Bombay High Court
Oil & Natural Gas Commission vs Pune Helium India Pvt. Ltd. on 24 February, 2000
Equivalent citations: 2000(3)BOMCR707, (2000)3BOMLR870
Author: B.N. Srikrishna
Bench: B.N. Srikrishna, S. Radhakrishnan
ORDER B.N. Srikrishna, J.
1. This is an appeal directed against the judgment and order of the learned Single Judge dated 13th October, 1995 dismissing the petition of the appellants under section 30 of the Arbitration Act, 1940 (hereinafter called "Act").
2. The facts leading to the present appeal, shortly stated, are as under :-
The appellant is an authority constituted under the Oil and Natural Gas Commission Act, 1959 whose main function is to carry out development of petroleum resources, production and sale of petroleum and petroleum products. The respondent is an Indian Company which is engaged in the supply of chemicals and pure Helium. On 2nd May, 1989 the appellant published a notice inviting tenders for supply of pure Helium gas. On 14th June, 1989, the interested tenderers, including the respondents, submitted their technical bids. Similarly, on 11th October, 1989 price bids were submitted by all the tenderers including the respondents. The price bids were opened on 23rd November, 1989 and the respondents bid was found to be the lowest in that the respondent had bid a price of Rs. 150/- per cubic meter out of which US $ 4.60 was to be the foreign exchange component. Since the respondent was very much in the zone of consideration, there was correspondence between the appellant and the respondent as a result of which, by letter dated 4-1-1990, the respondent lowered its offer to Rs. 149/- per cubic meter, out of which US $ 4.60 was to be the foreign exchange component. Since there was a period of 15 days allowed for entering into contract after the approval of the bid, and the appellant needed supply of Helium gas urgently, pending the signing of the contract, an ad-hoc order for supply of 52000 cubic meters of Helium gas was placed on the respondent on 17th April, 1990. This ad-hoc order was accepted by the respondent on 18th April, 1990. On 12th June, 1990 there was another order placed on the respondent by the appellant for supply of 52000 cubic meters of Helium gas. These supplies were completed by or about 3rd September, 1990. On 25th May, 1990 the appellant placed an order for supply of 3,00,000 cubic meters of Helium gas which was also accepted by the respondent on 28-5-1990. On 12th July, 1990 the supply order was issued. There is no dispute that the respondent supplied the required quantities of Helium from time to time in terms of its tender which had been accepted. In fact the respondent submitted its bills periodically which were paid. In the meanwhile, there was devaluation of the Indian rupee against US dollar which, according to the respondent tremendously increased its costs. Consequently, respondent submitted supplementary bills on 9th October, 1991 for the sum of Rs. 36,94,370.40, on 15th January, 1992 for the sum of Rs. 2,52,20,160/- and on 22nd June, 1992 for the sum of Rs. 53,30,659.73. The respondent claimed that these amounts represented, "foreign exchange loss variation pertaining to our supplies of Helium Gas during the relevant period". The respondent also placed reliance on a notification dated 25-9-1989 issued by Ministry of Petroleum and Natural Gas and a circular of the appellant No. 74 of 1989 dated 8-11-1989 to press its claim. Though the respondent's claim was recommended by the Secretary, Petroleum and Natural Gas Department, and was also strongly recommended by certain senior officers of the appellant Commission, the Commission ultimately took the view that the respondent was not entitled to claim additional amounts and by order dated 14th July, 1992 rejected the claim of the respondent. There was an arbitration clause in the agreement entered into between the appellant and the respondent for supply of Helium gas. The respondent then invoked the arbitration clause by its notice and appointed one D.C. Kothari as its Arbitrator in the matter and called upon the appellant to appoint its Arbitrator. The appellant by Telex dated 30th October 1992 appointed Justice (Retd.) V.D. Tulzapurkar as its Arbitrator. On 20th November, 1992 the Senior Deputy Legal Advisor of the appellant addressed a letter to both the learned Arbitrators and requested them to pass a speaking award in the matter. A copy of this letter was also despatched to the advocates of the respondent at Delhi. It is not in dispute that neither the arbitrators, nor respondent, nor its advocates, responded to the request of the appellant made in the letter dated 20th November, 1992.
3. The arbitrators thereafter entered upon the reference on 1st March, 1993, a statement of claim was filed on 15th February, 1993 by the respondent and the written statement was filed on 10th June, 1993. On 13th August, 1993 the arbitrators made a non speaking award holding that the appellant was liable to compensate the respondent for Exchange Rate Fluctuation in the sum of Rs. 1,03,41,309/- with interest at the rate of 18% per annum from the date of the invoices till the date of the award. On 19th January, 1994 the appellant filed Arbitration Petition No. 52 of 1994 challenging the said award. By the judgment of the learned Single Judge dated 13th October, 1995, made in Arbitration Petition No. 52 of 1994 in Award No. 200 of 1993, the petition came to be dismissed. Hence, this appeal.
4. The appellant contends that the award is bad for not giving reasons in support thereof. Counsel urged that, in matters of large financial stakes affecting the companies in public sector, as a matter of prudent policy, the arbitrators were obliged to give their reasons for the award. The award being a non-speaking award was per se bad and liable to be set aside by this Court in exercise of its powers under section 30 of the Act, for not discharging the legal obligation of giving reasons in an award in such circumstances would squarely amount to legal misconduct within the meaning of Clause (a) of section 30 of the Arbitration Act, 1940 (hereinafter called "the Act").
5. It is not as if the issue urged before us was not within the consideration of the arbitrators. In fact, the learned arbitrators did apply their minds to this issue as is evident from the award itself. In the preambulatory part of the award, the Arbitrators say, "In view of the Supreme Court's decision in Raipur Development Authority v. M/s. Chokhamal Contractors and others A.I.R. 1990 S.C. 1026 according to which Arbitrators are bound to give reasons for their Award only if the arbitration clause in the contract or a submission paper required them to do so, either of which is absent here, we propose to make a non-speaking award in the case."
