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TMI Blog2015 (1) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... held that when the view adopted by the arbitrator is a plausible view, then the court cannot interfere with the decision made. Thus, the court would interfere with the arbitral award, if the interpretation adopted in the making of the award is neither plausible, nor reasonable, and is in conflict with the terms of the contract agreement - If the interpretation adopted by the arbitrator is not the only possible view, it being one of the several plausible views - without any patent illegality in the conclusions drawn by the arbitrator, it is beyond the scope of jurisdiction of this court under section 34 of the Act, to interfere with the award. If the saving on account of payment of taxes and duties exceeds the amount declared by the petitioner (of ₹ 1,290,000,000/- and ₹ 774,000,000/-), such saving on account of taxes and duties has to be passed on to the employer, i.e. the respondent - whether, or not, the petitioner indeed had to bear any amount of indirect taxes as claimed by it, is a matter of detail and would, at the highest, entitle the petitioner to adjustment to that extent - if the arbitrator has applied his mind to the pleadings, the evidence adduced bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formed for the purpose of executing the project of Design, Manufacture, Supply, Testing and Commissioning of Passenger Rolling Stock Contract RS-1 for Mass Rapid Transport System (MRTS) Phase one (hereinafter the project ) for the Delhi Metro Rail Corporation Ltd. (DMRC). 3. Around the month of October 1999, the petitioner was selected as a pre qualified bidder for the project. Consequently, the respondent issued a Notice of Invitation to Tender (hereinafter the NIT) to the Petitioner. The NIT enclosed the tender documents describing the scope of the work and the terms and conditions for the contract. Annexure 2 to the Instructions to Tenderers attached to the NIT, contained stipulations with respect to the fixed lump sum price nature of the contract. Further clause 2.3 of the aforementioned instructions expressly provided that the respondent was making efforts to obtain waiver of the taxes and duties for the project. 4. The final bid of the petitioner was opened by the respondent on 14.08.2000. The petitioner was declared the lowest bidder. Consequently, the respondent commenced negotiations with the petitioner on the financial and technical offer/bid of the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CC and clause 26 of SCC. 8. On July 18, 2003 the General consultants of the respondent communicated to the petitioner that any customs duty exemption certificate issued for a value in excess of INR 1290 million will be to the benefit of the respondent. The petitioner by its letters dated August 7, 2003 and August 21, 2003 refuted the aforesaid claim that the respondent was entitled to any amount in excess of INR 2064 million on account of exemption from payment of taxes and duties specified in clause 4 of the Contract Agreement. Consequently, dispute arose between the parties with regard to the amount which the respondent is entitled to claim towards adjustment. 9. As the parties failed to arrive at an amicable settlement, the matter was referred to arbitral tribunal leading to the present impugned interim/ partial award. 10. The tribunal upheld the respondents stand, and vide the impugned award dated 4.04.2007 held as follows: In the circumstances, therefore, we allow counter claim (b) of the respondent. Accordingly the claimant is directed to render true and full account of all the transactions of import, manufacture and purchase, which would have been subjected to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Spares, Jigs, Special Tools and Testing and Diagnostic Equipment. (emphasis supplied) (The above underlined stipulation has been referred to by the Arbitral Tribunal as Primary Term Y ) The above Fixed Lump Sum Price, in addition to other taxes, also includes the following amounts of Taxes and Duties: Import Tax and Customs Duty on the imported components and equipment installed in indigenously manufactured 45 trains, Spares, Jigs, Fixtures, Special Tools, and Testing and Diagnostic Equipment etc. INRs1,290,000,000 Other Indirect Taxes in India INRs774,000,000 The Contractor shall pay the Employer the difference between the declared amounts of Import Tax and Customs Duty and other Indirect Taxes, as stated above, and the actual amounts paid to the concerned authorities, should these be less. In the event that the actual amounts are greater than the declared amounts, the Contractor shall be fully responsible for the additional amounts. (emphasis supplied) (The above underlined stipulation has been referred to by the Arbitral Tribunal as Primary Term X ) GENERAL CON ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions of Contract (GCC); (h) The Schedules; (i) The Contractor s Proposal; and (j) Any other document forming part of the Contract. SPECIAL CONDITIONS OF CONTRACT: CLAUSE 26: ADDITIONAL CLAUSE: RECORD OF TAXES, DUTIES ETC: The Contract shall maintain complete records in respect of payments made for taxes, duties, octroi, and other levies payable to various authorities and advise the Employer complete details of such payment every month. These details will be kept separately for: (a) Customs Duties on 15 offshore manufactured and Mock- Up; (b) Excise Duties (after availing MODVAT) and Sales Tax on the finished trains; (c) Customs Duties on the imported components and equipments installed in the indigenously manufactured Cars; (d) Excise Duties and Sales Tax on the indigenous components and equipments installed in the indigenously manufactured Cars; (e) Similar details as in a, b, c and d above should be kept in respect of Spares, Jigs, Fixtures etc; and (f) Any other taxes, duties etc. paid. These records shall remain open for inspection by the Employer / Employer s Representative at any time. Should the Employer obtain a waiver for the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is the penultimate and the last para of clause 13.1 of GCC, which expressly, directly and specially deals with such a situation. General provision must give way to the special provision. The area covered by the penultimate and last para of clause 13.1 of the GCC is excluded from the aforesaid 'primary term (x)' of clause 4 of the contract agreement, which applies to a situation created by the variation in the outflow of taxes and duties depending upon increase or decrease in the value of goods imported for the work in question and not on account of variation in the rate of taxes and duties. 