1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO. 138 OF 2006 M/s. Prathima Industries Private Limited, ) having Office at H.No.6-3-252/2/6, ) Naveen Nagar, Erramanzil Colony, ) ... Petitioner Hyderabad – 400 082., A.P. ) (Ori. Claimant) Versus Indian Oil Corporation Limited, ) having its Registered Office at India Oil ) Bhavan, Ali Yavar Jung Marg, ) ... Respondent Bandra (E), Mumbai – 400051. ) (Ori.Opponent) Ms. Gauri Godse for the Petitioner. Mr. S.H. Doctor, senior counsel with Mr. Chirag Balsara, Tanmay Gardi i/b M/s. Negandhi Shah & Himayatullah for the Respondent. WITH ARBITRATION PETITION NO. 223 OF 2006 Indian Oil Corporation Limited. ) a Company incorporated under the provisions ) of the Companies Act, 1956, having its ) Registered Office at India Oil Bhavan, G-9, ) Ali Yavar Jung Marg, Bandra (East), ) Mumbai – 400 051. ) ... Petitioner Versus Pratima Industries Pvt. Ltd., ) a company incorporated under the provisions of ) 2 the Companies Act, 1956, having its ) Administrative Office at Plot No.63, ) H.No.8-2-608/6, Road No.4, Gaffar Khan Colony,) Road No.10, Banjara Hills, Hyderabad-500034. ) ... Respondent Mr. S.H. Doctor, senior counsel with Mr. Chirag Balsara, Tanmay Gardi i/b M/s. Negandhi Shah & Himayatullah for the Petitioner. Ms. Gauri Godse for the Respondent. CORAM: S.J. VAZIFDAR, J . DATED : 17TH DECEMBER, 2009. ORAL JUDGMENT. : 1. These are cross-petitions under section 34 of the Arbitration and Conciliation Act, 1996, seeking to set aside an award dated 29th November, 2005. The Petitioner in Arbitration Petition No.138 of 2006 has filed the petition being aggrieved by the rejection of a part of its claim. The petitioner in Arbitration Petition No.223 of 2006 has filed the petition being aggrieved by the award, granting a part of the claim. For convenience, I will refer to the Petitioner in Arbitration Petition No.138 of 2006 as “the claimant” and the Petitioner in Arbitration Petition No.223 of 2006 as “IOCL”. 3 2. An agreement dated 28th June, 1999 for supply of LPG cylinders by the claimant to IOCL for the year 1999-2000 was entered into between the parties. A similar agreement dated 26th July, 2000 for the supply of LPG cylinders for the year 2000-2001 was also entered into between the parties. Pursuant to and in accordance with each of these agreements, purchase orders were placed by IOCL with the claimant from time to time for diverse quantities of LPG cylinders. Only one purchase order dated 12th April, 1999, was issued by IOCL to the claimant prior to the agreement dated 28th June, 1999. The conditions therein are, therefore, slightly different, but effectively the same. 3. The agreement dated 28th June, 1999 was forwarded to the claimant under cover of IOCL’s letter dated 28th June, 1999. The letter also referred to the purchase order dated 12th April, 1999. It is, therefore, convenient to set out the relevant portions of the purchase order dated 12th April, 1999, the agreement dated 28th June, 1999 and the purchase orders issued subsequently under and in accordance with 4 the agreement dated 28th June, 1999. 4. The purchase order dated 12th April, 1999, stated that the same was subject to the general instructions enclosed therewith and the execution of the cylinder procurement agreement. As stated earlier, such an agreement was executed on 28th June, 1999. Clause 3 of the purchase order reads thus: “3. You can charge a provisional price of Rs.700.00 per 14.2 kg cylinder. Excise duty, sales tax, octroi and freight on finished cylinders shall be extra as applicable. Kindly note that lowest of the per cylinder price shall only be payable as final price to be confirmed subsequently irrespective of purchase of steel from SAIL/TISCO/ESSAR/LLOYDS.” 5. The relevant clauses of the cylinder purchase agreement are as under :- “1. CYLINDERS TO BE SUPPLIED The Seller shall duly supply the said Cylinders to The Corporation as per the Specification, description, design, quantity and rates specified in the said Purchase Order placed by The Corporation on the Seller. This Agreement shall also apply to supply 19 kg (44.4 lit. water capacity) Cylinders after obtaining BIS/CCOE & OITO approval by the Seller. All the provisions for supply of 14.2 kg. Cylinders shall apply to supply of 19 kg. Cylinders. 5 2. PRICE : The price applicable shall be as per directives of MOP & NG. The price payable by The Corporation to the Seller shall be determined as under : 2.1. The basic rates are all inclusive and include the cost of body steel, bung, foot-ring, V.P. ring etc and fabrication, painting, testing, valve fixing. BIS inspection, test certificate charges but exclusive of cost of self closing valves which will be supplied by the Corporation to the Seller. 