IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R. RAMAN & THE HONOURABLE MR. JUSTICE P.R. RAMACHANDRA MENON THURSDAY, THE 17TH SEPTEMBER 2009 / 26TH BHADRA 1931 Arb.Appeal .No. 32 of 2007 ---------------------- OPARB.291/2005 of VI ADDL.DISTRICT COURT, ERNAKULAM .................... APPELLANT/RESPONDENT/CLAIMANT/CONTRACTOR: ---------------------------------------------------------- M/S. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD., 21, COMMERCIAL COMPLEX, MALCHA MARG DIPLOMATIC ENCLAVE, NEW DELHI-110 021 (THRIKALATHOOR P.O., THRIKALATHOOR-683 557, MUVATTUPUZHA). BY ADV. SRI.K.L.VARGHESE SMT.SANTHA VARGHESE RESPONDENT/PETITIONER/RESPONDENT/EMPLOYER: ----------------------------------------------------------- STATE OF KERALA, REPRESENTED BY CHIEF ENGINEER, PROJECTS,KSTP-III, PWD, THIRUVANANTHAPURAM-2. BY GOVERNMENT PLEADER ADV. MR. K.V. MANOJ KUMAR. THIS ARBITRATION APPEAL HAVING BEEN FINALLY HEARD ON 17/09/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: P.R. RAMAN & P.R. RAMACHANDRA MENON, JJ. ........................................................................ ARBITRATION APPEAL NO. 32 OF 2007 ......................................................................... Dated this the 17th September, 2009 J U D G M E N T Ramachandra Menon, J: Whether the rights and liabilities arising out of a contract are to be adjudged on the basis of the express terms of the contract as pursued by the court below or on the basis of the deemed circumstances as pursued by the Arbitral Tribunal, is the crucial issue involved herein. Reliance is also placed by either side, on the decision rendered by the Apex Court in Oil & Natural Gas Corporation Ltd. vs. SAW Pipes Ltd.[AIR 2003 SC 2629]. 2. With regard to the sequence of events, the appellant was awarded the work of upgradation of the State Highway from Muvattupuzha-Thodupuzha and Muvattupuzha-Angamali. After completing all the formalities, the work was being pursued. During the course of execution of the work, disputes arose between the parties; which, by virtue of clause 67.4 of the General conditions of Contract (GCC) forming part of the Arbitration Agreement, had to be settled in Arbitration. The appellant raised three claims viz., ARBITRATION APPEAL NO. 32 OF 2007 2 (i) payment of interest at the prevailing market rates upon unpaid sums/belated payments (ii) Payment of cost of land purchased for Engineers’ office accommodation and transferred to the respondent by regd: conveyance and (iii) issuance of Excise Duty exemption certificates for HSD (High speed Diesel), Lubricants, Tyres etc. and for reimbursement for non-issuance of such certificates. 3. With regard to the 1st claim, as per the terms of the contract, the payment had to be effected in the course of execution of the work on the basis of the IPC (Interim Payment Certificate) within 42 days of preferring the claim. It was stipulated in the terms of the agreement that, in the event of failure of the employer to make payment within the time stated, the employer shall pay to the contractor interest compounded monthly at the rates stated in 'Appendix to Bid' upon sums unpaid from the date upon which the same should have been paid, in the currencies in which the payments are due. It was also stipulated in the agreement that the payments to an extent of 24% had to be effected in 'Foreign currency' and 76% in 'Local currency'. The said claim, more particularly involving ‘Local currency’ was resisted ARBITRATION APPEAL NO. 32 OF 2007 3 from the part of the respondent/State, stating that no rate was shown in the ‘Appendix to Bid’ and as such, by virtue of the specific clause and the “instructions to the bidders” issued in this regard, no interest was liable to be paid under any circumstances. “Appendix to Bid” (a copy of which was placed before this Court for perusal) shows that in respect of Column with regard to the payment of ‘Foreign currency’, the rate of interest was quoted as “LIBOR (London Inter Bank on lending Rate)+ 2% ”, whereas in respect of Column for the ‘Local currency’, the rate was left blank. The case of the appellant is that it was only an omission, intending to have it claimed later in the due course and that it could never be deemed as waived. 4. The second claim was in respect of non-payment of cost of the land procured by the appellant for providing office accommodation to the Engineers in connection with the work. However, in view of subsequent turn of events, answering the said issue in favour of the appellant and further since no challenge has been raised by the respondent/State in respect of the finding rendered by the Arbitral Tribunal, it has become final and this issue does not form the subject matter of the present Appeal. 