The Arbitrators having placed reliance on the Supreme Court judgment in Raipur Development Authority (supra), it becomes necessary to notice the said judgment. In Raipur Development Authority (supra) the issue as to whether an arbitration award was liable to be remitted under section 16(1)(c) or set aside under section 30(c) of the Act, merely on the ground that no reasons have been given by the arbitrator in support of the award, was squarely canvassed in a group of appeals before the Supreme Court. After considering a number of authorities, both English and Indian, though several High courts had taken the view that it would be in the interest of justice if the arbitrators are required to give reasons for their award, the Supreme Court was unwilling to hold that, by the mere circumstance that the award being a non-speaking, there was any cause for remitting it or setting it aside. Says the Supreme Court, vide paragraph 36 of the judgment.
"At the same time it cannot also be said that all the awards are contrary to law and justice. In this situation it would be wholly unjust to pass an order either remitting or setting aside the awards, merely on the ground that no reasons are given in them, except where the arbitration agreement or the deed of submission or an order made by the Court such as the one under section 20 or section 21 or section 34 of the Act or the statute governing the arbitration required that the arbitrator or the umpire should give reasons for the award."
The Supreme Court was conscious that with the general decline in morals, in a number of cases which appeared before the courts the conduct of the arbitrators who made non-speaking awards did not appear to be beyond reproach, even though high financial takes affecting organizations in the public sector were involved. Though, as a matter of legal proposition, the Supreme Court did not subscribe to the view that a non-speaking award, per se, would be bad, yet it observed sagaciously.
"There is, however, one aspect of non-speaking awards in non-statutory arbitrations to which Government and Governmental authorities are parties that compel attention. The trappings of a body which discharges judicial functions and requires to act in accordance with law with their concomitant obligations for reasoned decisions are not attracted to a private adjudication of the nature of arbitration as the later, as we have noticed earlier, is not, supposed to exert the State's sovereign judicial power. But arbitral awards in disputes to which the State and its instrumentalities are parties affect public interest and the matter or the manner in which Government and its instrumentalities allow their interest to be affected by such arbitral adjudications involve larger questions of policy and public interest. Government and its instrumentalities cannot simply allow large financial interests of the State to be prejudicially affected by non reviewable except in the limited way allowed by the Statute - non-speaking arbitral awards. Indeed, this branch of the system of dispute-resolution has, of late, acquired a certain degree of notoriety by the manner in which in many cases the financial interests of Government have come to suffer by awards which have raised eye-brows by doubts as to their rectitude and propriety. It will not be justifiable for Governments or their instrumentalities to enter into arbitration agreements which do not expressly stipulate the rendering of reasoned and speaking awards. Governments and their instrumentalities should as a matter of policy and public interest - if not as a compulsion of law - ensure that wherever they enter into agreements for resolution of disputes by rersort to private arbitrations, the requirement of speaking awards is expressly stipulated and ensured. It is for Governments and their instrumentalities to ensure in future this requirement as a matter of policy in the larger public interest. Any lapse in that behalf might lend itself to and perhaps justify, the legitimate criticism that Government failed to provide against possible prejudice to public interest."
Learned Counsel then referred to the judgment of a two Judge Bench of the Supreme Court in M.L. Jaggi v. Mahanagar Telephone Nigam Ltd. & others, .
6. Relying on these judgments, Mr. Zaiwala contended that, these judgments, without mincing words, have laid down that in the case of public authorities a speaking award is a must and a non speaking award is anathema. Mr. Zaiwala contends that Jaggi (supra) goes further from where the judgment in Raipur Development Authority (supra) left off. What was merely sounded as a caution in Raipur Development Authority has been translated into legal dicta in Jaggi (supra), in the submission of the learned Counsel. However, after carefully analyzing the judgment in M.L. Jaggi v. Mahanagar Telephone Nigam Ltd. & others (supra), we are unable to accept this submission of the learned Counsel. In the first place, the judgment is delivered by a Bench of two Judges which was obviously bound by the law laid down in Raipur Development Authority v. Chokhanmal Contractors (supra), which was delivered by the Constitutional Bench of five Judges. Secondly, Jaggi turned on the issue of statutory obligation.
7. We have already noticed that the Supreme Court in Raipur Development Authority indicated that there would be an obligation for the arbitrators to make a speaking award where :
a) The arbitration agreement states so,
b) The deed of submission requires them to do so or;
c) There is an order made by a Court as under section 20, 21 or 34 of the Act or;
d) The statute governing the arbitration requires the arbitrator to give reasons for the award.
In our view, the judgment in M.L. Jaggi (supra) falls within category (c). Jaggis's case arose out of a dispute between a telephone subscriber and the telephone department with regard to the correctness of certain bills issued to the subscriber. Section 78 of the Telegraph Act, 1985 provides :
"If any dispute arises between the telegraph authority and the subscriber, such dispute shall be determined by the arbitration and shall be referred to the arbitration and shall be referred to the arbitrator appointed by the Central Government either specifically for determination of that dispute or generally for determination of that dispute under the said section."
The award made upon reference to the statutory arbitration under section 78 of the Telegraph Act turned out to be a non-speaking award. This was challenged before the Supreme Court. The Supreme Court reiterated that in a statutory arbitration pertaining to a public authority, it would be necessary for the arbitrators to give reasons for the award. The Court referred to the observations made in the Raipur Development Authority (supra) and further observed (vide paragraph 8):
"It is, thus, settled law that reasons are required to be recorded when it affects the public interest. It is seen that under section 78, the award is conclusive when the citizen complains that he was not correctly put to bill of the calls he had made and disputed the demand for payment. The statutory remedy open to him is one provided under section 78 of the Act. By necessary implication, when the arbitrator decides the dispute under section 78, he is enjoined to give reasons in support of his decision since it is final and cannot be questioned in a Court of law. The only obvious remedy available to the aggrieved person against the award is judicial review under Article 226 of the Constitution. If the reasons are not given, it would be difficult for the High Court to adjudge as to under what circumstances the arbitrator came to him conclusion that the amount demanded by the Department is correct or the amount disputed by the citizen is unjustified. The reasons would indicate as to how the mind of the arbitrator was applied to the dispute and how he arrived at the decision. The High Court, though does not act in exercising judicial review as a Court of appeal but within narrow limits of judicial review it would consider the correctness and legality of the award. No doubt, as rightly pointed out by Mr. V.R. Reddy, Additional Solicitor General that the questions are technical matters. But nonetheless, the reasons in support of his conclusion should be given."