57. It is also well settled that effort should be made to give effect to every clause of the agreement and not to reject a clause unless it is manifestly inconsistent with or repugnant to the rest of the agreement. In case the clause merely limits or qualifies without destroying altogether the obligations created by another clause, the two are to be read together and effect is to be given to each one of them. In an agreement where clauses are capable of two interpretations, one of which would validate a particular clause in the instrument and the other would render it ineffective or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the clause Specifically covers the field relating to variation in the rates of taxes or complete or partial exemption or waiver of taxes General in terms, therefore, deals with the situation not covered by the penultimate and last paras of clause 13.1 of the GCC. Consequently it covers the residuary field relating to the variation in the quantum of taxes due to variation of the value of the imported Equipment etc. 59. In nutshell, the penultimate and last paras of clause 13.1 will apply to the contingencies arising from exemption from taxes and duties or increase or decrease in taxes and duties resulting from the change in the rates of taxes after submission of the tender. Such a situation will not be covered by 'the primary term (x)' of clause 4 of the contract agreement. This primary term will apply where due to change in the value of imported equipments, components etc. there is variation in the actual amounts of tax paid to the concerned authorities. We must clarify that this analysis is confined only to 'the primary term (x)' of clause 4 and penultimate and last paras of clause 13.1 and their impact a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ventuality the contractor is required to remit the refund so obtained to the employer and in the event of the failure of the contractor to remit the refund to the employer the same is liable to be recovered by the employer from the amounts due for payment to the contractor. Thus this clause specifically postulates that the benefit of waiver of taxes and duties will be available to the employer. It also provides the procedure to be followed for the purpose of making available the benefit to the employer by the contractor. 62. Clause 13.1 of the GCC and Clause 26 of SCC are part and parcel of the overall agreement between the parties and cannot be wished away. These clauses were not deleted and were allowed to co-exist with clause 4 of the contract agreement. In case primary terms (x) and (y) of clause 4 were meant to cover the contingencies created by exemption or waiver notifications, Clause 13.1 of the GCC and Clause 26 of the SCC would have been deleted from the contract. 63. By its letter no. MKM-01-0112 (2) dated January 12, 2001, the claimant proposed reduction of price but did not insist on deletion of clause 13.1 of the GCC or clause 26 of the SCC. The learned senior c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o clause 13.1 of the GCC and clause 26 of the SCC, the claimant by its letter dated May 6, 2003, to the General Consultants for the respondent, expressed its desire to discuss the procedure for adjusting the contract price in view of the exemption notifications. This shows that at one stage it was the understanding of the claimant that clause 13.1 of the GCC and clause 26 of the SCC were applicable in the context of the exemption of Customs Duty and Excise Duty on all equipments procured by or on behalf of the DMRC for use in Delhi MRTS Project. Since that was the understanding as late as May 6, 2003, it does not stand to reason how the intention of the claimant could be different from it, while entering into contract with the respondent on May 22, 2001. Therefore, the learned senior counsel for the claimant is not right in asserting that it was the intention of the contracting parties that in the event of exemption from payment of taxes and duties clause 13.1 of the GCC and clause 26 of the SCC will not apply. 67. The learned senior counsel for the claimant submitted that only through the mechanism of deduction of taxes and duties to the tune of ₹ 2064 million lump sum pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Contract, should this be less, and (2) in the event that such actual amount is greater than ₹ 774 million, we will bear the excess. We agree and confirm that the questions under your letter GC/RS1/GCC/6323 dated April 25, 2001, and our responses under this letter will be incorporated in the Contract upon mutual agreement. Other questions and responses to be included in the Contract shall be discussed. 69. The fact that the proposal in respect of the reduction of taxes was not made subject to the grant of exemption stands further clarified from the Letter Of Acceptance (LOA) dated May 2, 2001, which makes it incumbent on the part of the claimant to pay the difference between the declared amounts of Import Tax and Customs Duty and other Indirect Taxes and the actual amounts paid to the concerned authorities, should these be less. This obligation of the claimant was not made subject to the grant of exemption from the payment of taxes and duties. Even otherwise the liability of the claimant to pay the aforesaid difference could not be made subject to exemption from taxes and duties as that would have been incompatible with the aforesaid obligation. 