2.1.1 The Cylinders shall be manufactured and supplied out of oil Industry approved LPG Steel however the basic price per Cylinder payable by the Corporation shall be the lowest of the per Cylinder price applicable for the Seller. 2.2 The price is inclusive of the BIS marking fee. ................ ................ “3.0 SPECIFIC TERMS AND AND CONDITIONS FOR CYLINDERS MADE OUT OF INDEGENOUS STEEL PRICE ESCALATION/DE-ESCALATION: 3.1 Basic rates are based on lowest price of LPG Body steel, V.P. Ring steel, Matching steel and Whole- sale Price index prevailing on 01.04.96, in line with the new pricing formula from MOP & Escalation/de- escalation will be applicable based on the new pricing formula whereby the same shall be granted for any revision in the price of steel and/or variation in the While- sale Price Index beyond ten percentage. The price of steel considered for granting escalation/de-escalation will be the authorised stockyard price including taxes and also octroi, if any applicable to the Seller. Wherever any extensions of time is granted, the parties shall not be 6 eligible for any escalation on the same. 3.2 For granting price escalation/reduction, the Seller shall submit the following documents: 3..2.1 Letter from OIL INDUSTRY APPROVED steel manufacturers (Lowest) giving the stockyard price of steel specifying octroi, taxes/levies etc. as applicable, to the Seller and the effective date. 3..2.2 In case any of the cylinder manufacturers is unable to obtain the price letter from OIL INDUSTRY APPROVED STEEL MANUFACTURER due to reasons beyond their control, the Corporation may grant escalation/de-escalation based on the letter obtained by the Corporation from APPROVED STEEL MANUFACTURER for lowest applicable price. In such cases the Seller shall produce proof of statutory levies, in the form of Invoice for the purchase of steel during the financial year in which the steel price escalation-de- escalation had occurred. In case of octroi levy is not indicated in the invoice, proof in the form of payment vouchers or statutory specification issued by the concerned authority should be enclosed. 3.2.3 Copy of statutory notifications/concerned authority in respect of change in rate of tax/levy (i.e. Sales Tax, Octroi). 3.2.4 Statement of valves received from the commencement of the Agreement to the date of revision reflecting the actual date of receipt of the valves duly supported by documentary proof. 3.2.5 Statement of indigenous steel/imported steel received with date of receipt at the factory. 3.2.6 All manufacturers should produce a copy of 7 the invoice for purchase of LPG steel once in a financial year irrespective of change in the price. 3.2.7 The price shall stand reduced by the amount of set off/ refund/exemption/draw back/concession etc. which the Seller is entitled to claim towards Sales Tax or any other levies, on the purchase of steel plates etc., under the provisions of respective State Sales Tax laws/Central Sales Tax laws. 3.3 Wherever changes in the statutory levies are involved, separate proof should be attached. 3.4 SUPPLIES TO BE MADE AT THE PRE- ESCALATION RATE IN CASE OF VARIATION IN LPG STEEL, VIS-A-VIS DETERMINATION OF BACKLOG QUANTITY AND THE RIGHTS OF CORPORATION IN RELATION THERETO PRICE: Notwithstanding anything to the contrary contained anywhere in this Agreement or otherwise, the Corporation shall be entitled to receive and the Seller is bound to supply Cylinders to the Corporation equivalent to one month’s delivery schedule quantity at the pre-variation price (inclusive of all taxes, octroi and other dues etc.) if at any time during the currency of this Agreement, a variation in the price of LPG body steel comes into effect, in respect of either of the two formulas mentioned at Para 3.1 and 3.1.1 3.4.1 The Corporation shall be entitled to require the Seller to make such supplies at pre-escalated price (inclusive of all taxes, octroi and other duties etc.) irrespective of an occurrence or existence of a Force Majeure situation, and the stock of idigenous steel lying with the Seller as on the date when the variation in price of LPG body stell comes into effect, for the reason that the Seller has agreed to maintain at all times during the currency of this Agreement, adequate steels of indigenous steel required for meeting out such contingencies. 8 3.4.2 In respect of price variation/s of LPG Body steel that may come into effect prior to the expiry of 30 days from the date of the Purchase Order, the Corporation shall not be entitled to require the Seller for making supplies at the pre-escalation Rate/s. In other words, it is only the price variation/s that may come in to effect after the expiry of 30 days from the date of Purchase Order, will attract the provisions contained in Clause 3.4.1 above. 