Since the arbitrators had given no reasons, the award was set aside as bad. Three significant facets emerge from this judgment. One, that the Supreme Court emphasized the fact that the arbitrator was actually exercising the State's sovereign judicial function under a statute; two, that the award of the arbitrator would affect public interest and, three, that the arbitrator was not in the realm of a private dispute between the two parties. It was in those peculiar circumstances that the Supreme Court held that the arbitration under section 78 of the Telegraph Act, 1985 would imply an obligation to make a speaking award. In our view, this judgment does not, and obviously cannot, "say anything contrary to what was already laid down in Raipur Development Authority's case (supra).
8. The judgment of the Supreme Court in the case of Food Corporation of India v. Jagdish Chandra Saha, supports the view that we are inclined to take. That was also a case where one of the parties ultimately called upon the arbitrator to give reasons for the award. The judgment in Raipur Development Authority was cited to urge that the arbitrators were obliged to give reasons and, therefore, a non-speaking award was bad. The Supreme Court repelled the argument and explained the passage in paragraph 19 of Raipur Development Authority as under :
"We are unable to agree. What this Court had in contemplation in the above passage was that reasons are obligatory on the arbitrator only where the arbitration clause contains such a requirement or where both parties agree that the reasons should be given in a deed of submission or by a letter addressed by both parties to the arbitrator. We do not see how one of the parties can restrict the scope of the arbitrator's powers as envisaged in the arbitration agreement by mentioning certain terms in a unilateral order of the appointment of the arbitrator. For instance, it cannot be seriously disputed that the order of appointment of an arbitrator cannot unilaterally specify that the arbitrator should conduct the arbitration proceedings in a particular place or in a particular manner or give his order after examining only certain parties, thus imposing limitations which are not contemplated by the arbitration agreement."
We would, therefore, proceed to examine if the arbitrators in the present case were obligated to make a speaking award in the facts and circumstances of the case.
9. It is not in dispute that the arbitration agreement, (Clause 21) does not require that the award made by the arbitrators should be a speaking award. It was not a statutory award since the award arose as the result of an arbitration agreement contained in the contract between the appellant and the respondent and did not arise under any statutory provisions enjoining upon the arbitrators to make a speaking award. It was purely a dispute between the two parties to a contract and was in the domain of a private arbitration: We are unable to discern from the record any deed of submission containing the requirement that the arbitrators give reasons for their award. Mr. Zaiwala, however, strenuously urged that the letter dated 20th November, 1992 ad-dressed to the arbitrators by the appellants, with a copy despatched to the respondents, must be construed to be the deed of submission. We are unable to agree. To recount the sequence of events which led to appointment of arbitrators on 30th September, 1992, the respondent gave notice of its intention to refer the dispute to arbitration and of its intention of appointing an arbitrator. On 4th November, 1992 the advocates of the respondent nominated D.C. Kothari as the arbitrator for the respondent and Solicited his approval for being nominated. By the Telex dated 30th October, 1992 the appellant responded to the notice of intention to appoint arbitrator and informed the respondents that Justice Tulzapurkar (Retd.) was nominated as the arbitrator for the appellant. We are unable to agree with the contention of the learned Counsel that merely because by the subsequent letter dated 30th November, 1992 the appellant unilaterally called upon the arbitrators to give reasons for their award, such an obligation can be cast on the arbitrators. We are also unable to construe the letter dated 20th November, 1992 as constituting a deed of submission. In our view, a submission to the arbitrator is something that the parties place before the arbitrator for consideration, either jointly or by separate letters. Merely because one of the parties unilaterally chooses to address a letter to the arbitrator making certain stipulations, such a letter does not convert itself into a submission. For example, if unilaterally one of the parties were to change the venue of arbitration or raise an issue with regard to the fees of the arbitrators or the language of arbitration, is it possible to say that such a letter can be construed as a deed of submission which would bind the arbitrators? We find it extremely difficult to accept this contention of the learned Counsel. In our view, the learned arbitrators were right in relying upon the observations in Raipur Development Authority and, in the absence of a communication about which the parties had arrived at a consensus, rejecting the unilateral request made by the appellant for a speaking award. We therefore find no fault in the award on the ground that it is non-speaking. The learned Single Judge is therefore right on this aspect of the matter.
10. Mr. Zaiwalas then contended that though the award was non-speaking award, it was liable to be interfered with under section 30 if it was beyond the jurisdiction of the arbitrators or was ex-facie contrary to law. In his submission, both these defects are patent in the award even without the court having to carry out the exercise of probing the minds of the arbitrators. For this reason also, he urges that the award is liable to be interfered with.
11. In State of Andhara Pradesh v. R. V. Rayanim, , it was pointed out by the Supreme Court that only in a speaking award could the Court look into the reasoning of the award and that it is not open to the Court to probe the mental process of the arbitrator and speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion. In the case of an error apparent on the face of the record, it has to be established that an item or an amount which the arbitrator had no jurisdiction to take into consideration, has been awarded or granted.
12. In Tamil Nadu Electricity Board v. M/s. Bridge Tunnel Constructions & others, Supreme Court reiterated the observations made in its earlier judgment in Managing Director, J. & K. Handicraft v. Good Luck Carpets, to the effect:
"If there is any challenge to the award on the ground that the arbitrator had no jurisdiction to make the award with regard to a particular item inasmuch as it was beyond the scope of reference, the only way to test the correctness of such a challenge is to look into the agreement itself. In our opinion, looking into the agreement for this limited purpose is neither tantamount to going into the evidence produced by the parties nor into the reasons which weighed with the arbitrator in making the award."
