This Order is modified/corrected by Speaking to Minutes Order
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 138 OF 2006
M/s. Prathima Industries Private Limited, )
having Office at H.No.6-3-252/2/6, )
Naveen Nagar, Erramanzil Colony, ) ... Petitioner
Hyderabad - 400 082., A.P. ) (Ori. Claimant)
Versus
Indian Oil Corporation Limited, )
having its Registered Office at India Oil )
Bhavan, Ali Yavar Jung Marg,
Bandra (E), Mumbai - 400051.
)
)
... Respondent
(Ori.Opponent)
Ms. Gauri Godse for the Petitioner.
Mr. S.H. Doctor, senior counsel with Mr. Chirag Balsara, Tanmay
Gardi i/b M/s. Negandhi Shah & Himayatullah for the Respondent.
WITH
ARBITRATION PETITION NO. 223 OF 2006
Indian Oil Corporation Limited. )
a Company incorporated under the provisions )
of the Companies Act, 1956, having its )
Registered Office at India Oil Bhavan, G-9, )
Ali Yavar Jung Marg, Bandra (East), )
Mumbai - 400 051. ) ... Petitioner
Versus
Pratima Industries Pvt. Ltd., )
a company incorporated under the provisions of )
::: Downloaded on - 09/06/2013 15:25:59 :::
This Order is modified/corrected by Speaking to Minutes Order
2
the Companies Act, 1956, having its )
Administrative Office at Plot No.63, )
H.No.8-2-608/6, Road No.4, Gaffar Khan Colony, )
Road No.10, Banjara Hills, Hyderabad-500034. ) ... Respondent
Mr. S.H. Doctor, senior counsel with Mr. Chirag Balsara, Tanmay
Gardi i/b M/s. Negandhi Shah & Himayatullah for the Petitioner.
Ms. Gauri Godse for the Respondent.
CORAM: S.J. VAZIFDAR, J.
DATED : 17TH DECEMBER, 2009.
ORAL JUDGMENT. :
1. These are cross-petitions under section 34 of the Arbitration and Conciliation Act, 1996, seeking to set aside an award dated 29 th November, 2005. The Petitioner in Arbitration Petition No.138 of 2006 has filed the petition being aggrieved by the rejection of a part of its claim. The petitioner in Arbitration Petition No.223 of 2006 has filed the petition being aggrieved by the award, granting a part of the claim.
For convenience, I will refer to the Petitioner in Arbitration Petition No.138 of 2006 as "the claimant" and the Petitioner in Arbitration Petition No.223 of 2006 as "IOCL".
::: Downloaded on - 09/06/2013 15:25:59 :::This Order is modified/corrected by Speaking to Minutes Order 3
2. An agreement dated 28th June, 1999 for supply of LPG cylinders by the claimant to IOCL for the year 1999-2000 was entered into between the parties. A similar agreement dated 26th July, 2000 for the supply of LPG cylinders for the year 2000-2001 was also entered into between the parties.
Pursuant to and in accordance with each of these agreements, purchase orders were placed by IOCL with the claimant from time to time for diverse quantities of LPG cylinders. Only one purchase order dated 12th April, 1999, was issued by IOCL to the claimant prior to the agreement dated 28th June, 1999. The conditions therein are, therefore, slightly different, but effectively the same.
3. The agreement dated 28th June, 1999 was forwarded to the claimant under cover of IOCL's letter dated 28th June, 1999. The letter also referred to the purchase order dated 12th April, 1999. It is, therefore, convenient to set out the relevant portions of the purchase order dated 12th April, 1999, the agreement dated 28th June, 1999 and the purchase orders issued subsequently under and in accordance with ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 4 the agreement dated 28th June, 1999.
4. The purchase order dated 12th April, 1999, stated that the same was subject to the general instructions enclosed therewith and the execution of the cylinder procurement agreement. As stated earlier, such an agreement was executed on 28th June, 1999. Clause 3 of the purchase order reads thus:
"3. You can charge a provisional price of Rs.700.00 per 14.2 kg cylinder. Excise duty, sales tax, octroi and freight on finished cylinders shall be extra as applicable. Kindly note that lowest of the per cylinder price shall only be payable as final price to be confirmed subsequently irrespective of purchase of steel from SAIL/TISCO/ESSAR/LLOYDS."
5. The relevant clauses of the cylinder purchase agreement are as under :-
"1. CYLINDERS TO BE SUPPLIED The Seller shall duly supply the said Cylinders to The Corporation as per the Specification, description, design, quantity and rates specified in the said Purchase Order placed by The Corporation on the Seller.
