P.R. RAMAN & P.R. RAMACHANDRA MENON v. SAW Pipes Ltd.[AIR2003 SC 2629].2. With regard to the sequence of events

P.R. RAMAN & P.R. RAMACHANDRA MENON, JJ. ........................................................................ ARBITRATION APPEAL NO. 32 OF 2007 .........................................................................Dated this the 17th September, 2009J U D G M E N TRamachandra Menon, J:Whether the rights and liabilities arising out of a contractare to be adjudged on the basis of the express terms of thecontract as pursued by the court below or on the basis of thedeemed circumstances as pursued by the Arbitral Tribunal, isthe crucial issue involved herein. Reliance is also placed byeither side, on the decision rendered by the Apex Court in Oil& Natural Gas Corporation Ltd. vs. SAW Pipes Ltd.[AIR2003 SC 2629].2. With regard to the sequence of events, the appellantwas awarded the work of upgradation of the State Highwayfrom Muvattupuzha-Thodupuzha and Muvattupuzha-Angamali.After completing all the formalities, the work was beingpursued. During the course of execution of the work, disputesarose between the parties; which, by virtue of clause 67.4 ofthe General conditions of Contract (GCC) forming part of theArbitration Agreement, had to be settled in Arbitration. Theappellant raised three claims viz., ARBITRATION APPEAL NO. 32 OF 20072(i) payment of interest at the prevailing market rates uponunpaid sums/belated payments(ii) Payment of cost of land purchased for Engineers’ officeaccommodation and transferred to the respondent by regd:conveyance and (iii) issuance of Excise Duty exemption certificates for HSD(High speed Diesel), Lubricants, Tyres etc. and for reimbursementfor non-issuance of such certificates.3.With regard to the 1st claim, as per the terms of thecontract, the payment had to be effected in the course ofexecution of the work on the basis of the IPC (Interim PaymentCertificate) within 42 days of preferring the claim. It was stipulatedin the terms of the agreement that, in the event of failure of theemployer to make payment within the time stated, the employershall pay to the contractor interest compounded monthly at therates stated in 'Appendix to Bid' upon sums unpaid from the dateupon which the same should have been paid, in the currencies inwhich the payments are due. It was also stipulated in theagreement that the payments to an extent of 24% had to beeffected in 'Foreign currency' and 76% in 'Local currency'. The saidclaim, more particularly involving ‘Local currency’ was resisted ARBITRATION APPEAL NO. 32 OF 20073from the part of the respondent/State, stating that no rate wasshown in the ‘Appendix to Bid’ and as such, by virtue of the specificclause and the “instructions to the bidders” issued in this regard, nointerest was liable to be paid under any circumstances. “Appendixto Bid” (a copy of which was placed before this Court for perusal)shows that in respect of Column with regard to the payment of‘Foreign currency’, the rate of interest was quoted as “LIBOR(London Inter Bank on lending Rate)+ 2% ”, whereas in respect ofColumn for the ‘Local currency’, the rate was left blank. The caseof the appellant is that it was only an omission, intending to have itclaimed later in the due course and that it could never be deemedas waived. 4. The second claim was in respect of non-payment of costof the land procured by the appellant for providing officeaccommodation to the Engineers in connection with the work.However, in view of subsequent turn of events, answering the saidissue in favour of the appellant and further since no challenge hasbeen raised by the respondent/State in respect of the findingrendered by the Arbitral Tribunal, it has become final and this issuedoes not form the subject matter of the present Appeal. 5. The third claim put up by the appellant was that, by virtue ARBITRATION APPEAL NO. 32 OF 20074of the notification bearing No. 108/95-CE dated 28.08.1995, theappellant was entitled for the benefit of exemption from ExciseDuty in respect of the “goods required for the project” and thatdenial of issuance of necessary certificate in respect of HSD,Lubricants, Tyres etc., that too, after allowing the claim forexemption in respect of Cement, Steel, Bitumen etc, has resultedin much loss and hardships; which in turn was sought to becompensated by way of reimbursement.6.Since the claims put up by the appellant were notpositively considered, the matter was taken up before the ‘DisputeReview Board’ (DRB) for the first time, as provided in theArbitration Agreement. It is the case of the appellant that, thoughthe DRB had made necessary recommendation on 02.04.2004, thesame was not complied with, from the part of the respondent,which led to arbitration before the Arbitral Tribunal consisting ofthree members. The Arbitral Tribunal passed an award in favour ofthe appellant by a majority decision allowing all the three claims;aggrieved of which, the respondent/State preferred the O.P.(Arbitration) before the Court below. After appreciating the factsand circumstances, the 'second claim' with regard to the cost/compensation for the land was sustained by the Arbitration Court, ARBITRATION APPEAL NO. 32 OF 20075whereas the findings and reasoning given by the Arbitral Tribunalon the 'first' and 'third' claims were set aside, which has led to thepresent Appeal. 