Bangalore District Court
/ M/S.Kalyani Steels Ltd vs ) Mysore Minerals Limited on 10 January, 2020
IN THE COURT OF THE VI ADDL. CITY CIVIL & SESSIONS JUDGE
AT BENGALURU CITY
(CCCH.11)
Dated this the 10th day of January, 2020
PRESENT: Sri. Rama Naik, B.Com., LL.B.,
VI Addl.City Civil & Sessions Judge,
Bengaluru City.
A.S.NO:71/2014
And
A.S.NO: 89/2014
PLAINTIFF / M/S.KALYANI STEELS LTD
APPLICANT : Having its registered Office at
[In AS.71/2014] Corporate Building, 2nd Floor,
Mundhwa, Pune - 411 036.
[Claimant before Reptd.by its Seniro Legal Manager-
Arbitral Tribunal] Sri.Anand Shirsat.
/Vs/
DEFENDANTS :1) MYSORE MINERALS LIMITED
RESPONDENT A Government of Karnataka Undertaking
[In AS.71/2014] Having its Registered Office
[Respondent before at 39, Mahatma Gandhi Road,
Arbitral Tribunal] Bengaluru -560 061.
2) JUSTICE SHIVARAJ V PATIL
(Former Judge - Supreme Court of India)
No.254, Spursh, 18 th Cross,
Sadashivanagar, Bengaluru.
AS.71/2014
&
AS.89/2014
2
PLAINTIFF : MYSORE MINERALS LIMITED
APPLICANT A Government of Karnataka Undertaking
[In AS.89/2014] Registered under the Companies Act, 1956
Having its Registered Office
[Respondent before at No.39, Mahatma Gandhi Road,
Arbitral Tribunal] Bengaluru -560 061.
/Vs/
DEFENDANTS/ : 1) M/S.KALYANI STEEL LIMITED,
RESPONDENTS Having its registered Office at
[In AS.89/2014] Corporate Building, 2nd Floor,
[Claimant before Mundhwa, Pune - 411 036.
Arbitral Tribunal]
2) Shri.Hon'ble Justice Shivaraj V.Patil
Former Judge, Supreme Court of India,
Sole Arbitrator, Home/Office at No.254,
'Sparsh', 18th Cross,
Sadashivanagar, Bengaluru -560 080.
--
COMMON JUDGMENT
Plaintiffs have filed these suits under Section
34 of the Arbitration and Conciliation Act, 1996, for
setting aside the award dated 28.02.2014 passed
by learned Arbitrator.
2) As both these suits are arising out of single
award dated 28.02.2014 passed by learned
Arbitrator, for the convenience of the Court, both
AS.71/2014
&
AS.89/2014
3
these suits are taken together for passing common
judgment.
3) Plaintiff's [Claimant in arbitral proceedings]
case in AS.No.71/2014 is that, Claimant and one
M/s.Mukand Ltd., had jointly obtained the approval
of the State Government for setting up a Steel Plant
in the industrially backward area of Koppal for
manufacture of special alloy steel blooms, billets
and rounds and the plant was set up and
commissioned in 1998. Basic raw material required
was iron ore and initially the same was met by
purchases from various mines situated in and
around Hospet, Sandur Region. Respondent is a
State Government Undertaking incorporated under
the provisions of the Companies Act, 1956 and had
applied for Mining Lease of Subbarayanahalli Iron
Ore Mines [for brevity 'SIOM']. Respondent was
under threat of winding up due to severe financial
crunch, labour problems and unrest. To overcome
AS.71/2014
&
AS.89/2014
4
the same, it floated a public tender to commercially
exploit the mines by way of joint venture with a
private participation to augment its financial
resources. Joint offer of Claimant and M/s.Mukand
Ltd., were short listed and was accepted by
Respondent for commercially exploiting mines. Said
proposal was also approved by State Government,
pursuant to which, Claimant and Respondent
entered into Marketing Agreement dated
17.01.2002. Originally, this was entered into with
M/s.Kalyani Ferrous Industries Ltd., for a period of
20 years on such terms and conditions, which was
later amalgamated with Respondent by an order of
the High Court of Bombay dated 18.01.2004.
Pursuant to such amalgamation, the name of
M/s.Kalyani Ferrous Industries Ltd was replaced with
that of Respondent. Respondent entered into
Raising Agreement with M/s.Mukand Ltd., for
extraction of iron ore from the mines, and
AS.71/2014
&
AS.89/2014
5
excavated Ore from the said mines and sold to
Claimant.
4) It is stated that, as per the terms of
agreement, Claimant paid a sum of Rs.6 Crores as
Sales Advance. Claimant was the exclusive
purchaser of all the Iron Ore that was to be
extracted by Respondent by itself or through its
raising contractor for a period of 20 years.
Respondent was selling calibrated iron ore at
Rs.150/ to Rs.175/- per MT and that Raising cost
was in the region of Rs.300/- PMT to Rs.350/- PMT
during the period prior to entering into Marketing
Agreement. Under the Agreement, the parties
agreed to the prices of calibrated iron ore sold to
Claimant at Rs.250/- PMT taking into account the
difference between the comparable MMTC price
which was Rs.272.03. This price was fixed for an
initial period of three years and the agreement
provided for revision in the marketing rate on 1 st
AS.71/2014
&
AS.89/2014
6
April every year taking into consideration the
revision in prices by MMTC.
