Calcutta High Court
Steel Authority Of India Ltd vs Htc Engineering (1958) Private Ltd on 25 April, 2016
Author: Harish Tandon
Bench: Harish Tandon
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
A.P 218 of 2006
STEEL AUTHORITY OF INDIA LTD.
-VS-
HTC ENGINEERING (1958) PRIVATE LTD.
CORAM: HON'BLE MR. JUSTICE HARISH TANDON
For the Petitioner Mr. A.K. Chatterjee, Sr. Adv.,
Mr. D. Ghosh, Adv.
For the Respondent Mr. Debasish Kundu, Sr.
Adv.,
Mr. Sayantan Bose, Adv.
Judgment on 25.04.2016
Harish Tandon, J.:
The challenge is made to an award made and published on 17th March, 2006 by the Arbitrators allowing the part of the claims of the Petitioner and counter claims of the Respondent herein. In other words, by the said award the Petitioner is directed to pay a sum of Rs. 7,48,56,134/- to the Respondent together with interest @ 18% per annum on the amount from the date of the award till payment apart from the costs and expenses for the arbitration.
The facts revealed from the respective stands of the parties before the Arbitrator and before this Court are adumbrated herein below:--
(i) The Petitioner being the claimant published a tender notice dated 5 / 6th August, 1996 inviting applications from the experienced contractors who can handle the iron and steel materials at the Petitioner's stockyard located at Paharpur, 20 Coal berth and DP-II sighting of Kolkata Branch Sales Office of the Petitioner.
(ii) The eligibility criterion enshrined in the said tender notice was that the contractor should be capable of handling iron and steel materials of minimum quantity of 1.25 lacs metric tons (MT) during any of the last financial years.
(iii) The period of contract shall be initially for two years which can be extended at the sole discretion / option of the Petitioner for further period of one year.
(iv) The Respondent participated in the said tender and submitted the relevant papers and documents having fulfilled all the criterion enshrined under the said tender notice.
(v) After proper scrutiny the Petitioner awarded the contract to the Respondent to commence from 23rd November, 1996.
(vi) Clause 9 of the Contract clearly provides that the contract labourers employed in Paharpur stockyard shall not be deployed as it would contravene the order of the High Court passed on 24th July, 1995 in FMAT 1460 of 1984 directing the parties to maintain status quo in relation to such employment.
(vii) The Respondent asked for furnishing a statement of workers working in the said stockyard which was responded by the Petitioner in providing a list of over 560 workers already employed since last several years in the Paharpur stockyard. The disputes were raised during the initial period of the contract not only on the excess payment made towards the wages to large number of contractual labourers who are not covered under an order of the High Court in the said appeal but also on non-providing the estimated quantities of the materials during the first 17 (seventeen) months and causing huge losses and damages to the Respondent.
(viii) The parties exhausted their remedy before the Arbitral Tribunal and an award was passed in favour of the Respondent to the tune of Five Crore and odd together with interest and costs to the proceeding which was assailed under Section 34 of the Arbitration and Conciliation Act, 1996 before this Court.
(ix) The said application was allowed upon setting aside the award which is further challenged before the Division Bench of this Court and the matter is still pending.
(x) After the expiration of the initial term of the contract, the Petitioner unilaterally extended the period for one year and the present arbitration proceeding was initiated relating to the dispute arose during the said extended period.
(xi) The present arbitration proceeding originated from a claim of damages on alleged non-performance by the Respondent between the period from 23rd November, 1996 to 31st March, 1999 and the claim was further enhanced for the extended period.
As it appears from the impugned award the Petitioner's claim were made under the following heads, namely unpaid wages to the contract labourers, dues on account of the provident funds of those labourers, unpaid gratuity from 23rd November, 1996, non-payment of privileged leave salary from 23.11.1996, interest on outstanding advances, liquidated damages, contingent liabilities, compensation for workmen and losses due to total stoppage in delivery of materials from the said stockyard for the period from 01.01.1999 to 31.03.1999.
Before the Arbitral Tribunal the Respondent made a counter claim to the tune of Rs. 15,42,98,768/- under various heading viz. non-supply of payments and assured quantity of material for handling, wrongful detention of machineries, imposition of liability for excess contract labourers, non-payment of the outstanding bills, refund of scrutiny deposit and performance guarantee and interest.
Several issues were framed by the Arbitrator which are jotted down as under:-
"1. (a) Was not the Claimant under the contract obliged to supply 21250 MT and effect delivery 21250 MT totalling 42500 MT per month on an average?
(b) If yes, did the Claimant commit breach of such obligation?
2. (a) Is the Claimant entitled to a sum of Rs. 5,16,000.00 as enhanced up to 2nd November, 1999 or any other sum on account of alleged unpaid wages to the contract labourers claimed in Claim No. "A" of paragraph 27 in the Statement of Claim and Annexure-I of paragraph 14 to the Rejoinder to the Counter statement of facts?
(b) Is the Claimant entitled to a sum of Rs. 1,28,46,217.00 as enhanced up to 22nd November, 1999 or any other sum on account of alleged Provident Fund dues of contract labourers as claimed in Claim No. "B" of paragraph 27 of the Statement of Claim and Annexure-II of paragraph 16 to the Rejoinder to the Counter Statement of facts?
(c) Is the Claimant entitled to a sum of Rs. 74,40,240.00 enhanced up to 22nd November, 1999 or any other sum of account of alleged bonus to the contract labourers with effect from 23rd Novemeber, 1996 as claimed in Claim No. "C" of paragraph 16 to the Rejoinder to the Counter Statement of facts?
(d) Is the Claimant entitled to a sum of Rs. 40,43,312.78 as enhanced up to 22nd November, 1999 or any other sum on account of alleged unpaid gratuity to the contract labourers with effect from 23rd November, 1996 as claimed in Claim No. "D" of paragraph 27 of the Statement of Claim and Annexure-IV of paragraph 16 to the Rejoinder to the Counter Statement of facts?
