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CASE NO.:

Appeal (civil) 4079 of 2007

PETITIONER:

Numaligarh Refinery Ltd

RESPONDENT:

Daelim Industrial Company Ltd

DATE OF JUDGMENT: 06/09/2007

BENCH:

A.K.MATHUR & MARKANDEY KATJU

JUDGMENT:

J U D G M E N T

CIVIL APPEAL NO. 4079 OF 2007

[Arising out of S.L.P.(c) No.20989 of 2006]

With :

Civil Appeal No. 4080 of 2007

[ Arising out of S.L.P.(c) No. 4409 of 2007]

A.K. MATHUR, J.

1. Leave granted.

2. Both these appeals arise out of the order dated 24.8.2006

passed by the Division Bench of the High Court of Gauhati at

Guwahati in Arbitration Appeal No.1 of 2002. Therefore they are

taken up together and disposed of by this common order.

3. Brief facts which are necessary for disposal of these

appeals are that the respondent, Daelim Industrial Company

(hereinafter to be referred to as 'DIC' ) is a company incorporated in

Seoul, Korea having its registered office there. During the pendency

of the arbitration proceedings, Daelim Engineering Company Limited

(DEC) got merged with Daelim Industrial Company Limited (DIC), and

therefore DEC ceased to exist. For our convenience we will take up

DIC for all practical purpose. The appellant, Numaligarh Refinery

Limited (hereinafter to be referred to as 'NRL') is a Government of

India undertaking incorporated under the Companies Act, 1956,

having its registered office at Guwahati, in the State of Assam. NRL

through its consultant Engineers India Limited (hereinafter to be

referred to as 'EIL'), also a Government of India undertaking, on

22.11.1993 invited global quotations for building of a Cogeneration

Captive Power Plant for its Petroleum Refinery at Numaligarh in

Assam. DIC with its consortium partner, Turbotecnica SPA of Italy,

contested the global bid and after negotiation with NRL, the contract

was awarded to DIC by its fax of intent dated 31.1.1995. Three

contract agreements were signed between NRL and DIC and

Turbotecnica. The total contract price embodied in the above

contract agreements dated 11.4.1995 was on a Turnkey basis and

the time schedule for completion of the works as per the consolidated

contract was as follows :

" (i) First train of Gas Turbine Generator (GTG),

Heat Recovery Steam Generator (HRSG) and Utility

Boiler (UB) within 21 months of the issue of Fax

Intent i.e. by 31.10.1996 and (ii) balance plant within

24 months of issue of the Fax Intent i.e. by

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30.01.1997."

In course of the execution of the project disputes arose between the

parties and therefore, in terms of Clause 9(b) of the Consolidated

Agreement, DIC referred the matter on 7.8.1997 before the

International Chamber of Commerce; International Court of

Arbitration, Paris for resolution thereof and claimed Rs.37.9 crore

under different heads. NRL disputed the claim and submitted its

written reply on 20.9.1997 and a rejoinder was filed by the DIC on

4.11.1997. In terms of the International Chamber of Commerce's

Arbitration Rules, 1988, (hereinafter to be referred to as the 'Rules')

the DIC and NRL nominated their Arbitrator. The International Court

of Arbitration confirmed the appointment of Arbitrators and

nominated a third Arbitrator-cum-Chairman to constitute the Arbitral

Tribunal. Meanwhile, DIC updated its claim to be at Rs.55.8 crore to

which NRL submitted its written reply. DIC in response thereto,

submitted its rejoinder. However, no counter claim was made by

NRL. The Tribunal framed necessary issues. The majority award of

the Arbitrators by the order dated 23.9.2000 held that the respondent

was entitled to Rs.29.76 crore and further an amount of US $

170,000 being 50% of the cost of arbitration paid by it, in addition to

its share of the total cost of US$ 340,000. The appellant having

refused to pay its portion thereof interest at the rate of 12% per

annum pendente lite on Rs.29.76 crore from 7.8.1997 till the date of

the award was also sanctioned. In addition, the appellant, NRL was

saddled with the liability of post award interest at the rate of 18% per

annum on the above awarded amounts in case of its failure to make

the payments within 60 days of the receipt the award. However,

Justice M.M.Dutt, Member of the Arbitral Tribunal gave a dissenting

award. He awarded DIC an amount of Rs.13,74,55,272/- with

interest at the rate of 10% till realization, in case of failure on the part

of NRL to disburse the sum. DIC was also further awarded an

amount of Rs.1.65 crore to be recovered from the Customs

authorities exacted on goods not chargeable to duty. Being aggrieved

with the majority award dated 23.9.2000, NRL filed application under

Section 34 of the Arbitration and Conciliation Act, 1996 ( hereinafter

to be referred to as the' Act') in the Court of the District Judge at

Golaghat which was registered as Misc. Arbitration Case No.1 of

2001. Notice was issued and in pursuance of such notice the

respondent appeared. The learned District Judge after hearing the

parties and on consideration of the materials on record, set aside the

award. Aggreived against that order of the District Judge an appeal

was preferred by the DIC before the High Court. DIC itemized their

claims as under :

