Bombay High Court
Indian Companies Act vs Balasore Alloys Limited on 10 January, 2014
Author: R.D. Dhanuka
Bench: R.D. Dhanuka
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDCITION
ARBITRATION PETITION NO. 609 OF 2008
Reliance Industries Limited,
a Company incorporated under the
Indian Companies Act, 1956 having
its registered office at 3rd Floor,
Maker Chamber IV, Nariman Point,
Mumbai 400 021 .. Petitioner
ig Versus
Balasore Alloys Limited,
(formerly known as "Ispat Alloys Limited),
a company incorporated under the Indian
Companies Act, 19567 and having its
registered office at Balgopalpur,
Balasore 756 020, Orissa ... Respondent
Dr. Milind Sathe, Sr. Advocate along with Mr. Dahivat Mehta i/by Junnarkar &
Associates for the petitioner.
Mr.Aspi Chinoy, Sr. Advocate along with Mr. Pesi Mody, Sr. Advocate i/by Mr.
P.G. Shetty for respondents.
CORAM : R.D. DHANUKA,J.
RESERVED ON: 17TH DEC. 2013
PRONOUNCED ON: 10th JAN 2014
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ORAL JUDGMENT :
By this petition filed under section 34 of the Arbitration & Conciliation Act, 1996, petitioner seeks to impugn award dated 3 rd July, 2008 in terms of the majority award dated 20th June, 2008 and the minority award dated 23rd June, 2008 rejecting the claims made by the petitioner.
2. Some of the relevant facts for the purpose of deciding this petition are as under :
(a) The Government of India, Ministry of Commerce, issued Export and Import policy 1992-1997. Paragraph 64 of the said policy provided for advance release orders which would be issued against a duty free licence in favour of licence holder or the transferee of licence against the advance release orders, the person who would be entitled to import the amount so mentioned in the advance release orders. Under paragraph 67 of the said policy, it was provided that the value based advance licence of the materials imported against it may be freely transferable after the export obligation is fulfilled and the bank guarantee/LUT is redeemed. The respondent (formerly known as ISPAT Alloys Ltd) were holding duty free licence for import of furnace oil. The respondent was holding advance licence for 30000 kilo ltr of furnace oil which licence was ::: Downloaded on - 27/01/2014 23:08:15 ::: Hvn 3 ARBP-609.2008.odt purely transferable in terms of section 67 of the export import policy, 1992-1997. At that point of time, only three public sectors oil marketing companies i.e. Indian Oil Corporation (IOC)., Bharat Petroleum Corporation (BPC) and Hindustan Petroleum Corporation (HPC) were entitled to make the import of furnace oil.
(b) On 14th Sept. 1994, 15th Sept. 1994 and 16 th Sept. 1994 those three oil companies addressed letters to the petitioners confirming that the petitioner would be entitled for purchase of furnace oil at concessional rate. On 19th Sept. 1994, the respondent transferred advance licence in favour of the petitioner. Petitioner forwarded advance release order to the oil companies for supply of furnace oil. It is the case of the petitioner that the said three oil companies agreed to supply furnace oil at concessional rate and forwarded the advance release order to the petitioner. It is the case of the petitioner that the oil companies issued delivery orders mentioning the concessional price to the petitioner.
© On 21st October, 1994, petitioner and the respondent entered into an agreement. It was provided that the respondent held 10 duty free advance licences for import of furnace oil which licences were freely transferable. Respondent would organize advance release orders in favour of the petitioner. Petitioner would pay premium of Rs.330/- per ::: Downloaded on - 27/01/2014 23:08:15 ::: Hvn 4 ARBP-609.2008.odt kilo ltr to the respondent. The said agreement was valid for the period from 14th October, 1994 to 31st January, 1995. Some of the relevant clause of the said agreement are extracted as under :
"PREMIUM : In consideration of the Transferor agreeing to transfer the Duty Free Advance Licences for 30,000 KL Furnace Oil to the Transferee and arrange to issue the Advance Release Order (ARO) in favour of the Transferee, the Transferor shall pay a premium, being the difference of administered Furnace Oil price less discount of Rs.330 per KL and the prevailing provisional price of Furnace Oil supplied by the Oil Companies on demand import price on the basis of advance release orders issued against Duty Free Advance Licences.
PAYMENT : Transferee shall pay on the 8 th and 22nd of each month against debit note by transferor of the provisional premium and maintain a memorandum of account, mentioning the quantity of Furnace oil obtained by the transferee against the ARO and the rate charged by the oil companies, from time to time against the supplies and keep the Transferor informed of the same for final calculation of the premium amount. The provisional premium amount will be Rs.555.28 per KL which is a calculated as per enclosed annexure "G". Any short/excess payment shall be adjusted/paid after getting the final account from the Oil Companies. In the event of the Oil Companies give the Transferee debit note/credit note due to the fluctuation of prices on any other reasons. The same will be forwarded to the Transferor for settling such debit/credit notes. The transferor (M/s. Ispat Alloys Ltd. Indemnifies transferee (Reliance Industries Ltd) from any debit note raised by oil companies for furnace oil, supplies against ARO as per this agreement and the entire debit note if any will be settled by the transferor either by adjustment in the pending debit notes or by payment from time to time.
