Sector IV-B, P.O. Bokaro Sector 4, P.S. Bokaro Sector-4, District Bokaro (Jharkhand) … v. M/s. B.S. Tar Pvt. Limited, having its office at 113, Park Street, 6th Floor
Case Details
IN THE HIGH COURT OF JHARKHAND AT RANCHI Arbitration Appeal No. 9 of 2019 Steel Authority of India Limited (SAIL) SAIL Refractory Unit (SRU) having its office at Indra Gandhi Marg, Sector-4, Bokaro Steel City, P.O. & P.S. Bokaro Steel City, District Bokaro (Jharkhand) through its Executive Director, namely, Subir Mondal S/o Late Atul Kumar Mondal, aged about 58 years, resident of 1060, Sector IV-B, P.O. Bokaro Sector 4, P.S. Bokaro Sector-4, District Bokaro (Jharkhand) … … Appellant Versus M/s. B.S. Tar Pvt. Limited, having its office at 113, Park Street, 6th Floor, P.O. and P.S. Park Street, District Kolkata-700010 (West Bengal) … Respondent … CORAM :HON'BLE MRS. JUSTICE ANUBHA RAWAT CHOUDHARY --- For the Appellant For the Respondent --- : Mr. Indrajit Sinha, Advocate : Ms. Puja Agarwal, Advocate : Mr. Rahul Gupta, Advocate : Mr. Rahul Lamba, Advocate : Mr. Aditya Mohan Khandelwal, Advocate --- 13/16.06.2023 Heard the learned counsel for the parties. 2. This appeal is directed against the order dated 29.01.2019 passed by learned Civil Judge (Senior Division)-I, Bokaro in Misc. (Arbitration) Case No. 02 of 2015, whereby the application filed by the applicant under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as Arbitration Act) read with Section 151 of the Code of Civil Procedure for setting aside of Award dated 24.03.2015 passed by learned Sole Arbitrator has been rejected and the award has been confirmed. 3. As is apparent from the award itself that the sole arbitrator was appointed by the appellant vide letter dated 01.03.2012 to adjudicate the disputes and differences between the parties arising out of purchase order No. SRU/MM/OTE/2011-12/DH Coal Tar/BhPR/121 dated 14.09.2011 of SAIL/SRU. Arguments of the appellant: - 4. The learned arbitrator while dealing with the price variation clause has held that the same is defective and therefore it is not operative. It is submitted that the parties as well as arbitrator are bound by the contract and otherwise also, such finding is not sustainable as the findings are not supported by reasons. It is further 2 submitted that without assigning reasons the learned arbitrator has concluded that the purchase order placed by the appellant upon the claimant is faulty. He submits that the purchase order was based on price variation clause and it was throughout in contemplation of the parties entering into the contract that the price is subject to price variation clause of NIT. 5.
Legal Reasoning
The learned counsel has submitted that the findings recorded by the learned arbitrator is hit by the provisions of Section 31(3) of the Arbitration Act which casts an obligation upon the learned arbitrator to pass a reasoned award. He has submitted that Section 31(3) of the Arbitration Act was subject matter of consideration before the Hon’ble Supreme Court in judgments reported in (2019) 20 SCC 1 para 34 to 39, in particular para 35 and (2009) 10 SCC 259 para 20 and 25. It has been held that while considering the reasoned order, there should be three characteristics, they are- proper, intelligible and adequate. The learned counsel submits that the reasons assigned in the award are neither proper nor intelligible. 6. The appellant had primarily raised the following grounds before the learned court below which has been referred to by the learned counsel for the appellant during the course of hearing those are: - (a) The learned sole Arbitrator has not passed the reasoned award which is mandatory under Section 31 of the Arbitration and Conciliation Act, 1996 hence the award published by the learned sole arbitrator is bad and liable to be set aside. (b) The learned sole Arbitrator has not passed the speaking award. The award does not disclose the reasons of admitting the claim of the claimant on the other hand rejection of the counter claim of the appellant. It is mandatory for the sole arbitrator to pass speaking award as such the non-speaking award passed by the learned arbitrator is bad and liable to be set aside. 7. The learned counsel has submitted that the award being unreasoned was fit to be set aside by the learned court below. The aforesaid aspects of the matter have not been properly considered and the learned court below has referred to the judgments passed under the 3 Arbitration Act 1940 although the award is governed by the Arbitration and Conciliation Act, 1996. He has submitted that such judgments are Jajodea (Overseas) Private Ltd. versus IDC of Orissa Limited reported in (1993) 2 SCC 106 and Union of India versus Hindustan Motors limited reported in (1987) 3 SCC 458. 