5) It is stated that, as per agreement, initial
period expired on 31.03.2005 and revision in
marketing rate as per agreement became due on
01.04.2005. Marketing rate was fixed at Rs.314/-
PMT pursuant to discussions and exchange of letter.
'Marketing rate', which was to be revised, taking
into consideration the prices of MMTC, was fixed at
Rs.314/- PMT for calibrated iron ore and 'marketing
rate' was fixed on the basis of understanding of the
parties of sharing the difference between
comparable MMTC price as on 31.03.2005, which
was Rs.440/- PMT and 'raising rate' as on
31.03.2005, which was Rs.188/- PMT. Price revision
took into consideration the fact that 20% of the
difference between the comparable MMTC price and
the raising rate was to be given to the Raising
Agent. In addition to the price revision, keeping in
AS.71/2014
&
AS.89/2014
7
mind the spirit of long term venture and mutual
understanding of sharing the benefits of project, the
Claimant agreed to bear 50% of statutory dues
payable to Government including afforestation
charges, lease rent, forest corpus fund, fire zone
payment, etc., as raised by Government from time
to time, though such sharing was not provided in
the original 'Marketing Agreement'.
6) It is stated that, though 'Marketing
Agreement' provided for revision in prices every
year, in order to protect the parties from the risk of
fluctuation, parties agreed to keep the 'marketing
rate' agreed in 2005 would remain constant for a
period of two years, i.e. till 31.03.2007. Claimant
understood that it was agreed between M/s.Mukand
Limited and Respondent that 'raising rate' fixed in
the year 2005 would also be kept constant for a
period of two years i.e. upto 31.03.2007. There
were several letters exchanged between the parties
AS.71/2014
&
AS.89/2014
8
which made clear that parties had clearly agreed
that the rate so fixed on 01.04.2005 is valid upto
31.03.2007. However, on 12.04.2006, at a belated
stage, Plaintiff wrote to the effect that there is a
'printing error' in earlier letters and that marketing
rate is valid only for a period of one year i.e. upto
31.03.2006 and marketing price effective from
01.04.2006 will be intimated immediately. Claimant
protested the same and further did not intimate the
so called marketing price effective from 01.04.2006
till raising of Debit Notes dated 28.03.2007 and
30.03.2007 for Rs.23,65,95,929/- and
Rs.33,06,78,120/-. Claimant replied to the effect
that the prices fixed on 01.04.2005 was agreed to
be valid for a period of two years up to March, 2007
and hence disputed the debit notes and invoked the
provision for resolutions of dispute by way of
arbitration and parties agreed to resolve the
disputes through arbitration. During pendency of
AS.71/2014
&
AS.89/2014
9
arbitration, revision for the year 2008 and 2009
became due. Pursuant to direction of learned
Arbitrator, Claimant filed its additional claim on
08.03.2001 along with certain documents.
7) It is stated that, 2nd Defendant passed an
award on 28.02.2014, holding that, price revision
which was fixed on 01.04.2005 was only for a period
of one year and was not valid for two years as
contended by Claimant. Further, it is held that,
Claimant has failed to prove that existence and
understanding of parties to equally share the risk
and benefits of business and consequently price
cannot be determined on the basis of Annexure 'C-
19' (exhibit C-23). Learned Arbitrator further held
that, price so fixed on 01.04.2005 is valid for the
complete year and consequently the debit notes
were held to be not valid and unenforceable;
however, directed Claimant to produce inputs to
AS.71/2014
&
AS.89/2014
10
Respondent within two weeks for fixation of price
for the years 2006-07 and 2007-08. On additional
issue, learned Arbitrator rejected contention of
Claimant that since there is no revision in prices of
MMTC, the price for 2008-09 should be re-fixed at
the same rate as was for previous year and held
that since Claimant has not disputed the rates
arrived at by Respondent, proceed to fix the price of
Rs.1900/- PMT for the period 01.04.2008 to
31.03.2009. Being aggrieved, Claimant has
challenged the impugned award on the following
among other grounds.
(a) Learned Arbitrator erred in holding
that prices fixed on 01.04.2005 was not
valid up to 31.03.2007. Based on
doctrine of Indoor Management, which
was not pleaded by Respondent given a
finding that price fixed on 01.04.2005
was only for one year. Thus finding is
contrary to the admitted records and
correspondence between the parties.
AS.71/2014
&
AS.89/2014
11
(b) Finding on issue as to whether or
not the price agreed to between the
marketing parties is firm for the period
of two years (2005-06 and 2006-07) or is
it only for one year (2005-06) is wholly
contrary to the admitted pleadings and
evidence on record calling for
interference by this Court under Section
34 of the Act.
(c) In the face of copious documents
and unimpeachable evidence to show
that selling price is firm for a period of
two years coupled with fact that there is
no plea on behalf of Respondent, much
less, any evidence to the effect that
price shall be firm for a period of one
year, learned Arbitrator erred in holding
that price was fixed for only one year as
the correspondence was on the condition
that ratification by Board is required.
(d) Only contention raised in the entire
correspondence between the parties on
the question of price being firm for a
period of two years, is not applicable is
AS.71/2014
&
AS.89/2014
12
that, it is a printing error. Plea that there
is a printing error is also given up at the
time of arguments, under such
circumstances, giving a finding based on
no plea or evidence is wholly outside the
scope and beyond jurisdiction of learned
Arbitrator.