PRICE : Oil companies are presently billing provisionally concessional price for Furnace Oil at Rs.3650/- per KL plus excise duty and other statutory levies for Furnace Oil supplies against ARO. The above provisional price may also change from time to ::: Downloaded on - 27/01/2014 23:08:15 ::: Hvn 5 ARBP-609.2008.odt time. In such an event, such applicable provisional price will be considered for the working out the differential amount which will be paid as premium. The differential amount between the present furnace oil administered price and the provisional concessional price of furnace oil for supplies against ARO's loss Rs.300/- per KL would amount to a provisional premium which will be paid to the transferor on 8th and 22nd of the month against their debit notes.
COMMENCEMENT : This agreement shall commence with effect from 14.10.1994 to 31.01.96. Any extension thereof shall be on mutually agreed terms and conditions. If either party desires to extend/terminate the agreement, either party shall give the other party a minimum notice of 30 days during the currency of the agreement.
INDEMNITY : Either party agree and undertake to indemnify and keep indemnified the other party against losses and damages that may be suffered and/or sustained by either party by reason of any breach of terms and provisions herein."
The said agreement also provided for arbitration agreement.
(d) On 9th December, 1994 IOC addressed letter to the petitioner stating that with effect from 6th December 1994 price had been revised to Rs.3720/- per kilo ltr. The petitioner accepted the said revised concessional price on 10th December., 1994. By letter dated 1 st February, 1995 IOC informed the petitioner about the revision in price from Rs.3720/- to Rs.4100/- per kilo ltr with effect from 24 th January, 1995. From 8th Feb. 1995, BPCL raised a debit note demanding an additional amount of Rs.61,74,075/- on account of differential amount of price for furnace oil supplied against advance released order from ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 6 ARBP-609.2008.odt 21st Oct. 1994 to 4th Nov. 1994 and informed that the price payable was Rs.4535.78 per kilo ltr since the petitioner was not export oriented unit and not entitled for concessional rate. On 8th March, 1995 petitioner denied the claim made by BPCL. On 10th Sep. 1996, all the three oil companies demanded differential amount from the petitioner. The petitioner refuted the claim made by the oil companies vide letter dated 11th September, 1996.
(e) On 10th March, 1997 and 12th March, 1997 oil companies addressed letters to the petitioner informing that since the amounts were not paid by the petitioner they would be adjusting the demanded amount from the credit balance for future suppliers lying with them on account of the petitioner. Petitioner vide letter dated 14 th March, 1997, protested against the unilateral debiting of the account of the petitioner by the oil companies.
(f) On 11th April, 1997, petitioner filed a suit (1276 of 1997) in this court seeking permanent injunction against the oil companies from deducting, adjusting, appropriating any amount out of price paid by the petitioner towards claims under 8 debit notes. On 28 th April, 1997, learned single Judge of this court passed an ad interim order restraining the oil companies from debiting the petitioner's account. The said order was ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 7 ARBP-609.2008.odt however, stayed for some time. The oil companies appropriated the amounts from the petitioner's account in respect of the demands raised during the period of stay of the ad interim order passed by this court.
(g) On 7th April, 1999, petitioner called upon the respondent to refund amount of Rs.20,31,351.95 which amount was debited to the account of the petitioner by IOC by raising 5 debit notes from other payments. On 24th June, 1999, the petitioner invoked arbitration agreement and nominated an arbitrator. On 2nd July, 1999, the respondent filed an application before the arbitral tribunal inter alia praying that the arbitral proceedings should be either adjourned or stayed till final decision in Suit No. 1276 of 1997 filed by the petitioner against the oil companies.
The said application filed by the respondent was opposed by the petitioner. On 2nd July, 1999, the arbitral tribunal rejected the said application holding that it was not possible or feasible to adjourn the arbitration proceedings until the disposal of the said suit filed by the petitioner against those oil companies.
(h) On 3rd November 1999 IOC raised further debit note for Rs.56,47,952/- on the petitioner. On 18 th November 1999, the petitioner disputed the said debit note raised by IOC.
(i) On 21st January, 2000 respondent filed suit (675 of 2000) against the ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 8 ARBP-609.2008.odt petitioner and those three oil companies praying for cancelling and adjudging debit notes raised by the oil companies on the petitioner as void, or injunction restraining oil companies from recovering any additional amount in respect of the supplies of furnace oil made under the advance release orders, for a money decree against the petitioner for a sum of Rs.42,38,056/- on account of unpaid premium and for perpetual injunction against the petitioner from making any claims.