5. The third claim put up by the appellant was that, by virtue ARBITRATION APPEAL NO. 32 OF 2007 4 of the notification bearing No. 108/95-CE dated 28.08.1995, the appellant was entitled for the benefit of exemption from Excise Duty in respect of the “goods required for the project” and that denial of issuance of necessary certificate in respect of HSD, Lubricants, Tyres etc., that too, after allowing the claim for exemption in respect of Cement, Steel, Bitumen etc, has resulted in much loss and hardships; which in turn was sought to be compensated by way of reimbursement. 6. Since the claims put up by the appellant were not positively considered, the matter was taken up before the ‘Dispute Review Board’ (DRB) for the first time, as provided in the Arbitration Agreement. It is the case of the appellant that, though the DRB had made necessary recommendation on 02.04.2004, the same was not complied with, from the part of the respondent, which led to arbitration before the Arbitral Tribunal consisting of three members. The Arbitral Tribunal passed an award in favour of the appellant by a majority decision allowing all the three claims; aggrieved of which, the respondent/State preferred the O.P. (Arbitration) before the Court below. After appreciating the facts and circumstances, the 'second claim' with regard to the cost/ compensation for the land was sustained by the Arbitration Court, ARBITRATION APPEAL NO. 32 OF 2007 5 whereas the findings and reasoning given by the Arbitral Tribunal on the 'first' and 'third' claims were set aside, which has led to the present Appeal. 7. With regard to the 'first claim', on interest, the contention put forth by the appellant is mainly that non-showing of rate of interest in the 'Appendix to Bid' is not fatal, so as to deny the claim. Reliance is placed on the decision rendered by the Apex Court in Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy [1992 (1) SCC 508 (at 532)] as well. The said contention is sought to be resisted from the part of the respondent stating that the terms of the Bid are very much clear as specified under clause 60.8(b) of the Conditions of Particular Application (COPA in short), which, as extracted in paragraph 13 of the impugned order, reads as follows: “In the event of the failure of the employer to make payment within the times stated, the Employer shall pay to the contractor interest compounded monthly at the rate (s) stated in the Appendix to Bid upon on sums unpaid from the date upon which the same should have been paid in the currencies in which the payments are due. The provisions of this Sub- clause are without prejudice to the contractor's ARBITRATION APPEAL NO. 32 OF 2007 6 entitlement under Clause 69 or otherwise”. Referring to the factual position, it has been held by the Court below in paragraph 15 that in the 'Appendix to Bid', in respect of the rate of interest upon unpaid sum in ‘Foreign currency’ as well as in ‘Local currency’, the rate of interest was shown only in respect of ‘Foreign currency’ (24% of the due amount); whereas in the case of ‘Local currency’, it was left blank. In the said circumstances, the Court below observed that there was a conscious decision on the part of the appellant, while submitting the tender, that the party did not intend to claim any interest in respect of the ‘Local currency’ (76% of the due amount). Reference is also made to Ext. R1 letter issued by the appellant confirming that there was no provision for interest on delayed payment and that the appellant would not claim any interest in future. That apart, the appellant had also issued Ext. C72, stating that their commitment for not to claim any interest on the said amount was to be treated as purely a ‘gesture of goodwill’. Accordingly, a finding was rendered by the Court below that the party had chosen to waive the claim for interest in respect of the due amount to be paid in ‘Local currency’, even though the ARBITRATION APPEAL NO. 32 OF 2007 7 agreement provided for interest on belated payment. 