(e) In letters dated 15.07.2005 and
11.08.2005, sharing of certain statutory
dues in the form of NPV, Forest Lease
Rent, Afforestation charges, Forest
Corpus Fund, Fire zone payment, etc.,
was discussed and it was stated that
modification in respect of that aspect will
be incorporated in the agreement after
ratification by the Board of Respondent.
In the same letter, it is stated that
pursuant to several rounds of
discussions, prices are revised which
agreed price to be valid till 31.03.2007,
which is admitted by Respondent.
Hence, learned Arbitrator has erred in
holding that price fixed from 01.04.2005
is valid till 31.03.2006.
AS.71/2014
&
AS.89/2014
13
(f) So called ratification is only
referable to the statutory prices likely to
be raised by Government being alien to
the Contract needed modification by
incorporation in the agreement on
ratification by the Board.
(g) This aspect gains further strength
from their subsequent conduct
expressed through their letters dated
12.04.2006 when the second year had
already commenced from 01.04.2006,
wherein it is stated in no unmistakable
terms that the price payable was only up
to 31.03.2006 and not till 31.03.2007 as
the same appears a printing error.
(h) There is no issue framed with
respect to the dispute relating to board
ratification. Learned Arbitrator assumes
this power and traverses beyond the
scope of reference.
(i) Main dispute referred to learned
Arbitrator by the parties, being fixation
of price based on evidence and inputs
AS.71/2014
&
AS.89/2014
14
furnished by both the parties, learned
Arbitrator having found that Debit Notes
issued by Respondent is unsustainable
and having held that Respondent is not
entitled to the same, instead of
answering the reference, in favour of
Claimant, relegated the parties to
resolve the dispute by making the
Claimant submit to the unilateral
decision of Respondent for fixing the
price by further directing the Claimant to
submit its inputs. This approach of
learned Arbitrator amounts to failure to
decide the reference sought for by the
parties making the arbitration
proceedings futile and redundant.
(j) Findings given by learned Arbitrator
is based on defense which are not urged
by Respondent and, hence resulted in an
award dealing with a dispute not
contemplated by and not falling within
the terms of submission to the
arbitration.
AS.71/2014
&
AS.89/2014
15
For all these reasons, Claimant prays for
setting aside the award.
8) Plaintiff's [Respondent in arbitral
proceedings] case in AS.No.89/2014 is that,
impugned award is one sided and is passed
without appreciation of facts and documents,
hence, not sustainable in law. Respondent has
challenged the award on the following grounds :
a) Guidelines made at para 14.17 is
not correct and correct method of fixing
the prices of marketing Iron Ore is
Schedule 'D' of the marketing agreement
and Ex.R.8 to R.14. Guidelines given for
fixing the prices of marketing iron ore
based on para 14.18 is not correct,
discussion in this para based on Ex.C20
and examination of CW.1 is not correct.
Deductions for arriving at ex pit head
price of iron ore fines i.e. Transportation
charges, royalty, cess, forest permits
charges, loading charges, moisture and
terminal handling charges has already
AS.71/2014
&
AS.89/2014
16
been considered, therefore, once again
taking into consideration does not arise,
therefore, understanding of Ex.C1 is not
proper and guide made in the said para is
not sustainable.
b) Guidelines made at para 14.19 is
totally misunderstanding of para-5 of
Marketing Agreement. Clause 5 of Raising
Agreement dated 17.01.2002 has not
given the meaning that prices of
marketing of iron ore be fixed based on
MMTC procurements and based on
variation in four parameters of Schedule
'D', therefore, guideline at Para 14.19 is
not correct and is against the Raising
Agreement, procedure and law.
c) Guidelines at para 14.20 is not
correct and is illegal and bad in the
interest of Respondent. Further, guidelines
made at para 14.21 and 14.22 is not
correct and the relief claimed by Claimant
is not sustainable in the eye of law,
therefore, allowing arbitration claim partly
and imposing time for consideration and
AS.71/2014
&
AS.89/2014
17
fixing the revised rate of marketing does
not arise.
For all these reasons, Respondent prays for
setting aside the award.
9) Claimant, in its written statement to
A.S.No.89/2014, has contended that, Respondent
has not at all averred any ground enshrined under
Section 34 of the Arbitration and Conciliation Act,
the application under said provision ought to be
restricted to grounds that are mentioned under the
said provision itself. Respondent has averred vague
grounds which would amount to re-appreciating
the facts and evidence before this Court. Said
provision mandates that, application is permissible
only on the grounds available under Section 34(2)
and this Court cannot sit in appeal on the award
rendered by learned Arbitrator, hence, prays for
dismissal of suit filed by Respondent.
AS.71/2014
&
AS.89/2014
18
10) Heard. Perused the pleadings and records
placed in these suits.
11) Points that arise for my consideration are:
(1) Whether Plaintiffs have made out
any of the grounds as enumerated
in Section 34 of the Arbitration and
Conciliation Act, 1996 to set aside
the award, dated 28.02.2014
passed by learned Arbitrator?
(2) What order?