(e) Is the Claimant entitled to a sum of Rs. 65,71,933.33 as enhanced up to 22nd November, 1999 or any other sum on account of unpaid alleged privilege leave salary of the contract labourers with effect from 23rd November, 1996 as claimed in Claim No. "E" of paragraph 27 of the Statement of Claim and Annexure-V of paragraph 16 to the Rejoinder to the Counter Statement of facts?
(f) Is the Claimant entitled to an alleged sum of Rs. 14,37,273.00 or any other sum towards alleged interest on outstanding advance as claimed in Claim No. "F" of paragraph 27 of the Statement of Claim?
(g) Is the Claimant entitled to a sum of Rs. 28,36,53,203.00 or any other sum on account of alleged liquidated damages as claimed in Claim No. "G" of paragraph 27 of the Statement of Claim?
(h) Is the Claimant entitled to a sum of Rs. 1,29,26,188.00 as enhanced up to 22nd November, 1999 or any other sum on account of alleged contingent liabilities as claimed in Claim No. "H" of paragraph 27 of the Statement of Claim and Annexure-VIII of paragraph 16 to the Rejoinder to the Counter Statement of facts?
(i) Is the Claimant entitled to a sum of Rs. 30,000.00 or any other sum on account of alleged worker's compensation as claimed in as claimed in Claim No. "I" of paragraph 27 of the Statement of Claim?
(j) Is the Claimant entitled to a sum of Rs. 99,70,030.00 due to loss on account of alleged stoppage in delivery of materials from Paharpur and Coal Berth Stock-
yards from 01.01.1999 to 31.03.1999 as claimed in Claim No. "J" of paragraph 27 of the Statement of Claim?
3. Is the Claimant entitled to interest at the rate of 18 percent per annum as claimed in paragraph 31 of the Statement of Claim?
4. To what relief's, if any, is the Claimant entitled to?
5. Is the Respondent entitled to a sum of Rs. 12,40,93,043.00 on account of non-
supply of promised and / or assured quantity of materials to be handled during the period of 1st May, 1998 to 22nd November, 1999 as pleaded in paragraph 29 of the counter claim?
6. Is the Respondent entitled to a sum of Rs. 36,99,500.00 on account of wrongful detention of machinery as pleaded in paragraph 31 of the counter claim ?
7. Is the Respondent entitled to a sum of Rs. 1,79,00,400.00 towards additional claims made on account of 224 contract labours as pleaded in paragraph 32 and 33 of the counter claim?
8. Is the Respondent entitled to a sum of Rs. 86,05,825.00 on account of outstanding bills and interest as pleaded in paragraph 34 of the counter claim?
9. Is the Respondent entitled to a sum of Rs. 11,50,000.00 on account of refund of security deposit and performance guarantee by way of bank guarantee as pleaded in paragraph 35 of the counter claim?
10. Is the Respondent entitled to interest at the rate of 24 percent per annum as claimed in paragraph 39 of the Counter Claim?
11. To what relief's, if any, is the Respondent entitled to?"
The Arbitrator answered the aforesaid issues in the following manner:--
Issue View
No.
1(A) & Affirmative
1(B)
2(A) Negative
2(B) Negative
2(C) Negative
2(D) Negative
2(E) Negative
2(F) Negative
2(G) Negative
2(H) Negative
2(I) Negative
2(J) Negative
3 Negative
4 Negative
5 Partly Allowed
6 Affirmative
7 Negative
8 Partly Allowed
9 Affirmative
10 Partly Allowed
The claims awarded in the impugned award can be summarized that all the claims of the Petitioner except on account of re-imposition of the advances made to the contract labourers were allowed. On the other hand, the counter claims on account of non-providing the minimum quantity of materials to be handled, wrongful detention of machineries and equipments, non-payment of the outstanding bills and refund of scrutiny and performance guarantee together with interest are allowed. The claim on account of re-imposition of advances to the contract labourers have been allowed to set off against the counter claim awarded by the Arbitrators.
Mr. Ajay Krishna Chatterjee, learned senior Advocate would submit that Clause 2.1, 2.4 & 4 of Invitation to Tender does not create any obligation on the part of the Petitioner but are relatable to an eligibility criteria to participate in the tender process and therefore, the Arbitral Tribunal have wrongly interpreted those provisions to be a part of an obligations requiring strict adherence by the Petitioner. It is, further submitted that Clause 5 of Invitation to Tender clearly indicates that the estimated quantities reflected under Clause 4 thereof are only for the purpose of finding out the value of the tender and the Petitioner is no way responsible and / or liable for actual quantity of work. Mr. Chatterjee vehemently submits that the general terms and conditions, forming part of the agreement, were not considered by the Arbitral Tribunal. By refering Clauses 8.3 and 8.7 of general terms and conditions, Mr. Chatterjee contends that the plain and simple reading of the aforesaid clauses would give a sufficient indication that the Respondent would not claim for any item of work in the contract and the Petitioner does not give any guarantee about the definite volume of work to be entrusted upon the Respondent at any time or even through out the tenure of the contract. According to Mr. Chatterjee, the Prohibitory Clause (8.3) and Non Guarantee Clause (8.7) have to be construed in such perspective and conveying the intention that non providing the definite volume of work does not give right to the Respondent to claim such which the Arbitral Tribunal omits to consider. In other words, it is submitted that the Arbitral Tribunal have ignored and overlooked the aforesaid Clauses and proceeded simply on the other Clauses of the Invitation to Tender which are merely the Eligibility Clauses, not conferring any right to claim such definite quantity of work during the period of an agreement. By referring Section 28(3) of the Arbitration and Conciliation Act, 1996, Mr. Chatterjee submits that though the Arbitral Tribunal is required to decide in accordance with the terms and conditions and further taken into account the usages of the trade applicable to transaction but where there is an absolute prohibition in the agreement, the principle of business efficacy cannot be imported in the contract. He impugned the award allowing the claim for wrongful detention of the machinaries that unless the payment is made to the provider of the cranes the claim is prematured. It is, thus, submitted that though the bills issued by the cranes were produced before the Arbitral Tribunal but in absence of any proof of payment, the Arbitral Tribunal should not have allowed such claims. On the claim of outstanding bills and interest, Mr. Chatterjee would contend that the Arbitral Tribunal could not have presumed an admission solely on the ground that no dispute is raised thereupon. Mr. Chatterjee, learned Senior Advocate appearing for the Petitioner attacks the award as the Arbitrators have proceeded beyond the terms of the contract. According to him, the Arbitrators are confined to act within the boundaries of the contract and cannot travel beyond it and if traveled, such award is liable to be set aside having acted in escess of the jurisdiction. In support of the aforesaid contentions, the reliance is placed upon a judgment of the Supreme Court in case of Associated Engineers Company -Vs- Government of Andhra Pradesh & Anr. reported in AIR 1992 SC 232. It is succinctly argued that the terms of the contract should be interpreted by providing plain and simple meaning of the words incorporated therein without adding or subtracting any words into it as held in case of Central Bank of India Limited vs Hartford Fire Insurance Company Limited Reported in AIR 1965 SC 1288.