" A. Transfer of US$ 6 million : Rs.9.6 crores

B. Turbotecnica's Contract price : Included in Item C

C. Countervailing Duty : Rs.13.0 crores

D. Excess Custsoms Duty due to

Fluctuation of exchange rate : Included in Item C

E. Liquidated damages for delay

In approval of Design and

Engineering : Rs.8.9 crores

F. Excess expenses due to lack

of infrastructure : Rs.4.6 crores

G. Additional expenses cost by

Schedule delay : Rs.12.0 crores

H. Interest for borrowed funds,

Delayed opening of LC for

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Design : Rs.0.5 crore

I. Escalation : Rs.4.1 crores

J. Change Order : No dispute

K. Extra tax burden as per AGSI

With effect from 1st May 1997 : Rs.3.1 crores

L. Indian statutory taxes included in

Item No.C.

(Total Claim of DEC) [Rs.55.8 crores ]"

No counter claim was filed by NRL. With regard to transfer of US

$6 million equivalent to Rs.9.6 crore, the issue framed was to the

following effect.

" Is the claimant entitled to a sum of Rs.9.6 crores

as claimed under heading Transfer of US $ 6 million "

Under this heading it was pleaded by the DIC that the overseas

contract required supply by it of various imported items priced at US

$8,750,000. However, after ascertaining the indigenous sourcing of a

good number of such items to be satisfactory, DIC vide its letter dated

13.9.1995, requiring the bidder to bid on the basis of indigenization

scope to the maximum extent possible. The request was based on

clause 14.3 of the ITB, which prescribed that items quoted in the bid

to be imported could be subsequently transferred to indigenous

supply for which NRL was to pay at actuals maximum whereof to be

limited to the computed value on site delivery basis on the pricings

quoted originally for that of the imported origin. Clause 14.3 of the

Instructions to Bidders reads as under:

" In case any item, quoted as imported in

the bid, but is subsequently transferred to the Indian

category, the total cost on project-site-delivery basis

for such item will be payable by Owner at actuals but

maximum limited to the computed value on site

delivery basis based on the pricings quoted originally

for that of imported origin."

Though this was agreed by NRL but it delayed the formal decision

and DIC arranged procurement of the substituted indigenous

materials by undertaking market survey, selecting Indian

manufactures, supplying of design and drawing to the manufacture,

ensuring product with quality control and supplies of finished project

within a stipulated time frame for which it incurred cost and expenses

to the tune of Rs. 25.3 crore which included the cost borne by DIC

towards procurement , service charges, inspection and expediting

charges, overhead expenses and profit. NRL duly approved the

indigenous manufacturers from whom the substituted items were

procured and permitted them to be incorporated in due execution of

the contract. NRL extended its formal approval for the substitution

eventually by its letter dated 13.3.1997. Though the DIC had claimed

Rs.25.3 crore incurred as the total cost, but it limited its claim to

Rs.21.7 crores being the procurement cost of indigenous materials by

applying the conversion rate of Rs. 36.28 per US $ as on 26.2.1996.

Rs.12 crores was paid by NRL and therefore DIC registered its

claim under the above head to the extent of Rs.9.6 crores. For

computing the actual cost of Rs. 25.3 crores, the DIC took into

consideration various factors; like bare cost, Excise duty, Central

Sales tax, freight and insurance, procurement service charges,

inspection and expediting charges, overhead expenses, profit and tax

deduction at source. The majority of the arbitrators after considering

all the materials placed before them came to the conclusion that

since EIL was the prime consultant of NRL for the execution of the

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project, assessed the value of Rs.17.68 crores by applying its mind to

the submission of DIC, the majority of the Arbitrators accepted the

value expressed by EIL by its communication dated 4.11.1996 and

the majority of the Arbitrators as per clause 14.3 accepted, the advice

of EIL. Though NRL tried to withhold this letter, however same was

brought on record and the majority of the Arbitrators accepted it and

they added 15% profit margin and that worked out to Rs.2.65 crores

on the basis of the decision of this Court in M/s.Brij Paul & Ors. Vs.

State of Gujarat [ AIR 1984 SC 1703]. The majority of the Arbitrators

accepted the claim of the DIC to the extent of Rs.20.33 crores

(Rs.17.65 crores + Rs.2.65 crores ). An amount of Rs.12.19 crores

under this head was already received by the DIC therefore, rest of the

claim amount was accepted and awarded in favour of DIC i.e.

Rs.8.14 crores with US $ exchange rate at $1 = Rs.36.28 as

equivalent on 26.2.1996. As against this, the minority Arbitrator,

Justice M.M.Dutt held that the original documents and vouchers were

not produced by DIC as it was their duty to have produced the whole

vouchers to justify the purchases made in India for the substituted

materials. The minority arbitrator took the view that since the claim

of the DIC was to the tune of Rs.21.77 crores, Rs.12.19 crores

having been paid, there remains only Rs.9.58 crores. But according

to the minority award, as per the cost given by NRL their liability

comes to Rs.14.19 crores and therefore, DIC is not entitled to

beyond this amount. NRL also contested the expenses on account of

procurement service, inspection and expediting for Rs.97 lakhs and

overhead for Rs.3.47 crores as well as the claim of profit for Rs.3.14

crores and tax deduction at source for Rs.1.32 crores was not

payable. After discussion, Justice M.M.Dutt took the view that the

claimant was entitled to Rs.141,920,735.00 plus Rs.1,32,13,395.00

as tax deduction at source aggregating to Rs.15,51,34,130.00 only

out of which the claimant has received Rs.10,69,83,850.00.