(j) In the month of May, 2000 petitioner filed suit no. 2062 of 2000 against IOC praying for declaration that the five debit notes dated 30 September, 1995 and one debit note dated 3 rd August, 1999 were illegal, null and void. On 30 March, 2001, this court passed an order directing that no further adjustments be made in respect of the suit debit notes in the said Suit No. 2062 of 2000. In the month of May, 2003, the petitioner filed statement of claim before the arbitral tribunal against the respondent in respect of the debit notes raised by the three oil companies against the petitioner. Petitioner examined a witness. On 20 June, 2008, by the majority award, it was held that the claims made by the petitioner were premature and even otherwise in view of the provisions of agreement dated 21st October, 1994, respondent was not liable to pay the amounts in respect of the debit notes raised by oil companies on the petitioner.
::: Downloaded on - 27/01/2014 23:08:16 :::Hvn 9 ARBP-609.2008.odt On 23 June, 2003, by the minority award it was held that the claims made by the petitioner were maintainable and arbitrable, however, in view of the provisions of the agreement, petitioner was not entitled to recover the amounts against the debit notes raised by the oil companies from the respondents. It was also observed that the oil companies were not justified in refusing concessional price to the petitioner. All the three arbitrators rejected the claims made by the petitioner.
3. Dr. Sathe, learned senior counsel appearing for the petitioner, submits that under the agreement entered into between the parties, petitioner was to avail of purchase of furnace oil at the concessional price which was lower than the market price and out of the difference between the market price and concessional price, petitioner had agreed to pay the premium to the respondent as and by way of consideration for transferring the advance release orders in favour of the petitioner. It is submitted that the petitioner was assured that any variation in the price upwards or downwards, that is price mentioned in the agreement and any variation, was to be settled by raising debit notes by the respondent. Petitioner was assured that the supply of furnace oil at the fixed price and any revision both upward as well as downward was to be on account of the respondent. The respondent had indemnified the petitioner under the said agreement and agreed to undertake and indemnify against any ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 10 ARBP-609.2008.odt losses and damages that may be suffered and sustained by either party by reason of any breach of terms and provisions of the agreement. It is submitted that the moment liability was incurred by the petitioner on account of oil companies debiting the account of the petitioner, for adjusting their claims, towards the so called upward revision of price in furnace oil, the petitioner had incurred liability contrary to agreement dated 21 st October, 1994 and that liability was required to be compensated in terms of both the clauses providing payment as well as indemnity by the respondent. It is submitted if the petitioner had not entered into the said agreement with the respondent, petitioner could have bought the furnace oil at the market price directly from the oil companies and not necessarily against the advance release orders purchased from the respondent.
4. Dr. Sathe learned senior counsel submits that there was no fluctuation of price during contractual period. The claim made by the oil companies, was not for supply effected or fluctuation post 31 st March, 1995. Learned senior counsel submits that the under the indemnity clause it was not necessary that the liability was finally crystallized. Learned senior counsel submits that in any event since the oil companies have already adjusted the amounts claimed under debit notes from the other amounts of the petitioner, liability of the ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 11 ARBP-609.2008.odt petitioner was crystallized and thus petitioner became entitled to enforce the indemnity clause. It is submitted that the impugned award is contrary to the terms of the agreement. The finding of the arbitral tribunal that the price fluctuation was beyond the contractual period and thus respondent was not liable is contrary to the agreement between the parties. It was not the case of the petitioner that the fluctuation was for the post contractual period. Entire edifice of the arbitral tribunal is totally erroneous.
