IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ARBITRATION ARBITRATION ARBITRATION PETITION NO. 98 OF 2005. PETITION NO. 98 OF 2005. PETITION NO. 98 OF 2005. The Municipal Corporation of Greater Mumbai, a statutory Corporation incorporated under the provisions of the Mumbai Municipal Corporation Act, 1888 having its office at Mahapalika Bhavan, Mahapalika Marg, Mumbai 400 001. ... Petitioner. Versus. Gammon India Limited, a company incorporated under the provisions of the Companies Act, I of 1956, having its office at Gammon House, Veer Savarkar Marg, Prabhadevi, P.O.Box No. 9129, Mumbai 400 025. ... Respondents. Shri Ramesh Dhanuka with Shri H.C.Pimple i/b Shri Ujjainwala, Advocate for the Petitioner. Shri Atul Setalvad, Senior Counsel with Shri Shiraz Rustomjee i/by Subodh Kurdukar, Advocate the Respondents. CORAM CORAM CORAM : ABHAY S.OKA, J. : ABHAY S.OKA, J. : ABHAY S.OKA, J. DATE DATE DATE ON WICH ARGUMENTS ARE ON WICH ARGUMENTS ARE ON WICH ARGUMENTS ARE CONCLUDED. CONCLUDED. CONCLUDED. : 7th September, 2007. 7th September, 2007. 7th September, 2007. DATE DATE DATE ON WHICH JUDGMENT IS ON WHICH JUDGMENT IS ON WHICH JUDGMENT IS PRONOUNCED. PRONOUNCED. PRONOUNCED. : 22nd October, 2007. 22nd October, 2007. 22nd October, 2007. JUDGMENT.: JUDGMENT.: JUDGMENT.: 1. By this petition under section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the said Act of 1996") initially an Award dated 15th September 2004 made by the learned : 2 : 2 : 2 : Arbitrators was challenged. In this petition, an order was passed on 21st March 2006 by which hearing of this petition was adjourned for a period of 12 weeks to enable the Arbitral Tribunal to resume the proceedings and to proceed with the matter in accordance with law. The said order was passed in Arbitration Petition No.1 of 2006 filed by the Respondents. On the basis of the said order learned Arbitral Tribunal resumed the proceedings and supplementary award was made on 14th October 2006. By amending this petition, the Petitioner has been permitted to challenge the said supplementary award. 2. Before adverting to the submissions made by the learned Counsel appearing for the parties, it will be necessary to refer to the facts of the case in brief. 3. The Petitioner is the Municipal Corporation of Greater Mumbai. In the year 1998 the Petitioner invited tenders for supply, installation, testing and commissioning of mechanical equipments for Bandra Sewerage Pumping Station. Five bids were received from various bidders including the bid of the Respondents. The Respondents quoted their bid at Rs.16,85,00,000/-. The bid form submitted by the Respondents included some attachments and in paragraph 16.0 of the form, the Respondents demanded reimbursement of actual sales tax : 3 : 3 : 3 : amount paid by them against production of documentary evidence. The Respondents submitted along with the bid form the attachment 10 in which a declaration was given that no sales tax in any form shall be payable by the Petitioner-Corporation for the bought out items. On 15th March 1999 the Petitioner-Corporation called upon the Respondents to clarify the various issues in the bid form. The Respondents clarified the issues and withdrew condition No.16.0. After obtaining approval of the Standing Committee on 10th December 1999, the contract agreement was executed by the Petitioner-Corporation in favour of the Respondents. 4. According to the case of the Petitioner- Corporation, the Respondent started raising demands in respect of sales tax and octroi duty. Therefore, on 26th April 2000 the Petitioner-Corporation called upon the Respondents to submit a formal proposal/procedure which the Respondents would be evolving under the contract in respect of taxes and duties. The Respondents came out with a case that reimbursement of taxes and duties was agreed and discussed in the meeting held on 19th April 2000. The Petitioner-Corporation on 9th May 2000 informed the Respondents that the Petitioner-Corporation would reimburse all the taxes and duties as per the terms and conditions of the contract. On 20th May 2000 the Respondents submitted certain : 4 : 4 : 4 : details to the Petitioner-Corporation as regards the procedure for sales tax reimbursement. The Petitioner-Corporation responded on 1st June 2000 by informing the Respondents that the issue of reimbursement of sales tax was being reviewed by the Petitioner-Corporation and it was pointed out that prima-facie there cannot be reimbursement of sales tax. The Respondents disputed the said decision. The Petitioner clarified that the sales tax in respect of direct transactions between the Petitioner and the Respondents in respect of the plant/equipments and mandatory spareparts would be reimbursed under the terms of the contract. 