After referring to several of its earlier judgments, finally the Supreme Court held (paragraph 36) :
"It is well settled that in the matter of challenge to the award there are two distinct and different grounds viz., that there is an error apparent on the face of the record and that the arbitrator has exceeded his jurisdiction. In the latter case, the Court can look into the arbitration agreement but under the former it cannot do so unless the agreement was incorporated or cited in the award of evidence was made part of the agreement. In the case of jurisdictional error, there is no embargo on the power of the Court to admit the contract into evidence and to consider whether or not the umpire had exceeded the jurisdiction because the nature of the dispute is something which has to be determined, outside the award, whatever might be said about it in the award or by the arbitrator. In the case of non-speaking award, it is not open to the Court to go into the merits. Only in a speaking award the Court can look into the reasoning in the award and correct wrong proposition of law or error of law. It is not open to the Court to probe the mental process of the arbitrator and speculate, when no reasons have been given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion. But in the later case the Court, with reference to the terms of the contract/arbitration agreement, would consider whether or not the arbitrator/umpire has exceeded his jurisdiction in awarding or refusing to award the sum of money awarded or omitted a consolidated lumpsum."
13. In Associated Engineering Co. v. Government of Andhra Pradesh & another A.I.R. 1992 Supreme Court 332 the Supreme Court reiterated the proposition that :
"Where it is apparent not by construction of the contract but by merely looking at the contract that the umpire travelled totally outside the permissible territory and thus exceeded his jurisdiction in making the award, it is an error going to the root of his jurisdiction."
The reason given by the Supreme Court for this view was :
"The arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled outside the bounds of the contract, he has acted without jurisdiction. But if he has remained inside the parameters of the contract and has construed the provisions of the contract, his award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the face of it."
The Supreme Court further held :
"A dispute as to the jurisdiction of the arbitrator is not a dispute within the award, but one which has to be decided outside the award. An umpire or arbitrator cannot widen his jurisdiction by deciding a question not referred to him by the parties or by deciding a question otherwise than in accordance with the contract. He cannot say that he does not care what the contract says. He is bound by it. It must bear his decision. He cannot travel outside its bounds. If he exceeded his jurisdiction by so doing, his award would be liable to be set aside. Evidence of matters not appearing on the face of the award would be admissible to decide whether the arbitrator travelled outside the bounds of the contract and thus exceeded his jurisdiction. In order to see what the jurisdiction of the arbitrator is, it is open to the Court to see what dispute was submitted to him. If that is not clear from the award, it is open to the Court to have recourse to outside sources. The court can look at the affidavits and pleadings of parties; court can look at the agreement itself."
Thus, a jurisdictional error can be established by looking into material outside the award. Extrinsic evidence is admissible in such cases because the dispute is not something which arises under or in relation to the contract or dependent on the construction of the contract or to be determined within the award. The dispute as to jurisdiction is a matter which is outside the award or outside whatever may be said about it in the award. The ambiguity in the award can, in such cases, resolved by admitting extrinsic evidence. The rational for this rule is that the nature of the dispute is something which has to be determined outside and independent of what appears in the award. Such jurisdictional error needs to be proved by evidence extrinsic to the award (see observations in paragraph 29, supra). In the case before the Supreme Court, the umpire decided the matters strikingly outside his jurisdiction. He outstrayed the confines of the contract. He wandered far outside the designated area. He digressed far away from the allotted task. Hence, the judgment of the High Court setting aside the award was affirmed. With these legal propositions in mind, we now proceed to examine the contractual terms in the case before we take up for appraisal the contentions of the learned Counsel for the appellants.
14. Some of the terms of the contract as evidenced by the tender documents are relevant and bear reproduction. Clause 1.16.1 deals with details of prices and provides as under :
"In cases where payments are required in Indian Rupees, the bidder should clearly indicate if it shall need any foreign exchange for completing the supplies/services that may be ordered on him. For this purpose they should quote the total price alongwith its breakdown between Indian currency portion and the foreign currency indicating the specific currency.
The bidder shall also indicate the nature of payments which it intends to cover under foreign exchange payments, viz., whether it is towards acquisition/hiring of equipment/services, payments of personnel or acquisition of sub-assemblies, spare parts of purchase of raw materials or for any other purpose.
A bidder who would not-need any foreign exchange for completion of the order should state this categorically.
In case the order would require any assistance/certification from ONGC to help him secure the required foreign exchange it should be so stated."
Clauses 1.163 says :
"Domestic manufacturers are entitled to get price preference over the foreign supplier".
The manner of determining the price preference is prescribed in the above clause.
15. Clause 2.6 reads as under :
"Bidder shall quote a firm price and they shall be bound to keep this price firm without any escalation for any ground whatsoever until they complete the work against this tender or any extension thereof."
Clause 2.7 reads as under :
"The prices shall be given in the currency of the country of the bidder. If the bidder expects to incur a portion of this expenditure in currencies other than those stated in his bid, and so indicates in his bid, payment of the corresponding portion of the prices as so expended will be made in these other currencies."
Clause 21 is the arbitration clause which provides as under :
"If any dispute, difference or question shall at any time arise between the parties herein or their respective representative or assignees in respect of these present or concerning anything hereto contained of arising out of these present or as to the rights liabilities or duties of the said parties hereunder which cannot be mutually resolved by the parties."
Clause 23 deals with situation of change in law and reads as under:
"In the event of any change or amendment of any Act or law including Indian Income Tax Acts, rules or regulations of Govt. of India or Public body or any change in the interpretation or enforcement of any said Act or law, rules or regulations by Indian Govt. or Public body which becomes effective after the date as advised by the Commission for submission of final price bid for this contract and which results in increased cost of works under the contract, through increased cost by the Commission subject to production of documentary proof to the satisfaction of the Commission to the extent which is directly attributable to such change or amendment as mentioned above. Similarly, if any change or amendment of any act or law including Indian Income Tax Acts, rules or regulation of any Govt. or Public Body or any change in the interpretation or enforcement of any said Act or law, rules or regulations by Indian Govt. or Public Body becomes effective after the date as advised by the Commission for submission of final price bid for this contract and which results in any decrease in the cost of the project through reduced liability of taxes, (other than personnel taxes) duties, the Contractor shall pass on the benefits or such reduced costs, taxes or duties to the Commission.
Notwithstanding the above mentioned provisions, company shall not bear any liability in respect of :---
i) Personnel taxes, customs duty and corporate tax."