3.4.3 In case there are two or more variations in the price of LPG body steel within any 30 days (both days inclusive), the Corporation shall be entitled to receive Cylinders equivalent to one month’s delivery schedule at the pre-variation price only once and in such cases, the price payable by the Corporation shall be limited to the lowest of the pre-variation rates. 3.4.4 Since a variation in the price of LPG body steel can come into effect on any day, the cylinders despatched prior to the date on which the price variation revisions comes into effect, shall attract only the Pre- variation rate and the quantity of such cylinders despatched prior to the date on which the price variation comes into effect shall not be taken as the quantity supplied towards the Pre-escalation quantity under Clause 3.4.1 above. 3.4.5 Any order left on the date of the price increase of indigenous steel is lower than one month scheduled quantity, then pre-escalation quantity to be limited to the extent of the balance quantity available. 3.4.6 It is fully understood and agreed by the Seller that the provisions contained in Clause 3.4.1, 3.4.2, 3.4.3, 3.4.4, 3.4.5 above will not in any way alter or affect the rights of the Corporation to require the Seller to supply the backlog quantity (if any) in terms of the provisions contained in Clauses 9.2.1 & 9.2.2 hereinafter 9 appearing in this Agreement and the right to receive Cylinders equivalent to one month’s delivery at pre- variation price as per clause 3.4 above is in addition to the rights accruing to the Corporation under Clause 9.2.1 & 9.2.2 hereinafter appearing in this Agreement.” 6. Pursuant to and in terms of the said agreement, further purchase orders were placed for diverse quantities of LPG cylinders. The terms and conditions of each of these purchase orders are identical. The relevant terms and conditions of these purchase orders read thus: “3. You can charge a provisional price of Rs.684.00 for 14.2 kg. cylinders. Pricing formula is under review by the Government and the final prices applicable after 01.07.99 will be only as per approval of MOP & NG. 4. ........ ....... ........ 5. All terms and conditions of the Purchase agreement for 1999-2000 shall apply.” 7. Thereafter, the agreement dated 26th July, 2000 was entered into between the parties for supply of LPG cylinders for the year 2000-2001 on the terms and conditions similar to the agreement dated 28th June, 1999. 8(A). Pursuant to and in accordance with the said agreement, four 10 purchase orders were placed by IOCL with the claimant for diverse quantities of LPG cylinders. Clauses 3 and 5 of these purchase orders read as under:- “3. You can charge a provisional price of Rs.684.00 for 14.2 kg. cylinders. Pricing formula is under review by the Government and the final prices applicable after 01.07.99 will be only as per approval of MOP & NG. 4. ........ ....... ........ 5. All terms and conditions of the Purchase agreement for 2000-2001 shall apply.” (B). Clause 3 of the purchase order dated 19th January, 2001 placed under the said Cylinder Purchase Agreement is however different from clause 3 of the other purchase orders. Clauses 3 and 5 of this purchase order read as under :- “3. You can charge a provisional price of Rs.645.00 for 14.2 kg. cylinders. Pricing formula is under review by the Government and the final prices applicable after 1.7.99 will be only as per approval of MOP – NG. Also the rates applicable shall be as per existing pricing formula or the rates finalised as per tender, whichever is lower, from the date of finalisation of the tender. 5. All terms and conditions of the purchase agreement for 2000-2001 shall apply.” It may only be noted at this stage that the claimant had completed the supplies of the LPG cylinders under the previous 11 agreement dated 28th June, 1999 and the purchase orders thereunder. 9. There is no dispute between the parties that the claimant supplied the LPG cylinders of the quality and quantities stipulated in the purchase orders issued under the said two agreements. The dispute between the parties relates to the pricing of the LPG cylinders. 10. By a Circular dated 31st October, 2000, addressed to all the LPG cylinder manufacturers, IOCL stated that the industry, meaning thereby the petroleum industry, including IOCL had undertaken a study to review the existing cylinder pricing with the assistance of M/s. Price Water House Coopers (M/s. PWC); that accordingly, the price maintained with effect from 1st July, 1999, was provisional; that M/s. PWC had submitted a draft report to the industry on the price revision; that pending finalisation of the report, the industry had decided to revise the provisional basic price of LPG cylinders to Rs. 645 with effect from 1st July, 1999; that accordingly, IOCL would be recovering the difference in the amounts from the claimants bills and that final adjustments would be made later, after finalisation of the cylinder price. It was further stated that all supplies with effect from 12 1st November, 2000 would also have the provisional basic price of Rs. 645/- per cylinder. 