5. By communication dated 7th August 2001, the Petitioner-Corporation informed the Respondents that the demand raised by the Respondents for reimbursement of the taxes and duties would be examined and till then the claim put up by the Respondents will be kept pending. On 25th October 2001 the Petitioner-Corporation through its Consultants informed the Respondents that no reimbursement of the Central Sales Tax, local taxes and octroi can be made to the Respondents on bought out items. It appears that there were two invoices bearing No.TR-1 ands TR-2 dated 8th January 2001 and 10th February 2001. In respect of the said invoices, the Petitioner-Corporation released payment in respect of : 5 : 5 : 5 : the sales tax and octroi duty to the Respondents. The Petitioner-Corporation came to the conclusion that the payments were made under a bonafide mistake and therefore, a decision was taken to recover the said amounts paid by the Petitioner-Corporation to the Respondents from the subsequent bills of the Respondents. The Respondents by their communication dated 1st November 2001 informed the Consultants appointed by the Petitioner-Corporation that the decision of the Petitioner-Corporation was not acceptable and therefore, the Respondents sought to refer the dispute regarding reimbursement of taxes for adjudication as per clause 6.1 of section 4 of the General Conditions of Contract (hereinafter referred to as "GCC"). The Respondents by their letter dated 3rd November 2001 addressed to Shri N.V.Mirani, the Adjudicator named under the said GCC informed that a dispute had arisen between the Petitioner-Corporation and the Respondents regarding reimbursement of sales tax, local tax and octroi. By the said letter, the Respondents gave notice as contemplated by clause 6.1 of the GCC to refer the dispute for adjudication. 6. In the meanwhile the Respondents submitted that the Tax Running bills (T.R.No.3 to T.R.No.9) between 31st March 2001 and 24th August 2001 to the Petitioner-Corporation for settlement of the various : 6 : 6 : 6 : payments. The Petitioner-Corporation by letter dated 12th November 2001 informed the Respondents that the recovery of sales tax and octroi duty already paid to the Respondents to the tune of Rs.47,13,488/- would be made from Invoice No.29 and 30 and the remaining amount would be recovered from the future payments payable to the Respondents. 7. On 8th January 2002, the learned Adjudicator passed an order holding that on the goods purchased from other manufacturers outside Maharashtra by the Respondents and supplied to the Petitioner-Corporation, the Maharashtra Sales Tax levied will be reimbursible to the Respondents if it was a first sale in the State of Maharashtra. It was held that otherwise the re-sale tax, if levied and paid, will be reimbursible. The Adjudicator held that the goods manufactured by others within the State of Maharashtra and procured by the Respondents will not qualify for reimbursement of the sales tax as it was a tax payable on the transaction between the third parties and the Respondents. The Adjudicator held that when the Respondents supplies equipment to the Petitioner-Corporation, only re-sale tax may become payable on such transactions which will qualify for reimbursement. He held that for the goods manufactured by the Contractor himself and supplied to the Employer, the Maharashtra Sales Tax will be : 7 : 7 : 7 : reimbursible under clause 13. The learned Adjudicator held that for the goods manufactured by the Respondents outside Bombay and brought by them or their agents into Bombay for the use the works, the amount of octroi paid will be reimbursible. He further held that for the goods manufactured by others and brought into Bombay for use in the works, the octroi will be reimbursible provided the contractor has actually purchased the equipment outside Bombay and the same was transported and octroi is paid thereon. 8. The Respondents by their letter dated 17th January 2000 called upon the Petitioner-Corporation to pass necessary order for release of the sum of Rs.47,30,498/- being the amount recovered by the Petitioner-Corporation and to release the subsequent bills (T.R.No.3 to T.R.No.9) with interest at the rate of 1% per month. 9. The Respondents by their letter dated 2nd February 2000 informed the Petitioner-Corporation that they were not accepting the decisions conveyed by the Adjudicator, other than those where he had conveyed his decision for reimbursement of certain taxes and duties to the Respondents. By the said letter, the Respondents conveyed their intention to commence arbitration in respect of the remaining matters and disputes under : 8 : 8 : 8 : clause 6.2.1 of the said GCC. The Petitioner- Corporation responded by letter of the same date by informing the Respondents that even the Corporation was not accepting the decision given by the learned Adjudicator and invoked arbitration clause under the GCC. The Petitioner-Corporation by their letter dated 11th March 2007 clarified to the Respondents that the decision of the learned Adjudicator was not acceptable to the Petitioner-Corporation in toto. 10. By letter dated 15th March 2002, the Respondents appointed Shri R.T.Atre, Secretary (Retd.) Maharashtra Public Works Department under clause 6.2.4 of the GCC as their nominee. The Petitioner-Corporation by letter dated 7th May 2002 conveyed its decision of appointing Shri B.C.Joshi, Advocate as its nominee Arbitrator. The aforesaid Arbitrators nominated by the parties appointed Shri N.N.Srikhande as the Presiding Arbitrator. 