Mr. Chatterjee audaciously submits that although the Arbitrators are the authority for interpretation of the terms of the contract but the regard must be given to each of the expressions given therein and any omission to consider the expressed terms given in the agreement would amount to acting without jurisdiction and placed reliance upon a judgment of the Supreme Court in case of Steel Authority of India Ltd. -Vs- J.C. Budharaja, Government and Mining Contractor reported in (1999)8 SCC 122. He, thus, submits that if the Arbitrators have omitted to consider the relevant terms of the contract and have proceeded on a wrong premise in arriving at a perverse conclusion the award is liable to be set aside. To buttress the aforesaid submission, he placed reliance upon a judgment of the Apex Court in case of ONGC Ltd vs Garware Shipping Corporation Limited reported in AIR 2008 SC 456 & Hindustan Zinc Ltd. -Vs- Friends Coal Carbonisation reported in (2006) 4 SCC 445. He succinctly argues that the Arbitrators cannot take an external aid and borrow something beyond the contract in arriving at the conclusion. On the scope of the challenge under Section 34 of the Arbitration and Conciliation Act, 1996 the reliance is placed upon a judgment of the Supreme Court rendered in case of Oil & Natural Gas Corporation Ltd. -Vs- Saw Pipes Ltd. reported in (2003) 5 SCC 705. He, thus, concludes that if the Arbitrators have traveled beyond the periphery of the contract and applied extraneous factors, such award is patently illegal and therefore, liable to be set aside.
Mr. Kundu refuted the contention of the Petitioner that the Arbitral Tribunal did not consider the Prohibitory Clause and Non Guarantee Clause embodied in the general terms and conditions. According to him, the Clauses embodied under Invitation to Tender cannot be segregated for the purpose of gathering the intention of the parties from the general terms and conditions. He, thus, submits that the golden rule of interpretation of the contract is that the contract should be read as a whole and not in piecemeal. He would contend that the Clauses under Invitation to Tender postulates that the tenderers should have experience in handling the requisite quantity of goods preceeding 5 years and must own half of the equipment required for handling such quantities. The Invitation to Tender further provided the estimated quantities to be handled during the first year of operation for the purpose of finding out the value of the tender and in such Perspective Clause 5 was incorporated that the Petitioner shall not be liable if actual quantity differs from estimated quantity. He further submits that by virtue of Clause 11.1 of instruction to tenderer, the advertisement for tender, instructions to tenderers, terms and conditions of the contract along with all enclosures and the letters exchanged between the parties shall form part of the contract and therefore the general terms and conditions of the contract and the Clauses incorporated therein are binding upon the parties. He relies upon Clause 6.2 of the terms and conditions containing the rates of the estimated value, in support of the contentions that the reasonable quantities be provided for handling though differs from the actual estimated quantity does not mean that the contractor would be allowed to handle a negligible quantity as has been done in the instant case. He vehemently submits that Clauses 8.3 and 8.7 of the general terms and conditions cannot be rigidly construed as a bar to claim the exact estimated quantity of the work but at least a minimum quantity known to the commercial working of any similar nature of work because of the fixed costs for keeping the equipments which do not meet to the quantities of goods allowed to be handled.
He took a strong exception to the submission of the Petitioner that the Prohibitory Clause and Non Guarantee Clause have not been considered by the Arbitrator. According to him, the Arbitrator took into account the aforesaid Clauses and a harmoniously interpreted the same with other Clauses and therefore such interpretation cannot be faulted with as the Arbitrator is a sole authority for interpretation of the Contract. In support of the aforesaid contentions, he relies upon a judgment of the Supreme Court in case of Pure Helium India (P) Ltd. -v- Oil & Natural Gas Commission reported in (2003)8 SCC 593.
Mr. Kundu is very much vocal in his submission that the Court should not interfere under Section 34 of the Act on the views expressed by the Arbitrator if such view appears to be reasonable and plausible even if the Court thinks that the other view should have been taken and placed reliance upon judgment in case of Madhya Pradesh Housing Board -v- Progressive Writers and Publishers reported in (2009)5 SCC 678 and Mcdermott International Inc. - v- Burn Standard Co. Ltd. & Ors. reported in (2006)11 SCC 181. He thus submits that the Court exercising jurisdiction under Section 34 of the Act cannot reappraise or reassess the evidence acting as a Court of an appeal as held in case of P.R. Shah, Shares & Stock Brokers Pvt. Ltd. -v- B.H.H. Securities Pvt. Ltd. & Ors. reported in (2012)1 SCC 594.
