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TMI Blog2007 (9) TMI 598X X X X Extracts X X X X X X X X Extracts X X X X ..... L APPEAL NO. 4079 OF 2007 [Arising out of S.L.P.(c) No.20989 of 2006] With : Civil Appeal No. 4080 of 2007 [ Arising out of S.L.P.(c) No. 4409 of 2007] - - - Dated:- 6-9-2007 - A.K.MATHUR MARKANDEY KATJU, JJ. JUDGEMENT A.K. MATHUR, J. 1. Leave granted. 2. Both these appeals arise out of the order dated 24.8.2006 passed by the Division Bench of the High Court of Gauhati at Guwahati in Arbitration Appeal No.1 of 2002. Therefore they are taken up together and disposed of by this common order. 3. Brief facts which are necessary for disposal of these appeals are that the respondent, Daelim Industrial Company (hereinafter to be referred to as 'DIC' ) is a company incorporated in Seoul, Korea having its registered office there. During the pendency of the arbitration proceedings, Daelim Engineering Company Limited (DEC) got merged with Daelim Industrial Company Limited (DIC), and therefore DEC ceased to exist. For our convenience we will take up DIC for all practical purpose. The appellant, Numaligarh Refinery Limited (hereinafter to be referred to as 'NRL') is a Government of India undertaking incorporated under the Companies Act, 1956, having its r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant having refused to pay its portion thereof interest at the rate of 12% per annum pendente lite on ₹ 29.76 crore from 7.8.1997 till the date of the award was also sanctioned. In addition, the appellant, NRL was saddled with the liability of post award interest at the rate of 18% per annum on the above awarded amounts in case of its failure to make the payments within 60 days of the receipt the award. However, Justice M.M.Dutt, Member of the Arbitral Tribunal gave a dissenting award. He awarded DIC an amount of ₹ 13,74,55,272/- with interest at the rate of 10% till realization, in case of failure on the part of NRL to disburse the sum. DIC was also further awarded an amount of ₹ 1.65 crore to be recovered from the Customs authorities exacted on goods not chargeable to duty. Being aggrieved with the majority award dated 23.9.2000, NRL filed application under Section 34 of the Arbitration and Conciliation Act, 1996 ( hereinafter to be referred to as the' Act') in the Court of the District Judge at Golaghat which was registered as Misc. Arbitration Case No.1 of 2001. Notice was issued and in pursuance of such notice the respondent appeared. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the computed value on site delivery basis on the pricings quoted originally for that of the imported origin. Clause 14.3 of the Instructions to Bidders reads as under: In case any item, quoted as imported in the bid, but is subsequently transferred to the Indian category, the total cost on project-site-delivery basis for such item will be payable by Owner at actuals but maximum limited to the computed value on site delivery basis based on the pricings quoted originally for that of imported origin. Though this was agreed by NRL but it delayed the formal decision and DIC arranged procurement of the substituted indigenous materials by undertaking market survey, selecting Indian manufactures, supplying of design and drawing to the manufacture, ensuring product with quality control and supplies of finished project within a stipulated time frame for which it incurred cost and expenses to the tune of ₹ 25.3 crore which included the cost borne by DIC towards procurement , service charges, inspection and expediting charges, overhead expenses and profit. NRL duly approved the indigenous manufacturers from whom the substituted items were procured and permitted them to be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there remains only ₹ 9.58 crores. But according to the minority award, as per the cost given by NRL their liability comes to ₹ 14.19 crores and therefore, DIC is not entitled to beyond this amount. NRL also contested the expenses on account of procurement service, inspection and expediting for ₹ 97 lakhs and overhead for ₹ 3.47 crores as well as the claim of profit for ₹ 3.14 crores and tax deduction at source for ₹ 1.32 crores was not payable. After discussion, Justice M.M.Dutt took the view that the claimant was entitled to ₹ 141,920,735.00 plus ₹ 1,32,13,395.00 as tax deduction at source aggregating to ₹ 15,51,34,130.00 only out of which the claimant has received ₹ 10,69,83,850.00. Therefore, the claimant was entitled to receive the balance amount of ₹ 4,81,50,272.00 only and not ₹ 9.6 crores as claimed. The District Court disapproved the approach of the arbitrators and emphasized that the word 'actual' occurring in Clause 14.3 means that the party should have produced the necessary evidence to substantiate it. The High Court however did not approve the same and took into consideration the letter d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res. [ ₹ 2 crores allowed under item No.1] 5. Now, coming to another head - Turbo technical price, under this head Turbocechnica SPA of Italy, a consortium partner of DIC in the contract agreement with NRL, had to supply various imported items for a consideration of US $4150000 and DM 22990000 as specified in the Price Schedule of the Overseas Contract. The said consideration under Item No.2.1.1 was a