1 arbp265-06 vai IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.265 OF 2006 Hindustan Petroleum Corporation Ltd. ....Petitioner V/s. Lite Containers Pvt. Ltd. ....Respondent Mr.Minoo Siodia with Mr.Nikhil Agarwal and Mr.K.N. Singh i/b M/s.Rustamji & Ginwala for the Petitioner. Mr.V.K. Rambhadran with Mr.Prathamesh Avhad for the Respondent. CORAM : S.J. VAZIFDAR, J. DATE : 10TH FEBRUARY, 2011. P.C. :- 1. This is a petition under section 34 of the Arbitration and Conciliation Act, 1996 to set-aside an award dated 20.3.2006 passed by the sole arbitrator. 2. Mr.Siodia, the learned counsel appearing on behalf of the petitioner, submitted that the award is liable to be set-aside in view of my order and judgment dated 17.12.2009 passed in Arbitration Petition Nos. 138 of 2006 and 223 of 2006. Mr.Rambhadran, the learned counsel appearing on behalf of the respondent, submitted that the facts of the case are different and that therefore, the judgment would not apply. Assuming that Mr.Rambhadran is correct, this award is liable to be set-aside even on other grounds. 3. The petitioner had placed a purchase order dated 21.6.1999 on 2 arbp265-06 the respondent for empty L.P.G. cylinders of the quantity and quality specified therein. Item 1 of the purchase order stated that the supply was to be as per the details of Attachments-I to III thereto. Attachment-I provided that pending confirmation of the price effective from 1.4.1999, the respondent may charge the petitioner at the provisional rates mentioned therein, which were based on the price of steel prevailing as on 1.3.1999. Attachment-I further stated that the rates were therefore subject to the upward/downward revision on account of the revised steel price and rail freight effective from 1.4.1999. Attachment-I also provided that the prices shown therein were “as per New Pricing Formula as approved by MOP & NG (Ministry of Petroleum & Natural Gas)” which were applicable with effect from 1.4.1999. 4. On 28.6.1999, Bharat Petroleum Corporation Limited which was the co-ordinator in respect of pricing for the petroleum companies informed all the cylinder manufacturers inter-alia that it had been decided by the industry that the price of the cylinders shall be kept provisional from 1.7.1999 onwards and firm prices would be advised on completion of the review by the Industry Task Force. The circular further stated that prising of the cylinders thus far was based on MOP & NG approved escalation formula arrived at after a study by Industry Task Force, but the same needed to be reviewed on account of various factors. 5. It is important to note that a change order dated 16.8.1999 to the said purchase order dated 21.6.1999 was issued by the petitioner to the respondent. The change order stated as under :- “This Change Order is issued to incorporate the following 3 arbp265-06 in the subject Order : The Pricing of LPG Cylinders is based on Escalation Formula as approved by MOP & NG arrived at as per the study by Industry Task Force. Industry is reviewing this Escalation Formula. Because of the same the price of LPG Cylinders shall be kept provisional from 1.7.1999 onwards and the firm prices shall be advised to you on completion of the review by the Industry Task Force, as already advised by BPCL on behalf of the Industry vide their letter No.LPG:EQ:POLICY.CON dated 28.6.1999. All other Terms and Conditions of our Original Order and changes made vide our subsequent Change Orders will remain unchanged. Kindly acknowledge receipt of this Change Order.” It may be mentioned that the arbitrator has also noted that the change order had been accepted by the respondent. It is clear therefore, that the change order affected the price stipulated in the purchase order dated 21.6.1999. It is stated that all other terms and conditions of the purchase order remained unchanged meaning thereby all the terms and conditions other than those relating to the price. This, I should have thought, was quite obvious. 6. The petitioner placed another purchase order dated 27.4.2000 for a further quantity of cylinders. The price stipulated therein was also stated to be provisional. Attachment-I thereto, stated that a new pricing formula had been approved by the Ministry and the Oil Industry applicable effective from 1.4.1994. The new pricing was to cover the supply against the purchase order. However the price, as stated earlier, was expressly stated to be provisional in clause 1 of Attachment-I itself. It is important to 4 arbp265-06 note that Attachment-I further provided as under :- “The pricing of LPG Cylinders is based on escalation formula as approved by MOP & NG arrived at as per the study by Industry Task Force. Industry is reviewing this escalation formula. Because of the same the price of LPG Cylinders shall be kept provisional from 1.7.1999 onwards and the firm prices shall be advised to you on completion of the review by the Industry Task Force, as already advised by BPCL on behalf of the Industry vide letter No.LPG:EQ:POLICY.CON dated 28.6.1999”. The above stipulation was similar to the one contained in the change order dated 16.8.1999 in respect of the earlier purchase order dated 21.6.1999. 7. In other words, both the purchase orders expressly stipulated that the prices mentioned therein were only provisional and that the same was being reviewed and that the final price would be advised subsequently based upon the decision of the Industry Task Force after the renewal of the matter. 8. The learned arbitrator has, apart from everything else, passed the award contrary to the express provision of the purchase order especially as regards the price. Paragraph 15(e) of the award reads as under :- “(e) It is thus noted that since all the terms and conditions of the original order remain unchanged, the provision under price term (the New Pricing Formula as approved by Ministry and the Oil Industry applicable effective 1.4.1994 shall govern the price of a cylinder supplied against the subject purchase order) shall also remain unchanged. Further I could not find any provision in any of the change orders that the basis of finalising the firm price per cylinder would be anything other than the New Pricing Formula as approved by the Ministry of Petroleum and Natural Gas effective April 1, 1994.” 