Therefore, the claimant was entitled to receive the balance amount

of Rs.4,81,50,272.00 only and not Rs.9.6 crores as claimed. The

District Court disapproved the approach of the arbitrators and

emphasized that the word 'actual' occurring in Clause 14.3 means

that the party should have produced the necessary evidence to

substantiate it. The High Court however did not approve the same

and took into consideration the letter dated 4.11.1996 of the EIL as

the basis and observed that the Tribunal has rightly accepted the

letter and set aside the order of the District Court. The High Court

further held that while construing the 'actuals' under Clause 14.3. the

DIC in addition to the charges is also entitled to reasonable margin of

profit amounting to 15 per cent of the cost amount of Rs.17.68 crores

which does not appear to be illogical or arbitrary and confirmed the

finding of the majority award of the Arbitrators.

4. After considering the findings given by the majority and

minority Arbitrators and the view taken by the High Court on the

interpretation of Clause 14.3, in normal course the parties should

have led evidence to substantiate their claims with reference to

vouchers and other documents in evidence in order to justify their

claim, but in the present case we find that when NRL through the

communication dated 4.11.1996 have accepted the total value to the

extent of Rs.14.19 crores, then there is no reason why this should not

have been accepted as they have examined all the items in their

letter. Be that as it may, the fact remains that the DIC has

purchased the indigenous materials and substituted that as

permissible under Clause 14.3, then there is no reason to deny them

the cost for the same especially when intrinsic evidence is available

i.e. an independent body \026 NRL which is a Government of India

undertaking and conceded the amount to the extent of Rs.14.19

crores as the actual cost. Therefore, taking that Rs.14.19 crores as

the actual and Rs.12.19 crores having been paid, we think under this

head, the DIC is legitimately entitled to a sum of Rs.2 crores against

their claim of Rs.9.6 crores. However, the view taken by the minority

Arbitrator with regard to procurement service, inspection and

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expediting, overhead and claim of profit appears to be correct and

that has been rightly disallowed by the minority Arbitrator and we

uphold that view. M/s. Brij Paul's case (supra) related to breach of

contract under section 73 of the Contract Act and while allowing the

petition, 15% was assessed as loss of fright. This case was decided

on peculiar facts, it cannot provide any assistance to the contractor.

Hence, so far as the claim under Item No.1 for the substituted

material the respondent \026 DIC is entitled to a sum of Rs.2 crores.

[ Rs.2 crores allowed under item No.1]

5. Now, coming to another head \026 Turbo technical price,

under this head Turbocechnica SPA of Italy, a consortium partner of

DIC in the contract agreement with NRL, had to supply various

imported items for a consideration of US $4150000 and DM

22990000 as specified in the Price Schedule of the Overseas

Contract. The said consideration under Item No.2.1.1 was a

consolidated figure including payment on account of service like third

party inspection charges, ocean fright and marine insurance. Note 1

of the above Price Schedule permitted DIC / Turbotechnica to furnish

list of goods with CIF (cost insurance and freight) value of NRL for

availing concession in payment of customs duty payable in respect of

import from overseas. Note 2 reiterated that third party inspection

charges were included in the above price. DIC vide letter dated

13.9.1995 requested NRL to bifurcate the total consideration of the

import items into CIF cost and service cost and to amend the contract

agreement for that purpose but no amendment was made. It was

pointed out that if no amendment was made for the relevant portion,

Turnotechnica shall have to declare the entire contract value as CIF

cost to the customs authority and since payment of customs duty was

DIC's responsibility, DIC will have to pay customs duty on service

portion also. DIC vide letter dated 25.11.1995 pointed out to NRL

that contract price consisted of CIF value, cost of design and

engineering and supervision and other incidental costs and requested

for break-up of costs, so that DIC may not pay customs duty on the

total contract price when such duty was payable on CIF value by the

owner. Therefore, the amendment not being carried out by the NRL,

DIC could not avail necessary concession in customs duty.

Therefore, they claimed under this head a sum of Rs.1.65 crores and

the same was accepted by the majority of the Arbitrators. The

majority took the view that DIC had to unnecessarily pay the customs

duty on service portion of the price consideration and as such allowed

the claim. As against this, Justice M.M.Dutt in minority took a contrary

view and held that NRL was not responsible for framing of such

agreement and it was held that it was the fault of DIC and as such

the claim was turned down. However, it was observed that DIC

could justify and claim the said amount from the Customs department

but NRL could not be held responsible for the extra duty paid by the

DIC. The District Judge agreed with the minority award. However,

the Division Bench of the High Court reversed the finding and

approved the view taken by the majority of the Arbitrators. We have

heard learned counsel for the parties and find that it depends upon

the framing of the terms of the agreement, if the DIC would have

been vigilant then they could have excluded the service charges; like

design engineering etc. It was their duty to have excluded the

services charges but they have not properly framed the contract and

they cannot insist on amendment of the contract. If all the services

were subjected to duty which they could have segregated the same

but since they did not do this, therefore they could claim the benefit.