8. The appellant has got a case that Ext. R1 was got executed under coercion. The learned Counsel for the appellant also submits that the contents of Ext.C72 are very much qualified, by referring to the particular payment effected under Ext.R1 and that it cannot be taken to connect with the further/subsequent payments. After considering the facts and figures, the Court below held that absolutely no evidence was adduced to substantiate the factum of coercion, particularly when the burden was on the shoulders of the party who raised the said contention. It is also observed in paragraph 15 of the impugned verdict that Ext. R1 is dated 14.07.2004 and it was thereafter that, the claimant issued Ext. C72 which is dated 3.08.2004; wherein there is no retraction of Ext. R1 or as to any element of coercion. It was accordingly, that the Court below arrived at a finding in the succeeding paragraph that the said document was executed on ‘free will’ and that the bidder was very much liable to fill up the rate of interest in the place provided in the ‘Appendix to Bid’ and having not chosen to do so, it had to be presumed that the party had chosen to waive the same. The reference made by the appellant to Section 19 of the Arbitration and Conciliation Act, 1996 to contend that the ARBITRATION APPEAL NO. 32 OF 2007 8 Arbitral Tribunal is not bound by the CPC or the Evidence Act is rather wrong and misconceived. True, the mandate under Section 19 is very clear. But it doesn’t mean that the Arbitral Tribunal can resort to any arbitrary exercise or arrive at a finding on astrological assumptions; which otherwise will be wrong and perverse in all respects. 9. The explanation offered from the part of the appellant, that non showing of the rate of interest in respect of ‘Local currency’ was to have it claimed in the due course, does not appear to be palatable to this Court; more so, when the liability to pay interest was undertaken at the rate to be shown in the ‘Appendix to Bid’ and further when the appellant, with proper application of mind, had shown the rate in the relevant column only in respect of the 'Foreign currency'. It is probable, that the work was awarded to the appellant, also taking note of the fact that the bidder had chosen to waive the right to claim interest for belated payment in respect of the ‘Local currency’, which actually constituted the Lion’s share (76%). It is also possible that some other bidders would have been there, who might have quoted appropriate rate of interest in respect of ‘Local currency’, while ARBITRATION APPEAL NO. 32 OF 2007 9 leaving the column blank with regard to ‘Foreign currency’, or sometimes, there might be some bidders who would have quoted a very lower rate in toto. After considering the relevant aspects, the work was awarded in favour of the appellant, presumably also for the reason that the appellant’s, bid was a better deal, having left the column blank with respect to the rate of interest for belated payment upon the unpaid sum involving ‘Local currency’. 10. The reliance placed by the appellant on the decision rendered by the Hon'ble Supreme Court in Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy [1992 (1) SCC 508] as to the power of the Arbitrator to award interest does not support the case of the appellant in any manner. In the said case, the issue considered was, whether the Arbitrator was having power to award interest 'pendente lite', when the Arbitration Agreement did not contain any such clause. Observing that the Arbitration Agreement did not contain any clause prohibiting payment of interest and that there was nothing contrary to the intention of the parties, the Apex Court held that in the absence of any clause for interest, the Arbitrator was very well within his jurisdiction and competence in awarding interest 'pendente lite'. Unlike this, in the instant case, as already ARBITRATION APPEAL NO. 32 OF 2007 10 mentioned hereinbefore, there is a provision in the Arbitration Agreement to pay interest in a specific/prescribed manner, making it clear that it shall be at the rate as shown by the bidder in the 'Appendix to bid'. Since the appellant/bidder chose to quote the rate of interest only in respect of the amount payable in 'Foreign currency' (24%), while leaving out the Column blank in respect of the rate of interest with regard to the quantum payable in 'Local currency' (76%); the parties are very much governed by the above specific terms of the contract. In the said circumstances, we are not satisfied with the case put forth by the appellant with regard to claim No.1, and the appellant is not expected to take a 'U' turn, after winning the bid. The finding and reasoning given by the Court below are very much proper and no interference is called for. 11. With regard to the remaining claim, i.e., regarding the benefit of exemption from Excise Duty by issuing necessary certificate, it has been held by the Court below in paragraph No.24 as follows; “Admittedly, there is no term or provision in the contract for issue of Excise Duty Exemption Certificate as per this