70. The fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the express terms of the Contract Agreement viz. Clause 4 of the Contract Agreement, and the said interpretation is such that it cannot be said to be a plausible one, i.e. one of the several possible interpretations of which the said clause is capable. The Petitioner submits that the interpretation adopted by the Tribunal breaches section 28(3) of the Act. 16. Learned senior counsel for the petitioner, Mr. Parag Tripathi, submits that the Tribunal failed to appreciate that the clause 4 of the Contract Agreement superseded clause 13.1 of the GCC with regard to the payment of lump-sum price and fixation of liability towards the customs and excise duties. GCC is a document which was contained in the Notice for Invitation of Tender and was a general provision applicable to all person/ entities who participated in the tender process including the petitioner. Clause 13.1 of GCC is a mere embodiment of S. 64A of the Sale of Goods Act 1963 into the GCC. However, after the finalisation of the lump-sum price and pursuant to extensive negotiations between the parties, the position existing under clause 13.1 of GCC was altered/ departed from, leading to the formulation of clause 4 of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed price is limited in a manner that DMRC will pay to the petitioner towards taxes- maximum of INR 2064 million. If the actual taxes are in excess of INR 2064 million, they were to be borne by the petitioner. Clause 4 has no application when there is an exemption, remission or reduction of custom duty etc. and this aspect is covered by clause 13.1 of the GCC and clause 26 of the SCC. The scope of clause 13.1 of GCC and clause 26 of SCC is clear that whatever benefit accrues on account of such exemption, should be passed onto the DMRC. That obligation is not restricted to INR 2064 million. 20. Respondent submits that the award in question does not suffer from any patent illegality, and the interpretation adopted by the Tribunal qua Clause 4 of the Contract Agreement, Clause 13.1 of GCC read with clause 26 of the SCC, is a plausible interpretation. 21. A bare perusal of the impugned award would show as is evident from the submissions of the parties recorded herein above, that the impugned award merely seeks to interpret the contractual clauses in question. In such a situation, the scope of interference by the Court in proceedings under Section 34 of the Act is extremely lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, (2003) 7 SCC 396 held that: 4. Any award made by an arbitrator can be set aside only if one or the other term specified in Sections 30 and 33 of the Arbitration Act, 1940 is attracted. It is not a case where it can be said that the arbitrator has misconducted the proceedings. It was within his jurisdiction to interpret Clause 47 of the Agreement having regard to the fact-situation obtaining therein. It is submitted that an award made by an arbitrator may be wrong either on law or on fact and error of law on the face of it could not nullify an award. The award is a speaking one. The arbitrator has assigned sufficient and cogent reasons in support thereof. Interpretation of a contract, it is trite, is a matter for arbitrator to determine. Section 30 of the Arbitration Act, 1940 providing for setting aside an award is restrictive in its operation. Unless one or the other condition contained in Section 30 is satisfied, an award cannot be set aside. The arbitrator is a Judge chosen by the parties and his decision is final. The Court is precluded from reappraising the evidence. Even in a case where the award contains reasons, the interference therewith would still be not availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission of the petitioner with regard to priority of documents, in my view, loses significance. If the intention of the parties was that clause 4 of the Contract Agreement should override Clause 13.1 of the GCC, there was no need to retain Clause 13.1 of the GCC, or provide in clause 4 of the Contract Agreement that the fixed lump sum price is subject to adjustment in accordance with the provisions of the GCC. Clause 4 of the contract agreement itself having stipulated that the total cost of work is subject to adjustment in accordance with the provisions of GCC, the terms of the GCC including clause 13 thereof, have to be read side by side with clause 4 of the contract agreement itself. There is no question of ignoring clause 13 of the GCC by giving preference to clause 4 of the Contract Agreement. Clause 4 of the contract agreement proceeds on the basis that the petitioner contractor assumed a total liability of ₹ 1,290,000,000/- and ₹ 774,000,000/- as import tax and customs duty, and other indirect taxes in India, respectively, in its computation while making its final bid. Clause 4 does not say that the liability of the Petitioner Contractor qua reimbursement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the refund so obtained to the Employer. In case of failure by the Contractor to remit the refund to the Employer, the same will be recovered by the Employer from the amounts due for payment to the Contractor or as debt due from the Contractor. If the Contractor fails to take the required action to obtain refund, the Employer may take action in accordance with Sub-Clauses 15.1 and 15.2 of General Conditions of Contract. Pertinently, the Petitioner itself invoked clauses 13.1 of the GCC and 26 of the SCC when it sent the communication dated 06.05.2003 to the General Consultant of the Respondent. Therefore, the Tribunal rightly rejected the stand of the Petitioner that clauses 13.1 of the GCC and 26 of the SCC give way to clause 4 of the Contract Agreement. 29. There is another way to look at the situation. The petitioner cannot take advantage of its own miscalculation (assuming that to be the case), at the inception stage, with regard to the amount of customs and excise duties payable on the contracted supplies. If the petitioner proceeded to assume a lower amount of liability towards customs, excise and other duties and taxes, than that which was actually payable (prior to gra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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