12) My answer to the above points are :
Point No.1 - In the Negative;
Point No.2 - As per final order, for
the following :
REASONS
13) Point No.1 : Being aggrieved by the
arbitral award, dated 28.02.2014, both Claimant
and Respondent have filed these suits for setting
aside the arbitral award dated 28.02.2014,
whereby, learned Arbitrator was pleased to allow
AS.71/2014
&
AS.89/2014
19
the claim petition in part filed by Claimant, directing
Respondent to determine and re-fix the rate
payable by Claimant effective from 01.04.2006,
based on the MMTC procurement price prevailing on
31.03.2006, in accordance with and in the light of
paragraphs 14.17 to 14.22 of the award and to
modify Ex.C.12 and Ex.C.14, Debit Notes dated
28.03.2017 and to determine and re-fix the rate
payable by Claimant effective from 01.04.2007,
based on the MMTC procurement price prevailing on
31.03.2007, in accordance with and in the light of
paragraphs 14.17 to 14.22 of the award.
14) Claimant contends that learned Arbitrator
erred in holding that prices fixed on 01.04.2005 was
not valid up to 31.03.2007. Documents and
unimpeachable evidence go to show that the selling
price is firm for a period of two years, however,
learned Arbitrator has held that price was fixed for
AS.71/2014
&
AS.89/2014
20
only one year. Findings based on no plea or
evidence and are outside the scope and beyond
jurisdiction of learned Arbitrator. Said aspect gains
further strength from letter dated 12.04.2006 at
Ex.C.7, wherein, it is stated that price payable was
only up to 31.03.2006 and not till 31.03.2017 as the
same appears a printing error.
15) It is contended that, dispute referred to
learned Arbitrator being fixation of price based on
the evidence and inputs furnished by both the
parties, however, learned Arbitrator, having found
that Debit Notes issued by Respondent is
unsustainable and having held that Respondent is
not entitled to the same, instead of answering the
reference in favour of Claimant, relegated the
parties to resolve the dispute, which would lead
Respondent to take unilateral decision for fixing the
price, whereby, Respondent is entrusted with rights
beyond the terms of the marketing agreement.
AS.71/2014
&
AS.89/2014
21
16) On the other hand, Respondent contends
that, fixing the prices for marketing Iron Ore
keeping the facts of procurement of MMTC is
different than fixing the prices for marketing the
Iron Ore based on MMTC procurement. Learned
Arbitrator has not appreciated Ex.C.12 and Ex.C.14.
Hence, guidelines made at para 14.17 is not correct.
Correct method of fixing the prices of marketing
Iron Ore is Schedule 'D' of the marketing agreement
and Ex.R.18 to R.14.
17) It is contended that, the deductions for
arriving at ex pit head price of iron ore fines i.e.
transportation charges, royalty, cess, forest permit
charges, loading charges, moisture and terminal
handling charges has already been considered,
therefore, once again taking into consideration does
not arise. Hence, discussion in para 14.18 based on
Ex.C20 and examination of CW1 is not correct.
AS.71/2014
&
AS.89/2014
22
18) Per contra, Claimant contends that,
Respondent has not made out any grounds
enshrined in Section 34 of the Arbitration and
Conciliation Act, and grounds claimed would
amount to re-appreciating the facts and evidence,
which is not permissible under Section 34 petition.
This Court cannot sit in appeal over the award
rendered by learned Arbitrator. Claimant, in support
of its contention, has placed reliance on judgment
in the case of P.R.Shah & Stock Broker (P) Ltd.,
V. M/s.B.H.H Securities (P) Ltd. [AIR 2012 SC
1866], wherein, the Hon'ble Supreme Court was
pleased to hold that :
" 15. A court does not sit in appeal over
the award of an arbitral tribunal by re-
assessing or re-appreciating the evidence.
As award can be challenged only under the
grounds mentioned in Sec.34(2) of the
Act".
19) Claimant, having challenged the award, on
the other hand, has justified the award contending
that, Respondent has not taken any specific
AS.71/2014
&
AS.89/2014
23
grounds as enumerated in Section 34 of the
Arbitration and Conciliation Act and that ground
urged by Respondent would amount to re-
appreciating the facts and evidence, which is not
permissible under Section 34 petition. Having gone
through the contentions of Claimant and
Respondent in their respective plaint, it is crystal
clear that, in both the suits, they have not taken
any specific ground as set out in Section 34 of the
Arbitration and Conciliation Act. Ratio laid down in
the above judgment relied upon by Claimant is
equally applicable to Claimant also. Be that as it
may.
20) Contentions as raised by Claimant, as well as
Respondent are to be looked into on the anvil of the
ratio laid down in the judgment supra. Claimant
sought for following reliefs before learned
Arbitrator.
AS.71/2014
&
AS.89/2014
24
" (a) Declare that the Debit Notes dated
28th March 2007 and 30th March 2007
issued by the Respondent are illegal,
arbitrary, bad in law, void ab initio and
contrary to the terms agreed between the
parties;
(b) Direct that the said Debit Notes be
cancelled by the Respondent by and under
the directions of this Hon'ble Tribunal;
(c) Declare that the 'marketing rate' for
the purpose of the 'Marketing Agreement'
for the current year and in future be
determined in accordance with and on the
basis of the particulars contained in
ANNEXURE-C19."
21) Relevant issues as framed by learned
Arbitrator are as follows :
"1a. Whether the claimant proves that
the revision and re-fixing of prices every
year between the parties to the agreement
should take into consideration, the revision
(if any) in the prices of MMTC for
procurement of iron ore suitably adjusted
to arrive at a comparable MMTC's
procurement price?
1b. Whether the respondent proves that
the price fixation method should be as per
the agreement by taking into consideration
of revision in MMTC prices on 1st April of
each year on mutual discussion?