notification. Counsel appearing for respondents has not brought to ARBITRATION APPEAL NO. 32 OF 2007 11 my notice any such provision in the contract or usage of trade to issue Excise Duty Exemption Certificate as claimed. The conditions for issue of Excise Duty Exemption Certificate as stated in the notification in Ext.C41 are not complied with.” The learned Counsel for the appellant submits that the right to have the said benefit arises from the notification dated 28.08.1995, which was marked before the Arbitral Tribunal as Ext.C41. It is the case of the respondent that the necessity or occasion for issuance of any such certificate on the basis of the 'notification' does not spring out from the terms of the contract and as such, there could not have been any such recommendation or direction, as given by the DRB (Dispute Review Board) or the Arbitral Tribunal, which hence was rightly intercepted by the Court below. 12. The case projected by the appellant in the appeal appears to be more based on the fact that the respondent has already issued necessary certificates in respect of Cement, Steel, Bitumen etc., whereas no such certificate has been chosen to be issued with respect to HSD, Lubricants and Tyres, which are also stated as very much ‘required for the project’. The learned counsel for the appellant submits that the words used in the notification do ARBITRATION APPEAL NO. 32 OF 2007 12 not mean that the materials should have been actually consumed and that the exemption is meant in respect of the goods which were actually ‘required for the project’ and hence that, on liberal interpretation, HSD, Lubricants, Tyres etc also would fall within the purview of the notification. 13. Obviously, the above notification was issued in the year 1995 and is not with respect to the project in hand, though it may be applicable to other cases as well. The procedure for issuance of the relevant certificates is prescribed in the notification itself; which stipulates that the manufacturer has to comply with the requirements as specified therein and necessary certificate has to be produced before clearance of such goods. Of course, duty is cast upon the State Government, if such project has been approved for implementation by the State Government and on such an event, it has to be certified by the Principal Secretary or Secretary (Finance), as the case may be, in the concerned State, by stating that the said goods are required for execution of the project. But issuance of certificate stands entirely on a different pedestal and while issuing such certificate, the State Government has to act in a different capacity. 14. In the instant case, after considering the actual nature, ARBITRATION APPEAL NO. 32 OF 2007 13 scope and requirement of the project, the State Government has issued necessary certificates in respect of Cement, Steel, Bitumen etc., while declining to issue such certificate in respect of HSD, Lubricants and Tyres. If the appellant is aggrieved of the same, the remedy is stated as elsewhere; mainly for the reason that it does not form part of the contract. It has been observed by the Court below that there is no provision in the contract with reference to the said notification or as to the liability of the respondent in this regard; thus leading to the inference which is impugned in this appeal. 15. Absolutely, no material has been produced from the part of the appellant to show that the observation made by the Court below that there is no clause in the Agreement with regard to the liability to issue any such certificate for exemption is wrong or perverse. No reference is made to any of the terms of the contract, but for placing reliance solely on the ‘notification’ and the instance of issuing such certificates in respect of Cement, Steel and Bitumen. This shows that the finding and reasoning given by the Court below as to the absence of such clause in the contract stand fortified and in the absence of any specific term in the contract, no benefit could have been extended by the Arbitral Tribunal, directing ARBITRATION APPEAL NO. 32 OF 2007 14 the respondent to reimburse the amount in respect of the Excise Duty, which otherwise could have been covered by such certificates. The finding and reasoning given by the Court below are perfectly within the four walls of law and are not assailable under any circumstances. 