Mr. Kundu fervently submits that Section 28(3) of the Act empowers the Arbitral Tribunal to decide the dispute in terms of the contract by taking into account the usages of the trade applicable to the transaction. It is, thus submitted that the principal of business trade or business efficacy can be a factor in interpreting commercial document for the purpose of upholding the contract rather to invalidate it. In support of the aforesaid contentions, the reliance is placed upon a judgment of the Supreme Court in case of The Union of India -v- M/s. D.N. Revri And Co. & Ors reported in (1976)4 SCC 147 and a judgment of this Court in case of Dwarakadas & Co. -Vs- Daluram Goganmull reported in AIR 1951 CALCUTTA. 10.
Mr. Kundu further contended that the Arbitral Tribunal have given due regard to all the Clauses and have provided a reasonable reasons to the ultimate conclusion which is not open to be challenged before the Court under Section 34 of the Act and relied upon judgment of the Supreme Court in case of M/s Sudarsan Trading Co. -Vs- Government of Kerala & Anr. reported in (1989)2 SCC 38. In such perspective it is submitted that the approach of the Court should not be to destroy or render the award illegally but to uphold the same as held in case of Smt. Santa Sila Devi & Anr. -Vs- Dhirendra Nath Sen & Ors. reported in AIR 1963 SC 1677. Lastly, it is submitted that the Petitioner have not successfully made out a case before this Court that the impugned award is opposed to public policy or the findings recorded therein is perverse.
Before adverting to deal with the respective submissions in extenso, it is apposite to record that the challenge to the impugned award is essentially based on awarding the sum than on rejection of the claims by the Arbitral Tribunal. Admittedly the initial period provided under contract was two years extendable for another year at the sole discretion and option of the Petitioner. It is undisputed that the Petitioner exercised such option and extended the period of the agreement for a term of one year. During the first 17 (seventeen) months of the contract period, the estimated quantities of the materials were not given for handling and a further liability to pay the extra contract labourers were also imposed upon the Respondent which raised a dispute and first arbitration proceeding was initiated thereupon which culminated into award in favour of the Respondent. The first award was challenged before this Court under Section 34 of the Arbitration and Conciliation Act, 1996 and the Hon'ble Single Bench set aside the said award which is further challenged before the Division Bench and the learned Counsels of the respective parties uniformly submit that the appeal is still pending. The instant arbitral proceeding has commenced at the behest of the Petitioner alleging non-performance of its obligation by the Respondent which causes damage to be suffered by the Petitioner. The claims were subsequently enhanced by the Petitioner because of the subsequent events, which are clearly discernable from the impugned award.
On the other hand, the Respondents made a counter claim under various heads and the Arbitral Tribunal awarded some of the claims as indicated herein before. The sheet-anchor of the challenge to the impugned award is basically founded on non-consideration of the relevant clause of the contract and foundation of the decision on some other clauses which cannot be segregated and divorced from the other clauses which are equally relevant and important to gather the intention of the parties. The definition of the contract under terms and conditions would mean and include the agreement between the Petitioner and the Respondent duly signed by them for execution of the work together with all documents annexed / attached therewith or referred thereto. The whole of the contract is broadly divided in three parts namely, Invitation of Tender, Instruction to Tenderers and Terms and Conditions of Contract for handling iron and steel materials in the stockyards of the Petitioner. It ambits no ambiguity to say that all the terms and conditions and the recordings under the aforesaid broad heads constitute the valid and binding contract and the intention of the parties to the contract can be derived by giving plain and simple meaning to the terms and conditions embodied therein. Clause 2 of Invitation of Tender relates to eligibility of the tenderers which imbibed within itself the experience of the tenderers in handling at least 1 Lac 25 Thousand Metric Tons of a steel materials in preceding five financial years. Clause 2.4 thereof requires the tenderer to own at least 50% of the equipments specified in Clause No. 2.1 of Instruction of Tenderers on its own name and style and the short fall, if there be any, would be required to make good by procuring on ownership within 30 days from the date of the letter of intent if the contract is awarded in its favour. It is, therefore manifest that the clause under Instruction of Tenderers constitute a part of the contract by way of reference as well. Clause 4 of the Invitation to Tender which assumes center of debate speaks of the estimated quantities proposed to be handled during the first year of operation of the contract based on the calculation of sales plan. Clause 5 thereof is clarifactory clause in the sense that it clearly provides that the estimated quantities for the first year of operation of the contract are only for the purpose of finding out the value of tender and the Petitioner was in no way responsible / liable if the actual quantity of work differs from the aforesaid estimated quantity. Clause 9 of the Invitation of Tender unequivocally expresses that such tender is subject to the interim order passed by this Court on 24.07.1995 in FMAT 1460 of 1994 by which the employment of the contract labour working in the Paharpur stockyard shall not be removed from employment and the status-quo in this regard shall be maintained. Clause 2.1 of the Instruction to Tenderers indicates the minimum number of cranes tools and other equipment to be deployed to handle the expected cargo in the yard. Whereas in Clause 4 thereof reiterated the estimated quantities proposed to be handled during the first year.
According to the Petitioner, Clause 5 of the Invitation to Tender and Clause 8.3 and 8.7 of terms and conditions of contract have not been taken into account by the Arbitral Tribunal which would lead to an inescapable conclusion that it does not foist any liability on the Petitioner nor confer any right on the Respondent to demand any item of work at all times and also gives no guarantee about the definite volume of work to be entrusted upon the Respondent at any point of time or through out the tenure of the contract. It is sought to be contended that the Clauses 2 & 4 of the notice to tender is reletable to eligibility of the tenderers and does not create any right on the tenderer to demand such quantity to be handled during the period of the contract. In the other words, it is contended that the impugned award is silent about those relevant clauses which does not confer any right on the Respondent to claim for estimated quantity of work nor gives any guarantee and therefore the Arbitral Tribunal have acted in excess of the contract and misdirected themselves in awarding the claim in favour of the Respondent. In this regard, the reference can be safely placed upon a judgment of the Supreme Court in case of Associated Engineers Company - Vs- Government of Andhra Pradesh & Anr. reported in AIR 1992 SC 232 wherein it is held that the arbitrator cannot travel beyond the permissible territory and if he does so it strikes at the root of the jurisdiction.