5. Learned senior counsel placed reliance on the judgment of this court in the case of Jet Airways (India) Limited Vs. Sahara Airlines Limited, 2011 Supp;
B.C.R. 709. Paragraph 40 and 41 of the said judgment reads thus :
"40. Jet has submitted before the Court that under general principles of law, once a person who has been indemnified has incurred liability and that liability is absolute, he is entitled to call upon the indemnifier to save it from that liability and to make payment. This is premised on the fact that an indemnity may be worth little if the indemnified cannot enforce an indemnity till he actually pays the liability. The first judgment on the subject to which it is necessary to turn, is a judgment of Mr.Justice M.C. Chagla (as the Learned Chief Justice then was) in Gajanan Moreshwar Parelkar vs. Moreshwar Madan Mantri.22 In that case, the Defendant to a suit for declaration that was instituted on an indemnity, urged that unless the indemnified suffered a loss, he was not entitled to sue the indemnifier and in that connection, reliance was placed on Sections 124 and 125 of the Contract Act. The Plaintiff to the suit, had been furnished an indemnity by the Defendant of discharging two mortgages. In that context, it was argued on behalf of the Defendant that unless the mortgagee filed a suit against the Plaintiff and obtained a judgment which the Plaintiff was compelled to satisfy, the Plaintiff was not entitled to sue the Defendant. Justice Chagla held that the Indian Contract Act is an amending and consolidating ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 12 ARBP-609.2008.odt legislation and is not exhaustive of the law of contract to be applied by Courts in India. The Learned Judge held that if the indemnified has incurred a liability which is absolute, he is entitled to invoke the indemnity by calling upon the indemnifier to pay the demand. In a subsequent judgment, Justice P.B. Gajendragadkar (as the Learned Chief Justice of India then was) spoke for a Division Bench of this Court in Khetarpal vs. Madhukar Pictures,23 and while affirming the principle enunciated by Justice Chagla in Gajanan Moreshwar that Sections 124 and 125 are not exhaustive of the rights of an indemnity holder held as follows:
"On this view, an indemnityholder is entitled to sue the indemnifier even before he has incurred any damage, provided of course the indemnityholder is able to satisfy the Court about the existence of a clear enforceable claim against him and is able to show that it is in respect of such a clear enforceable claim that a contract of indemnity has been executed. ...
ig that the rights of the indemnityholder should not and need not be confined to those mentioned in S.125, Contract Act. Even before damage is incurred by the indemnityholder, it would be open to him to sue for the specific performance of the contract of indemnity, provided of course it is shown that an absolute liability has been incurred by him and that the contract of indemnity covers the said liability." The law on the subject has similarly been considered in a judgment of the Calcutta High Court in Osman Jamal & Sons Ltd. vs. Gopal Purshattam.24 The Court cited the judgment of Buckley L.J. in re:
Rechardson Ex parte The Governors of St.Thomas's Hospital,25 to the following effect : "Indemnity is not necessarily given by repayment after payment. Indemnity requires that the party to be indemnified shall never be called to pay....."
41. In the present case, there was a liability imposed upon Jet Lite by the Income Tax authorities on 5 March 2008. That was in the amount of Rs. 107.08 crores. It was in respect of a clear enforceable claim that the contract of indemnity had been executed. The indemnity covered losses which may be incurred and losses were defined clearly to include taxes, claims and demands. After the Consent Terms were entered into between the parties, the warranty contained in Clause 15.1.1A of the SPA survived in respect of tax matters. The warranty was triggered when a liability was incurred or suffered. Once the warranty was triggered, the consequence was ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 13 ARBP-609.2008.odt that the selling shareholders had to ensure that the purchaser shall be reimbursed without dispute or delay. If they were not reimbursed immediately, an indemnity arose in their favour which Jet was entitled to and has lawfully invoked. The instalments granted to Jet by the Chief Commissioner of Income Tax did not alter the nature of the liability, the instalment being only a facility for payment. The liability was in excess of Rupees Fifty Crores. Jet had in fact paid an amount of Rs.37.08 Crores to the Income Tax authorities and claimed reimbursement of that amount on 26 March 2008. Jet was entitled to demand reimbursement as it did from the selling shareholders. Sahara was in breach of its indemnity obligations on 30 March 2008 inasmuch as it repudiated the obligation to indemnify on the fallacious reasoning that the liability was less than the threshold of Rs.50 crores. Once the Court comes to the conclusion that there was a failure on the part of Sahara to fulfill its indemnity obligations in the SPA, as amended by the Consent Terms, the liability of Jet to pay the additional sum of Rs.550/crores did not arise."
6. Dr. Sathe learned senior counsel then submits that on one hand the arbitral tribunal has rendered a finding that the claims made by the petitioner were premature and on the other hand has dealt with the claim on merits and has rejected the claim which shows total contradiction in the impugned award. It is submitted that once the arbitral tribunal had rendered a finding that the claims were premature, the arbitral tribunal could not have decided the merits of the matter and could not have rejected the claim.
7. Dr. Sathe leaned senior counsel submits that though in the minority award various findings are rendered in favour of the petitioner, the claim of the petitioner are rejected which shows ex facie contradiction in the award.
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8. Mr. Chinoy learned senior counsel for the respondent on the other hand submits that the arbitral tribunal has on interpretation of the terms of the agreement has rightly held that the petitioner were not eligible to get concessional rate under the Export Import policy since the petitioner was not 100% export oriented unit. It is submitted that the arbitral tribunal has rendered a business sense finding on interpretation of the agreement by adopting a business sense approach. The arbitral tribunal has considered that as against the consideration amount of provisional premium of Rs.1.37 crores approximately, respondent could not have been required to pay Rs.5.29 crores alongwith further interest. It is observed that, that could certainly not be the intention of the respondent and no such intention could be reasonably attributed to it. It would commercially be a patently absurd situation.