11. It must be stated here that initial pleadings filed before the Arbitral Tribunal were relating to T.R.No.1 to 9 to the tune of Rs.1,18,70,796/-. The Respondents on 1st July 2002 forwarded T.R.No.10 for reimbursement of the sum of Rs.73,09,025/-. The dispute in respect of the said T.R.No.10 was incorporated by the Respondents in their Statement of Claim before the Arbitral Tribunal. : 9 : 9 : 9 : 12. After the written statement was filed by the Petitioner-Corporation, the Respondents submitted two more invoices bearing Nos.TR-11 and TR-12. The said invoices were submitted by the Respondents to the learned Arbitrators. The Petitioner-Corporation by letter dated 14th August 2003 returned Invoice bearing TR No.12 to the Respondents and stated that the amount demanded under the said invoice TR-12 would not form part of the claim before the Arbitral Tribunal. 13. On 15th September 2004 an Award was made directing the Petitioner-Corporation to pay a sum of Rs.2,15,34,020/- inclusive of interest upto 15th September 2004 and further interest on the said amount at the rate of 1% per month on the said amount if not paid on or before 15th November 2004. As stated earlier, a supplementary Award was made on 14th October 2006. By the supplementary Award the Arbitral Tribunal declined to modify the earlier Award dated 15th September 2002. 14. Extensive submissions were made by the learned Counsel appearing for the parties. Brief submissions in writing were also tendered by the learned Counsel appearing for the parties. : 10 : 10 : 10 : 15. The first submission of the learned Counsel appearing for the Petitioner-Corporation is that the subject matter of dispute referred to the learned Adjudicator was only relating to recovery of the amount paid by the Petitioner-Corporation under TR-1 and TR-2. Therefore, the Reference to the Arbitral Tribunal was confined only to the dispute as regards TR-1 and TR-2. He submitted that in the statement of claim filed by the Respondents a claim was made only under TR-1 to TR-10. He submitted that TR-3 to TR-10 could not have formed part of the dispute before the Arbitral Tribunal. He submitted that after the time fixed by the Arbitral Tribunal for filing the pleading expired, the Respondents submitted TR-11 and TR-12 without amending their statement of claim. He submitted that an objection was raised that the said invoices could not form part of the claim before the Arbitral Tribunal. He submitted that a specific objection was raised by the Petitioner by returning TR-12 to the Respondents. He submitted that TR-12 was filed by the Respondents as late as on 6th August 2003. He submitted that it is an admitted position that TR-11 and TR-12 were filed by the Respondents during the course of arguments. He submitted that the Arbitral Tribunal had no jurisdiction to Award separate amount on account of taxes payable under of TR-3 to TR-12. It is submitted that the learned Arbitrators had exceeded the jurisdiction by : 11 : 11 : 11 : entertaining and allowing TR-3 to TR-12. He submitted that the Award will have to be set aside in its entirety and this Court has no power to modify the Award while exercising jurisdiction under section 34 of the said Act of 1996. 16. The learned Counsel for the Petitioner- Corporation placed reliance on the Attachment 10 forming part of the contract. He submitted that the said Attachment 10 clearly provides that no sales tax in any form shall be payable by the Corporation for bought out items which were dispatched directly by the Respondents or their assignee under the first contract in case of domestic bidders and second contract in case of foreign bidders. He submitted that the Respondents being domestic bidders, the Petitioner-Corporation was under no obligation to reimburse the amount of sales tax. He submitted that by order dated 21st March 2006 passed by this Court, the Arbitral Tribunal was allowed to resume the proceedings so as to eliminate the ground for setting aside the Arbitral Award. He pointed out that in the arbitral award the submissions based on Attachment 10 were not considered by the learned Arbitrators and therefore, the Arbitrators were allowed to resume the proceedings. He submitted that even after resumption of the proceedings, the Arbitrators did not decide in accordance with Attachment 10. : 12 : 12 : 12 : 17. He submitted that the Respondents had withdrawn demand for reimbursement of actual sales tax which was made in paragraph 16 of the bid form. He submitted that in view of the withdrawal of the said demand, the Respondents were not entitled to seek reimbursement. He submitted that the claim allowed by the learned Arbitral Tribunal is contrary to the contract. 