16. The tender document makes it clear that the tenderer has to indicate his price for the supply of Helium only in the proforma in accordance with Annexure-II B. Annexure II B requires information with regard to the "Description", "Price per M3 for delivery at Nhava and at delivery at offshore". It also requires specification of "Foreign Exchange content in the M3 (cubic meter) charge". Annexure-II D requires the tenderer to give the price break up both for delivery at offshore and delivery at Nhava. The price break up is to be given under the heads of :
1) Basic cost
2) Transportation
3) Excise duty
4) Sales Tax
5) Custom duty
6) Other miscellaneous charges.
In the instant case, the supply orders were issued on 12th June, 1990. In Column 18 "Description of Stores", the description given is of "Pure Helium Gas 99.995%". The Quantity stated is "As per Annexure I". Under the head "Rate" it is stated, "Rs. 149/- per M3 all inclusive". Clause 12 of the conditions attached to the supply order states :
"Commission shall pay for Helium at the rate of Rs. 149 per MT all inclusive for off shore supply as indicated in Annexure II."
It also contains the same arbitration clause. In Annexure-II to the supply order, a price proof is attached for supply of Helium under the head "Price M3 for delivery at off shore" and the figure indicated is "Rs. 149.00". Under the heading "Foreign exchange content in the M3 charge" it is mentioned, US $4.6 per MT." In Annexure III the respondents have given the price break up. The price break up for delivery at offshore, of Helium indicated in Rupees per cubic meter was as under :
Basic cost 146 Transportation 3 Excise duty Nil Sales tax Nil Custom duty Nil Other miscellaneous charges Nil Total Rs. 149/-
17. Against the background of these clauses, it is contended by the learned Counsel for the appellant that the contract required the respondent to keep the price firm during the entire period of the contract. He urged that there was no provision in the entire contract which permitted the respondents to make a claim on account of increased cost of importation of Helium due to devaluation of the Indian rupee in the international currency market. Learned Counsel contended that the terms of the contract suggest that there was a scheme of preferring Indian suppliers and, even amongst Indian suppliers, preference was given to Indian suppliers who required the least amount of foreign exchange out go for complying with the contractual terms. For this reason, as also for the reason that release of foreign exchange by the Reserve Bank had to be done upon certification of the actual foreign exchange requirement by the appellant commission, the contract required disclosure of the foreign exchange component of the price bid. Mr. Zaiwala contended that, as far are as the respondent was concerned, it had two options viz. either to bid the price in foreign exchange, in which case the fixed firm price had to be paid in foreign exchange irrespective of what the value of the rupee was in the foreign exchange market. In such a situation, the risk arising from devaluation of the Indian currency would obviously be on the appellant's account. This option would have meant that the respondent would lose out in competition to an Indian bidder who quoted in Rupees, because of the price preference policy. The second option available to the respondent was to quote the price completely in rupees, in which case it would be given preferential treatment. Under the contract, the price quoted for delivery of Helium at all times was initially Rs. 150/- (with a foreign exchange component of US $ 5), which, after negotiations, was reduced to Rs. 146/- (with foreign exchange component of US $ 4.6 per metric cube). Once the respondents paid the bidder in Indian rupees, they were not concerned with the devaluation of the rupee or the foreign exchange market fluctuation. As far as the appellant is concerned, the deliveries were paid for on the footing that the price of Helium per cubic metre was Rs. 149/-. This was the basis on which the respondent initially submitted the bills and had actually been paid for. It is contended that, barring this method, there is no other method of making the payments on the bills and that the claim made by the respondent was totally impermissible under the terms of the contract. Hence, it is contended that the arbitrators have awarded something beyond the terms of the contract and beyond jurisdiction and, therefore, the award needs to be set aside, according to the learned Counsel.
18. Mr. Doctor, learned Counsel for the respondent however contends that, upon a reasonable reading of the contractual terms, it is clear that the respondent was to be paid at the rate of Rs. 149/- minus US $ 4.6 per cubic metre on the date on which deliveries were effected. His short submission is that the foreign exchange component of US $ 4.6 per cubic metre had to be paid either in US $ or in the Indian rupee equivalent on the date of delivery. Between the date on which the contract was entered into and the date on which the contract was discharged, there had been a sharp fall in the value of the Rupee as against the US Dollar consequent upon the policy of the devaluation pursued by the Government of India. This in turn, required greater outlay on the part of the respondent to procure Helium gas from foreign suppliers to honour their commitment under the contract. This additional outlay, the respondent was entitled to claim from the appellant under the terms of the contract. Clause 23 of the contract is pressed into service by the learned Counsel. It is urged that under section 40 of the Reserve Bank of India Act, 1934, the Reserve Bank of India is empowered to sell or buy from authorised persons at its branches, as the Central Government may, by order, determine, foreign exchange at such rates of exchange and on such conditions as the Central Government may from time to time by general or special order determine, having regard so far as rates of exchange are concerned to its obligations to the International Monetary Fund. It is urged that when read in conjunction of the provisions of section 9(2)(a) of the Foreign Exchange Regulation Act, 1973, it is clear that no one is authorised to deal in foreign exchange or buy or sale foreign exchange at rates other than rates prescribed by the Government of India on the recommendation of the Reserve Bank of India. Further, under section 75 of the Foreign Exchange Regulation Act, 1973 Central Government has power to give appropriate directions to the Reserve Bank of India, generally or specially, for the discharge of its functions in regulating foreign exchange. It is submitted that the amount of devaluation of the Indian currency by reason of an order of the Central Government designating the exchange value of Indian rupee as against US $ is an act of law or regulation the impact of which on the contract could be preferred as a claim by virtue of clause 23 of the contract. The respondent has also placed reliance on two more circumstances to contend that the award is fully justified. Vide Circular No. 74 of 1989 dated 8th November, 1989 issued by the appellant, it was provided that Indian bidders were free to quote firm price fully in Indian, currency or in Indian currency for the indigenous portion and in foreign currency to the extent of imported component of the supplies to be effected. For the purpose of comparative evaluation, the quoted foreign exchange component would be converted into rupees at the selling rate prevailing on the date of opening of price bid. Reliance is also placed on a notification dated 25th September, 1989 issued by the Ministry of Petroleum and Natural Gas dated 3rd March, 1988 by which the policy decision to modify the price preference of oil field services was enunciated. The said notification. Vide Clause-II, declared:
"Exchange Rate Risk : Exchange rate risk only on operating cost will be observed by ONGC and oil. These costs must be clearly indicated by the bidder in the price bids when the foreign exchange outgo is indicated and must be approved by ONGC/OIL while awarding the contract."