It is no longer res intigra that the jurisdiction of the arbitrator emanates from the contract. He assumes jurisdiction because of the contract and the entire dispute is required to be adjudicated within the periphery of the contract and cannot embark its journey to any question not provided in the contract and / or unrelated thereto. The existence of an express bar against a particular claim under the contract, if decided by the arbitrator he would be doing in excess of the jurisdiction. The support can be lend from a judgment of the Apex Court in case of Pure Helium India Pvt. Ltd. -Vs- Oil & Natural Gas Corporation reported in (2003)8 SCC 593 in this regard wherein it is held:-
"33. Yet again in Sushil Kumar Kayan it was held: (SCC p. 684, para 11) "In order to determine whether the arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant can raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit the parties to raise a point before the arbitrator and if there is a specific bar in the contract to the raising of the point, then the award passed by the arbitrator in respect thereof would be in excess of his jurisdiction."
34. Some of the aforementioned decisions have been considered by us in Bharat Coking Coal Ltd. v. Annapurna Construction."
I am also not unmindful of the proposition that each terms of the contract must be construed and given effect to the plain and simple meanings of the words irrespective of the fact that it may act harshly on the parties as held in case of Central Bank of India Limited vs Hartford Fire Insurance Company Limited reported in AIR 1965 SC 1288. The distinction must be drawn between an error in construction of the contract and an addition and / or incorporation of some words within the contract as in case of former, it is an error within the jurisdiction but in later case, it is a jurisdictional error which may invite an interference in the award by the Court under Section 34 of the Act. The observations of the Supreme Court in case of Associated Engineers Company (Supra) can be conveniently referred to, which runs thus:-
"If the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction. But if he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. Such error going to his jurisdiction can be established by looking into material outside the award. Extrinsic evidence is admissible in such cases because the dispute is not something which arises under or in relation to the contract or dependent on the construction of the contract or to be determined within the award. The dispute as to jurisdiction is a matter which is outside the award or outside whatever may be said about it in the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The rationale of this rule is that the nature of the dispute is something which has to be determined outside and independent of what appears in the award. Such jurisdictional error needs to be proved by evidence extrinsic to the award. [See Alopi Parshad & Sons, Ltd. v. Union of India; Bunge & Co. v. Dewar & Webb; Christopher Brown Ltd. v. Genossenschaft Oesterreichischer; Rex v. Fulham; Falkingham v. Victorian Railways Commission; Rex v. All Saints, Southampton; Laing (James), Son & Co. (M/C) Ltd. v. Eastcheap Dried Fruit Co.; Dalmia Dairy Industries Ltd. v. National Bank of Pakistan; Heyman v. Darwins Ltd.; Union of India v. Kishorilal Gupta & Bros.; Renusagar Power Co. Ltd. v. General Electric Company; Jivarajbhai v. Chintamanrao; Gobardhan Das v. Lachhmi Ram; Thawardas Pherumal v. Union of India; Omanhene Kobina Foli v. Chief Obeng Akessee; F.R. Absalom, Ltd. v. Great Western (London) Garden Village Society, Limited and M. Golodetz v. Schrier.]"
There may be a situation where the Arbitral Tribunal have proceeded to pass an award in total disregard to the express terms of the contract and therefore acts arbitrarily, capriciously and without jurisdiction. In this regard the reliance is placed upon the judgment of the Supreme Court in case of Steel Authority of India Ltd. -Vs- J.C. Budharaja, Government and Mining Contractor reported in (1999)8 SCC 122 wherein it is held:-
"it was not open to the arbitrator to ignore the said conditions which are binding on the contracting parties. By ignoring the same, he has acted beyond the jurisdiction conferred upon him. It is settled law that the arbitrator derives the authority from the contract and if he acts in manifest disregard of the contract, the award given by him would be an arbitrary one. This deliberate departure from the contract amounts not only to manifest disregard of the authority or misconduct on his part, but it may tantamount to mala fide action."
On the above initiation of law led me consider whether the Arbitral Tribunal have totally ignored the relevant clauses so relied upon by the Petitioner to have been overlooked and / or not considered by the Arbitral Tribunal. In paragraph 6.2 of the impugned award, the Arbitral Tribunal recorded the submissions of the Petitioner that no definite volume of work are required to be entrusted with the contractor and there cannot be any imposition of any liability on sale if the actual quantities differs from the estimated quantities. It is relevant to quote the said paragraph which runs thus:-
"6.2 The contention of SAIL on the other hand is that unless quantity of materials to be handled by the contractor is specified in the contract, the contractor cannot ask for any particular quantity to be supplied to him. According to SAIL no definite volume of work was to be entrusted on the Contractor. SAIL has not undertaken any liability if the actual quantity of material falls short of the expected quantity. Both the parties have referred to different terms / clauses of the aforesaid documents in support of their respective claims and contentions."
