2023 (4) TMI 120 - HC - Indian Laws

Scope of Contractual obligations and counter obligations - Foreign Exchange variation - Liability to pay/meet the difference in Foreign Exchange rate-U.S. vis-a-vis Indian Rupee - Interest on unadjusted advance - It is the case of the appellant that the contract awarded to the 1st respondent was a fixed/firm price contract and the words and phrases used in the contract in so many words clearly indicated that there could be no bargain with regard to the total price of Rs.17,23,16,160/-, which was agreed between the parties - Whether the counter claim of 1st respondent against the claimant Board is beyond the scope of arbitration agreement and whether this Tribunal has jurisdiction to decide the same? Whether the contract was indeed a firm price contract and if so, whether the appellant was justified in making the claim for refund, seeking excess amounts paid to the 1st respondent , over and above the contract value of Rs.17,23,16,160/-, which has been arrived at fixing a rate at Rs.31.61? - HELD THAT - It is easy to say that there is no clause in the final purchase order regarding the liability that arises on account of variation in Foreign Exchange rate. However, when the parties had clearly negotiated with their open eyes and did not meet eye to eye on this aspect and finally, consciously omitted to include clause 1.4.4 pertaining to exchange rate in the final draft Purchase Order, this Court finds that the said clause would have been omitted only because of the 1st respondent's persistence with its stand that any variation on account of Foreign Exchange rate would be to the appellant's account. Therefore, this Court is unable to accept the argument advanced by the learned Senior counsel for the appellant in this regard that since the Purchase Order does not contain any clause fixing the liability on the appellant, the express words used in the Purchase Order terming the contract as a firm price contract should be respected and the amount of Rs.17,23,16,160/- (Rupees Seventeen Crores twenty three lakhs sixteen thousand and one hundred and sixty only) alone would bind the parties. The prices are mentioned in INR value and there is clear mention that the prices are FIRM for indigenous equipments. This is not disputed by the learned Senior counsel for the 1st respondent also. However, it is only the application of the clause that the prices are FIRM to the imported equipment creates confusion. The clause in the final Purchase Order clearly mentions that the prices are FIRM for CIF value in U.S.Dollars - This Court keeping in mind the fact that the entire discussions and negotiations between the parties was only on this specific issue of variation in Foreign Exchange rate and the resultant conduct of the parties viz., agreeing to omit the specific clause 1.4.4 under the exchange rate in the draft Purchase Order, only indicates that the 1st respondent was never agreeable to absorb any variation in Foreign Exchange. This Court also does not find any violation of Sec.28(3) of the Act as strongly canvassed by the learned Senior counsel for the appellant. While deciding and making an award the Arbitral Tribunal certainly has to take into account the terms and conditions set out in the contract. However, in cases like these where there are grey areas, it is well open to the Arbitral Tribunal to fall back on the exchange of correspondence between the parties, intention of the parties as expressed therein, all of which culminated in the final contract being drawn. Even on this view of the matter, this Court does not find that the majority award of the Arbitral Tribunal suffers from any infirmity on the ground of violation of the Sec.28(3) of the Act. This Court answers against the appellant and in favour of the 1st respondent. Whether this Court, sitting in appeal U/s. 37 of the Act is entitled to set aside the majority award and accept the minority award, despite the learned Single Judge dismissing the Arbitration Original Petition, finding no grounds for interference U/s. 34 of the Act? - HELD THAT - The Hon'ble Supreme Court and this Court have repeatedly shown restraint in setting aside award on trivial or factual issues. The object of arbitration itself is only a result of mutual consent of two parties who are in conflict, to redress their respective grievances, by opting to avoid the normal recourse to the Courts and instead go in for arbitration, which according to them would be quicker and effective - When the power available to the High Court U/s. 34 of the Act is itself very limited and more supervisory in nature, this Court exercising jurisdiction U/s.37 as an Appellate Court is further circumscribed to interfere in the absence of the above set out features or factors that alone would warrant interference. This Court has gone through the order passed by the learned Single Judge and does not find any of the circumstances available, in order to term the same as patently illegal or the award being opposed to public policy going unnoticed by the learned Single Judge. Admittedly, in this case there is no allegation of fraud or bias. Therefore, this Court exercising powers U/s. 37 of the Act does not see or find any reason whatsoever to set aside the order by the learned Single Judge rejecting the challenge to the majority award of the Arbitral Tribunal. In short, this Court does not find the majority award or the order of the learned Single Judge to shock the conscience of the Court - Appeal dismissed.

Summary

Issues Involved:
1. Liability for Foreign Exchange Rate Variation
2. Interest on Unadjusted Advance
3. Arbitrability of Claims
4. Jurisdiction of Arbitral Tribunal

Summary:

1. Liability for Foreign Exchange Rate Variation:
The primary dispute was whether the appellant (Electricity Department) or the 1st respondent was liable for the difference in Foreign Exchange rate between the U.S. Dollar and Indian Rupee. The appellant contended that the contract was a "firm price" contract, meaning the total agreed price of Rs. 17,23,16,160/- was fixed and non-negotiable. The 1st respondent argued that the appellant had agreed to pay the cost of imported equipment in CIF value (in U.S.$), implying the appellant should absorb the excess amount due to Foreign Exchange rate variation. The Arbitral Tribunal, by a majority award, held that the appellant was not entitled to a refund for the excess amount paid due to Foreign Exchange variation, as the contract did not explicitly state that the 1st respondent would bear this difference.

2. Interest on Unadjusted Advance:
Another issue was whether the appellant was entitled to claim interest on the unadjusted portion of the advance paid to the 1st respondent for delays beyond the agreed delivery and completion period. The 1st respondent denied liability for interest on the unadjusted advance, arguing that delays were due to the appellant's actions. The majority award of the Arbitral Tribunal held that the appellant was not entitled to this interest.

3. Arbitrability of Claims:
The Arbitral Tribunal decided on preliminary issues regarding the arbitrability of claims related to customs duty variation and interest on excess amounts. It held that these claims were not arbitrable and outside the Tribunal's jurisdiction. However, the Tribunal found that the claim for refund of Rs. 7,23,428/- for extending bank guarantees was within the scope of the arbitration agreement and thus arbitrable.

4. Jurisdiction of Arbitral Tribunal:
The Tribunal addressed whether the counterclaim of Rs. 9,24,82,047/- by the 1st respondent was within its jurisdiction. It concluded that the counterclaim was not arbitrable. The appellant challenged the majority award under Section 34 of the Arbitration and Conciliation Act, 1996, but the learned Single Judge dismissed the petition, stating that the High Court's role under Section 34 is limited and cannot substitute its views for those of the Arbitral Tribunal.

Conclusion:
The High Court, upon appeal under Section 37, upheld the majority award of the Arbitral Tribunal, concluding that the contract was a "firm price" contract in terms of U.S. Dollar value, not INR. The Court found no grounds to interfere with the majority award or the learned Single Judge's decision, as there was no patent illegality or violation of public policy. The Original Side Appeal was dismissed, affirming that the appellant must bear the Foreign Exchange rate variation and is not entitled to interest on the unadjusted advance.