1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.73 OF 2006 Oil and Natural Gas Corporation Ltd. NSE Plaza, Bandra Kurla Complex, Bandra (E), Mumbai 400 051. .... Petitioners V/s. M/s Kotas Organics Pvt.Ltd a Private Limited Company incorporated under the Companies Act 1956 having its office at : B/101, Takash Complex, Gotri Road Vadodara 390 091 ..... Respondents Ms Snehal Paranjape a/w Mr. S. P. Bharati, for the Petitioners. Mr. Gaurav Joshi a/w Ms Prachi Mhatre, i/b M. S Bodhanwalla & Co. for the Respondents. CORAM : S.J. VAZIFDAR, J. DATE : 5TH NOVEMBER, 2009. P.C. :- 1. This is a petition for setting aside an award dated 14th November, 2005 and a further award dated 28th November, 2006, under section 34 of the Arbitration and Conciliation Act, l996. 2. The Petitioner had invited tenders for the supply of 732 MT of Win Corrosion Inhibitor. Clause 2 of the Invitation to Bid reads as under: “2. Description of stores : WIN CORROSION INHIBITOR (Refer specifications at 2 Annexures-III.” “Annexure III in turn is as under: SPECIFICATION OF CORROSION INHIBITOR (ONGC/WIC/8/97) 1 Physical State Should be clear free flowing homogeneous liquid at 24+2 degree C free from foreign matter 2 Miscibility Should be completely miscible in an compatible with water and formation water at maximum concentration of 1% (m/v) 3 Compatibility test The turbidity of filtered injection water treated with water injection chemicals available in the region when mixed with 20 ppm of corrosion inhibitor should not exceed 1 NTU 4 Stability Should be stable upto 90 +5 degree celcious. 5 Performance Test A 3% sodium Chloride A.R. Gd solution in distilled water containing less than 0.1 ppm dissolved oxygen is treated with 20 milligrams liter of corrosion inhibitor the inhibitor should be 80% minimum at 50+ 2 degree C after 7 days exposure in a system isolated from atmosphere under static condition. 3. The invitation to bid refers to the tender documents namely i) Instructions to Tenderers, ii) General Terms and Conditions, iii) Technical Specifications, iv) Bid evaluation Criteria and v) List of Acceptable Banks. It is important to note that below these documents, it is expressly stated that the offered material 3 should strictly conform to the technical specifications as per Annexure III. The bids were invited for the supply of the said material in the prescribed bid forms as per Appendices of Instructions to Bidders and Technical Specifications. 4. Clause 36 of the “Instructions to Tenderers” in turn states that the contract shall be governed in accordance with the Instructions to Bidders and also the General Terms and Conditions at Annexure -II. Clause 35 of the General Conditions of Contract pertains to arbitration. Clause 35.1 applies to arbitration in cases of purchase orders upto Rupees one crore. Clause 35.2 is applicable to arbitration cases of purchase orders exceeding rupees one crore. It is important to note that clause 35.1 does not contain any provision as to interest. It is also important to note that in the present case clause 35.1 is applicable as the purchase order is of less than rupees one crore. Clause 35.2 on the other hand provides that it is also a term of the contract that neither party to the agreement shall be entitled to interest on the amount of the award. The relevance of this distinction will be clear while considering the challenge to the award in so far as it grants interest. I will refer to the other relevant clauses of these documents when I deal with these submissions. 5. Supply Orders dated 18th June, 2001, 26th March,2002, were placed by the petitioners on the Respondent for the supply 4 of the said goods. Clause l7 of the supply order pertains to terms and conditions and state that the same would be as per Annexure II. Annexure II also contains an arbitration clause viz clause 33 which also provides that neither party to the contract shall be entitled to interest on the amount of the award. 6. There is no dispute regarding the appointment of the Arbitrator. There is no dispute that the Respondent supplied the said goods to the Petitioner. The only dispute that was raised before the learned Arbitrator was that the goods did not conform to the technical specifications and the requirements as per the provisions of the contract. 7. The provisions for the appointment of the Arbitrator was the same under clause 33 of the Supply order and under clause 35 of the General Conditions of Contract. 8. The learned Arbitrator made and published the award dated 14th November, 2005. The same was challenged by the Petitioner by filing Arbitration Petition No.73 of 2006. By an order and judgment dated 19th September, 2006, the learned Judge, noted that a letter dated 15th October, 2001 was before the Arbitrator, but had not been considered. The Respondent who desired to rely on the letter, therefore, made an application under section 34 (4) of the Act. The learned Judge allowed the application and adjourned the proceeding to enable the Arbitrator to resume the arbitral proceedings or to take such other action 5 as in his opinion was necessary to avoid the possibility of the award being set aside on the ground that the relevant material on record was not considered by them. 9. The parties thereafter appeared before the learned Arbitrator again and the learned Arbitrator made the further award dated 28th November, 2006. 