4. Whether the respondent prove that the
debit notes raised by it in the month of
March, 2007 on the claimant for
Rs.23,65,95,929/- and on Mukand Limited
as nominee of the claimant for
AS.71/2014
&
AS.89/2014
25
Rs.33,06,78,120/- on account of
differential price are legal and valid?
5. Whether the respondent is entitled to
claim calibrated iron ore price on the basis
of MMTC's procurement prices on the date
of delivery as stated in the respondent's
letter dated 30th Mach, 2007 read with
clause 5 of the marketing Agreement
dated 17th January, 2002?
7. Whether the respondent proves that
the price cannot be fixed on mutual
discussion without taking into
consideration de hors MMTC price?
9. Whether the respondent proves that
marketing price fixing is on Ex-Pit basis
and excluding all statutory payments, such
as Royalty, FDT, Cess and taxes etc?"
22) Findings of learned Arbitrator on the above
Issues read thus :
" 14.17 In Ex.C12 and C14 as also in
Ex.C17, the respondent sought to fix the
rate solely on the basis of MMTC
procurement prices and no other factor
was taken into consideration. In the
communications at Ex.C15 and C16, the
claimant does not dispute the MMTC rates.
The disputes are raised only as to method
of arriving at the rate and the
adjustments/deductions to be made from
the MMTC "Procurement Price" to arrive at
the comparable ex pit head price payable
by the claimant. As per the Ex.C1
agreement, the rate had to be fixed
annually. The price was to be effective
from 1st April and remain constant till 31 st
March of the following year. Rate so fixed
AS.71/2014
&
AS.89/2014
26
could not be revised on day to day basis or
periodically on the dates of delivery. Since
rate had to be fixed with effect from 1 st
April, rates prevailing on said day or
thereafter were not relevant. The rate as
on 31st March, i.e. the previous day being
most proximate can form reasonable basis
in fixing the price to be effective from 1st
April. Exs.C12 and C14 do not indicate the
MMTC prices as on 31/3/2006 or
31/3/2007. As per Ex.C21 produced by the
claimant the MMTC price on 31/3/2006 was
Rs.1028 PMT and on 31/3/2007 was
Rs.1058 PMT. Hence, the respondent shall
take into consideration the MMTC
procurement rate of Rs.1028/- to
determine the price payable by the
claimant to be effect from 1st April 2006.
Similarly the respondent shall take into
consideration the MMTC procurement rate
of Rs.1058/- PMT to determine the
comparable ex pit price payable by the
claimant to be effect from 1st April 2007.
14.18 In evidence the claimant has
stated that MMTC declares the
procurement price for various mineral
products including calibrated iron ore, on
free on rail (FOR) basis on dry weight of
mineral product after adjusting the
moisture content. Claimant has produced
Ex.C20 which is a copy of the letter of
MMTC to the respondent dated 10/8/2007
showing the deductions for arriving at ex
pit head price of iron ore fines, i.e.
transportation charges, royalty, cess,
forest permit charges, loading charges,
moisture and terminal handling charges.
Clause 5 itself makes it clear that the price
payable is on ex pit head basis. Further,
under clause 5, the royalty cess, etc.
payable for ore supply is to the account of
the respondent. From the MMTC price
royalty, Cess etc., payable for the iron ore
supplied from the SIOM, has to be reduced.
AS.71/2014
&
AS.89/2014
27
These cannot be imposed on the claimant.
In cross-examination of CW1, the
respondent has not disputed the heads of
deductions as per Ex.C20 to arrive at ex pit
head price, but has only suggested that
the same pertains to iron ore fines.
Therefore from the MMTC procurement
prices of Rs.1028/- and Rs.1058/- PMT
prevailing on 31/3/2006 and 31/3/2007,
respectively, the transportation charges,
royalty, cess, forest permit charges,
loading charges, moisture and terminal
handling charges are to be deducted, to
arrive at comparable ex pit head price
payable by the claimant. For calibrated
iron ore the parties have not placed on
record any material to establish the rates
of such deductions. As such, the Tribunal
is left with no choice but to direct the
respondent to ascertain the rates of
deduction to be made from MMTC price
towards transportation charges, forest
permit charges, loading charges, moisture
and terminal handling charges, to arrive at
the ex pit head price of calibrated iron ore.
To the extent explained above, Ex.C1
contemplates suitable adjustments by way
deductions to arrive at a comparable ex pit
head price, FDT, and NPV being a part of
ex pit head price will not be deducted from
the MMTC's procurement price, if included
in it. But all the same time it cannot be
charged to the claimant, in addition to the
comparable pit head price arrived based
on MMTC procurement price.
14.19 Based on the same principles as
stated above, the rate of iron ore fines
effective from 1/4/2006 and 1/4/2007 will
have to be determined. In respect of iron
ore fines, since there is no dispute as to
the rates of deduction to be made from the
MMTC procurement price to arrive at the
comparable ex pit head price, the same
AS.71/2014
&
AS.89/2014
28
are to be made at the rates mentioned in
Ex.C20.
14.20 In addition, in case of any
revision of four parameters specified in
clause 5 from time to time, the rates will
have to be revised. In other words, the
rates fixed on the basis of four parameters
may not be constant for the entire period
i.e. 1/4/2006 to 31/3/2007 and 1/ 4/2007 to
31/3/2008. Whenever there is any change
in the rates of the four parameters, they
will have to be taken into consideration to
revise the price.
14.21 The respondent shall determine
the rates payable by the claimant within
two month from the date of this award.