consolidated figure including payment on account of service like third party inspection charges, ocean fright and marine insurance. Note 1 of the above Price Schedule permitted DIC / Turbotechnica to furnish list of goods with CIF (cost insurance and freight) value of NRL for availing concession in payment of customs duty payable in respect of import from overseas. Note 2 reiterated that third party inspection charges were included in the above price. DIC vide letter dated 13.9.1995 requested NRL to bifurcate the total consideration of the import items into CIF cost and service cost and to amend the contract agreement for that purpose but no amendment was made. It was pointed out that if no amendment was made for the relevant portion, Turnotechnica shall have to declare the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he DIC is not entitled to the aforesaid amount of ₹ 1.65 crores under this head. { Claim of ₹ 1.65 crores under this head not allowed] 6. Next issue is with regard to countervailing duty. DIC claimed a sum of ₹ 8.78 crores which was paid on account of excise duty. The claim of the DIC was that in fact at the time when the agreement was executed between the parties, countervailing duty was not there and it was introduced with effect from 1.1.1995 by Customs Tariff (Amendment) Ordinance, 1994. New Sections 9, 9A and 9B were introduced. This Ordinance was subsequently replaced by Customs Tariff (Amendment) Act, 1995 which was deemed to have come into force with effect from 1.1.1995. DIC submitted its initial bid on 16.3.1994 and final bid on 23.11.1994 by taking into consideration customs duty on imported materials at 25% as operative then. DIC could not have imagined the levy of countervailing duty at 12.5 % brought into force with effect from 1.1.1995. Bid settlement was made on 24.1.1995 and NRL finally awarded the contract to DIC by fax of intent dated 31.1.1995. Therefore, the submission of DIC was that at the relevant time there was no countervailing duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the contract since it was the duty of the DIC to pay all taxes and customs duty and levies, they cannot escape their liability to bear the countervailing duty imposed by the Government. Mr. Ganguli, learned senior counsel for the appellant in this appeal argued that in fact this was a new levy and at the time when the negotiation was entered into it was not in contemplation and in that connection learned senior counsel invited our attention to a decision of this Court in The State of Madras v. Gannon Dunkerley Co., (Madras) Ltd. ( [1959] SCR 379). Mr.Ganguli, learned senior counsel for the appellant submitted that so far as interpretation of contract is concerned, the arbitrator is the best judge because he has the jurisdiction to interpret the contract having regard to the terms and conditions of the contract, the circumstances of the case, the pleadings of the parties, the High Court should not substitute its interpretation. In this connection, learned senior counsel has invited our attention to the following decisions of this Court. (i) (1992) 4 SCC 440 Thermax Private Limited. V. Collector of Customs (Bombay) New Customs House. (ii) (1968) 3 SCR 387 Kollipara Srir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the arbitrator should be accepted without demur. There is no quarrel with this legal proposition. But in a case where it is found that the Arbitrator has acted without jurisdiction and has put an interpretation of the clause of the agreement which is wholly contrary to law then in that case, there is no prohibition for the Courts to set things right. In the present case, the aforesaid clauses reproduced above, clearly lays down that all taxes, duties and levies have to be borne by the contracting party. Countervailing duty which came into force with effect from 1.1.1995 by way of ordinance (subsequently converted into an Act) is a duty enforced by the Statute and hence in face of Clause 2(b) and Clause 6 of the Consolidated Agreement read with Clause 2.1 (g) of the Instructions to Bidders and Clause 13 (f) of the Bid Document. There is leaves no manner of doubt that DIC has to pay the same. Therefore, this levy has to be borne by the DIC and they cannot escape from this situation. In this connection, learned counsel has invited our attention to Section 64-A of the Sale of Goods Act, 1930 which reads as under: 64-A. In contracts of sale, amount of increased or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so far as the payment of countervailing duty is concerned, it was the obligation of the DIC and the view taken by the Division Bench of the Act appears to be correct and there is no ground to interfere with this part of the order. Consequently, we uphold the judgment of the High Court and dismiss the appeal arising out of S.L.P.