Reliance is also placed on the circumstance that the claims of the respondent were, in fact, approved at several levels by senior officers of the appellant including the Chairman, who strongly recommended the claim being granted. The said documents were produced before the arbitrators and form part of the record of the petition. It is seen from the internal note prepared by the appellant's office that the Member (Operations) and the Member (Finance) were of the view that, though strictly speaking, as per the contract, the risk of foreign exchange fluctuation was not on account of the appellant, in other contractors such clauses had been added, which remained to be added to the contract of the respondents. On overall consideration, both the said members were of the view that even if the claim was not strictly arising out of the contractual terms, it may be agreed to on a practical and commercial approach. This note was also approved by the Chairman, but finally the Commission disagreed with him and rejected the recommendations. Reliance is also placed on certain documents produced before the arbitrators that in other similar cases of chartering of vessels, the appellant had agreed to and had incorporated a clause pertaining to foreign exchange risk. It is contended by the respondent that all this material was available with the arbitrators and the arbitrators must be presumed to have applied their mind carefully to all this material when they arrived at a non-speaking award, directing the appellant to pay a certain sum of money. If the arbitrators, upon going through all the material facts and circumstances, decided that the claim was genuine and allowable on merits, it is not the function of this Court to interfere with such a direction in the award under the provisions of the Act. Hence, it is contended that there is no infirmity in the award which needs interference at the hands of this Court and the appeal must fail.
19. After giving anxious thought to the contentions urged on both the sides, it appears to us that, if at all, the appellant could succeed only by showing that the award was without jurisdiction. On merits, the arbitrators have decided the issue and it is not for this Court to sit in appeal on the merits of the award, particularly when the award is non-speaking.
20. As to jurisdictional error, two questions arise;
a) Whether a claim of the nature preferred by the respondent is specifically barred under the contract?
b) Whether there is any clause in the contract, under which such a claim could be preferred?
In our view, considered either way, such a claim could not have been entertained by the arbitrators. Having scanned the material terms of the contract, we are inclined to agree with the contentions of the learned Counsel for the appellant that the respondent consciously choose the second option of quoting in Indian rupees, though indicating the foreign exchange component thereof, being aware of the preferential policy adopted towards bidders in Indian currency by Public Sector Corporations like the appellant. Further, having noticed the contractual documents, we are of the view that the price was clearly indicated at Rs. 149/- per cubic meter of Helium Gas supplied. It is true that contractual document indicates a foreign exchange component of the price as US $ 4.6 per cubic meter, but we agree with the contention of Mr. Zaiwala that this was indicated only to enable a comparative evaluation of Indian bidders, so that the one with least foreign exchange component could be preferred, and also for the reason that the actual foreign exchange component had to be certified by the appellants so that the Reserve Bank of India could release such foreign exchange to the contractor. In our view, therefore, the contract was clearly one in Indian rupees at Rs. 149/- per cubic meter of Helium Gas supplied. This is also the rate at which the respondent has been paid the money. We see no clause in the contract which enables the respondent to throw the risk on account of devaluation of the Indian currency on the appellant. In fact, the material on record really suggests to the contrary. The Notification of the Petroleum and Gas Ministry was issued on 3rd March, 1988 by which the Exchange Rate risk was to be assumed by the appellant as provided under paragraph (ii). Undoubtedly, the contract was entered into after the said date. The notification of the Petroleum and Natural Gas Ministry is not a provision of law which automatically applied to all contracts. It was merely a policy guideline which had to be incorporated in contracts entered into after the said date. This was followed up by the Circular of the appellant dated 8th November, 1989. Even this circular was a change in the policy guideline and indicated that in all future contracts such a clause assuming the foreign exchange risk should be incorporated. Notwithstanding these notifications, and the circular, no such clause was ever incorporated into the contract between the appellant and the respondent. As far as the arbitrators were concerned, they had to act on the contract as it stood. The contract as had stood, did not have a clause under which the appellant assumed the liability for the reason of exchange rate fluctuation. The arbitrators could not have acted on account of sympathy or on equitable consideration, for they were rigidly bound by the contractual terms. We are of the view that the contractual terms, under which the Helium Gas was delivered contrained no obligation to bear the increased fluctuation. Hence, the arbitrators clearly travelled beyond the terms of the contract in making the award; particularly a non-speaking award.
21. Mr. Zaiwala's reliance on the judgment of the Supreme Court in M/s. Alopi Parshad and Sons Ltd. v. Union of India, appears to be well placed. That was a case where certain agents, appointed by the Governor General of India for purchasing ghee required for the use of Army personnel, preferred a claim that there was tremendous increase in the price of ghee as a result of the Second World War breaking out. The ensuing dispute was referred to arbitration and the arbitrators made an award that the agents were entitled to reimbursement of the amount of Rs. 11,27,965-11-3. It was urged on behalf of the agents before the Supreme Court that the circumstances existing at that time when the terms of the contract were settled were drastically altered by reason of the IInd World War and what might have been reasonable terms, when the bargain was entered into, had ceased to be so on account of the outbreak of the IInd World War and, in view of the turn of events, which were never in the contemplation of the parties, the original terms of contract could not remain binding upon the agents. The Supreme Court negatived the contention by pointing out that under section 56 of the Indian Contract Act, a contract is not frustrated merely because the circumstances in which the contract was made, are altered. As long as performance had not become impossible or unlawful, the contract had to be in fact performed. The Indian Contract Act does not enable a party to a contract to ignore the express covenants thereof, and to claim payment of consideration for performance of the contract at rates different from the stipulated rates, on some vague plea of equity. The Supreme Court observes in paragraph 21:
"The parties to an executory contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. Yet this does not in itself affect the bargain they have made If on the other hand, a consideration of the terms of the contract, in the light of the circumstances existing when it was made shows that they never agreed to be bound in a fundamentally different situation which has now unexpectedly emerged, the contract ceases to bind at that point not because the Court in its discretion thinks it just and reasonable to qualify the terms of the contract, but because on its true construction it does not apply in that situation....."