No direction could be given to the contracting party to amend their

agreement. It is a mutual affair of the contracting party. The view

taken by the High Court does not appear to be correct. Secondly, it

was not possible for the NRL to amend the agreement as the same

has already been registered with the Customs authorities and the

Reserve Bank of India/ Hence, the DIC is not entitled to the aforesaid

amount of Rs.1.65 crores under this head.

{ Claim of Rs.1.65 crores under this head not allowed]

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6. Next issue is with regard to countervailing duty. DIC claimed a

sum of Rs.8.78 crores which was paid on account of excise duty.

The claim of the DIC was that in fact at the time when the agreement

was executed between the parties, countervailing duty was not there

and it was introduced with effect from 1.1.1995 by Customs Tariff

(Amendment) Ordinance, 1994. New Sections 9, 9A and 9B were

introduced. This Ordinance was subsequently replaced by Customs

Tariff (Amendment) Act, 1995 which was deemed to have come into

force with effect from 1.1.1995. DIC submitted its initial bid on

16.3.1994 and final bid on 23.11.1994 by taking into consideration

customs duty on imported materials at 25% as operative then. DIC

could not have imagined the levy of countervailing duty at 12.5 %

brought into force with effect from 1.1.1995. Bid settlement was

made on 24.1.1995 and NRL finally awarded the contract to DIC by

fax of intent dated 31.1.1995. Therefore, the submission of DIC was

that at the relevant time there was no countervailing duty and it came

into force subsequent to the contract, therefore as per Section 64-A

of the Sale of Goods Act, 1930, the DIC is entitled to get this claim

reimbursed. NRL contended that as per Clause 14.1 in the statement

of claim pertaining to the contract clear instructions were given to the

bidders under clauses 15, 15.1, 15.2, 15.3 that entire customs

duties or levies including the stamp duty and import licence fee

levied on the equipments by Government of India or any State

Government will have to be borne by DIC. The payment of

countervailing duty was allowed by both the Arbitrators i.e. the

Majority and Minority. But the Division Bench of the High Court

reversed the finding. Aggrieved against this part of the order, appeal

has been filed by DIC which has been registered as Civil Appeal

arising out of S.L.P.(c) No.4409 of 2007.

7. In order to appreciate the submission of rival parties it will be

appropriate to refer to necessary clauses of the agreement; Clause 6

of the Consolidated Agreement read with Clauses 1.8, 13.2, 15.3.

The crucial clause is Clause 6 which reads as under :

" It is specifically understood and agreed

between the parties hereto that if there is any liability

towards taxes/ duties (including custom duty on

foreign component of supply portion) as may be

assessed/ claimed/ demanded by the concerned

Indian or Foreign authorities, it shall be the sole

responsibility/ liability of the contractor to pay all such

taxes/ duties and that the owner shall not be

responsible at all the payment of such taxes/ duties. "

Mr.Ganguli, learned senior counsel for the appellant in this case

submitted that the view taken by the High Court is not correct and as

per Section 64-A of the Sale of Goods Act, 1930, if there is no

contract to the contrary, then the parties are entitled to include the

amount of duties to the contract the equivalent amount paid. It was

submitted that both the majority and minority view of the Arbitrators

has upheld the claim and in that connection learned counsel has

placed reliance on a decision of this Court in Pure Helium India (P)

Ltd. v. Oil & Natural Gas Commission [ (2003) 8 SCC 593]. As

against this, learned counsel for the respondent herein has

supported the view taken by the High Court. The Division Bench of

the High Court after considering all the relevant provisions came to

the conclusion that as per various clauses of the contract since it was

the duty of the DIC to pay all taxes and customs duty and levies, they

cannot escape their liability to bear the countervailing duty imposed

by the Government. Mr. Ganguli, learned senior counsel for the

appellant in this appeal argued that in fact this was a new levy and at

the time when the negotiation was entered into it was not in

contemplation and in that connection learned senior counsel invited

our attention to a decision of this Court in The State of Madras v.

Gannon Dunkerley & Co., (Madras) Ltd. ( [1959] SCR 379).

Mr.Ganguli, learned senior counsel for the appellant submitted that so

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far as interpretation of contract is concerned, the arbitrator is the best

judge because he has the jurisdiction to interpret the contract having

regard to the terms and conditions of the contract, the circumstances

of the case, the pleadings of the parties, the High Court should not

substitute its interpretation. In this connection, learned senior

counsel has invited our attention to the following decisions of this

Court.

(i) (1992) 4 SCC 440

Thermax Private Limited. V. Collector of Customs

(Bombay) New Customs House.

(ii) (1968) 3 SCR 387

Kollipara Sriramulu v. T.Aswathanarayana & Ors.

(iii) (1989) 2 SCC 38

M/s. Sudarsan Trading Co. v. Government of Kerala

& Anr.