8. The learned counsel further submits that the learned arbitrator has awarded compound interest with respect to future interest i.e. penal interest @ 12% per annum compounded quarterly from 46th day of award till payment. The said finding in the final award is not backed by any reason and such award of compound interest is not sustainable in the eyes of law. He has relied upon a judgment dated 30.09.2022 passed by Hon’ble Supreme Court in Civil Appeal No. 8990 of 2017 reported in 2022 SCC Online SC 1336. Arguments of the respondent:- 9. The learned court below has passed a well-reasoned order while dismissing the petition filed under Section 34 of the Act of 1996. The learned counsel has submitted that the award is a reasoned award which is proper, intelligible and adequate. He submits that the learned arbitrator being a person from non- legal background has done the needful, considered the materials on record and cited reasons for the award by deciding the issues framed. The learned counsel submits that adequate reasons have been assigned and the award is comprehensible. The learned counsel has submitted that the insufficiency of reasons cannot be ground for interference in the arbitral award. 10. He has submitted that the finding of the learned arbitrator that the purchase order was faulty is based on materials on record. He has further submitted that the price variation clause was found to be defective and accordingly held to be non-operative by citing reasons. The learned arbitrator has given reasons to hold so, in as much as, the learned arbitrator has recorded that price variation clause should be clear; without any ambiguity; understood in the same way by all parties; available to all parties freely and known prior to opening of price bid/reverse auction. The learned arbitrator has recorded a finding upon appreciation of materials on record that the price variation clause did not meet the aforesaid requirements. The learned counsel has 4 further submitted that the purchase order having been found defective, the claim of the claimant, which was based on the letter of acceptance, has been rightly directed to be paid. He has further submitted that interpretation of contract is within the exclusive jurisdiction of the learned arbitrator. The learned arbitrator has taken a plausible view. There being no serious infirmity in the award, it did not call for any interference and rightly not been interfered by the learned court below. 11. Learned counsel has also submitted that prior to issuance of the purchase order, substantial quantity was already supplied, which stood admitted at internal page 3 of the award wherein it has been recorded that 313 Metric ton was supplied till 24.12.2011 against purchase order quantity of 1035 Mt. and the purchase order was issued on 14.09.2011. Learned counsel while giving the dates has mentioned that the tender was dated 16.02.2011, e-auction was held on 09.08.2011, The letter of acceptance was issued on 24.08.2011 and the purchase order was issued on 14.09.2011. 12. So far as award of interest is concerned, learned counsel has submitted that simple interest has been awarded with respect to pre- reference and pendent lite periods and compound interest has been awarded as a part of future interest upon default on the part of the appellant to pay the awarded amount within 45 days. He submits that there is no illegality in passing the order for payment of penal interest as a default clause. Learned counsel has also relied upon a judgment passed by the Hon’ble Supreme Court reported in (2019) 4 SCC 163 paragraph 10,11,12 and 14 to advance his argument on the contours of permissible grounds for interference in arbitral award under section 34 of the Arbitration Act. He has submitted that the scope of interference by this court at appellate stage is all the more limited. The learned counsel has also relied upon the judgment passed by the Hon’ble Supreme Court reported in (2019) 20 SCC 1 (which has also been relied upon by the petitioner) and has referred to para 29 and 35 of the report to submit that as long as some reasons have been given by the learned arbitrator, there is no scope for interference. Learned counsel for the respondents has also submitted that letter of 5 acceptance was admitted by both the parties before the learned Arbitrator and the award is primarily based on the letter of acceptance. Findings of this court:- 13. The matter relates to supply of dehydrated coal. The claimant is a supplier of coal to Steel Authority of India Ltd. The tender for purchase of dehydrated Coal Tar was floated by the appellant on 16.04.2011. The claimant duly participated in the tender process and the e-auction was held on 09.08.2011 followed by letter of acceptance dated 24.08.2011 and ultimately the purchase order was issued on 14.09.2011. 