11. By a further circular dated 3rd November, 2000 also addressed to all LPG cylinder suppliers, IOCL requested the claimant to refund the difference on account of the revised basic provisional price of Rs.645/- and the earlier provisional price based on which the claimant had been paid. IOCL stated that the amounts were payable in respect of supplies effected from 1st July, 1999 and that it would withhold any bill pending wherever available till the difference was refunded. 12. IOCL by its letter dated 13th January, 2002 stated that the tender referred to in Clause 3 of the purchase order dated 19th January, 2001 under the second agreement dated 26th July, 2000 had been finalised and that the rates were fixed for various States as per State-wise details enclosed therewith. The rate for the State of Maharashtra was fixed at Rs.641/-. In accordance with the above Circular and the finalisation of the tenders, IOCL by its letter dated 9th July, 2002, called upon the Petitioner to pay a sum of Rs.27,10,951.87. 13 13. By a further letter dated 13th November, 2002, IOCL called upon the claimant to pay a sum of Rs.14,55,364.53 after adjusting the amounts already paid by it to the claimants with the amounts payable as per the tender rates. 14. Correspondence ensued between the parties thereafter in the course of which the claimant disputed the above stand taken by IOCL and in fact called upon IOCL to pay it a sum of Rs.58,04,762.81 being the amount wrongly adjusted/detained by IOCL from its dues. 15. Ultimately, by a letter dated 31st March, 2003, the claimant invoked the arbitration clause in the said agreements. There is no dispute regarding the appointment of the Arbitrator or as to his jurisdiction. 16. The claimant filed a statement of claim for the following reliefs : - “(a) Firm Price Fixation under MOP & NG Formula for the period July 1, 1999 to May 31, 2001, and Payment of Differential Amount to Billed Amount along with interest @ 24% per annum on quarterly rests from due date of release of amount. 14 (b) Orders for release of wrongfully Withheld Amount from the Bill Amounts (prepared under Provisional Price Charged as no Firm Price was communicated) of financial year 2000-2001 with interest @ 24% per annum on quarterly rests from due date to the date of release. This wrongfully Withheld Amount is termed by IOCL as recovery arising out of implementation of Draft Report Price of M/s. Price Waterhouse Coopers. (c) Orders for issue of “C”. Forms under Central Sales Tax Act for the supplies during the Financial Years 1999-2000 and 2000-2001 as per Annexures “E” and “F” or in the alternative to pay the differential 6% additional Central Sales Tax along with the statutory interest to the Sales Department, Government of Andhra Pradesh.” 17. The learned Arbitrator allowed the claim in the sum of Rs. 57,46,873.39 representing the amount deducted by IOCL pursuant to the circulars dated 31st October, 2000 and 3rd November, 2000 and the letter dated 13th January, 2002. This was based on the conclusion that IOCL had wrongly withheld amounts from the claimants bills and also wrongly deducted the amounts from the claimants bills. The learned Arbitrator further held that IOCL was not entitled to the amounts demanded by it. The learned Arbitrator granted interest at the rate of 10% payable after fifteen days of the date of receipt of the withheld bills and till payment. The learned Arbitrator, however, rejected the claim for escalation. 15 18. Mr. Doctor, the learned senior counsel appearing on behalf of IOCL firstly submitted that the MOP & NG had fixed the price and it is in accordance therewith that IOCL made the demands and withheld and deducted amounts from the claimant’s bills. According to him, this is the only conclusion or interpretation of the correspondence in this regard between IOCL and the MOP & NG. He submitted that the finding of the learned Arbitrator to the contrary is perverse. He, therefore, submitted that the award is liable to be set aside on this ground alone. The claimant, however, denied the same. The Arbitrator has come to the conclusion, with which I am in respectful agreement, that the MOP & NG had, in fact, not granted its approval to the price as contended by IOCL. As considerable emphasis was placed on this aspect by Mr. S.H. Doctor, the learned senior counsel appearing on behalf of IOCL, I will deal with the same in some detail. 