9. The learned senior counsel submits that the arbitral tribunal has rightly come to the conclusion that the debit notes were issued by oil companies in view of the oil companies found the petitioner not eligible to get concessional rate in view of the petitioner not being a 100% export oriented unit. The arbitral tribunal has rightly held that it was for the petitioner to make appropriate enquiry before entering into an agreement and the petitioner could not foist a liability to ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 15 ARBP-609.2008.odt pay the excess duty from the respondent. The petitioner had entered into an agreement with open eyes knowing fully well that the benefit of concessional duty under the concessional duty free advance licences would be available only to 100% export oriented units and they being not an export oriented unit and were thus not entitled to concessional duty. The petitioner was thus not entitled to claim the reimbursement from the respondent. The learned senior counsel submits that the interpretation of the arbitral tribunal is not impossible interpretation but is possible and/or plausible interpretation and thus this court shall not substitute the interpretation of the arbitral tribunal by taking a different view in the matter. Learned senior counsel placed reliance on the judgment of the Supremre Court in case of Rashtriya Ispat Nigam Ltd. vs. Devangchand Ramsharan (2012) 5 SCC 306 and in particular paragraphs 2, 20, 21, 29 43 and 45 which reads thus :-
"2. The questions involved in this appeal are two-fold, (i) firstly, whether under the relevant Clause 9.3 of the terms and conditions of the contract between the parties, the Appellant was right in deducting the service tax from the bills of the Respondent and, (ii) secondly, whether the interpretation of this clause and the consequent award rendered by the arbitrator was against the terms of the contract and therefore illegal as held by the High Court, or whether the view taken by the arbitrator was a possible, if not a plausible view.
20. As stated at the outset, the question involved before the arbitrator and in the offshoots therefrom, is with respect to interpretation of the above referred clause No. 9.3. Mr. Ganesh, Learned Counsel for the Appellant submitted that the entire purpose in providing this clause was to provide that the contractor will be responsible for the taxes, duties and ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 16 ARBP-609.2008.odt the liabilities which would arise in connection with discharge of the obligations of the contractor. The obligations of the contractor were laid down in Clause 6.0 of the terms and conditions, referred to above. This clause provides the details of contractor's responsibility for clearance of the consignments of the Appellant. The liability to pay the service tax arises out of the service provided by the Respondent. There is no dispute that in view of the above referred amendment of 2000, the Appellant as the recipient of the service is the Assessee under the service tax law. However, there is no prohibition in the law against shifting the burden of the tax liability. In the instant case, the tax liability will depend upon the value of the taxable service provided by the Respondent, and therefore Clause 9.3 required the Respondent to take the burden. Mr. Ganesh cited the example of sales tax which the Assessee can shift to the customer. In his submission, the phrase, "liabilities in connection with the discharge of his obligations" under this clause will have to be construed in that context.
21. The Learned Counsel submitted that interpretation of Clause 9.3 by the arbitrator was the correct one, and in any case, was a possible if not a plausible one. The Courts were, therefore, not expected to interfere therein. He submitted that the dispute in the present case was concerning the interpretation of a term of the contract. It has been laid down by this Court that in such situations, even if one is of the view that the interpretation rendered by the arbitrator is erroneous, one is not expected to interfere therein if two views were possible.
22. Mr. Ganesh referred to the following observations of this Court in P. State Electricity Board v. R.J. Shah reported in MANU/SC/0266/1999 :
1999 (4) SCC 214 at the end of paragraph 27, which are to the following effect:
27. ...The dispute before the arbitrators, therefore, clearly related to the interpretation of the terms of the contract. The said contract was being read by the parties differently. The arbitrators were, therefore, clearly called upon to construe or interpret the terms of the contract. The decision thereon, even if it be erroneous, cannot be said to be without jurisdiction. It cannot be said that the award showed that there was an error of jurisdiction even though there may have been an error in the exercise of jurisdiction by the arbitrators.
29. It was submitted by the Respondent that this Hon'ble Court very succinctly summarised the legal principles for setting aside an award in ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 17 ARBP-609.2008.odt Sail v. Gupta Brother Steel Tubes Limited (by one of us - Lodha J.) reported in MANU/SC/1624/2009 : 2009 (10) SCC 63 in paragraph 18 wherefrom principles (i) and (iv) would be attracted. As against that, the Appellant stressed sub-paras (ii) & (vi) of the same paragraph 18. We may therefore quote the entire paragraph which reads as follows:
...18. It is not necessary to multiply the references. Suffice it to say that the legal position that emerges from the decisions o this Court can be summarised thus:
(i) In a case where an arbitrator travels beyond the contract, the award would be without jurisdiction and would amount to legal misconduct and because of which the award would become amenable for being set aside by a court.
