2005 (4) TMI 611 - SC - Indian Laws

Arbitration proceedings - tender for supply of oxygen - Payment of interest - Agreement had been entered into between Hindustan Copper Limited ( HCL ) and Bhagwati Oxygen Limited ( BOL ) - Power to award interest at the rate of eighteen per cent per annum for pre-reference period, pendente lite and post reference, i.e. future interest from the date of award till the date of payment - Whether the Arbitrator had misconducted himself in passing the impugned award and by dismissing the counter claim of HCL - HELD THAT - Since the purity of oxygen gas was below 85 per cent, HCL was justified in refusing payment. It was also submitted that as per agreement, BOL was required to establish a 50,000 Litres Vacuum Insulated Storage Tank (VIST) evaporation and distribution system in the plant and was to maintain constant stock of 50,000 Litres of liquid oxygen but BOL failed to establish it. There was thus breach of condition by BOL. Keeping that fact in view, payment was not made by HCL and it could not have been held that HCL was wrong in not making payment. BOL, in view of breach of condition could not have asked for payment. The Arbitrator, therefore, was wrong in allowing the claim of BOL. In view of waiver on the part of HCL, it was incumbent on HCL to make payment and since no such payment was made, BOL was right in making grievance regarding non-payment of the amount and accordingly an award was made in favour of BOL. The learned single Judge as well as the Division Bench of the High Court considered the grievance of HCL so far as the claim of BOL allowed by the Arbitrator and upheld it. In view of the finding recorded by the Arbitrator and non-interference by the High Court, we are of the view that no case has been made out by HCL as regards the claim allowed by the Arbitrator in favour of BOL to the extent of supply of oxygen gas to HCL. Hence, the appeal filed by HCL deserves to be dismissed. In our opinion, however, the learned counsel for BOL is justified in submitting that really it was in realm of appreciation and re-appreciation of evidence. At the most all those letters go to show that HCL had some complaint against BOL and it had also disclosed its intention to purchase oxygen gas from other sources but as observed by the Arbitrator, it was not proved that HCL had in fact purchased oxygen from other sources under Clause 10.4. If in the light of such evidence, the Arbitrator did not think it fit to allow counter claim, it could not be said to a case of misconduct covered by Section 30 of the Act. The learned single Judge as also the Division Bench were, therefore, not justified in setting aside the award passed by the Arbitrator dismissing the counter-claim and hence the order of the learned single Judge as confirmed by the Division Bench deserves to be set aside by restoring dismissal of counter-claim of HCL by the Arbitrator. Thus, we hold that it was within the power of Arbitrator to award interest. As to the rate of interest, the contention of HCL is that it ought to have been at the rate of six per cent only. The learned counsel for HCL has strongly relied upon the decision of this Court in Nav Bharat Construction Co. In that case, interest was awarded by the Arbitrator at the rate of fifteen per cent. The said action was challenged by the State Government as well as the Contractor. The contention of the State Government was that the Arbitrator could not have awarded interest at the rate of fifteen per cent and it was exorbitant. The Contractor, on the other hand, urged that interest ought to have awarded at the rate of eighteen per cent. This Court held that it would be appropriate if interest at the rate of six per cent is awarded. In our view, however, a relevant and germane factor weighed with the Arbitrator in awarding eighteen per cent interest that at that rate HCL had given advance to BOL. Hence, in our opinion, even that part of the award passed by the Arbitrator did not deserve interference and learned single Judge and the Division Bench were not right in reducing the rate of interest. Thus, the appeals filed by BOL deserve to be allowed and are accordingly allowed by setting aside the order passed by the learned single Judge and confirmed by the Division Bench and by restoring the award passed by the Arbitrator. In view of the order passed in the appeals of BOL, the appeal filed by HCL deserves to be dismissed and is accordingly dismissed. However, in the facts and circumstances of the case, there shall be no order as to costs.

Summary

Issues Involved:
1. Validity of the Arbitrator's award in favor of BOL.
2. Misconduct by the Arbitrator in dismissing HCL's counterclaim.
3. Arbitrator's power to award interest and the appropriate rate of interest.

Detailed Analysis:

1. Validity of the Arbitrator's award in favor of BOL:
The Arbitrator found that BOL had set up its oxygen plant and supplied oxygen to HCL, but HCL did not make payments, alleging that the oxygen did not meet the purity standards. The Arbitrator noted that HCL did not insist on the establishment of a Vacuum Insulated Storage Tank (VIST) and continued to accept the oxygen supply without terminating the contract for breach. The Arbitrator concluded that HCL had waived its rights to object and was therefore liable to make payments to BOL. Both the learned single Judge and the Division Bench upheld this finding, and the Supreme Court found no reason to interfere, thus dismissing HCL's appeal on this issue.

2. Misconduct by the Arbitrator in dismissing HCL's counterclaim:
The Arbitrator dismissed HCL's counterclaim, noting that HCL did not invoke Clause 10.4 (risk purchase) and did not prove that it had purchased oxygen from other sources. The learned single Judge and the Division Bench re-appreciated the evidence and found that the Arbitrator had not considered relevant letters and communications, leading to a finding of misconduct. However, the Supreme Court held that the High Court's re-appreciation of evidence was beyond its jurisdiction under Section 30 of the Arbitration Act, which limits grounds for setting aside an award to misconduct, procedural invalidity, or improper procurement. The Supreme Court restored the Arbitrator's dismissal of HCL's counterclaim.

3. Arbitrator's power to award interest and the appropriate rate of interest:
The Arbitrator awarded interest at 18% per annum for pre-reference, pendente lite, and post-award periods, noting that HCL had given advances to BOL at that rate. The learned single Judge and the Division Bench reduced the interest rate to 6%, citing the absence of a contractual provision for interest and relying on Section 34 of the Code of Civil Procedure. The Supreme Court, however, upheld the Arbitrator's decision, noting that an Arbitrator has the power to award interest if reasonable and that the 18% rate was justified given the advance rate. The Supreme Court thus restored the original interest award.

Conclusion:
The Supreme Court allowed BOL's appeals, restoring the Arbitrator's award in full, including the dismissal of HCL's counterclaim and the 18% interest rate. HCL's appeal was dismissed.