19. I am unable to agree with Mr. Doctor. The learned Arbitrator rightly came to the conclusion that there was no approval of any final or provisional price by the MOP & NG. The Circulars dated 31st 16 October, 2000 and 3rd November, 2000 and the action of IOCL pursuant thereto was not justified. This is evident from the following correspondence. 20(A). By a letter dated 31st October, 2000, addressed to all the LPG cylinder manufacturers IOCL stated that M/s. PWC had submitted a draft report on the price revision and that all the supplies with effect from 1st November, 2000 shall have the “provisional” basic price of Rs.645/- per cylinder. (B) By a letter dated 20th February, 2001, IOCL requested the MOP & NG to approve the report for implementation by the industry. (C). The MOP & NG, by a letter dated 15th March, 2001, in reply to the above letter stated that the approval of the Ministry for implementation of M/s. PWCs report on the subject of revision of LPG cylinder prices was not required at that stage when the oil industry had already started making recoveries on the basis thereof. It was further stated that as the matter concerned the oil industry directly, the oil industry may take appropriate action in the matter. 17 21. It is thus clear that the MOP & NG had not approved the revised price. Mr. Doctor, however, submitted that the MOP & NG had, by implication, fixed the revised price. He submitted that having left the matter to the oil industry to take appropriate action, the MOP & NG had impliedly approved the revision on the basis of any decision that may have been taken by the oil industry. 22. The award cannot be set aside on this argument for two reasons. Firstly, by the said letter dated 15th March, 2001 the Ministry expressly stated that its approval was not required “at this stage”. The term in the cylinder purchase agreements and in the purchase orders issued pursuant thereto do not contemplate the oil industry fixing the revised price. They provide for the MOP & NG doing so. The language of the letter does not indicate any delegation by the Ministry to the oil industry of its role in fixing the price. 23. Secondly, the least that must be said in favour of the claimant in this regard is that it was for the learned Arbitrator to construe the correspondence which he did. The learned Arbitrator decided against 18 the IOCL in this regard. The least that must be said is that the Arbitrator’s interpretation of the correspondence is a plausible one. It is not possible to hold that the finding of the learned Arbitrator was so unsustainable as to warrant the award being set aside in this respect. In other words, the least that must be said is that two interpretations of the correspondence are possible. In that view of the matter, even assuming that my interpretation is different from that of the learned Arbitrator, it would not justify the award being set aside on this ground. I am, in fact, of the view that the interpretation placed on the correspondence by the Arbitrator is the only possible one. . The further correspondence in this regard establishes the same beyond doubt. 24. By a letter dated 7th January, 2002 addressed to the MOP & NG, IOCL stated that M/s. PWC had submitted a final report in October, 2000, recommending the price and escalation/de-escalation formula. It was agreed before me, however, by all the learned counsel even in the other connected matters, that this was not so to wit M/s. PWC had not submitted a final report. IOCL stated that it had treated the said letter dated 15th March, 2001, as approval to the price of Rs.645/- per 19 cylinder in terms of the contract with the suppliers and the purchase orders placed on them. IOCL expressly requested the Ministry to convey its approval of the industry’s understanding to this effect. 25. It is of vital importance to note that the MOP & NG by its reply dated 5th February, 2002, informed IOCL that as already advised the approval of the Ministry was not required on the report of M/s. PWC and that the oil industry may take necessary action accordingly. In other words, rightly or wrongly, justifiably or otherwise, the MOP & NG did not either approve the price fixed by IOCL or the understanding of the oil industry referred to in the letter dated 7th January, 2002. This letter clearly militates against Mr. Doctor’s construction of the letter dated 15th March, 2001. 26. I am, therefore, in respectful agreement with the learned Arbitrator that there was no approval by the MOP & NG of the revised price. In other words, there was no approval from the Ministry about the final price applicable after 1st July, 1999 as required by