, do not prohibit grant of interest. On the other hand, it provides the manner in which the same should be granted or awarded. 26] Merely because the clause provides for interest for delayed payment, does not mean that it cannot be awarded in other cases. This is not a case of clear prohibition for considering or granting the claim. In these circumstances, the Award deserves to be upheld and consequently the petition must be dismissed. 17 27] A brief rejoinder was given by Mr.Zaiwala where he reiterated that interest should not have been awarded where the undisputed amount has been paid already. That aspect must be taken into consideration and if the amount is crystalised by the Award, does not mean that the petitioner is liable to pay interest from the time the same is claimed. In other words, from the time the claim is lodged till the amounts are crystalised and awarded, interest should not have been awarded. Interest can only be for the post Award period, in the present case and not pre-award. In the instant case, the claim is for 12% whereas the Arbitratorrs have awarded 16%. 28] Mr.Zaiwala reiterates the contentions with regard to the claim being settled in full and complete accord and satisfaction. He submits that clause 12.2.6 of the contract is clear. Retention of the money in this case is acceptance of the same. There is no return of the same and, therefore, a conclusion is inevitable that the amount has been accepted without any demur or protest. There is a strong presumption about this fact which should have been given weightage. It is rather ignored and, 18 therefore, the Award is vitiated. He submits that clause 1.1.6 and clauses 1.1.3, 5.12.9, 5.14.1 and 5.16 should have been noticed when considering the claim for extra work. There is no invoice submitted for extra work. On the other hand, all incidental and ancillary works which are necessary for the installation have to be performed by the contractor and there is no question of paying any extra amount for the same. This is not the case of extra work. Clause 1.2 outlines the scope of work and all works stipulated therein are part of installation. They are within the job assigned to the contractors. Clause 29 has no application in this case. Once the scope of work is very widely set out and all jobs and works are included, then, no claim for extra amount can be entertained and granted. 29] Mr.Zaiwala then urged that clause 12.2.5 has been ignored. The price has been confirmed and, therefore, the Award to the extent urged above be set aside. He urged that the contract price is fixed and there is no scope for escalation. However, assuming that any such claim could have been made, yet, in this case, no amount was payable. O.N.G.C. has been fair to the contractor and there is no wrongful deduction in any event. For all these reasons, if the party could not satisfy the Arbitrator 19 that the claim was capable of being allowed in terms of the contract, then, the Arbitrator could not have awarded him any sum. In the present case, the contract itself has not been considered and is rather ignored. If all works are within the scope of the contract and the contract contemplates no payment under the various heads or claims then awarding the same means that the award is liable to be set aside even within the limited jurisdiction of this Court under section 30 of the Arbitration Act, 1940. 30] With the assistance of both the learned Senior Counsel appearing for respective sides, I have perused the petition and the impugned Award. To the extent relevant and relied upon, I have also perused the relevant documents. The principles which are enunciated in the Supreme Court’s decisions with regard to the scope of this Court’s powers to set aside the Award are well settled. In Sudarshan Trading Company Vs. Government of Kerala, reported in A.I.R. 1989 S.C. 890 the Supreme Court held that the Award can be set aside if the Arbitrator had misconducted himself or the proceedings and had proceeded beyond his jurisdiction. These are separate and distinct grounds for challenging the Award. Where there are errors apparent on the face of the Award it can only be set aside if in the 20 award there is any proposition of law which is apparent on the face of the Award, viz., in the Award itself or in the documents incorporated in the Award. Although, in a speaking award, the Court can look into the reasoning of the Award, it is not open to the Court to probe the mental process of the Arbitrator as to what impelled the Arbitrator to arrive at a particular conclusion if no reasons are assigned. Thus, the scope is very limited, inasmuch as this Court does not sit as a Court of Appeal and re- appraise and re-appreciate the materials before the Arbitrator. As is well settled, the Arbitrator being a creature of the contract, must operate within the four corners of the same and, he cannot award any amount which is ruled out or prohibited by the Agreement. 31] However, at the same time it is equally well settled that an Arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the Award. Further, one of the misconduct enumerated is a decision by the Arbitrator on a matter which is not included in the Agreement or reference. But in such case, one has to determine the distinction between the error “Within Jurisdiction” and an error “in excess of the jurisdiction”. The Court cannot examine different 21 claims with an intent to conclude that the