(iv) (1999) 4 SCC 214

H.P.State Electricity Board v. R.J.Shah & Company

Learned senior counsel for the appellant also invited our attention to

Section 64-A of the Sale of Goods Act, 1930 and Section 69 of the

Contract Act, 1872 and submitted that the contract party is entitled to

reimbursement of tax liability. As against this, learned counsel for

the respondent submitted that Clause 2 (b) & Clause 6 of the

Consolidated Agreement read with Clause 2.1 (g) of the Instructions

to Bidders and Clause 13(f) of the Bid Document, leave no manner

of doubt that it is the duty of the contracting party to pay all taxes,

duties and levies. Relevant provisions are reproduced below :

" "Clause 2(b) all taxes and duties in

respect of job mentioned in the aforesaid contracts

shall be the entire responsibility of the contractor\005 "

" Clause 6. It is specifically understood

and agreed between the parties hereto that if there is

any liability towards taxes/ duties (including custom

duty on foreign component of supply portion) as may

be assessed/ claimed/ demanded by the concerned

Indian or foreign authorities, it shall be the sole

responsibility/ liability of the contractor to pay all such

taxes/ duties and that the owner shall not be

responsible at all for the payment of such taxes/

duties\005"

" Clause 2.1 (g). The scope of this proposal \005

will include the following (g) payment of customs

duty, port clearance charges etc. and customs

clearance at Indian port of entry\005"

" Clause 13(f) , Bid Documents:

\005.. Prices for the entire scope of work on

divisible contract basis and indicate the following

break-up: (f) lump sum charges on accounts of

customs duty, port charges etc. for imported

equipment and materials\005""

Reading of these documents leave s no manner of doubt that all the

taxes and levies shall be borne by the contracting party i.e. DIC.

8. We have considered the rival submissions of the parties. So far

as the legal proposition as enunciated by this Court in various

decisions mentioned above, it is correct that Courts shall not

ordinarily substitute its interpretation for that of the arbitrator. It is

also true that if the parties with their eyes wide open have consented

to refer the matter to the arbitration, then normally the finding of the

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arbitrator should be accepted without demur. There is no quarrel with

this legal proposition. But in a case where it is found that the

Arbitrator has acted without jurisdiction and has put an interpretation

of the clause of the agreement which is wholly contrary to law then in

that case, there is no prohibition for the Courts to set things right. In

the present case, the aforesaid clauses reproduced above, clearly

lays down that all taxes, duties and levies have to be borne by the

contracting party. Countervailing duty which came into force with

effect from 1.1.1995 by way of ordinance (subsequently converted

into an Act) is a duty enforced by the Statute and hence in face of

Clause 2(b) and Clause 6 of the Consolidated Agreement read with

Clause 2.1 (g) of the Instructions to Bidders and Clause 13 (f) of the

Bid Document. There is leaves no manner of doubt that DIC has to

pay the same. Therefore, this levy has to be borne by the DIC and

they cannot escape from this situation. In this connection, learned

counsel has invited our attention to Section 64-A of the Sale of Goods

Act, 1930 which reads as under:

" 64-A. In contracts of sale, amount of

increased or decreased taxes to be added or

deducted.- (1) Unless a different intention appears

from the terms of the contract, in the event of any

tax of the nature described in sub-section (2) being

imposed, increased, decreased or remitted in respect

of any goods after the making of any contract for the

sale or purchase of such goods without stipulation as

to the payment of tax where tax was not chargeable

at the time of the making of the contract, or for the

sale or purchase of such goods tax-paid where tax

was chargeable at that time,-

(a) if such imposition or increase so takes effect

that the tax or increased tax, as the case may be, or

any part of such tax is paid or is payable, the seller

may add so much to the contract price as will be

equivalent to the amount paid or payable in respect

of such tax or increase of tax, and he shall be entitled

to be paid and to sue for and recover such addition;

and

(b) if such decrease or remission so takes effect

that the decreased tax only, or no tax, as the case

may be, is paid or is payable, the buyer may deduct

so much from the contract price as will be equivalent

to the decrease of tax or remitted tax, and he shall

not be liable to pay, or be sued for, or in respect of,

such deduction.

(2) The provisions of sub-section (1) apply to the

following taxes, namely;-

(a) any duty of customs or excise on goods;

(b) any tax on the sale or purchase of goods."

This section also clearly says that unless a different intention appears

from the terms of the contract, in case of the imposition or increase

in the tax after the making of a contract, the party shall be entitled

to be paid such tax or such increase. In this connection, the intention

of the parties is to be ascertained, as per the clauses mentioned

above. A perusal of the contract makes it clear that DIC is under

obligation to pay the taxes, duties and levies. Therefore, the

intention is very clear that taxes and duties will be the obligation of

the DIC. Section 69 of the Indian Contract Act, 1872 deals with

reimbursement of a person paying money due by another, in

payment of which he is interested. Section 69 has no role to pay in

the present case in view of the clear terms of the agreement that the

taxes, levies have to be paid by the DIC. Therefore, nothing turns on

Section 69 of the Contract Act. In view of the above discussion, we

are of opinion that so far as the payment of countervailing duty is

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concerned, it was the obligation of the DIC and the view taken by the

Division Bench of the Act appears to be correct and there is no

ground to interfere with this part of the order. Consequently, we

uphold the judgment of the High Court and dismiss the appeal arising

out of S.L.P.(c) No.4409 of 2007 filed by the DIC.