14. The entire dispute revolves around the price at which the Dehydrated Coal Tar was to be supplied. The dispute arose between the parties and consequently the matter was referred to the sole arbitrator who was the General Manager (MM) SAIL/Bokaro Steel Plant. As per the case of the claimant before the learned Arbitrator, after receipt of letter of acceptance dated 24.08.2011, the claimant commenced the supplies and subsequently the purchase order dated 14.09.2011 was issued by the appellant. The claimant pointed out certain discrepancies which were basically with regard to fixation of base price for the purpose of price variation, delivery schedule and weight tolerance. The objection was followed by number of meetings at different levels. The main issue regarding base price fixation was not resolved. 15. The claimant submitted the following claims:- (a) Dues against supplies- Rs. 30,85,797.00 (b) Interest @ 18% on the aforesaid amount from 11.01.2012 till the date of actual payment (c) Refund of security deposit of Rs. 2,00,000. (d) Claim on account of CST declaration form i.e. Rs. 61,716 and (e) Cost of arbitration proceedings. 16. The appellant disputed the claim before the learned Arbitrator and also filed counter claim. 17. It was the specific case of the appellant that letter of acceptance on 24.08.2011 referred to tentative average base price of ISP crude coal tar as on 09.08.2011 as Rs. 21,275.00. It was specifically 6 mentioned that the final rates of crude coal tar as received from ISP would be communicated in due course for final settlement and that the average base rate of crude tar as on 09.08.2011 was tentative as ISP rate was not notified by ISP for administrative reasons. This was followed by detailed purchase order which was released on 14.09.2011 indicating final rate of crude coal tar as Rs. 24,457.00 prevailing as on 09.08.2011 as communicated by ISP. 18. It was the specific case of the appellant before the learned Arbitrator that the claimant had participated/quoted in reverse auction of Dehydrated coal tar on the basis of anticipated or to be discovered price of crude coal tar. It was their business risk and any consequences are required to be borne by the claimant. It was also contended that the price break-up of coal quotation submitted by the claimant did not indicate any base price of ISP’s crude coal tar. 19. Apart from the aforesaid, the case of the appellant before the learned Arbitrator was that the supplies were not regular, in spite of follow up. The claimant failed to adhere to order delivery schedule and they had supplied 313.00 MT till 24.12.2011 against purchase order quantity of 1035 MT, therefore the appellant had procured material from alternative sources against risk and cost of the claimant and incurred additional expenditure, therefore the appellant had a counter claim amounting to Rs. 42,58,579.70 on account of additional expenditure on account of purchase from alternative sources which was claimed with an interest @ Rs. 18% and cost of arbitration. 20. Based on the pleading on the parties and on their consent, altogether 11 issues were framed by the learned arbitrator as follows:-. (i) Whether claims are arbitrable? (ii) Is the LOA is clear and final? (iii) Whether claimant is legally bound to supply against LOA? (iv) Whether the Purchase Order did 14.9.11 is valid? (v) Is Price Variation Clause is valid and operable? (vi) Can a contract be finalized based on an unknown future price which depends on 3rd party’s policies and administrative approvals? (vii) Is claimant is entitled for their claim & if so how much. (viii) Whether claimant is entitled to pendentilite interest @ 18% ? (ix) Is respondent is entitled for their counter claim of Rs….. (x) Whether respondent is entitled to interest @ 18% ? (xi) Whether the parties are entitled to cost? 21. Essentially the arguments of the parties is revolving around issue No. (ii), (iii), (iv), (v), and (vi). Parties have also advanced their 7 argument before this Court in connection with rate of interest and it has also been submitted by the learned counsel for the appellant that the counter claim was wrongly rejected. Price variation clause and the base price- issue No. (ii), (iii), (iv), (v), and (vi) framed by the learned Arbitrator. Arguments that the award is non speaking and the parties as well as the arbitrator are bound by the contract. 