18. In the alternative, the learned Counsel for the Petitioner-Corporation submitted that clause 14.2 of the GCC as amended by clause 13 of the Special Conditions of Contract provided that the employer shall bear and pay reimbursement to the Contractor of the sales tax, local tax and octroi in respect of direct transactions between the employer and the contractor imposed on the plant, equipment and machinery as well as mandatory spare parts specified in the price Schedule II. He submitted that from the letter dated 25th October 2000 sent by the Respondent to the Petitioner-Corporation it is clear that even according to the Respondents reimbursement was to be made on the basis of actual payment. He submitted that the Respondents did not prove payments made by them on account of sales tax, octroi duty etc. He submitted that notwithstanding the failure of the Respondents to prove the actual payments, the Arbitral Tribunal derived its own formula by taking the ratio of cost of main : 13 : 13 : 13 : equipment to total cost of items i.e. 0.80 for items of cast iron pipes and fittings, sluice valves etc. and 0.95 for rest of the items on the ground that the accurate assessment was not possible. He submitted that the Arbitral Tribunal has allowed the claim on assumptions and the claim has not been allowed for reimbursement on the basis of actual payment of taxes and duties. He submitted that the Arbitrators have awarded the claim contrary to the terms of the contract which even according to the Respondents contemplated reimbursement of the payment actually made. He submitted that the Arbitral Tribunal has, however, adopted its own formula which is not permissible and the same is in conflict with the public policy. 19. In the alternative, he submitted that the Petitioner-Corporation was liable to reimburse sales tax and octroi duty only on direct transactions between the Petitioner-Corporation and the Respondents. He submitted that the warehouse of the Respondent was located at Bandra, Mumbai. He submitted that the Respondents purchased the material for effecting supplies to the Petitioner-Corporation either from outside the State or within the State of Maharashtra or from the suppliers in Mumbai. It is submitted that the Respondents used to buy material from their suppliers and used to raise invoice upon the Petitioners for the : 14 : 14 : 14 : same after becoming owner thereof as provided in clause 31.2 of the GCC. He submitted that the Petitioner- Corporation could not have become owners of the goods when the same were brought to the warehouse at Bandra and the ownership thereof could have been transferred to the Petitioner-Corporation only thereafter. He submitted that the price quoted by the Respondents in their tender included sales tax, octroi etc. till the stage of bringing the said goods to the warehouse at Bandra. He, therefore, submitted that the Respondents could have recovered levy of duty only on such sale effected by the Respondents in favour of the Petitioner after bringing the goods at warehouse by raising invoice upon the Petitioner-Corporation. 20. The learned Counsel for the Petitioner -Corporation attacked the supplementary award by pointing out that the Arbitral Tribunal has considered the issue of transport cost and octroi under the general law. He submitted that all this could not have been dealt with by the Arbitral Tribunal. In a supplementary Award the Tribunal could have considered only the effect of Attachment 10 and withdrawal of paragraphs 15 and 16 of the bid form. He submitted that though the issue of arbitrability was raised by the Petitioner,the learned Arbitrators have not decided the said issue raised by the Petitioner-Corporation and therefore, the Award is : 15 : 15 : 15 : liable to be set aside. 21. The learned Counsel for the Petitioner- Corporation submitted that there was no ambiguity between the provisions of Attachment 10 and clause 13 of the Special Conditions of Contract read with clause 14 of the GCC. He submitted that Attachment 10 was applicable to the present contract and the Respondents were admittedly not manufacturers and had supplied bought out items. He submitted that clause 13 of the Special Conditions of Contract (for short SCC) could be made applicable only if the Respondents were manufacturers and in that event also the Respondents would have become eligible to claim reimbursement only on the direct transactions between the Petitioner-Corporation and the Respondents. 