9. The next question is with regard to payment of extra customs

duty due to fluctuation of the exchange rate. In this connection, the

majority of the Arbitrators took the view that the DIC was entitled to

Rs.2.09 crores on account of excess payment of customs duty on

account of fluctuation of the exchange rate. As against this, the

minority view taken by Justice MM Duty was to the contrary. He has

observed that the NRL had entered into a turnkey firm-price contract

with the sole object of avoiding any future additional burden till the

completion of the contract. He has also observed that the price

quoted in the bid documents is fixed and cannot be varied according

the variation of the fluctuation of the exchange rate of US dollar. He

has also observed that this also holds good both for upward and

downward variations. Therefore, he found that the claim of DIC

cannot be acceded to and accordingly rejected the claim of DIC. The

Division Bench of the High Court has affirmed the majority view.

10. We have heard learned counsel for the parties and

perused both the views expressed by majority as well as minority. In

this connection, it is relevant to mention Clause 12.2 of the

Instructions to the Bidders which clearly stipulates that it must be

understood and agreed that such factors have properly been

investigated and considered while submitting the bids. It also clearly

stipulates that no financial adjustments arising thereof shall be

permitted by the owner. Clause 12.2. of the Instructions to Bidders is

reproduced as under :

" 12.2. It must be understood and

agreed that such factors have properly been

investigated and considered while submitting the

bids. No claim for financial adjustment to the contract

awarded under these specifications and documents

will be entertained by the owner. Neither any change

in the time schedule of the contract nor any financial

adjustments arising thereof shall be permitted by the

owner, which are based on the lack of such clear

information of its effect on the cost of the works to

the bids."

Similarly, clause 13 which deals with price scope and basis clearly

stipulates that price for the entire scope of work on divisible contract

basis, break up has been given in the schedule. In this connection,

clause 13 which is most relevant reads as under :

" 13.0. Price Scope & Basis:

The Bidders shall quote in their proposals,

Prices for the entire scope of work on divisible

contract basis and indicate the following break-up

schedule:

a) Dosing and Engineering charges for the

complete works.

b) Lump sum Price on F.O.B.port of Shipment

basis for all Imported equipment and

materials.

c) Lump sum ocean fright and Insurance for

the above imported goods.

d) Lump sum Price on FOR/FOT dispatch

point basis for5 all indigenous equipment/

material, cement and steel, inclusive of

taxes, duties, levies, licence feee etc.

e) Lump sum service charges towards

documentations, handling, forwarding,

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payment of customs duty, inland

transportations, transit insurance of all the

imported goods.

f) Lump sum charges on account of customs

duty, port charges etc. for Imported

equipment and materials.

g) Lump sum charges, forwards,

transportations through waterways for over

Dimensional consignment inclusive or en

route Indian/ Bangladesh Custom clearance

to Project site.

h) Lump sum charges toward clearance,

handling, transportation ( other than ODCS)

storage, preservation and conservation of

all equipment at project site.

i) Lump sum cost of all civil works.

j) Lump sum charges toward pre-assembly, if

any, erection, testing and commissioning of

the complete system.

k) LIST OF RECOMMENDED SPARES for

two years normal operation indicating Parts

name, cagalogues No., quantity and Unit

Prices.

l) List o components with itemized unit rate for

all individual equipment and materials, to

enable Price Adjustment, if required during

detailed engineering and execution of the

work.

m) Fees/ Charges payable, if Owner/

Consultant opts for inspection by Lloyds

Register or third party inspection for

IMPORTED equipment.

n) Agency commission if any, included for

Indian Agents."

Clause 14 deals with pricing and currency changes. Clause 14.1.

reads as under :

" The prices quoted for the entire scope of work

shall remain firm and fixed till complete execution of

the work."

In these parameters of the terms and conditions, that the price quoted

for the entire work shall remain firm and fixed till the complete

execution of the work, the heading pricing and currency changes

leaves no manner of doubt that there is no scope for giving any

benefit of fluctuation on the exchange rates. Once the price is fixed

there is no provision for giving any benefit for fluctuation in terms of

the contract then in that case, the claimant \026DIC cannot raise this

claim of excess payment made towards customs duty on account of

fluctuation on exchange rate. The minority view expressed by Justice

M.M.Dutt appears to be correct. Had there been downward trend in

the exchange rate, then the DIC would not have slashed the

exchange rate. If the downward trend cannot benefit either party then

equally the up-ward trend cannot benefit the DIC for claiming the

payment of the higher customs duty on account of fluctuation in

exchange rate. Therefore, the expression, 'firm and fixed' is clear

answer to the question if during the course of contract certain

fluctuation has taken place in the market then on that count the

claimant cannot raise extra demand on account of upward trend in

the exchange rate. In this connection, reliance was placed on a

decision of this Court in Pure Helium India (P) Ltd. v. Oil & Natural

Gas Commission [(2003) 8 SCC 593]. In this case this Court granted

the contractor's claim for being compensated for foreign exchange

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fluctuation and not for any escalation in the price. This Court held

that the claimant does not violate any terms of contract. In the

present case, in view of the fact that the price is firmly fixed and DIC

has clearly understood and agreed the terms of the contract, and it

was clearly stipulated in Clause 12.2. that no financial adjustment

arising there from shall be permitted by the owner. In these

circumstances, the minority view taken by the Arbitrator, Justice

M.M.Dutt appears to be well founded. Pure Helium India (P) Ltd.