7. With regard to the 'first claim', on interest, the contentionput forth by the appellant is mainly that non-showing of rate ofinterest in the 'Appendix to Bid' is not fatal, so as to deny theclaim. Reliance is placed on the decision rendered by the ApexCourt in Secretary, Irrigation Department, Government ofOrissa and others Vs. G.C. Roy [1992 (1) SCC 508 (at 532)]as well. The said contention is sought to be resisted from the partof the respondent stating that the terms of the Bid are very muchclear as specified under clause 60.8(b) of the Conditions ofParticular Application (COPA in short), which, as extracted inparagraph 13 of the impugned order, reads as follows:“In the event of the failure of the employer tomake payment within the times stated, theEmployer shall pay to the contractor interestcompounded monthly at the rate (s) stated inthe Appendix to Bid upon on sums unpaid fromthe date upon which the same should havebeen paid in the currencies in which thepayments are due. The provisions of this Sub-clause are without prejudice to the contractor's ARBITRATION APPEAL NO. 32 OF 20076entitlement under Clause 69 or otherwise”.Referring to the factual position, it has been held by the Courtbelow in paragraph 15 that in the 'Appendix to Bid', in respect ofthe rate of interest upon unpaid sum in ‘Foreign currency’ as wellas in ‘Local currency’, the rate of interest was shown only inrespect of ‘Foreign currency’ (24% of the due amount); whereas inthe case of ‘Local currency’, it was left blank. In the saidcircumstances, the Court below observed that there was aconscious decision on the part of the appellant, while submittingthe tender, that the party did not intend to claim any interest inrespect of the ‘Local currency’ (76% of the due amount).Reference is also made to Ext. R1 letter issued by the appellantconfirming that there was no provision for interest on delayedpayment and that the appellant would not claim any interest infuture. That apart, the appellant had also issued Ext. C72, statingthat their commitment for not to claim any interest on the saidamount was to be treated as purely a ‘gesture of goodwill’.Accordingly, a finding was rendered by the Court below that theparty had chosen to waive the claim for interest in respect of thedue amount to be paid in ‘Local currency’, even though the ARBITRATION APPEAL NO. 32 OF 20077agreement provided for interest on belated payment.8.The appellant has got a case that Ext. R1 was gotexecuted under coercion. The learned Counsel for the appellantalso submits that the contents of Ext.C72 are very much qualified,by referring to the particular payment effected under Ext.R1 andthat it cannot be taken to connect with the further/subsequentpayments. After considering the facts and figures, the Court belowheld that absolutely no evidence was adduced to substantiate thefactum of coercion, particularly when the burden was on theshoulders of the party who raised the said contention. It is alsoobserved in paragraph 15 of the impugned verdict that Ext. R1 isdated 14.07.2004 and it was thereafter that, the claimant issuedExt. C72 which is dated 3.08.2004; wherein there is no retractionof Ext. R1 or as to any element of coercion. It was accordingly,that the Court below arrived at a finding in the succeedingparagraph that the said document was executed on ‘free will’ andthat the bidder was very much liable to fill up the rate of interest inthe place provided in the ‘Appendix to Bid’ and having not chosento do so, it had to be presumed that the party had chosen to waivethe same. The reference made by the appellant to Section 19 ofthe Arbitration and Conciliation Act, 1996 to contend that the ARBITRATION APPEAL NO. 32 OF 20078Arbitral Tribunal is not bound by the CPC or the Evidence Act israther wrong and misconceived. True, the mandate under Section19 is very clear. But it doesn’t mean that the Arbitral Tribunal canresort to any arbitrary exercise or arrive at a finding on astrologicalassumptions; which otherwise will be wrong and perverse in allrespects.9. The explanation offered from the part of the appellant,that non showing of the rate of interest in respect of ‘Localcurrency’ was to have it claimed in the due course, does notappear to be palatable to this Court; more so, when the liability topay interest was undertaken at the rate to be shown in the‘Appendix to Bid’ and further when the appellant, with properapplication of mind, had shown the rate in the relevant column onlyin respect of the 'Foreign currency'. It is probable, that the workwas awarded to the appellant, also taking note of the fact that thebidder had chosen to waive the right to claim interest for belatedpayment in respect of the ‘Local currency’, which actuallyconstituted the Lion’s share (76%). It is also possible that someother bidders would have been there, who might have quotedappropriate rate of interest in respect of ‘Local currency’, while ARBITRATION APPEAL NO. 32 OF 20079leaving the column blank with regard to ‘Foreign currency’, orsometimes, there might be some bidders who would have quoted avery lower rate in toto. After considering the relevant aspects, thework was awarded in favour of the appellant, presumably also forthe reason that the appellant’s, bid was a better deal, having leftthe column blank with respect to the rate of interest for belatedpayment upon the unpaid sum involving ‘Local currency’.10.The reliance placed by the appellant on the decisionrendered by the Hon'ble Supreme Court in Secretary, IrrigationDepartment, Government of Orissa and others Vs. G.C. Roy[1992 (1) SCC 