For the said purpose, the claimant shall be
entitled to provide relevant
material/inputs, if any to the respondent
within two weeks from the date of this
award, which shall be duly considered.
The respondent may take assistance of
independent Chartered Accountant/Cost
Accountant, if required for the purpose.
14.22 In this view the Issue Nos.1a,
1b, 4, 5, 7 and 9 are answered,
accordingly. It is held that the revision and
re-fixing of prices every year should take
into consideration, the revision (if any) in
the prices of MMTC for procurement of iron
as on 31st March. Said prices of MMTC have
to be suitably adjusted by deducting
transportation charges, royalty, cess,
forest permit charges, loading charges,
moisture and terminal handling charges to
arrive at and fix a comparable ex pit head
price payable by the claimant. The rate
has to be fixed annually basis on the price
prevailing on 31st March of the year, with
effect from 1st April of each year on ex-Pit
head basis. The price so fixed shall remain
constant for entire period of one year (i.e.
AS.71/2014
&
AS.89/2014
29
from 1st April till 31st March of the following
year). The debit notes raised by the
respondent for Rs.23,65,95,929/- on the
claimant and for Rs.33,06,78,120/- on
Mukand Limited, are not valid to the extent
contrary to the conclusions recorded supra
and consequently need to be modified.
The respondent is not entitled to claim
calibrated iron ore price on the basis of
MMTC's procurement prices on the date of
delivery as stated in the respondent's
letter dated 30th March, 2007".
(underlined by me)
23) Respondent contends that, fixing the prices
for marketing iron ore keeping the facts of
procurement of MMTC is different than fixing the
prices for marketing the iron ore based on MMTC
procurement. In other words, Respondent is
claiming marketing price on the basis of MMTC
procurement price as against Clause 5 of Ex.C1,
Agreement, which envisages that "prices shall be
reviewed and re-fixed on 1st April each year, taking
into consideration the revision in prices, if any, by
MMTC." Said contention of Respondent has been
AS.71/2014
&
AS.89/2014
30
duly assailed by learned Arbitrator and findings of
learned Arbitrator are as follows :
" 14.6 What follows from the above
decisions is that if certain
price/amounts/rates are to be fixed having
regard to specified factor the same does
not preclude the taking into account of
other relevant factors, keeping in view the
objective of fixing such price. In the
instant case having regard to the terms of
the Ex.C1 contract between the parties,
clause 5 therein mentions MMTC price only
as a benchmark to represent the prevailing
market rate. It cannot be lost sight that
MMTC is central government undertaking
and required to procure mineral at market
price through transparent process. In the
present case the prices have to be
reviewed and re-fixed "taking into
consideration the revision in prices, if any,
by MMTC". On the fact it "Taking into
consideration" are not words of limitation
but of general guidance. If the price were
to be same as that of MMTC, clause 5
ought to have stated so. The fixation of
price under clause 5 has to be done by
taking into consideration the revision in
benchmark price of MMTC. In addition to
MMTC price, similar/comparable
benchmark can be used as an input to
determine reasonable price payable.
14.10 The next issue for consideration
is whether the Respondent is entitled to
claim marketing price on the basis of
MMTC's procurement price on the date of
delivery. The plain language of clause 5
requires that prices be reviewed and "re-
fixed" every year. The purpose of fixing
and keeping the price constant is to
insulate the claimant from the fluctuation
in price during a year. At the same time by
requiring annual review and re-fixation, it
AS.71/2014
&
AS.89/2014
31
is ensured that prices remain consistent
with change in market. The price must not
only be revised but also "re-fixed". If the
price is permitted to fluctuate based on
the rate MMTC procurement price on the
date of delivery the stipulation for review
and re-fixing the price every year become
redundant. If the price is to fluctuate for
each delivery, there is no need for review
every year. Even the conduct of
respondent is keeping the price for the
year 2005-06 firm for the entire year also
shows that price to be fixed as on 1 st of
April had to remain firm till 31st March of
the next year. Hence, it is held that the
respondent cannot claim marketing price
on the basis of MMTC's procurement price
on the date of delivery but the price has to
be fixed every year as on 1st April and has
to remain firm till 31st March of next year."
24) Respondent contends that, deductions for
arriving at ex pit head price of Iron Ore fines i.e.
transportation charge, royalty, cess, forest permit
charges, loading charges, moisture and terminal
handling charges has already been considered,
therefore, once again taking into consideration of
these facts do not arise. It is important to note
that, learned Arbitrator has held that for calibrated
iron ore, the parties have not placed on record any
material to establish the rates of deductions, as
AS.71/2014
&
AS.89/2014
32
such, Tribunal is left with no choice but to direct the
Respondent to ascertain the rates of deductions to
be made as per MMTC price towards transportation
charges, forest permit charges, loading charges,
moisture and terminal handling charges to arrive at
the ex pit head price of calibrated iron ore. In that
context, findings of learned Arbitrator are to be
looked into.
25) Claimant's contention is that, learned
Arbitrator erred in holding that prices fixed on
01.04.2005 was not valid up to 31.03.2007, which is
contrary to admitted pleadings and evidence on
record, calling for interference by this court under
Section 34 of the Arbitration and Conciliation Act.
26) Having gone through the arbitral award, it
makes it clear that, learned Arbitrator was pleased
to assail the contention of claimant in detail, after
AS.71/2014
&
AS.89/2014
33
appreciating the materials placed before him.