(supra) was decided on peculiar facts. As such, it cannot provide us

any assistance.

11. Similarly, our attention was invited to a decision of this

Court in Tarapore and Company v. Cochin Shipyard Ltd., Cochin &

Anr. [ (1984) 2 SCC 680]. In this case, their Lordships held that if a

question of law is specifically referred by the parties to the arbitrator

for decision, award of the arbitrator would be binding on the parties

and court will have no jurisdiction to interfere with the award even on

ground of error of law apparent on the face of award. We have no

quarrel with this proposition. So far as other decisions of this Court

mentioned above, that the Court should accept the interpretation of

the terms of the agreement made by the arbitrator, and should not

interfere, there is no two opinion on that question but in the present

case, we are faced with a peculiar situation that the three Arbitrators

out of whom two has taken one view of the matter and the third has

taken another view of the matter. The District Judge has also set

aside the award on some issues and the High Court has also

accepted some items of the majority award of the Arbitrators and

some items of the minority award of the Arbitrator. Therefore, in the

peculiar state of affairs in the present case when there is variation of

views ; the majority award takes one view and the minority award

takes another view, the District Judge takes the third view and the

High Court takes the fourth view, in the state of these conflicting

views on the subject, we have to enter into the merit to put an end to

the controversy by adjudicating the conflicting views of various

Forum. However, general consensus of the view emerging from

various judgments of this Court is there is no two opinion that the

Court should not sit in appeal and normally should not interfere with

the views of the Arbitrator in interpretation of the terms of

agreements interpreted by the Arbitrator when the Arbitrator is

appointed with consent of parties. However, in peculiar facts and

circumstances of the case, the view taken by the High Court in

accepting the majority view of the arbitrators cannot be accepted. We

overrule the view taken by the High Court in accepting the majority

view and accept the minority view taken by Justice M.M.Dutt and

decline the claim of DIC in the sum of Rs.2.9 crores on account of

fluctuation in the exchange rate.

[Claim of Rs.2.9 crores on account of fluctuation on

exchange rate declined]

12. The next item is with regard to liquidity damages for delay of

929 days. So far as this liquidity damages is concerned, it was

decided purely on the question of fact. The majority of the Arbitrators

after review of the factual aspect held that whole contract was time

bound delay occurred at various level, like delay in approval of

drawing and designs submitted by DIC, delay in opening of letter of

credit. After review of all these factual aspects, the Tribunal

concluded that on account of delay for about 929 days, the contractor

had suffered loss on account of fluctuation in the prices as well as

fluctuation in the exchange rates and therefore, the claimant claimed

liquidity damages to the extent of Rs.8.9 crores under this head. The

question is whether the case of DIC for such liquidity damages was

covered under Clause 18 or Clause 22 of the General terms and

conditions of the contract. Clause 18 stipulates the price reduction

schedule for delay in co-operation. In case the contractor fails to

complete successfully the system within the time fixed under the

contract, the contract price shall be reduced at the rate of 1% of the

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contract value per week of delay or part thereof subject to the

maximum of 15% of the contract value. Clause 18 of the General

conditions of the contract reads as under :

" 18.0 Price Reduction Schedule for

delay in Co-operation: If the Contractor fails to

successfully commission the complete system within

the time fixed under the Contract, the Contract Price

shall be reduced at the rate of 1% of the Contract

value per week of delay or part thereof subject to the

maximum of 15% of the Contract value. "

But this clause was amended subsequently and one percent was

reduced to = percent and 15 percent was reduced to 5 per cent as

per the consolidated agreement. The said amendment reads as

under:

" II) PRICE REDUCTION SCHEDULE IN

THE ENVENT OF DELAYS:

If the contractor fails to comply any of the

time schedule mentioned hereinabove, the Contract

price shall be reduced @ =% of the total contract

value per week of delay or part thereof subject to a

maximum of 5% of the total contract value i.e. total

aggregate contract value of Contract Nos.3244-00-

LZ-PO-7012/10091 and 3244-00-LZ-PO-7013/10092

mentioned hereinabove. Price reduction as set forth

in this clause shall be the sole remedy available to

owner and the sole liability of the contractor for delay.

In the event of delay of over 10 weeks, owner may

exercise their rights to invoke any or all provisions

under this agreement."

This was for the contractor's failure to complete the contract.