(ii) An error relatable to interpretation of the contract by an arbitrator is an error within his jurisdiction and such error is not amenable to correction by courts as such error is not an error on the face of the award.
(iii) If a specific question of law is submitted to the arbitrator and he answers it, the fact that the answer involves an erroneous decision in point of law does not make the award bad on its face.
(iv) An award contrary to substantive provision of law or against the terms of contract would be patently illegal.
(v) Where the parties have deliberately specified the amount of compensation in express terms, the party who has suffered by such breach can only claim the sum specified in the contract and not in excess thereof. In other words, no award of compensation in case of breach of contract, if named or specified in the contract, could be awarded in excess thereof.
(vi) If the conclusion of the arbitrator is based on a possible view of the matter, the court should not interfere with the award.
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 ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 18 ARBP-609.2008.odt 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.
45. This paragraph 43 reads as 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 award 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 held by this Court in Kwality Mfg. Corpn. v. Central Warehousing Corpn MANU/SC/0435/2009 : 2009 (5) SCC
142. 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 entitled 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."
10. In so far as submission of Dr. Sathe, learned senior counsel for the petitioner that the arbitral tribunal having rendered a finding that the claims were premature and the claims thus could not have been decided on merits is concerned, learned senior counsel submits that the petitioner had opposed the application filed by the respondent interalia praying for stay and/or adjournment of the arbitral proceedings till the suit filed by the petitioner against the oil companies were disposed of. The Arbitral Tribunal therefore rejected the application of the respondent and accepted the submissions made by the petitioner and refused to stay and/or adjourn the arbitration proceedings till the said suit is disposed of. The petitioner thus cannot be permitted to raise this ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 19 ARBP-609.2008.odt issue at this stage. It is submitted that in any event the arbitral tribunal has applied the business principles approach while interpreting the terms of the agreement and this court thus cannot interfere with the possible interpretation of the terms of the agreement by the arbitral tribunal.
11. Mr.Chinoy, learned senior counsel submits that in so far as indemnity clause interpreted by the arbitral tribunal is concerned, it is rightly held by the arbitral tribunal that for enforcing an indemnity, liability of the indemnifier has to be absolute. Even if the oil companies have appropriated the amounts of the petitioner for recovery of the amounts and/or debit notes, such adjustment and/or recovery is disputed by the petitioner in the pending suit and thus it could not be construed that the liability of the petitioner is crystallized and/or absolute.
The interpretation of the arbiral tribunal is not only a possible interpretation but is correct interpretation.
12. Mr.Chinoy, learned senior counsel place reliance on the judgment of this court delivered on 16th July, 2013 in case of Gujarat Urja Vikas Nigam Ltd. vs. Tata Motors Ltd. In Arbitration Petition No. 955 of 2011 and in particular paragraph 10 in support of his submission that since the liability was not crystallized under the agreement in question, indemnity clause could not have been invoked by the petitioner. Paragraph 10 of the said judgment reads thus :-
"10. The next question that arises for consideration of this Court is that even if Clause-14 of the lease agreement could have been ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 20 ARBP-609.2008.odt made applicable for claim of creation of fund made by the respondents, whether such clause could have been invoked though liability arising out of dis-allowance of claim for depreciation is not absolute and more particularly when appeal filed by the respondents impugning such dis-allowance of depreciation was pending before the Income Tax Appellate Tribunal on the date of issuance of notice invoking arbitration clause and filing the statement of claim before the learned arbitrator by the respondents. In this context, reference to Section 124 of the Contract Act would be relevant which is extracted as under 124. "Contract of indemnity" defined : A contract by which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person, is called a "contract of indemnity". Learned arbitrator recorded a finding that creation of fund is well accepted position in law which an indemnified can resort to against the indemnifier. On 42/61 perusal of Section 124 of the Contract Act, it is clear that if promisee suffers any loss by conduct of the promisor or by conduct of any other person in respect of which indemnity is furnished by the promisee would be entitled to indemnify such loss against the promisor. In case of Gajanan Parelkar Vs. Moreshwar (supra) this Court has construed Sections 124 and 125 of the Contract Act. It has been held that if the indemnified has incurred a liability and that liability is absolute, he is entitled to call upon the indemnifier to save him from that liability and to pay it off. In my view, learned counsel appearing for the petitioner is right in her submission that unless the liability of the respondents was absolute respondents could not have invoked the alleged indemnity under Clause-14 of the agreement of lease against the petitioners for creation of fund. Claim for creation of fund was made before the learned arbitrator in statement of claim. Appeal was pending before the Income Tax Appellate Tribunal. Even according to the respondents, their claims were not crystallized and absolute on the date of filing of statement of claims and/or on the date when notice invoking arbitration was issued by the respondents. In any event, during the pendency of the arbitration proceedings, the Income Tax Appellate Tribunal had already set aside the assessment order by which claim for depreciation was disallowed by the Assessing Officer and the matter was remanded back. In my view, claim for creation of fund thus, in these circumstances, was not at all tenable under ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 21 ARBP-609.2008.odt Section 124 of the Contract Act or under Clause-14 of the Lease Agreement. The entire award is vitiated on this ground."