22. Learned Arbitrator considered all the issues and recorded as under:- (a) The claimant participated in open tender enquiry. The offer was accepted by the appellant who issued letter of acceptance with tentative base price of coal tar. Dispute arose after issuance of purchase order with final base price of crude tar. (b) Vide letter of acceptance on 24.08.2011, the appellant had given the price break up stating that “tentative average base rate of crude coal tar as on 09.08.2011 shall be Rs. 21,275.00. Final rates as received from ISP Burnpur shall be communicated in due course for final adjustment.” (c) Letter of acceptance indicates the detailed price break up based on the price arrived by e-auction conducted by appellant service provider on 09.08.2011. The learned arbitrator also recorded “ there is no dispute on this price and both claimant and respondents are on same page on this issue. Based on LOA the claimant supplied the material and accepted by the respondents, therefore there is no dispute with regard to LOA.” (d) With regard to purchase order dated 14.09.2011 it has been found that it contained all details including applicable base price of ISP crude coal tar as 24,457.14 and immediately thereafter the claimant raised dispute and requested for issuance of order of amendment. Dispute was regarding base price of crude coal tar of ISP e-auction on 09.08.2011. (e) Para 4 of the purchase order has been quoted by the learned arbitrator. The learned Arbitrator recorded the argument of the appellant that the rates quoted by the claimant during 8 reverse auction of Dehydrated coal tar on 09.08.2011 were market driven based on applicable/known rate of ISP crude tar before commencement of the said reverse auction. Rate of known coal Tar of ISP of Rs. 24,457.00 per MT as discovered on 01.08.2011 was applicable for all contracts in existence on 09.08.2011 unless and until modified by ISP. Forward auction rate of crude coal tar dated 09.08.2011 were notified by ISP and not in public domain for commercial reasons. On the basis of the agreement of the appellant, the learned Arbitrator observed as follows:- “Base price of Rs. 24,457.14 per MT of crude coal tar of ISP mentioned in the purchase order was discovered on 01.08.2011 which is contradictory to e-auction date mentioned in the purchase order. ……. ISP had never notified the price or followed auction dated 09..08.2011….. The rates of crude tar prevailing on 09.08.2011 were valid for all contracts existence on 09.08.2011. But the subject contract was not yet concluded on 09.08.2011 and hence cannot be called as existence on 09.08.2011. (f) On the basis of the aforesaid findings based on materials on record learned Arbitrator recorded that the Purchase Order dated 09.08.2011 placed by appellant on claimant is faulty. 23. After having recorded the aforesaid finding, the learned arbitrator decided issue no. v and vi. Learned arbitrator quoted price variation clause and recorded that this was the most important aspect of the contract and recorded his observation in connection with the price variation clause. • ISP crude price is to be decided through e-auction. • It does not clearly indicate the date of e-auction of crude tar. • From the wordings it can be concluded that both the activities i.e. e-auction of crude coal tar and price bid opening of Dehydrated tar are to take place on the 9 same day since the price of dehydrated tar heavily depending on the price of crude tar. • Therefore, if price bid is opened prior to time of e- auction of crude tar by ISP, the tenderers have to make reasonable assessment of price of crude tar being decided in future that too by 3rd party on whom none of the parties have any control. 24. The learned arbitrator recorded its finding on the basis of materials on record and ultimately held as follows:- Base price of price variation clause should be clear without any ambiguity, understood the same way by all parties, available to all parties freely known prior to the opening of price bids/reverse auction. The PVC clause of NIT does not meet these qualities and hence defective. Being defective, the PVC is not operable.” PVC refers to price variation clause. 25. After considering the materials on record the learned arbitrator held that the price variation clause was defective and inoperable and consequently it was held that the claimant would be entitled to payment in terms of the letter of acceptance. 26. This court finds that the learned Arbitrator has not only recorded the case of each party properly; framed proper issues with consent of parties; dealt with each of the issues separately and has recorded his findings after appreciating the materials on record and gave reasons for his findings. 27. So far as the judgment cited by the appellant which are reported