22. The learned Counsel for the Petitioner- Corporation submitted that paragraph 4.4 of the Bid Form has to be read along with paragraph 5.1 of the Bid Form along with Attachment 10 duly amended and clause 31.2. He submitted that the definition "ex-work" as defined in incoterm and clause 13 of the Special Conditions of Contract ought to have been considered. He submitted that in any event the Respondents could have transferred the equipment under the first contract only after becoming the owners thereof i.e. after making payment : 16 : 16 : 16 : of consideration to their suppliers including payment of all taxes and duties and till stage of bringing the goods at site at Bandra. He, therefore, submitted that the Respondents were not entitled to claim any reimbursement. 23. The learned Counsel for the Petitioner- Corporation submitted that no reasons have been given by the Arbitral Tribunal as to how Attachment 10 was applicable. He submitted that no reasons were given as regards the effect of the insertion and subsequent withdrawal of clause 16. He submitted that the illegality has been committed by the Arbitral Tribunal by placing reliance on the letter of the Commissioner of the Petitioner-Corporation addressed to the Municipal Secretary for securing sanction of the Standing Committee to the contract. He submitted that whatever has been incorporated in the said letter does not form part of the contract and the Arbitral Tribunal has committed an error by proceeding on assumption that whatever was mentioned in the said letter was part of the contract. The learned Counsel, therefore, submitted that the Award as well as the supplementary Award deserves to be set aside. 24. The learned Senior Counsel appearing for the Respondents submitted that in the Arbitration Petition : 17 : 17 : 17 : no specific contention has been raised that the invoice TR 3 to 9 were beyond the scope of reference and therefore, the said contention cannot be considered. He submitted that the only contention raised by the Petitioner-Corporation in the petition is that Invoice TR-10 to 12 were beyond the scope of arbitration. He submitted that the issue referred to the Adjudicator was whether the Petitioner-Corporation was liable to make reimbursement of the sales tax and octroi paid by the Respondents. He submitted that the issue referred to the learned Adjudicator did not relate to any specific invoice. He, therefore, submitted that the issue before the Arbitral Tribunal was as regards the entitlement to the Respondents to reimbursement the octroi and sales tax and issue was not limited to a particular invoice. He submitted that by no stretch of imagination it can be said that for dispute of reimbursement of sales tax and octroi duty forming part of other invoices, a separate Reference had to be made to the adjudicator and thereafter to the Arbitral Tribunal. He pointed out the prayer made by the Respondents in the Statement of Claim filed before the Arbitral Tribunal. He pointed out that a specific amount payable under the invoice TR 1 to 10 was claimed apart from claiming the amounts payable/reimbursible against the sales tax, local tax and octroi under future bills. He pointed out that the prayer in the Statement of Claim was also as regards : 18 : 18 : 18 : further reimbursement payable to the Respondents. He submitted that in any event, before the Arbitral Tribunal, the grievance made by the Petitioner-Corporation was confined to invoice TR-12. He submitted that the Petitioner-Corporation has waived its right to object to other invoices. 25. The learned Senior Counsel for the Respondents further pointed out that there were two contracts between the parties. The first one was supply and the second one was for local transportation, and installation of the equipment and for re-furbishing of the equipment available of the Petitioner-Corporation. It was contended that the prices quoted by the Respondents for supply contract was ex-works price which did not include taxes and duties. He placed reliance on clause 11.4(b) of the instructions to bidders (for short (ITB)) which provided that the plant and equipment including necessary spares manufactured in the country shall be quoted on ex-factory, ex-works, ex-warehouse, or off-the-shelf as applicable basis. He pointed out that sales tax and other levies in respect of direct transaction between the Petitioner and the Respondents were to be quoted separately in Schedule 7. He urged that sales tax and octroi were to be borne by the Petitioners in respect of direct transactions. He submitted that the expression "direction transaction" : 19 : 19 : 19 : means that all transactions between the Respondents and the Petitioner-corporation which do not have any intermediary. He submitted that the transactions which are not direct would be those of procurement of raw materials and intermediary components by the Contractor. 26. The learned Counsel for the Respondents pointed out that in view