Again, it is observed in paragraph 22 :
"There is no general liberty reserved to the courts to absolve a party from liability to perform his part of the contract, merely because on account of an uncontemplated turn of events, the performance of the contract may become onerous. That is the law both in India and in England, and there is, in our opinion, no general rule to which recourse may be had, as contended by Mr. Chatterjee, relying upon which a party may ignore the express covenants on account of an uncontemplated turn of events since the date of the contract...... In India, in the codified law of contracts, there is nothing which justifies the view that a change of circumstances, "completely outside the contemplation of parties" at the time when the contract was entered into, will justify a Court, while holding the parties bound by the contract, in departing from the express terms thereof."
On this reasoning, the contention of the appellant that the arbitrators were justified in enhancing the amount payable to the agents was rejected and the award was held rightly set aside. In our view, this judgment squarely applies to the situation before us. The doctrine of Rebus Sic Stantibus, which is good in international law, is of no avail in Municipal law, particularly in the field of contract. We have already held that the contractual terms required payment of Rs. 149/- per cubic meter of Helium Gas supplied and that is the bargain to which the parties must be held, since we see no provision in the contractual terms for throwing the liability on account of Exchange Rate fluctuations on the appellant. Though such a clause was permissible under the policy guidelines applicable at the relevant time, such a stipulation was not expressly incorporated in the contract and, therefore, the arbitrators could not have made their award in favour of the respondent. For this reason, we are of the view that the award is without jurisdiction and, hence, liable to be set aside.
22. Mr. Doctor, relying on the judgment of Supreme Court in M/s. Tarapore & Co. v. Cochin Shipyard Ltd., urged that, where a specific question of law has been referred to the arbitrators, then their decision on the specifically referred question of law is binding and conclusive irrespective of its correctness. He also relied upon a Division Bench judgment of this Court in Appeal No. 403 of 1992 in Arbitrator Petition No. 178 of 1988 in Award No. 71 of 1988 (Judgment Per Pendse & Vyas, JJ.) dated 9/10th August, 1994. It is contended that the submission of a specific question of law could arise even by a unilateral act of the parties. In particular, reliance was placed on the observation of the Division Bench of this Court (supra) :
"In our judgment, it is futile to suggest that the question cannot be treated as specifically referred unless and until both sides specifically agree to prefer and agree to be bound by the arbitrators' decision. In our limited experience, we have never come across any arbitration reference where the party agrees to such kind of specific question to be referred."
These observations were made in connection with the issue as to whether the arbitrability of certain claim had become the subject matter of the decision of the arbitrators by reason of the counter statement filed by the respondents before the arbitrators, who, in the very first paragraph claimed that the learned arbitrators should decide first whether the matter in dispute is arbitrable. This Court relied on the judgment of the Supreme Court in M/s. Tarapore & Co. v. Cochin Shipyard Ltd. (supra) and took the view that the said judgment has opened a new vista that the question of jurisdiction cannot be left for determination of the arbitrators even by consent, is no longer accepted as correct law as long as the question of law and question of jurisdiction are directly in issue before the arbitrators. Mr. Doctor then referred to the facts of the present appeal and pointed out that the issue as to arbitration had not been raised by the appellant.
23. In order to appreciate this contention, it is necessary to refer to some of the pleadings of the parties and the statement of claim on behalf of the respondents. After setting out the history of the claim, in paragraph 11, it is stated :
"The dispute which have arisen are set out hereinbelow-Disputes :
1. Whether the proper interpretation of terms of the contract entitle the claimant to be compensated for all consequences arising out of exchange rate variations between the date of the submissions of the Price Bid and the Completion of all supplies.
2. Whether, in addition or in the alternative, the claimant is, under Clause 23 of the Tender Document entitled to be compensated for all exchange rate variations between the date of the submission of the Price Bid and the Completion of all supplies.
3. Whether, in the alternative, the respondent is bound to effectuate in favour of the claimant notified State Policy as constrained in the Ministerial Notification dated 25-9-89.
4. Whether the respondent's circular No. 74/89 dated 8th November, 1989 estoppes the respondent from any interpretation of the contract contrary thereto.
5. To what amount, including the sum of Rs. 1,15,45,190.19 and interest thereon, is the claimant entitled if any of the above issues are decided in favour of the claimant.
Thereafter, in order to resolve the disputes, the respondent proceeded to make detailed submissions in the statement of claim.
24. This statement of claim was contested by the written statement of the appellant. In paragraph 1 of the written statement the appellant contend :
"The respondents say and submit that the alleged claim is untenable. The alleged claim is de hors the contract and not payable and as such is liable to be dismissed with costs."
Again, in paragraph 6, of the written statement it is claimed :
"The respondents state that since the above notification had price impact, the benefit was not passed on to the supplier as they had quoted their prices taking into account the then prevailing guidelines which also included absorption of Foreign exchange fluctuations."
Reliance was placed on Clause 2.6 of the contract that the prices would be kept firm throughout the period of the contract and, it was contended that seeking additional benefits under the guise of foreign exchange fluctuation was nothing but an alternate method of increasing the cost which was forbidden by Clause 2.6. of the contract. In paragraph 7 of the Statement of claim, it is specifically contended :
"It is submitted that exchange rate fluctuations brought into effect in exercise of powers conferred on the Reserve Bank of India under section 40 of the Reserve Bank of India Act, 1934 and upon directions given by the Government of India has the complete force of law."
While dealing with this averment, paragraph 7 of the written statement filed by the appellants, reads :
"With reference to para 7 of the statement of claim, the respondents refer to and rely upon the confirm order placed by telex dated 17-4-1990 and 18-4-1990, for their true meaning and interpretation as also for legal consequences failing therefrom. The said exchange rate fluctuation as alleged by the claimants is not applicable to the respondents. The respondents further state that Clause No. 23 in law is not applicable to payment of exchange rate fluctuations since government notification dated 25-8-1989 allowed payment of exchange rate fluctuations and the same did not result any extra financial burden on the party. The respondents state that the word costs cannot be stretched so as to include any of the liability of the claimants or any of the liability in the definition of the costs. The respondents state that in the costs general definition as the amount of expenditure (actual material) incurred or attributable to be given under). The word costs can stand on its own and should be clarified as to its nature or limitation and related to any primary classification to costs can be put down according to facts upon the expenditure incurred on materials, costs, wages, expenses. The respondents therefore state that foreign exchange fluctuation is not a cost and hence they are not entitled for increases in costs as alleged by the respondents."