Relevant portion of the award reads thus :
"12.7 Keeping in mind the above
express understanding as per Ex.C1
Marketing Agreement, the first point that falls
for consideration is whether the parties
agreed for a modification so as to provide
that the rate fixed with effect from April 2005
shall remain constant/firm for two years, as
contended by the Claimant.
12.8 Parties agree that in terms of clause 5
of the Ex.C1 Marketing Agreement the price
revision for the first time became due on
1/4/2005.
12.14 A reading of Ex.C2 and C3 show that
Claimant had requested for fixing the price
for two years. In Ex.C4 Respondent did not
accept the proposal for fixing the price on
firm basis for two years. But in Ex.C5 and C6
the Managing director of the respondent has
stated that the revised price at Rs.314/PMT
shall be valid till 31/3/2007. However it
noteworthy that this statement is made not
on the basis of the request of the claimant or
to insulate the claimant for fluctuation in ore
price, but in view of erred understanding that
as per provisions of Ex.C1 agreement the
selling price has to be revised and re-fixed
once in two years. This is contrary to express
terms of clause 5 of Ex.C1 agreement which
mandates that (from 1 / 4/ 2005) the prices
shall be reviewed and re-fixed on 1st April
each year.
12.15 The respondent being a public limited
company and government undertaking,
functions through the board of directors. A
letter written by one of its officer/Managing
Director, will not suffice to change terms of
its contract, more so when the letter itself
contemplated ratification by the Board. In
AS.71/2014
&
AS.89/2014
34
U.P. Rajkiya Nirman Nigam Ltd. V. Indure
(P) Ltd., (1996) 2 SCC 667 it is held :
"18. As found earlier, there is no signed
agreement by a duly competent officer on
behalf of the appellant. The doctrine of
"indoor management" cannot be
extended to formation of the contract or
essential terms of the contract unless the
contract with other parties is duly
approved and signed on behalf of a public
undertaking or the Government with its
seal by an authorised or competent
officer. Otherwise, it would be hazardous
for public undertakings or Government or
its instrumentalities to deal on contractual
relations with third parties."
The decision in MRF Ltd. V. Manohar
Parrikar, (2010) 11 SCC 374 is also
pertinent wherein it is held :
"111. The doctrine of indoor
management is in direct contrast to the
doctrine or rule of constructive notice,
which is essentially a presumption
operating in favour of the company
against the outsider. It prevents the
outsider from alleging that he did not
know that the constitution of the
company rendered a particular act or a
particular delegation of authority ultra
vires. The doctrine of indoor
management is an exception to the rule
of constructive notice. It imposes an
important limitation on the doctrine of
constructive notice. According to this
doctrine, persons dealing with the
company are entitled to presume that
internal requirements prescribed in the
memorandum and articles have been
observed. Therefore, doctrine of indoor
management protects outsiders dealing
or contracting with a company, whereas
doctrine of constructive notice protects
the insiders or a company or corporation
against dealings with the outsiders.
However, suspicion of irregularity has
been widely recognised as an exception
AS.71/2014
&
AS.89/2014
35
to the doctrine of indoor management.
The protection of the doctrine is not
available where the circumstances
surrounding the contract are suspicious
and therefore invite inquiry.....
113. This exception to the doctrine of
indoor management has been
subsequently adopted in many Indian
cases. They are B. Anand Behri Lal V.
Dinshaw and Co. (Bankers) Ltd. [AIR 1942
Oudh 417] and Abdul Rahman Khan V.
Mufassal Bank Ltd. [AIR 1926 All 497]
Applying the exception to the present
scenario, there is sufficient doubt with
regard to the conduct of the Power
Minister in issuing the Notifications dated
15-5-1996 and 1-8-1996. Therefore, there
is a definite suspicion of irregularity
which renders the doctrine of indoor
management inapplicable to the present
case."
12.16 Having regard to the legal position
flowing from the above decisions, the case on
hand is to be considered. It is not the case of
the claimant that the fixation of price once in
two years instead of once every year was
approved by the board of Directors of
Respondent. Claimant has also not taken
shelter under the doctrine of indoor
management. In fact Ex.C5 & Ex.C6 in clear
terms stated that "on ratification by MML
Board, the modification will be incorporated."
Thus even assuming that Ex.C5 and C6
contained stipulation as to fixation of price on
firm basis for two years in modification of
clause 5 of Ex.C1 agreement, the same was
only a proposal and subject to approval by
board of directors of MML. It is not the case
of the claimant that the proposal contained in
Ex.C5 & Ex.C6 was in fact ratified by the
Board of MML or an agreement incorporating
the modified understanding was executed by
competent officer.
AS.71/2014
&
AS.89/2014
36
12.17 The respondent is justified in
relying upon clause 19 of Ex.C1agreement
which states that :
"19. No modifications
alteration or amendment of this
agreement or any of its terms or
provisions shall be valid or legally
binding on the parties unless made
in writing and duly executed by
both parties."
It is not the case of the claimant the Ex.C1
agreement was even modified ever in the
manner contemplated under clause 19
thereof to vary the understanding as per
clause 5 for review revision of price on yearly
basis. Merely based on Ex.C5 and C6 letters,
in absence of ratification by Board of MML
and execution of wring by competent officer
as contemplated in clause 19, the claimant
cannot claim variation of express terms of
clause 5.