13. Mr.Chinoy learned senior counsel submits that though in the minority award, the learned arbitrator has given separate reasons, even by the said award, the claims of the petitioner are rightly rejected.
14. In rejoinder, Dr. Sathe, learned senior counsel appearing for the petitioner submits that interpretation of the arbitral tribunal is impossible and absurd. The whole contract is linked to oil company for contract period. It was not in dispute that the debit notes were issued by the oil companies for contract period and were relating to contract period. Any debit note and/or credit note irrespective of the amount ought to have been indemnified. Issue of eligibility could not be gone into by the arbitral tribunal as the said issue was not the issue between the petitioner and the respondent but was an issue raised by the oil companies and was pending in the suits filed by the petitioner. It is submitted that oil companies has already recovered the amount claimed under the debit notes from the other amounts of the petitioner, liability had been already incurred by the petitioner which were liable to be reimbursed by the respondent under the indemnity clause.
REASONS AND CONCLUSIONS
15. A perusal of the majority award indicates that the majority of the arbitrators ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 22 ARBP-609.2008.odt have interpreted the indemnity clause, provisions providing for premium, payment, price and indemnity. A finding is rendered that the petitioner not being 100% export oriented unit ought to have made enquiries before getting transfer of the licence from the respondent against payment of Rs.1.37 crores and that the petitioner would get the licences concessional/ duty free licences under the export import policy. It was only 100% export oriented units entitled to concessional duty, hence, petitioner could not claim reimbursement of the amount of excess duty which they were held liable to pay by the reason of they not being 100% export oriented units. It is held that the petitioner not having made enquiries before taking transfer of the licences, they only have to be blamed and cannot foist the liability to pay the excess duty on the respondent,
16. In the majority award, a finding of fact is also rendered to the effect that there could not have been the intention of the respondent or such intention cannot be reasonably attributed to the respondent to pay back Rs.5.29 crores appropriately as claimed by the petitioner with interest as against the consideration of Rs.1.37 crores appropriately by way of original premium and it would commercially be patently absurd situation. The arbitral tribunal held that the tribunal must adopt a common sense approach and not allow itself to be thwarted by a narrow, pedantic and legalistic approach. It is held that the ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 23 ARBP-609.2008.odt words 'prevailing provisional price' could not possibly mean final price which may be determined by the oil companies at a later date with retrospective effect or even provisional price which may be fixed by the oil companies subsequent to the date of supply. After interpreting the expression 'charged', 'final accounts' the arbitral tribunal has rendered a finding that it would be absurd to suggest that the parties contemplated that whenever fluctuation of price occurs at any time in the future, may be several years later, the oil companies should be entitled to issue debit/credit notes which would be binding upon the respondent. It is held that the fluctuation of the price which was contemplated was fluctuations taking place before 31 st January, 1995 and any other interpretation would lead to an absurd reason which could never have been contemplated by the parties. The arbitral tribunal has rendered a finding that the petitioner was not entitled to recover from the respondent any amount in excess of the provisional price prevailing at the time of delivery of furnish oil. The amount of that price has been already paid by the petitioner to the respondent and consequently petitioner is not entitled to recover any further amount from the respondent on the basis of market price subsequently fixed by the oil companies with retrospective effect. It is held that the claims made by the petitioner are not well founded and must be rejected. Even the minority view taken by the learned arbitrator though gives separate reasons has rejected the ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 24 ARBP-609.2008.odt claims made by the petitioner.
17. In case of Union of India vs. D.N.Revri & Co. reported in AIR 1976 SC 1257 which judgment is adverted to by the arbitral tribunal, it is held that in a commercial document between the parties, it must be interpreted in such a manner as to give its efficacy to the contract rather than to invalidate it. It would not be right while interpreting a contract entered into between any two parties to apply strict rules and instruction which are applicable to conveyance or other formal documents. It is held that the meaning of the contract must be gathered by adopting a common sense approach and it must not be allowed to be thwarted by a narrow,pedantic and legalistic approach.
18. A perusal of the impugned award indicates that the arbitral tribunal has rendered a business sense finding and has interpreted the agreement so as to give it efficacy to the agreement rather than to invalidate it. The arbitral tribunal has interpreted the provisions of the agreement including indemnity clause with business common sense and to obviate any unjust or absurd results. In my view, unless the liability of the petitioner was absolute, petitioner could not have invoked the indemnity clause against the respondent.