It is contended by Mr. Doctor that the specific contention is not specifically denied that the exchange rate fluctuations, which are brought about on account of orders issued by Central Government in exercise of its statutory powers under section 40 of the Reserve Bank of India Act, 1934, had the force of law. Hence, it is contended that the appellants tacitly admitted that currency fluctuations arising on account of directions given by the Central Government and the Reserve Bank of India under statutory powers amounted to change of law and, consequently, Clause 23 of the contract was invocable. It is not possible to accept the contention of the learned Counsel. In the first place, even if we assume that the formulation of the disputes at the end of paragaph 11 of the Statement of claim amounts to formulation of a specific question of law for determination of the arbitrators, and by the act of a single party formulating them in the statement of claim the said questions could be deemed to have been specifically referred for decision of the arbitrators and that the decision given on such specific question of law would be conclusive in the instant case, since the award is non-speaking award, there is no determination of any of the so called specifically referred questions in the award. The principle, in our view, would not apply if the award is non-speaking. As a matter of fact, the arbitrators have not spoken at all on the specifically referred question of law. We do not think that there is any principle that from a non-speaking award one can deduce a decision of the arbitrators on a specifically referred question of law. We are unable to discern from the award as to what the arbitrators decided with regard to the four issues referred to them. In these circumstances, the award remains what it is, viz. a non-speaking award and is open to challenge only on the ground of jurisdiction.
25. The other contention of Mr. Doctor that there is nothing specifically pleaded by the appellant with regard to issue of jurisdiction, is also not correct. In paragraph 1 of the written statement itself the appellant took up the stand that the claim made by the respondent was beyond the terms of the contract, meaning thereby, that it did not arise from the contract. In other words, what the appellant did was to put the arbitrability of the claim into focus before the arbitrators. The arbitrators have chosen not give reasons as to why they think that the claim was arbitrable. That cannot preclude the Court from looking into the terms of the contract for the limited exercise of deciding the arbitrability of the claim. This is precisely the exercise we have carried out as a result of which we have concluded that the claim was not arbitrable inasmuch as it did not arise out of the terms of the contract or was specifically barred under the terms. Hence, the arbitrators had no jurisdiction to entertain the claim.
26. Mr. Doctor's contention that, due to appellant's failure to specifically deny that changes arising in fluctuation of foreign exchange rate due to the orders made by the Government of India amounts to change in law, it must be taken to have been established that such fluctuations amounted to change in law, also does not impress us. It is not as if the arbitrators have decided the issue by proceeding to hold that failure to specifically deny the contention amounted to admission thereof. Had they done that, perhaps, Mr. doctor might have succeeded in that contention. Once again, we find nothing in the award to suggest that the arbitrators had either accepted this situation or not. Even assuming that Mr. Doctor is right in his contention, the matter is not carried further as the award itself remains a non-speaking award. From the award, we cannot discern whether the arbitrators accepted the claims falling within Clause 23, on the ground that foreign exchange fluctuations amounted to change in law or not. In such a situation, the issue is once again at large before the Court and not concluded by the award.
27. It is, in our view, difficult to accept that fluctuations of foreign exchange rate on account of orders issued by the Government of India to the Reserve Bank of India could amount to a change of law within the meaning of Clause 23 of the Contract. Clause 23 contemplates change or amendment of any Act or law including Indian Income Tax Act, rules and regulations of Government of India or any change in the interpretation or enforcement of any of the said Act, law rules or regulations, which becomes effective after the date of the contract. It provides that, if there is such a change in law which affects the costs which are to be borne by the contractor, then he would be compensated therefor. In our view, the law applicable to foreign exchange transactions is the Foreign Exchange Regulation Act, 1973 and the Reserve Bank of India Act, 1934. There was no change in the law as such. In fact, it is difficult to say that an order issued by the Central Government with regard to the rate at which foreign currency has to be exchanged as against Indian rupee on any given day, would amount to a law, Regulation or rule within the meaning of Clause 23. A statutory authority exercises its discretion in deciding the exchange rate in accordance with the country's commitments to the International Monetary Fund. This discretion is exercisable every day inasmuch as the currency exchange rate itself is fixed every day. On account of extra ordinary circumstances, there may be wider fluctuation in currency exchange rate at any given point of time. This is what is popularly known as devaluation. In our judgment, the variation of the rate of currency as against Indian rupee from day to day, or even if it is by an appreciable margin on any day, does not amount to a change in any Act, law rule or regulation within the meaning of Clause 23 of the contract. We are, therefore, unable to agree with the contention of the learned Counsel that the respondent's claim was capable of being entertained by virtue of Clause 23 of the contract. The next contention of Mr. Doctor is that the appellant did not specifically plead that the arbitrators lacked jurisdiction and hence it was not entitled to urge it before the Court. We are in disagreement. In fact, paragraph 5-A is wide enough and the issue of jurisdiction is subsumable under paragraph 5-A. We are, therefore, of the view that the appellant did raise the issue of jurisdiction before the arbitrators in the written statement filed before them.
28. Finally, that leaves us with the issue of interest which has been seriously canvassed before us. In view of the fact that we have held that the claim itself was beyond jurisdiction, we need not go into this issue with regard to interest, as the entire award is liable to be set aside.
29. For the aforesaid reasons, disagreeing with the learned Single Judge's conclusions in the order under appeal, we hold that the claim made by the respondent before the arbitrators did not fall within their jurisdiction. The award though a non-speaking one, is beyond the jurisdiction of the arbitrators and, hence, liable to be set aside.
30. We quash and set aside the impugned judgment and order of the learned Single Judge as also the award dated 13th August, 1993 which is the subject matter of the Arbitration Petition No. 52 of 1994.
Considering the facts and circumstances of the case, we are of the view that the parties should bear their own cost.
The amount deposited in this Court and invested shall be returned to the applicants, if no order to the contrary is made by the Supreme Court within a period of 18 weeks from today.