The "No Guarantee Clause" envisaged under Clause 8.7 of the terms and conditions of the contract was taken into account by the Arbitral Tribunal which is reflected from the following observations made in Paragraph 6.14 of the impugned award which is quoted below:-
"6.14 The case made out by SAIL in one of its affidavits filed in the proceeding is that the contract specifically provides that no fixed quantity was assured or guaranteed and question of HTC receiving only 3.80% of materials for May, 1998 to November 22, 1999 does not and cannot arise. It is also the contention that HTC could not have any reason to believe that any fixed amount of material was promised or assured to be supplied each year by SAIL. The express terms of the contract deny the assertion made by the HTC. It is also the contention of SAIL with reference to the clauses which have been referred to hereinabove that the estimated quantities for the 1st year of operation of the contract are only for the purpose of determining the value of the tender and SAIL is no way liable if the actual quantity of materials differs from the estimated quantity as indicated in Clause-4 of Invitation of Tender and clause 4 of the Instructions to Tenderers. It is further submitted that in Clause 8.7 of the terms and conditions of the contract SAIL has mentioned that it gives no guarantee about the definite volume of the work to be provided to the contractor at any time or even through out the tenure of the contract. It is also the contention that HTC has not taken care of the risks of business based on market demand / supply position. HTC is liable for unprofessionalism if they have suffered loss. Same or similar contentions have been raised through the other affidavits of SAIL namely - Firstly there was no promise made by the Claimant to supply any fixed quantity of materials; Secondly it was expressly agreed between the parties that SAIL did not guarantee to the fixed quantity to be supplied. There is short supply in its own stock-yard for the reasons that the market has changed and customers of SAIL now prefer direct sales from market not through the stock-yard which is something beyond the control of SAIL. It has been stated in the affidavit of Susanto Kumar Bala, Assistant Manager (Finance and Accounts) in paragraph 54 that "one of the possible reasons for the change of this market trend could be perhaps because of the amendments made in the Central Excise and Salt Act, 1944 in 1996 whereby the normal price for goods upon which excise would be charged is to be collected at the place of removal and as such in a stockyard sale the normal price would include the cost of freight and stockyard margin when calculating excise. Thus the amendment sought to increase the effective price to the customers to the tune of excise rate multiplied by fright and stockyard margin."
It is, therefore manifest that the Arbitral Tribunal have not proceeded in complete disregard to the express terms of the contract rather took into account those clauses for the purpose of the interpretation and gathering an intention of the contracting parties. In paragraph 6.18 of impugned award the Arbitral Tribunal held that if there is nay ambiguity regarding a term relating to quantity, an obligation may have to be implied to uphold the contract and to do justice to the parties on a true reading and construction of the contract.
The construction of the agreement or contract is within the realm and jurisdiction of the arbitrator unless such interpretation is palpably perverse and based on wrong proposition of law. In case of Pure Helium India Pvt. Ltd. (Supra), the Apex Court held:
"27. Construction of the contract agreement, therefore, was within the jurisdiction of the learned arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot, thus, be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties as also the circumstantial evidence.
28. A dispute as regards the construction of clause 23 of the contract vis-à-vis the notification issued under Section 40 of the Reserve Bank of India Act also fell for their consideration. Such a question of law, it is trite, is also arbitrable and was specifically raised by the appellant. The learned arbitrators were further entitled to consider the question as to whether the appellant had been discriminated against insofar as similar claims have been allowed by the respondent.
Case-laws on the point
29. In State of U.P. v. Allied Constructions this Court held: (SCC p. 398, para 4) "Interpretation of a contract, it is trite, is a matter for the arbitrator to determine (see Sudarsan Trading Co. v. Govt. of Kerala). 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 available within the jurisdiction of the court unless, of course, the reasons are totally perverse or the judgment is based on a wrong proposition of law. An error apparent on the face of the records would not imply closer scrutiny of the merits of documents and materials on record. Once it is found that the view of the arbitrator is a plausible one, the court will refrain itself from interfering."
30. In K.R. Raveendranathan the law was laid down in the following terms: (SCC p. 410, para 2) "2. The learned counsel for the appellant points out that the question in issue in the present appeals is squarely covered by the decision of this Court in Hindustan Construction Co. Ltd. v. State of J&K. In particular, it drew our attention to para 10 of the judgment and the portion extracted from the decision in Sudarsan Trading Co. case (Sudarsan Trading Co. v. Govt. of Kerala) wherein it was said that by purporting to construe the contract the Court could not take upon itself the burden of saying that this was contrary to the contract and, as such, beyond jurisdiction. That is exactly what the Court has done in the instant case."
31. K.R. Raveendranathan has been followed by this Court in P.V. Subba Naidu by stating: (SCC pp. 408-09, paras 4-5) "4. The entire thrust of the judgment is on examining the terms of the contract and interpreting them. The terms of the arbitration clause, however, are very wide. The arbitration clause is not confined merely to any question of interpretation of the contract. It also covers any matter or thing arising thereunder. Therefore, all disputes which arise as a result of the contract would be covered by the arbitration clause. The last two lines of the arbitration clause also make it clear that the arbitrator has power to open up, review and revise any certificate, opinion, decision, requisition or notice except in regard to those matters which are expressly excepted under the contract, and that the arbitrator has jurisdiction to determine all matters in dispute which shall be submitted to the arbitrator and of which notice shall have been given.
5. In the present case all the claims in question were expressly referred to the arbitrator and were raised before the arbitrator. The High Court was, therefore, not right in examining the terms of the contract or interpreting them for the purpose of deciding whether these claims were covered by the terms of the contract." In case of McDermott International Inc. -Vs- Burn Standard Co. Ltd. & Ors. reported in (2006)11 SCC 181 the Supreme Court held that the Court should be slow in interfering with the award if the arbitrator have given due regard to the various terms of the contract and provided the reasons relating to construction thereof which cannot be impinged on perversity or contrary to law. It would be apt to quote the observations recorded in paragraph 111 and 112 of the said report which are as under:-
"111. In State of U.P. v. Allied Constructions this Court held: (SCC p. 398, para 4) "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 the arbitrator to determine (see Sudarsan Trading Co. v. Govt. of Kerala). 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 available within the jurisdiction of the court unless, of course, the reasons are totally perverse or the judgment is based on a wrong proposition of law. An error apparent on the face of the records would not imply closer scrutiny of the merits of documents and materials on record. Once it is found that the view of the arbitrator is a plausible one, the court will refrain itself from interfering (see U.P. SEB v. Searsole Chemicals Ltd. and Ispat Engg. & Foundry Works v. Steel Authority of India Ltd.)."