10. Ms. Paranjape, submitted that the award was contrary to the terms of contract and that the findings of the learned Arbitrator regarding the requisite quality of the said goods under the contract were also contrary to the terms of the contract. She submitted that the quality of the goods supplied was contrary to the terms of the agreement between the parties. 11. I am unable to agree. There is no dispute that the material supplied by the Respondent was in accordance with the specifications contained in Annexure III, quoted above. The test report establishes the same beyond doubt. The test report dated 6th July, 2000 confirms that the samples conformed to the specifications. Indeed it was in view thereof that the order was placed on the Respondent. 12. The test report dated 18th July, 2002 pertains not to the tender samples but to samples of the main consignment supplied under the contract and sent for testing. This test report sets out in a tabular form each of the five requirements of Annexure III. The fourth column of the table states that in respect of the first 6 four requirements, the material supplied “Passes” the required test ie they conform to the specifications stipulated in Annexure III. As regards the fifth item namely “Performance Test”, the remark is “82.7%”. Thus, not only had the material supplied complied with the requirement, but was superior thereto by 2.7%. The “Conclusion” below this table is, “The sample confirm to above specifications”. There is no dispute in this regard. It is, thus clear that the requirement stipulated in Annexure III had been met in every respect. 13. The Petitioner, however, relied upon the further remarks in the second test report which read as under: 1. The value of corrosivity, when fresh coupens (API-5 LX Gd B Steel) were exposed to neat product for 7 days under open ambient – condition was found to be 307 mpy. The material is high corrosive in nature and may detrimental to the storage and dosing system at ONGC Offshore installations” 2. The The bulk sample supplied by M/s KATS organics Pvt. Ltd against S.O. No.MRBC/OBG/MM/CHEM/WIN/2000 – 01/GT/ 9006/Trial Order-1/PY 8 PE 2148 dated 18.6.2001 /26.03.02 does not match in respect of Physico Chemical parameters with the payment sample submitted against Tender No.GT-9006, approved vide Test Report No.2368 dated 06.07.2000” 7 14. In other words, according to Petitioner, even when exposed to the neat product for 7 days under open ambient condition, the material not to have been highly corrosive. 15. It is true that in the award, the Arbitrator has stated that the object of the supply order was to purchase material known as Corrosion Inhibitor and not Corrosion Inducer and if the supplied material is not able to meet the requirement of the purchaser then there is no use of buying the same. It is also true that the Respondent admitted, as noted in the award, that the material supplied should have ordinarily conformed to the additional specifications on the basis whereof it was contended that the goods were not as per the requisite quality. 16. What is important to note, however, is that the learned Arbitrator having noted the same, came to the conclusion that this additional condition was not a part of the tender contractual specification and that all the tests conducted by the petitioner established that the goods supplied were within the parameters of the tender conditions and specifications. The learned Arbitrator, further rightly observed that he could not go beyond the written technical conditions. The additional parameter was not stipulated in the tender documents and the Petitioner was therefore, not entitled to impose the conditions in that regard. The learned Arbitrator accepted the Respondent’s submission 8 that the additional conditions do not form a part of the specifications. No fault can be found with the reasoning adopted by the learned Arbitrator that the parties were bound by the contract. The contract expressly provided the technical parameters regarding the quality of the goods to be supplied. Admittedly the quality of the goods conformed to the specifications in Annexure III. Admittedly the additional condition was not stipulated. The Petitioner was, therefore not entitled to reject the material on that ground. 17. In the further award the learned Arbitrator rightly referred inter alia to a letter dated l5th October, 2001 addressed by the Petitioner’s Group General Manager in respect of similar supplies; which also did not conform to these additional requirements in respect thereof. The petitioner’s Group General Manager stated as under in the letter dated 15th October, 2001. “M/s Devadrill has supplied the 25MT of WIN Corrosion Inhibitor directly at Nhava Stores for sampling bonding the bulk supply 25 MT of WIN Corrosion Inhibitor against the above referred S. O. sample bonded at Nhava Stores and was sent to RCL Panvel on 20.08.01 for testing as per the S.O. Specification. However, RCL Panvel has submitted an observation and instead of issuing a proper test report on 29./30.08.2001, RCL, Panvel has analysed the product for its physical parameters such as Colour, Sp. Gravity, pH of the neat product, viscosity, Corrositivity of the neat product which is not specified in the tender specification of the 9 S/O. The bulk sample has not been tested as per the technical specification parameters as per tender specification. It is emphasized that the bulk supply samples are essentially required to be evaluated/tested strictly as per the tender specifications by RCL for its quality control and issuing quality report. In view of the above, the sample bonded sample of WIN Corrosion Inhibitor be tested as per tender specification and the test report may be submitted on priority”. 