2023 (5) TMI 424 - HC - Indian Laws

Validity of Arbitral Award - main ground for challenging the award is that the learned Arbitral Tribunal while passing the award has not taken into consideration any evidence led by the parties, particularly, by the petitioner - Violation of principles of natural justice - goods which were got manufactured from the third parties, known as Bought Out Products (BOP) i.e., materials, parts and equipments, etc. procured for the project by the claimant from the approved sub-contractors, the petitioner refused to reimburse the Excise Duty and CST. HELD THAT - As far as, Section 34 of the Act is concerned, the position is well-settled by now that the Court does not sit in appeal over the arbitral award and may not interfere on merits. The Court may only interfere on the limited ground provided under Section 34(2)(b)(ii) of the Act i.e. of the award is against the public policy of India. As per the legal position clarified through decisions of this Court that violation of Public Policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of justice of India, conflict with justice or morality and existence of patent illegality in the arbitral award. The concept of the fundamental policy of Indian law would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice and reasonableness. As per the Section 34 of the Act, the award of the learned Arbitral Tribunal can be challenged on the ground if the award is contrary to the public policy, patent illegality and passed without any evidence. In the instant case, the main ground for challenging the award is that the learned Arbitral Tribunal while passing the award has not taken into consideration any evidence led by the parties, particularly, by the petitioner. The genesis of the dispute is to determine whether the petitioner was contractually liable to pay aforesaid amount i.e. Rs. 3,89,92,930/- in respect of the taxes, levies and duties towards BOP to the respondent - The learned Arbitral Tribunal, while interpreting the Clause 14 of the Contract, reached on the conclusion that the petitioner is obligated to pay the taxes and duties and there is no difference between the payment of taxes and duties in respect of manufactured goods and BOP. Taking view of the reason assigned in the interpretation, there are no error or illegality in the said interpretation of the learned Arbitral Tribunal. The learned Arbitral Tribunal has also rejected the arguments of the applicant regarding the applicable taxes and duties and held that the moment taxes and duties become applicable in respect of supplies to the respondent, they are reimbursable under Clause 14.1. That clause does not state that such taxes and duties were to be payable by the claimant directly to the Government. The expression applicable is to be understood in the context of manufacturing of goods and not with reference to the person. The sub-contractor while paying excise duty had passed on the burden to the claimant and the claimant therefore, became entitled to the payment or reimbursement thereof from the respondent. The learned Arbitral Tribunal rightly interpreted the term at actuals as none of the contractual provisions qualify for the respondent s obligation as confining to manufactured products only. On the contrary, the language is wide and all encompassing and includes BOP as well. The expression actual in this context refers the taxes, duties and levies actually paid to the exchequer. Therefore, as per the contract, there is no distinction between the respondent and the sub-contractor. The Schedule 7 does not in any way affect the tax liability of the petitioner towards the respondent. The Schedule 7 merely stated an estimate amount which may be paid to the petitioner and was not based on the actuals. The learned Arbitral Tribunal has rightly rejected the argument of the applicant on the aspect that reimbursement of taxes on account of BOP supplies was not made by the petitioner on 4th March, 2015 and 15th May, 2015. The petitioner acknowledged reimbursement of taxes and duties for BOP and such liability was not disputed/refuted by the petitioner. In Delhi Airport Metro Express Private Limited vs. Delhi Metro Rail Corporation Limited , 2021 (9) TMI 1479 - SUPREME COURT , the Hon ble Supreme Court held that The limited grounds available to Courts for annulment of arbitral awards are well known to legally trained minds. However, the difficulty arises in applying the well-established principles for interference to the facts of each case that come up before the Courts. There is a disturbing tendency of Courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs intervention and therefore, dubbing the award to be vitiated by either perversity or patent illegality, apart from the other grounds available for annulment of the award. Hence, the law which has been settled by the Hon ble Supreme Court is that the scope of interference with an arbitral award under Section 34 of the Act is fairly limited and narrow. The Court shall not sit in an appeal while adjudicating a challenge to an award which is passed by an Arbitrator, the master of evidence, after due consideration of facts, circumstances, evidence and material before him. There are no reason to interfere in the impugned award as there is no perversity or illegality or error in the said award - petition dismissed.

Summary

Issues Involved:
1. Whether the respondent is liable to pay taxes and duties on Bought Out Products (BOP) items under the contract.
2. Whether the respondent had made payments towards taxes and duties on BOP items.
3. Whether the claims raised by the claimant towards taxes and duties on BOP items are barred by the law of limitation.
4. Whether the claimant is entitled to the claims preferred by it.

Detailed Analysis:

1. Liability for Taxes and Duties on BOP Items:
The core issue was whether Clause 14 of the General Conditions of Contract (GCC) obligated the petitioner to reimburse taxes and duties, including Excise Duty and Central Sales Tax (CST), on BOP items. The Tribunal interpreted Clause 14.1 of the GCC, which states that "all taxes and duties applicable are indicated in Schedule 7 and will be paid/reimbursed by the Employer at actual." The Tribunal concluded that the clause did not distinguish between taxes on manufactured goods and BOP items, thus obligating the petitioner to reimburse taxes on BOP items as well. The Tribunal emphasized that the contract allowed for certain items to be manufactured by sub-contractors and that taxes on these items were also to be reimbursed by the petitioner.

2. Payments Towards Taxes and Duties on BOP Items:
The Tribunal found that the petitioner had indeed made payments towards taxes and duties on BOP items. Evidence showed that payments were made by the petitioner in two tranches, including amounts for BOP as well as manufactured products. The Tribunal rejected the petitioner's argument that no payments were made for taxes on BOP, noting that the petitioner had failed to produce invoices to substantiate their claim that payments were only for manufactured items.

3. Limitation of Claims:
The Tribunal addressed the issue of limitation, noting that the petitioner had made payments for taxes on BOP as late as 2015. The Tribunal found that the cause of action accrued on 7th October 2016, when the petitioner explicitly denied liability for taxes on BOP items. Since the arbitration was invoked on 18th February 2019, the Tribunal held that the claims were within the limitation period of three years.

4. Entitlement to Claims:
The Tribunal awarded the claimant Rs. 3,89,62,930 along with interest at 6% per annum from 18th February 2019, when the arbitration was invoked. The Tribunal also awarded costs of Rs. 52,40,000 to the claimant. The Tribunal's decision was based on a detailed examination of the contract, evidence, and submissions from both parties. The Tribunal found that the contract terms and the evidence supported the claimant's entitlement to reimbursement for taxes and duties on BOP items.

Conclusion:
The High Court upheld the Tribunal's award, finding no error or illegality in the Tribunal's interpretation of the contract or its conclusions. The Court emphasized the limited scope of interference under Section 34 of the Arbitration and Conciliation Act, 1996, and found that the Tribunal had acted within its jurisdiction and followed due process. The petition was dismissed, and the Tribunal's award was upheld.