112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. (See Pure Helium India (P) Ltd. v. ONGC and D.D. Sharma v. Union of India.)"
This court is, therefore cannot accept the contention of the Petitioner that the Arbitral Tribunal have unnoticed Clause 4 of the Invitation to Tender and Clause 8.3 and 8.7 of the terms and conditions of the contract. The interpretation of the contract is within the realm of the Arbitral Tribunal and if the view expressed therein is plausible one it does not invite interference merely because another view is possible. The Court does not act as an Appellate Court where the entire issue is at large nor exercises the review jurisdiction for the purpose of finding error in the award. The Court is not supposed to reappraise the entire evidence exercising the Appellate Jurisdiction under the Code and if the award contains reasons interpreting the terms of the contract the Court would be slow in substituting its own view in absence of perversity and wrong application of law. The reference can be profitably made to a judgment of the Supreme Court in case of Madhya Pradesh Housing Board -Vs- Progressive Writers and Publishers reported in (2009)5 SCC 678 wherein it is held:-
29. In Ispat Engg. & Foundry Works v. Steel Authority of India Ltd. it is held: "4. Needless to record that there exists a long catena of cases through which the law seems to be rather well settled that the reappraisal of evidence by the court is not permissible. This Court in one of its latest decisions (Arosan Enterprises Ltd. v. Union of India) upon consideration of decisions in Champsey Bhara & Co. v. Jivraj Balloo Spg. & Wvg. Co. Ltd., Union of India v. Bungo Steel Furniture (P) Ltd., N. Chellappan v. Kerala SEB, Sudarsan Trading Co. v. Govt. of Kerala, State of Rajasthan v. Puri Construction Co. Ltd. as also in Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan has stated that reappraisal of evidence by the court is not permissible and as a matter of fact, exercise of power to reappraise the evidence is unknown to a proceeding under Section 30 of the Arbitration Act. This Court in Arosan Enterprises categorically stated that in the event of there being no reason in the award, question of interference of the court would not arise at all. In the event, however, there are reasons, interference would still be not available unless of course, there exist a total perversity in the award or the judgment is based on a wrong proposition of law. This Court went on to record that in the event, however, two views are possible on a question of law, the court would not be justified in interfering with the award of the arbitrator if the view taken recourse to is a possible view. The observations of Lord Dunedin in Champsey Bhara stand accepted and adopted by this Court in Bungo Steel Furniture to the effect that the court had no jurisdiction to investigate into the merits of the case or to examine the documentary and oral evidence in the record for the purposes of finding out whether or not the arbitrator has committed an error of law. The court as a matter of fact, cannot substitute its own evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the parties."
30. Interpretation of a contract, it is trite, is a matter for the arbitrator to determine. Even in a case where the award contained reasons, the interference therewith would still be not available within the jurisdiction of the court unless, of course, the reasons are totally perverse or award is based on wrong proposition of law.
"4. ... An error apparent on the face of the records would not imply closer scrutiny of the merits of documents and materials on record. Once it is found that the view of the arbitrator is a plausible one, the court will refrain itself from interfering...."
47. The learned Senior Counsel for the appellant further contended that the arbitrator in the instant case has committed grave error in going beyond the terms of the contract admittedly entered into by and between the parties. The question is what is the legal misconduct committed by the arbitrator in the instant case? Whether the award by the arbitrator perpetrates gross miscarriage of justice? Is it reduced to mockery of a fair decision of the lis between the parties to the arbitration?
"31. ... the erroneous application of law constituting the very basis of the award and improper and incorrect findings of fact, which without closer and intrinsic scrutiny, are demonstrable on the face of the materials on record, have been held, ... as legal misconduct rendering the award as invalid"
but at the same time the court could not "reappraise the evidences intrinsically with a close scrutiny for finding out that the conclusion drawn from some facts, by the arbitrator is, according to the understanding of the court, erroneous. Such exercise of power which can be exercised by an appellate court with power to reverse the finding of fact, is alien to the scope and ambit of challenge of an award under the Arbitration Act."
Though the relevant clauses contemplate that the Petitioner does not guarantee the definite quantities of work to be entrusted upon the Respondent during the tenure of the contract which cannot mean that the Petitioner is exonerated and / or relieved of providing no quantity of work. The Arbitral Tribunal construed the relevant provision, which provides the expected quantity of work to be entrusted and deployment of requisite equipment, labours and machines to handle 50% of such expected quantity. The arbitrator further took into account the conduct of the parties and a subsequent decision of the Petitioner that at one point of time they attempted to close down this stockyard because of the policy decision that the supply shall be made not from the dockyard but directly from the site as it would be a cost effective, yet unilaterally extended the period of the contract. The arbitrator further noticed that there was no work entrusted upon the Respondent for last 11 months of the extended period and during the relevant period which forms subject matter of dispute there was an entrustment of 3.8% of the materials for handling. It cannot be said that such interpretation is perverse and contrary to law.
In "Interpretation of Contract (Second Edition), by M.A. Sujan, the author comments that the intention of the parties should be gathered from the express words in the contract by giving the plain and simple meaning thereof. The author deprecates the intention of the parties to be gathered if the meaning of the express words conveys otherwise in these words:-
"It must be noted that the intention of the parties is as expressed in the words they have used. It is, therefore, that the meaning of the words used has to be considered. There is no intention independent of that meaning. The intention is to be gathered from the actual language of the contract. The actual intention, otherwise than expressed in the words used in the contract, is totally irrelevant. Intention of the parties, different from the meaning conveyed by the words, expressly used in the contract, cannot be considered while construing a contract. It is only the intention conveyed by the words actually used in the contract, which have legitimately to be considered. "The parties cannot themselves give direct evidence of their intention", as said by Lord Wilberforce in Reardon-Smith Line Ltd. v. Hansen-Tangen. Who further said "What is to be taken as the intention which reasonable people wold have had if placed in the situation of the parties." To the same effect is the observation of Lord Reid in McCutcheon v. David MacBrayne Ltd., "The judicial task is not to discover the actual intentions of each party, it is to decide what each was reasonably entitled to conclude form the attitude of the other."