5 arbp265-06 The error arises on account of the fact that the learned arbitrator proceeded on the basis that all the terms and conditions of the purchase order dated 21.6.1999, remain unchanged. As stated earlier, the change order dated 16.8.1999 provided not that all the terms and conditions of the original order remain unchanged but that : “all other terms and conditions of our original order ......................... will remain unchanged”. (emphasis supplied). The arbitrator however, failed to notice the fact that only the terms other than those relating to the price were to remain unchanged. In other words, the price stipulated in the purchase order dated 21.6.1999 was changed by the change order, which was admittedly accepted by the respondent. The learned arbitrator therefore proceed on a fundamentally erroneous basis contrary to the express terms of the agreement itself. The second sentence in paragraph 15(e) of the award is a result of the arbitrator having proceeded on this erroneous basis. 9. As far as the purchase order dated 27.4.2000 is concerned, as stated earlier, the same expressly provided that the price was provisional and the final price would be based on the review undertaken by Industry Task Force. 10. As I have held in the other matter, admittedly the price had not been finalized. It was for the arbitrator, at the highest, to fix the price which he failed to do. The price could not have been fixed merely on the basis of what was contained in the purchase orders, which expressly stated the same to be provisional. 6 arbp265-06 11. Mr.Rambhadran submitted that the price once stipulated in the purchase order could not be subject to any variation upward or downward. In respect of this contention, he relied upon a judgment of the Supreme Court in Bhupendra Singh Bhatia v. State of Madhya Pradesh & Ors. (2006) 13 SCC 700. In that case, the new excise policy was introduced in the State of Madhya Pradesh which provided that in tribal sub-plan areas, sale of foreign liquor through retail outlets would be done exclusively by the State Government with the purpose of saving the tribals from being exploited by the private contractors. The earlier policy of auctioning the foreign liquor shops to private individuals was abandoned in tribal areas. The State Level Purchase Committee was constituted for purchase of foreign liquor to be sold by the State Government through its retail outlets in the tribal areas. The Purchase Committee was to decide about the purchase price of the foreign liquor on the basis of the lowest quotations. However, as the constitution of the Purchase Committee and inviting tenders at State level was likely to take time, a stopgap arrangement was made. The Purchase Committees were constituted at the District level headed by the Collector to purchase the foreign liquor from the wholesellers as an ad-hoc arrangement till the rates were finally decided by the State Level Committee. The appellants contended that their quotations were accepted by the Purchase Committee and the payments were made to them at the approved rates. The State Level Committee subsequently decided the rates which were lower. The respondents there demanded the excess amount payable from the appellants. The High Court observed that when 7 arbp265-06 the liquor was purchased, it has been made clear to the appellants that the rates were yet to be decided. The Supreme Court held as under :- “12. In our opinion, when a sale of any commodity is made, the seller and the purchaser both have to know the sale/purchase price at the time of or before the sale. A sale/purchase price to be fixed subsequent to the sale is unknown in the world. If a sale of a commodity is made today and if the purchaser informs the seller that he will inform the purchase price subsequently, then it can always be open to the purchaser to reduce the purchase price subsequently to a negligible amount. Similarly, if the sale price can be fixed subsequent to the sale at the option of the seller it can be increased by the seller at his option, and the seller can later on while demanding the sale price increase it to an exorbitant amount. Such a view is not clearly contemplated by any sensible person or by any stretch of imagination. In fact, such an action by the State Government has to be treated as arbitrary and unreasonable, and it is well settled in Maneka Gandhi v. Union of India ( (1978) 1 SCC 248 ) that any State action which is arbitrary and unreasonable is violative of Article 14 of the Constitution.” 12. The present petition however, is under section 34 of the said Act. This aspect was not raised before the learned arbitrator. Nor has the arbitrator dealt with the disputes between the parties on this basis. More important, as a result of this contention not having been raised before the arbitrator, the petitioner was denied the opportunity of dealing with the same. Indeed the conduct of the parties was to the contrary. From time to time there was a fluctuation in the rates. The petitioner even gave the respondent the benefit of the fluctuation. The arbitrator further did not hold the clause to be void. The arbitrator proceed, as stated earlier, on the erroneous basis that such a provision did not exist and that the rates remain unchanged. The judgment therefore is of no assistance to the respondent. 8 arbp265-06 13. In view of the above, I have not considered the other contentions raised by the counsel. 14. In the circumstances, the award is set-aside. There shall be no order as to costs.