508] as to the power of the Arbitrator to awardinterest does not support the case of the appellant in any manner.In the said case, the issue considered was, whether the Arbitratorwas having power to award interest 'pendente lite', when theArbitration Agreement did not contain any such clause. Observingthat the Arbitration Agreement did not contain any clauseprohibiting payment of interest and that there was nothing contraryto the intention of the parties, the Apex Court held that in theabsence of any clause for interest, the Arbitrator was very wellwithin his jurisdiction and competence in awarding interest'pendente lite'. Unlike this, in the instant case, as already ARBITRATION APPEAL NO. 32 OF 200710mentioned hereinbefore, there is a provision in the ArbitrationAgreement to pay interest in a specific/prescribed manner, makingit clear that it shall be at the rate as shown by the bidder in the'Appendix to bid'. Since the appellant/bidder chose to quote therate of interest only in respect of the amount payable in 'Foreigncurrency' (24%), while leaving out the Column blank in respect ofthe rate of interest with regard to the quantum payable in 'Localcurrency' (76%); the parties are very much governed by the abovespecific terms of the contract. In the said circumstances, we arenot satisfied with the case put forth by the appellant with regard toclaim No.1, and the appellant is not expected to take a 'U' turn,after winning the bid. The finding and reasoning given by theCourt below are very much proper and no interference is called for.11. With regard to the remaining claim, i.e., regarding thebenefit of exemption from Excise Duty by issuing necessarycertificate, it has been held by the Court below in paragraph No.24as follows; “Admittedly, there is no term or provision in thecontract for issue of Excise Duty ExemptionCertificate as per this notification. Counselappearing for respondents has not brought to ARBITRATION APPEAL NO. 32 OF 200711my notice any such provision in the contract orusage of trade to issue Excise Duty ExemptionCertificate as claimed. The conditions for issueof Excise Duty Exemption Certificate as stated inthe notification in Ext.C41 are not compliedwith.”The learned Counsel for the appellant submits that the right tohave the said benefit arises from the notification dated 28.08.1995,which was marked before the Arbitral Tribunal as Ext.C41. It is thecase of the respondent that the necessity or occasion for issuanceof any such certificate on the basis of the 'notification' does notspring out from the terms of the contract and as such, there couldnot have been any such recommendation or direction, as given bythe DRB (Dispute Review Board) or the Arbitral Tribunal, whichhence was rightly intercepted by the Court below.12. The case projected by the appellant in the appealappears to be more based on the fact that the respondent hasalready issued necessary certificates in respect of Cement, Steel,Bitumen etc., whereas no such certificate has been chosen to beissued with respect to HSD, Lubricants and Tyres, which are alsostated as very much ‘required for the project’. The learned counselfor the appellant submits that the words used in the notification do ARBITRATION APPEAL NO. 32 OF 200712not mean that the materials should have been actually consumedand that the exemption is meant in respect of the goods whichwere actually ‘required for the project’ and hence that, on liberalinterpretation, HSD, Lubricants, Tyres etc also would fall within thepurview of the notification. 13.Obviously, the above notification was issued in the year1995 and is not with respect to the project in hand, though it maybe applicable to other cases as well. The procedure for issuance ofthe relevant certificates is prescribed in the notification itself; whichstipulates that the manufacturer has to comply with therequirements as specified therein and necessary certificate has tobe produced before clearance of such goods. Of course, duty iscast upon the State Government, if such project has beenapproved for implementation by the State Government and on suchan event, it has to be certified by the Principal Secretary orSecretary (Finance), as the case may be, in the concerned State,by stating that the said goods are required for execution of theproject. But issuance of certificate stands entirely on a differentpedestal and while issuing such certificate, the State Governmenthas to act in a different capacity. 14. In the instant case, after considering the actual nature, ARBITRATION APPEAL NO. 32 OF 200713scope and requirement of the project, the State Government hasissued necessary certificates in respect of Cement, Steel, Bitumenetc., while declining to issue such certificate in respect of HSD,Lubricants and Tyres. If the appellant is aggrieved of the same,the remedy is stated as elsewhere; mainly for the reason that itdoes not form part of the contract. It has been observed by theCourt below that there is no provision in the contract withreference to the said notification or as to the liability of therespondent in this regard; thus leading to the inference which isimpugned in this appeal.15. Absolutely, no material has been produced from the partof the appellant to show that the observation made by the Courtbelow that there is no clause in the Agreement with regard to theliability to issue any such certificate for exemption is wrong orperverse. No reference is made to any of the terms of thecontract, but