Sir Kim Lewison, in "The Interpretation of Contracts (Fifth Edition)" did not approve a term to be implied in case of an inconsistency with the express terms of the contract with the following observation:-
"A term will not be implied if it is inconsistent with the express terms of the 6.11 contract or its general tenor.
Since the implication of a term rests upon the presumed intention of the parties it is unlikely that they would have intended to incorporate by implication a term which was inconsistent with a term they had incorporated expressly."
There is no quarrel to the aforesaid proposition of law that no terms can be implied or presumed to exist in the contract if the express terms speaks otherwise. This is not certainly a case where the Arbitral Tribunal have incorporated the implied terms into the contract which is inconsistent and repugnant to the express terms.
At the last I cannot resist myself but to refer a recent judgment of the supreme Court in case of Associate Builders -Vs- Delhi Development Authority reported in (2015) 3 SCC 49 on the scope of Section 34 of the said Act. In the said report apart from the other grounds where the award can be interfered by the Court under Section 34 of the said Act, the ground of illegality and perversity was also elaborately discussed therein.
In doing so, the provision contained under Section 28(3) of the Act was also taken into consideration and it is held that the Arbitral Tribunal should decide in accordance with the contract and if the construction of the terms therein is reasonable and plausible one, it does not invite interference. It is further laid down that the contract may be expressed or implied and the conduct may be one of the relevant factors for the purpose of construction thereof.
The following observations which this Court feels have some relevance, are quoted below :
" 42.3. ( c) Equally, the third subhead of patent illegality is really a contravention of Section 28(3) of the Arbitration Act, which reads as under:
"28. Rules applicable to substance of dispute. -(1)-(2) (3) In all cases, the Arbitral Tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction."
This last contravention must be understood with a caveat. An Arbitral Tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do.
43. In Mcdermott International Inc. V. Burn Standard Co. Ltd., this Court held as under :
" 112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law.
113. Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the fact of the award."
44. In MSK Projects (I) (JV) Ltd. -V- State of Rajasthan, the Court held:
"17. If the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction. But if he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. Extrinsic evidence is admissible in such cases because the dispute is not something which arises under or in relation to the contract or dependent on the construction of the contract or to be determined within the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The rationale of this rule is that the nature of the dispute is something which has to be determined outside and independent of what appears in the award. Such a jurisdictional error needs to be prove by evidence extrinsic to the award."
45. In Rashtriya Ispat Nigal Ltd. -V.- Dewan Chand Ram Saran, the Court held:
"43. In any case, assuming that Clause 9.3 was capable of two interpretations, the view taken by the arbitrator was clearly a possible if not a plausible one. It is not possible to say that the arbitrator had travelled outside his jurisdiction, or that the view taken by him was against the terms of contract. That being the position, the High Court had no reason to interfere with the award and substitute its view in place of the interpretation accepted by the arbitrator.
44. The legal position in this behalf has been summarised in para 18 of the judgment of this Court in SAIL V. Gupta Brother Steel Tubes Ltd. and which has been referred to above. Similar view has been taken later in Sumitomo Heavy Industries Lt. V. ONGC Lt. To which one of us (Gokhale, J.) was a party. The observations in para 43 thereof are instructive in this behalf.
45. This para 43 reads s follows:
"43..... The umpire has considered the fact situation and placed a construction on the clauses of the agreement which according to him was the correct one. One may at the highest say that one would have preferred another construction of Clause 17.3 but that cannot make the ward in any way perverse. Nor can one substitute one's own view in such a situation, in place of the one taken by the umpire, which would amount to sitting in appeal. As hel by this Court in Kwality Mfg. Corpn. V. Central Warehousing Corpn. the Court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator, which is what the High Court has practically done in this matter. The umpire is legitimately entitle to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the agreement. If he does so, the decision of the umpire has to be accepted as final and binding...."
So far as it relates to the quantum of damages suffered by the respondents on failure to supply the requisite quantity of materials are concerned, the arbitrators had taken into account various factors and have extensively recorded the same while determining issue no. 5. The arbitrators have expressly indicated that since no works were entrusted for handling the claim towards cost of fuel cannot be included and have further took into account the amount on account of wages and cost of labour. It is pertinent to record that no argument was advanced on the above calculation and the manner in which the loss and damages are ascertained as the entire sheet anchor of argument was based on non consideration of relevant clauses following part of the contract by the arbitrator. Therefore, it would not be proper to enter into the minute details of the calculations made by the arbitrators.
On account of outstanding bills and the interest thereupon the arbitrators do not find any justification in withholding such payments. Even before this Court, the petitioner did not address on the above aspect.
However, the challenges are further made at the rate of interest awarded by the arbitrators at the rate of 18% per annum from the date of award to the date of payment.
Section 31 (7) (b) of the Act provides that the sum directed by the arbitral award shall carry the interest at the rate of 18% per annum from the date of the award to the date of payment unless the award directs otherwise. In the impugned award the arbitrators directed the payment of sum to carry interest at the rate of 18% per annum from the date of the award till payment.
This Court, therefore, does not find any ambiguity on the above aspect as well though from the plethora of judgments of the Supreme Court it appears that the rate of interest was reduced ranging between 6% to 9% but those have been done in exercise of powers conferred under Article 142 of the Constitution of India.
In view of the above this Court does not find that it is a fit case for interference under Section 34 of the Act.
A.P 218 of 2006 stands dismissed.
There shall be no order as to costs.
(Harish Tandon, J.)