13. However in this connection, our attention was invited to

clause 22. This relates to delay on the part of the owner or its various

agents. Clause 22 reads as under :

" 22.0 Delay by Owner or his Authorised

Agents :

22.1. In case the Contractor's performance is

delayed due to any act of omission on the part of the

Owner or his authorized agents, then the Contractor

shall be given due extension of time for the

completion of the works, to the extent such omission

on the part of the owner has caused delay in the

Contractor's performance of his work.

22.2. In addition, the Contractor shall be entitled

to claim demonstrable and reasonable compensation

if such delays have resulted in any increase in the

cost. The owner shall examine the justification for

such a request for claim, and if satisfied, the extent of

compensation shall be mutually agreed depending

upon the circumstances at the time of such an

occurrence."

In terms of this clause if delay has been caused to the contractor on

account of the omission or commission on the part of the owner or its

authorized agent then the contractor is entitled to claim demonstrable

and reasonable compensation if such delay has resulted in any

increase in the cost. In that case, the owner shall examine the

justification for such claim and if satisfied then compensation shall be

mutually agreed depending upon the circumstances at the time of

such an occurrence. Since DIC's claim for compensation was on

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account of delay on the part of the owner, therefore, it was the

obligation on the part of DIC to demonstrate as to how delay has

escalated the loss to it. Then and then alone the claimant will be

entitled to the compensation for this delay. The minority Arbitrator

has taken the view that since the claimant has nothing to

demonstrate therefore, it is not entitled to any compensation

whatsoever. However, the majority has taken the factum of delay

by reviewing all evidence on record and has come to the conclusion

that there was a delay of 929 days and on the basis of factual

assessment has granted damages to the extent of 5 % of the total

contract value. An argument was raised that in fact 5 % damages

could be granted under clause 18 to the owner for the delays on

account of the contractor and the contractor has to demonstrate

reasonably how loss has occurred to him. However, the majority of

the Arbitrators has taken into consideration the parameter that in

case the delay was occasioned on the part of the contractor, then

the owner would have been entitled to the damages to the extent of

5%. This has been taken as the yardstick and the compensation has

been worked out at 5% of the contract value and damages to the tune

of Rs.8.9 crores has been awarded to the claimant. We are of

opinion that this issue is purely dependent on the factual controversy

of the matter and the majority of the arbitrators has assessed the loss

on account of the delays on the part of the owner and awarded 5% of

the contract value as a measure to award compensation to the owner

on account of the delay on the part of the owner in completing the

work and no exception can be taken to this approach. The amount

cannot be said to be a wrong assessment of the situation. We cannot

sit over the finding of fact arrived at by the majority of Arbitrators and

affirmed by the High Court. Therefore, we accept the view taken by

the Division Bench of the High Court in accepting the view the

majority of the Arbitrators in granting damages to the tune of Rs.8.9

crores in favour of the claimant- DIC.

[ Rs.8.9 crores granted as damages for delay of 929 days ]

13. Next item relates to interest on borrowing of the funds.

Under this head, the DIC has claimed Rs.6.5 crores. The majority of

the Arbitrators has granted Rs.0.2 crores. However, the minority

award has denied the claim. The High Court has affirmed the

majority view of the Tribunal. Since in view of our finding on the issue

of delay in liquidity damages we are of opinion that the view taken by

the majority of the arbitrators is correct as there was delay on the part

of the owner \026 NRL and therefore, DIC had to pay interested on the

delayed sum. Therefore, the view taken by the majority of the

arbitrators cannot be said to be wrong as it is a pure question of fact

and therefore, we are of opinion that the grant of Rs.0.2 crore

towards interest on delayed amount has been rightly held by the

majority of the arbitrators and affirmed by the High Court.

[ Rs.0.2 crores granted as interest paid on delayed funds]

14. The next claim is with regard to interest. The majority of

the arbitrators have granted interest on the amount at the rate of 12

per cent pendente lite and post pendente lite at rate of 18 per cent

but the minority arbitrator, Justice M.M.Dutt has granted 10 per cent

interest uniformally. The grant of interest is discretionary and the

majority of the arbitrators has rightly granted interest at the rate of 12

per cent pendente lite and at the rate of 18 per cent post pendent

lite. Therefore, no exception can be taken to grant of such interest.

Consequently, we affirm this finding of the majority of the Arbitrators

and of the High Court.

[Interest at the rate of 12% P.I. & at the rate of 12% post P.I.]

15. Hence, as a result of our above discussion, we are of

opinion that the claimant \026DIC is entitled to Rs.2 crores for

substituted material, Rs.8.9 crores for liquidity damages, Rs.0.2 crore

as interest paid on the delayed funds i.e. Rs.11.1 crore ( Rs.2 crore +

Rs.8.9 crore + Rs.02 crore) and finally interest at the rate of 12 per

cent pendente lite from the date of the claim petition till realization.

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The payment should be made within a period of six months from

today failing which it will carry interest at the rate of 15 per cent per

annum. The appeal arising out of S.L.P.(c) No.20989 of 2006 is

partly allowed. The order passed by the High Court is modified as

indicated above. The claim of the DIC is decreed to the extent

indicated above. However, the appeal arising out of S.L.P.(c)

No.4409 of 2007 filed by the DIC is dismissed. No order as to costs.