(c) No.4409 of 2007 filed by the DIC. 9. The next question is with regard to payment of extra customs duty due to fluctuation of the exchange rate. In this connection, the majority of the Arbitrators took the view that the DIC was entitled to ₹ 2.09 crores on account of excess payment of customs duty on account of fluctuation of the exchange rate. As against this, the minority view taken by Justice MM Duty was to the contrary. He has observed that the NRL had entered into a turnkey firm-price contract with the sole object of avoiding any future additional burden till the completion of the contract. He has also observed that the price quoted in the bid documents is fixed and cannot be varied according the variation of the fluctuation of the exchange rate of US dollar. He has also observed that this also holds good both for upward and downward variati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions through waterways for over Dimensional consignment inclusive or enroute Indian/ Bangladesh Custom clearance to Project site. h) Lump sum charges toward clearance, handling, transportation ( other than ODCS) storage, preservation and conservation of all equipment at project site. i) Lump sum cost of all civil works. j) Lump sum charges toward pre-assembly, if any, erection, testing and commissioning of the complete system. k) LIST OF RECOMMENDED SPARES for two years normal operation indicating Parts name, cagalogues No., quantity and Unit Prices. l) List of components with itemized unit rate for all individual equipment and materials, to enable Price Adjustment, if required during detailed engineering and execution of the work. m) Fees/ Charges payable, if Owner/ Consultant opts for inspection by Lloyds Register or third party inspection for IMPORTED equipment. n) Agency commission if any, included for Indian Agents. Clause 14 deals with pricing and currency changes. Clause 14.1. reads as under : The prices quoted for the entire scope of work shall remain firm and fixed till complete execution of the work. In these parameters of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the parties and court will have no jurisdiction to interfere with the award even on ground of error of law apparent on the face of award. We have no quarrel with this proposition. So far as other decisions of this Court mentioned above, that the Court should accept the interpretation of the terms of the agreement made by the arbitrator, and should not interfere, there is no two opinion on that question but in the present case, we are faced with a peculiar situation that the three Arbitrators out of whom two has taken one view of the matter and the third has taken another view of the matter. The District Judge has also set aside the award on some issues and the High Court has also accepted some items of the majority award of the Arbitrators and some items of the minority award of the Arbitrator. Therefore, in the peculiar state of affairs in the present case when there is variation of views ; the majority award takes one view and the minority award takes another view, the District Judge takes the third view and the High Court takes the fourth view, in the state of these conflicting views on the subject, we have to enter into the merit to put an end to the controversy by adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Contract Price shall be reduced at the rate of 1% of the Contract value per week of delay or part thereof subject to the maximum of 15% of the Contract value. But this clause was amended subsequently and one percent was reduced to = percent and 15 percent was reduced to 5 per cent as per the consolidated agreement. The said amendment reads as under: II) PRICE REDUCTION SCHEDULE IN THE ENVENT OF DELAYS: If the contractor fails to comply any of the time schedule mentioned hereinabove, the Contract price shall be reduced @ =% of the total contract value per week of delay or part thereof subject to a maximum of 5% of the total contract value i.e. total aggregate contract value of Contract Nos.3244-00- LZ-PO-7012/10091 and 3244-00-LZ-PO-7013/10092 mentioned hereinabove. Price reduction as set forth in this clause shall be the sole remedy available to owner and the sole liability of the contractor for delay. In the event of delay of over 10 weeks, owner may exercise their rights to invoke any or all provisions under this agreement. This was for the contractor's failure to complete the contract. 13. However in this connection, our attention was invited to clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lay was occasioned on the part of the contractor, then the owner would have been entitled to the damages to the extent of 5%. This has been taken as the yardstick and the compensation has been worked out at 5% of the contract value and damages to the tune of ₹ 8.9 crores has been awarded to the claimant. We are of opinion that this issue is purely dependent on the factual controversy of the matter and the majority of the arbitrators has assessed the loss on account of the delays on the part of the owner and awarded 5% of the contract value as a measure to award compensation to the owner on account of the delay on the part of the owner in completing the work and no exception can be taken to this approach. The amount cannot be said to be a wrong assessment of the situation. We cannot sit over the finding of fact arrived at by the majority of Arbitrators and affirmed by the High Court. Therefore, we accept the view taken by the Division Bench of the High Court in accepting the view the majority of the Arbitrators in granting damages to the tune of ₹ 8.9 crores in favour of the claimant- DIC. [ ₹ 8.9 crores granted as damages for delay of 929 days ] 13. Next ite ..... X X X X Extracts X X X X X X X X Extracts X X X X
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