for placing reliance solely on the ‘notification’ and theinstance of issuing such certificates in respect of Cement, Steel andBitumen. This shows that the finding and reasoning given by theCourt below as to the absence of such clause in the contract standfortified and in the absence of any specific term in the contract, nobenefit could have been extended by the Arbitral Tribunal, directing ARBITRATION APPEAL NO. 32 OF 200714the respondent to reimburse the amount in respect of the ExciseDuty, which otherwise could have been covered by suchcertificates. The finding and reasoning given by the Court beloware perfectly within the four walls of law and are not assailableunder any circumstances.16.In the course of arguments, the learned Counsel for theappellant, referring to the mandate under clause 67.1 of ‘COPA’submits that the recommendation of the DRB was effected on02.04.2004 and that, since the respondent did not convey theirdissatisfaction with the recommendation stating that they were topursue further remedy by way of ‘arbitration’ within the stipulatedtime of ‘14 days’; it had become final on 16.04.2004. The learnedCounsel further submits that this issue was specifically raisedbefore the Arbitral Tribunal and was dealt with in paragraph No.3.1 of the Arbitral Award. However, the same is stated as notconsidered by the Court below, while passing the impugned Order.The relevant portion of clause 67.1 of ‘COPA’ reads as follows: “If the Board has issued aRecommendation to the Employer and theContractor within the said 56 days and no ARBITRATION APPEAL NO. 32 OF 200715notice of intention to commencearbitration as to such dispute has beengiven by either the Employer or theContractor within 14 days after the partiesreceived such Recommendation from theBoard, the Recommendation shall becomefinal and binding upon the Employer andthe Contractor. Whether or not it has become final andbinding upon the Employer and theContractor, a Recommendation shall beadmissible as evidence in any subsequentdispute resolution procedure including anyarbitration or litigation having any relationto the dispute to which theRecommendation relates.All Recommendations which have becomefinal and binding shall be implemented bythe parties forthwith such implementationto include any relevant action of theEngineer.”As per the above clause, the crucial date is not the date ofrecommendation, but the date of receipt of such recommendationfrom the Board. The contention of the appellant was only that the ARBITRATION APPEAL NO. 32 OF 200716matter had become final on 16.04.2004, since the date ofrecommendation of DRB was 02.04.2004. Absolutely no case waspleaded to the effect that the recommendation was conveyed tothe Government on a ‘ particular date ’ and that the intention of theGovernment was not communicated, despite the expiry of 14 daysfrom the date of receipt of such recommendation. It is alsobrought to light from paragraph No.3.1 of the Arbitral Award thatthe DRB in their meeting on 12.06.2004 recorded that therecommendation of the DRB had been submitted by the Engineerto the Government for acceptance. Obviously, in the absence ofany specific plea, as to the date of receipt of the recommendationby the Government and the expiry of the prescribed time, theArbitral Tribunal could not have considered the same and for thisreason, there is no finding in this regard as well. This being theposition, the contention of the appellant that the matter hasalready become final, since the respondent had not acted in tunewith the stipulation in clause 67.1 of ‘COPA’, does not hold anywater at all. It is also relevant to note that the award was passedby the Arbitral Tribunal ‘on majority’ and the dissenting memberhas given sufficient and proper reasons with regard to the variousaspects on which the dissent was recorded; which appears to be ARBITRATION APPEAL NO. 32 OF 200717correct and sustainable. 17.The only remaining question to be answered is whetherthe Arbitration Court was justified in having interfered with thefinding of the Arbitrary Tribunal in respect of the claims No.1 and 3(interest and Excise Duty exemption) invoking the power underSection 34 of the Arbitration and Conciliation Act, 1996. The lawhas been laid down by the Apex Court in crystal clear terms in thedecision in ONGC Ltd., Saw Pipes Ltd. ([2003] 5 SCC 705 = [AIR2003 SC 2629],. It has been held that if the award is contrary tothe substantive provisions of law or against the terms of thecontract which would be patently illegal, it could be interfered withunder Section 34 of the Act. Viewed in the above background, theaward passed by the Arbitrary Tribunal directing to pay interest inrespect of the belated payments/unpaid amounts involving localcurrency as well as the direction to reimburse the amount becauseof non-issuance of exemption certificate pertaining to Excise Dutyin respect of HSD, Lubricants and Tyres placing reliance on therelevant notifications issued by the Government of India in thisregard were rather contrary to the specific terms of the contractand beyond the scope of arbitration. This being the position,interference made by the Court below rejecting the claims in this ARBITRATION APPEAL NO. 32 OF 200718regard is perfectly in order and it is very much within the four wallsof the law.In the above facts and circumstances, the matter requires nointerference. The appeal fails and it is dismissed accordingly. P.R. RAMAN, JUDGEP.R. RAMACHANDRA MENON, JUDGE. lk