16. In the course of arguments, the learned Counsel for the appellant, referring to the mandate under clause 67.1 of ‘COPA’ submits that the recommendation of the DRB was effected on 02.04.2004 and that, since the respondent did not convey their dissatisfaction with the recommendation stating that they were to pursue further remedy by way of ‘arbitration’ within the stipulated time of ‘14 days’; it had become final on 16.04.2004. The learned Counsel further submits that this issue was specifically raised before the Arbitral Tribunal and was dealt with in paragraph No. 3.1 of the Arbitral Award. However, the same is stated as not considered by the Court below, while passing the impugned Order. The relevant portion of clause 67.1 of ‘COPA’ reads as follows: “If the Board has issued a Recommendation to the Employer and the Contractor within the said 56 days and no ARBITRATION APPEAL NO. 32 OF 2007 15 notice of intention to commence arbitration as to such dispute has been given by either the Employer or the Contractor within 14 days after the parties received such Recommendation from the Board, the Recommendation shall become final and binding upon the Employer and the Contractor. Whether or not it has become final and binding upon the Employer and the Contractor, a Recommendation shall be admissible as evidence in any subsequent dispute resolution procedure including any arbitration or litigation having any relation to the dispute to which the Recommendation relates. All Recommendations which have become final and binding shall be implemented by the parties forthwith such implementation to include any relevant action of the Engineer.” As per the above clause, the crucial date is not the date of recommendation, but the date of receipt of such recommendation from the Board. The contention of the appellant was only that the ARBITRATION APPEAL NO. 32 OF 2007 16 matter had become final on 16.04.2004, since the date of recommendation of DRB was 02.04.2004. Absolutely no case was pleaded to the effect that the recommendation was conveyed to the Government on a ‘ particular date ’ and that the intention of the Government was not communicated, despite the expiry of 14 days from the date of receipt of such recommendation. It is also brought to light from paragraph No.3.1 of the Arbitral Award that the DRB in their meeting on 12.06.2004 recorded that the recommendation of the DRB had been submitted by the Engineer to the Government for acceptance. Obviously, in the absence of any specific plea, as to the date of receipt of the recommendation by the Government and the expiry of the prescribed time, the Arbitral Tribunal could not have considered the same and for this reason, there is no finding in this regard as well. This being the position, the contention of the appellant that the matter has already become final, since the respondent had not acted in tune with the stipulation in clause 67.1 of ‘COPA’, does not hold any water at all. It is also relevant to note that the award was passed by the Arbitral Tribunal ‘on majority’ and the dissenting member has given sufficient and proper reasons with regard to the various aspects on which the dissent was recorded; which appears to be ARBITRATION APPEAL NO. 32 OF 2007 17 correct and sustainable. 17. The only remaining question to be answered is whether the Arbitration Court was justified in having interfered with the finding of the Arbitrary Tribunal in respect of the claims No.1 and 3 (interest and Excise Duty exemption) invoking the power under Section 34 of the Arbitration and Conciliation Act, 1996. The law has been laid down by the Apex Court in crystal clear terms in the decision in ONGC Ltd., Saw Pipes Ltd. ([2003] 5 SCC 705 = [AIR 2003 SC 2629],. It has been held that if the award is contrary to the substantive provisions of law or against the terms of the contract which would be patently illegal, it could be interfered with under Section 34 of the Act. Viewed in the above background, the award passed by the Arbitrary Tribunal directing to pay interest in respect of the belated payments/unpaid amounts involving local currency as well as the direction to reimburse the amount because of non-issuance of exemption certificate pertaining to Excise Duty in respect of HSD, Lubricants and Tyres placing reliance on the relevant notifications issued by the Government of India in this regard were rather contrary to the specific terms of the contract and beyond the scope of arbitration. This being the position, interference made by the Court below rejecting the claims in this ARBITRATION APPEAL NO. 32 OF 2007 18 regard is perfectly in order and it is very much within the four walls of the law. In the above facts and circumstances, the matter requires no interference. The appeal fails and it is dismissed accordingly. P.R. RAMAN, JUDGE P.R. RAMACHANDRA MENON, JUDGE. lk