The interpretation of the arbitral tribunal that the petitioner not being 100% export oriented unit and were not eligible to claim concession and petitioner ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 25 ARBP-609.2008.odt themselves have to be blamed for not making such enquiry before entering into the agreement and thus no such liability could be foisted on the respondent in not only the possible interpretation but is the correct interpretation and thus such interpretation of the arbitral tribunal can not be substituted by another interpretation of this court. This court in case of Gujarat Urja Vikas Nigam Ltd.
has after adverting to the judgment in case of Gajanan Parelkar vs. Moreshwar AIR 1942 Bombay 302 has held that unless the liability of the indemnifier is absolute, indemnity clause cannot be enforced in view of section 124 of the Contract Act. I do not propose to take a different view in the matter.
20. I am not inclined to accept the submission of Dr. Sathe, learned senior counsel for the petitioner that the oil companies having recovered the amount claimed under debit notes from the petitioner, liability of the petitioner is crystallized and/or is absolute and the claim for indemnity thus was within the parameters of the agreement. It is not in dispute that the petitioner has disputed the recovery effected by the oil companies and the suit filed by the petitioner for such declaration is pending in this court. In my view, it cannot be thus said that the liability of the petitioner is crystallized and/or is absolute. The Arbitral Tribunal has rightly interpreted the provisions of the agreement and has held that the liability was not crystallized and/or absolute in view of the pendency of the suit filed by the petitioner.
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21. In so far as judgment of this court in case of Jet Airways (supra) is concerned, in the said judgment this court has held that even before damages incurred by the indemnity holder, it would be open to him to sue for specific performance of the contract of indemnity provided it is shown that the absolute liability has been incurred by him and that the contract of indemnity covers such liability. In my view the said judgment of the learned single Judge of this court does not assist the petitioner but assist the respondent.
22. In so far as the submission of Dr. Sathe that the arbitral tribunal having taken a view that the claims made by the petitioner were premature, tribunal could not have decided the merits of the matter and could not have rejected the claim is concerned, perusal of record indicates that the respondent had filed an application before the Arbitral Tribunal inter alia praying for stay of the arbitration proceedings and/or for adjournment till the suit filed by the petitioner is disposed of. The petitioner had opposed the said application. The Arbitral Tribunal has accepted the objections of the petitioner and passed an order refusing to stay the arbitration proceedings and/or to adjourn till disposal of the suit. In my view, petitioner having raised such objection before the Arbitral Tribunal cannot be permitted to urge that the arbitral tribunal could not have decided the matter on merits having rendered a finding that the claims were premature. Since both parties had made their submissions also on merits and the plea of the petitioner ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 27 ARBP-609.2008.odt not to stay the arbitration proceedings and/or adjourn the proceeding till disposal of the suit is accepted, arbitral tribunal in my view was right in deciding the entire matter on the merits of the matter. There is thus no substance in the submission of Dr. Sathe that arbtiral tribunal could not have decided the claim on merits.
23. I am not inclined to accept the submission of Dr. Sathe, learned senior counsel that the issue of eligibility of the petitioner to avail of concession was an issue only between the petitioner and the oil companies and not between the petitioner and the respondent. The oil companies had raised demand by issuing debit notes on the ground that the petitioner was not eligible to avail of the concessional rates in view of the petitioner not being 100% export oriented units and have recovered the said amount from the petitioner. The petitioner sought reimbursement of the such amount from the respondent and thus respondent was entitled to oppose the claim for reimbursement which objection was based on the premise that the recovery made by the oil companies was due to the ineligibility of the petitioner to avail of concessional rate.
24. Supreme Court in case of Rashtriya Ispart Nigam Ltd has held that even if a clause of the contract is capable of two interpretations and if the view taken by the arbitrator is clearly a possible if not a plausible one, it is not possible to say that the arbitrator has travelled outside the jurisdiction or that the view taken by ::: Downloaded on - 27/01/2014 23:08:16 ::: Hvn 28 ARBP-609.2008.odt him was against the terms of the contract.
25. In my view the interpretation of the arbitral tribunal is not only possible interpretation but is a correct interpretation of the terms of the agreement and thus that interpretation rendered by the arbitral tribunal is not liable tobe interfered with by this court. This court has no jurisdiction to substitute the possible interpretation of the arbitral tribunal by rendering another interpretation contrary thereto. I am respectfully bound by the judgment of the Supreme Court in case of of Rashitrya Ispat Nigam Ltd. (supra).
26. In my view, there is no merit in any of the submission made by Dr. Sathe, learned senior counsel appearing for petitioner. Petition is devoid of merits. I accordingly pass the following order :-
Arbitration petition is dismissed.
No order as to costs.
(R.D. DHANUKA,J.) ::: Downloaded on - 27/01/2014 23:08:16 :::