18. The reliance on the letter is well founded. The learned Arbitrator rightly observed that when parties enter into a contract, they cannot travel beyond the provisions thereof. What is important to note is the finding that it was not necessary to test the neat product for 7 days under open ambient conditions because the product was not to be used neat and it was also not to be used in open ambient conditions. The test was not required by the contract. I am unable to fault the reasoning of the Arbitrator. This was a pure finding of fact. There is nothing to suggest that the reasoning was absurd, arbitrary or unsustainable. Even if I were to take a different view, it would not warrant exercise of jurisdiction under section 34, to set aside the award. 19. Face with this, reliance was placed on behalf of the Petitioner on various clauses of the contract including clause Nos 1, 1.11., 2.2, 8, 9, l0, l4 and l5 of the General Conditions of the Contract and clause Nos l4 and 36 of the instructions to 10 Tenderers and clause No.1.12 of the supply order to contend that the contract must be read as a whole and if so read, the additional requirement also must be deemed to be incorporated therein by reason of custom, practice and the requirements of the Petitioner of which the Respondent was aware. It was contended that the name of the material itself suggests that it should be corrosion inhibitor and therefore, the material must meet that description. 20. There is nothing to suggest that the material is not a corrosive inhibitor. The argument is that, it ought to inhibit corrosion to a particular extent. However, merely because material does not inhibit corrosion absolutely but does so to a certain extent makes no difference. All that was required by the Respondent was to supply material namely Corrosion Inhibitor of the specifications stipulated by the Petitioner. As noted already, even the supply order expressly states that the quality of the material must conform to the said Annexure III. At the cost of the repetition, it is established beyond doubt that the material did conform to the specifications contained in Annexure III. In any event this condition is also a pure question of fact of which the Arbitrator is the Judge. It is not open to set aside the award even assuming that the Court comes to a conclusion that another view is possible. To say the least the view taken by the Arbitrator is more than just probable. I am in fact of the view that it is the only 11 view possible. 21. It was then submitted that the award of interest is contrary to the terms of the agreement. The learned Arbitrator has awarded interest before and after the date of the award. Ms. Paranjape relied upon clause 33 pertaining to arbitration in the supply order which inter alia stipulates that neither party to the contract shall be entitled to have any interest on the amount of the award. 22. Clause 35.1 of the General Conditions of the Contract contains no bar to the grant of interest in respect of a contract of a value under one rupees one crore. The present contract is admittedly of a value less than rupees one crore. Clause 33 of the Supply Order contains such a bar. There is, therefore, an apparent conflict between the arbitration clause in the supply order and the arbitration clause in the General Conditions of the Contract. 23. I am unable to accept the challenge to the award of interest for three reasons. Firstly the reply to the Statement of Claim did not contain any defence to this effect namely that the provisions of the contract bar the grant of interest. Nor is there a contention raised in the reply to the effect that the clause in the Special Conditions of the contract supersede those of the General Conditions of the Contract. 12 Secondly the petitioner itself made a claim for interest in the counter claim filed before the learned Arbitrator. The petitioner, therefore, itself appears to have proceeded on the basis that there was no bar to the grant of interest. In other words the petitioner proceeded on the basis of that the applicable arbitration clause is clause No.35.1 of the General Conditions of Contract. At least so far as the question of interest is concerned that the parties may have referred to clause 33 of the Supply Order, is not conclusive of the matter. Thirdly it is of vital important to note that this contention was not even raised before the learned Arbitrator. The Petitioner’s submission before the learned Arbitrator as noted in the award was not that there was a bar to the grant of interest, but that there was no provision for interest in the agreement. This therefore, also indicates that the petitioner also proceeded on the basis that there was no bar to the award of interest. Both parties, therefore, proceed on the basis that clause 35.1 was applicable and that it was not superseded by the Supply Order. 24. In any event the contentions not having been raised before the Arbitrator, it is not open to the Petitioner to raise the same for the first time in this petition and that too contrary to the stand taken before the learned Arbitrator. 25. Once the award is upheld, it follows that the counter 13 claim must be rejected; the same having been based upon the contention that the quality of the goods did not conform to the contractual specifications. 26. In the circumstances the petition is dismissed but with no order as to costs.