12.19 In view of plain language of clause 5
of Ex.C1 agreement, in absence of
modification thereof in the manner
contemplated in clause 19, Ex.C5 and C6
having been issued on erroneous basis that
revision of price was required to take place
once every two years, the respondent is
justified in clarifying that the statement in
Ex.C5 and C6 that prices shall be valid till
31/3/2007 was an error. The contents of
Ex.C5 and C6 that the rate shall be valid for
two years could be on account of printing
error or on account of erroneous
understanding as to what is provided in
clause 5. Be as it may, the Ex.C1 agreement
is self contained. Its clause 5 requiring
review and re-fixing of the rate every year is
clear and free from any ambiguity. The said
term can be varied only by mutual consent
of the parties and in the manner agreed
between the parties. In the present case in
absence of ratification by Board of MML and
AS.71/2014
&
AS.89/2014
37
modification of Ex.C1, Ex.C5 and C6 have
not resulted in variation of clause 5. Hence
they are not valid and binding on the
respondent".
27) Contentions as raised by Claimant that
parties agreed for modifications so as to provide the
rate fixed with effect from April 2005 shall remain
firm for two years is a pure fact which has been
decided by learned Arbitrator after considering the
evidence placed before him. This Court, under
Section 34 petition, cannot re-appreciate the
evidence, which has been appreciated by learned
Arbitrator, when reasons assigned by learned
Arbitrator are intelligible in arriving at his
conclusion. If it does so, same would amount to
usurpation of power of Arbitral Tribunal which is not
permissible under law.
28) Claimant contends that learned Arbitrator
has failed to decide the reference sought for by the
AS.71/2014
&
AS.89/2014
38
parties, instead, he has relegated the parties to
resolve the dispute by making the Claimant to
submit to the unilateral decision of Respondent for
fixing the price by further directing the Claimant to
submit its inputs. As mentioned above, Claimant, in
his claim petition, has sought for declaration that
Debit Notes dated 28.03.2007 and 30.03.2007
issued by Respondent are illegal and contrary to the
terms of agreement and that marketing rate for the
current year and in future be determined in
accordance with and on the basis of particulars
contained in Annexure-C-19. Learned Arbitrator was
pleased to hold that, claim for rate equivalent to
MMTC rate prevailing on the date of delivery is not
just and to that extent rate claimed in Exs.C.12 and
C.14, Debit Notes for the period 01.04.2006 to
30.03.2007 are not valid. It is further held that,
fixation of price by Respondent for the period
01.04.2007 to 31.03.2008 based on MMTC's
AS.71/2014
&
AS.89/2014
39
procurement price on the date of delivery as
Respondent's letters in Ex.C.17 is invalid. It is to be
noted that, in Ex.C.19, claimant disputed the fixing
of selling price of calibrated iron ore as conveyed in
Ex.C.17 by Respondent. Consequently, learned
Arbitrator was pleased to direct Respondent to
determine and re-fix the rate payable by Claimant
effective from 01.04.2006 based on MMTC
procurement price prevailing on 31.03.2006 having
regard to the clause 5 of Ex.C1. When matter being
thus, there is no reason to say that learned
Arbitrator, instead of answering the reference in
favour of claimant, relegated the parties to resolve
the dispute.
29) Having gone through the award, it is crystal
clear that, learned Arbitrator has meticulously
assailed disputes referred to him in a perspective
manner having regard to the materials placed
AS.71/2014
&
AS.89/2014
40
before him. Neither Claimant nor Respondent has
pleaded any specific ground as set out in Section 34
of the Arbitration and Conciliation Act, nor
canvassed any such ground on which award can be
set aside, nor made out any ground as such to set
aside the award. Claimant has emphatically stated
in written statement filed in AS.No.89/2014 that
Respondent has not made out any grounds to set
aside the arbitral award. In ONGC Ltd. V. Saw
Pipes Ltd. [(2003) 5 SCC 705], the Hon'ble
Supreme Court was pleased to hold that "award
could be set aide if it is contrary to (a)
fundamental policy of Indian law; or (b) Interest of
India; or (c) Justice or morality; or (d) in addition, if it
is patently illegal. Illegality must go to the root of
the matter and if the illegality is of trivial nature it
cannot be held that award is against the public
policy". In the instant case, award passed is based
on reasons. Reasons assigned by learned Arbitrator
AS.71/2014
&
AS.89/2014
41
are intelligible. No illegality or perversity can be
attributable to award. Merely because award is not
in accordance with the wishes of the parties, same
cannot be termed as illegal. Hence, this Court
opines that, suits of Plaintiffs fail, accordingly, I
answer the above point in the negative.
30) Point No.2 : In view of the foregoing
discussion and answer to Point No.1, I pass the
following :
ORDER
(1) Suit filed by Plaintiff in AS.No.71/2014 and suit filed by Plaintiff in AS.No.89/2014 under Section 34 of the Arbitration and Conciliation Act, 1996, for setting aside award dated 28.02.2014 passed by learned Arbitrator/Respondent No.2; are hereby dismissed.
AS.71/2014 & AS.89/2014 42 (2) No order as to costs.
(3) Keep original of this judgment in AS.No.71/2014 and copy in AS.No.89/2014.
(Dictated to the Judgment Writer, transcribed and computerized by her, transcript thereof corrected and then pronounced by me in open court, dated this the 10th day of January, 2020.) (RAMA NAIK) VI Addl.City Civil & Sessions Judge, Bengaluru City.