This Agreement shall also apply to supply 19 kg (44.4 lit. water capacity) Cylinders after obtaining BIS/CCOE & OITO approval by the Seller. All the provisions for supply of 14.2 kg. Cylinders shall apply to supply of 19 kg. Cylinders.::: Downloaded on - 09/06/2013 15:25:59 :::
This Order is modified/corrected by Speaking to Minutes Order 5
2. PRICE :
The price applicable shall be as per directives of MOP & NG. The price payable by The Corporation to the Seller shall be determined as under :
2.1. The basic rates are all inclusive and include the cost of body steel, bung, foot-ring, V.P. ring etc and fabrication, painting, testing, valve fixing. BIS inspection, test certificate charges but exclusive of cost of self closing valves which will be supplied by the Corporation to the Seller.
2.1.1 The Cylinders shall be manufactured and supplied out of oil Industry approved LPG Steel however the basic price per Cylinder payable by the Corporation shall be the lowest of the per Cylinder price applicable for the Seller.
2.2 The price is inclusive of the BIS marking fee.
................
................
"3.0 SPECIFIC TERMS AND AND CONDITIONS FOR CYLINDERS MADE OUT OF INDEGENOUS STEEL PRICE ESCALATION/DE-ESCALATION:
3.1 Basic rates are based on lowest price of LPG Body steel, V.P. Ring steel, Matching steel and Whole- sale Price index prevailing on 01.04.96, in line with the new pricing formula from MOP & Escalation/de- escalation will be applicable based on the new pricing formula whereby the same shall be granted for any revision in the price of steel and/or variation in the While- sale Price Index beyond ten percentage. The price of steel considered for granting escalation/de-escalation will be the authorised stockyard price including taxes and also octroi, if any applicable to the Seller. Wherever any extensions of time is granted, the parties shall not be ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 6 eligible for any escalation on the same.
3.2 For granting price escalation/reduction, the Seller shall submit the following documents:
3..2.1 Letter from OIL INDUSTRY APPROVED steel manufacturers (Lowest) giving the stockyard price of steel specifying octroi, taxes/levies etc. as applicable, to the Seller and the effective date.
3..2.2 In case any of the cylinder manufacturers is unable to obtain the price letter from OIL INDUSTRY APPROVED STEEL MANUFACTURER due to reasons beyond their control, the Corporation may grant escalation/de-escalation based on the letter obtained by the Corporation from APPROVED STEEL MANUFACTURER for lowest applicable price. In such cases the Seller shall produce proof of statutory levies, in the form of Invoice for the purchase of steel during the financial year in which the steel price escalation-de- escalation had occurred.
In case of octroi levy is not indicated in the invoice, proof in the form of payment vouchers or statutory specification issued by the concerned authority should be enclosed.
3.2.3 Copy of statutory notifications/concerned authority in respect of change in rate of tax/levy (i.e. Sales Tax, Octroi).
3.2.4 Statement of valves received from the commencement of the Agreement to the date of revision reflecting the actual date of receipt of the valves duly supported by documentary proof.
3.2.5 Statement of indigenous steel/imported steel received with date of receipt at the factory.
3.2.6 All manufacturers should produce a copy of ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 7 the invoice for purchase of LPG steel once in a financial year irrespective of change in the price.
3.2.7 The price shall stand reduced by the amount of set off/ refund/exemption/draw back/concession etc. which the Seller is entitled to claim towards Sales Tax or any other levies, on the purchase of steel plates etc., under the provisions of respective State Sales Tax laws/Central Sales Tax laws.
3.3 Wherever changes in the statutory levies are involved, separate proof should be attached.
3.4 SUPPLIES TO BE MADE AT THE PRE-
ESCALATION RATE IN CASE OF VARIATION IN LPG STEEL, VIS-A-VIS DETERMINATION OF BACKLOG QUANTITY AND THE RIGHTS OF CORPORATION IN RELATION THERETO PRICE:
Notwithstanding anything to the contrary contained anywhere in this Agreement or otherwise, the Corporation shall be entitled to receive and the Seller is bound to supply Cylinders to the Corporation equivalent to one month's delivery schedule quantity at the pre-variation price (inclusive of all taxes, octroi and other dues etc.) if at any time during the currency of this Agreement, a variation in the price of LPG body steel comes into effect, in respect of either of the two formulas mentioned at Para 3.1 and 3.1.1 3.4.1 The Corporation shall be entitled to require the Seller to make such supplies at pre-escalated price (inclusive of all taxes, octroi and other duties etc.) irrespective of an occurrence or existence of a Force Majeure situation, and the stock of idigenous steel lying with the Seller as on the date when the variation in price of LPG body stell comes into effect, for the reason that the Seller has agreed to maintain at all times during the currency of this Agreement, adequate steels of indigenous steel required for meeting out such contingencies.
::: Downloaded on - 09/06/2013 15:25:59 :::This Order is modified/corrected by Speaking to Minutes Order 8 3.4.2 In respect of price variation/s of LPG Body steel that may come into effect prior to the expiry of 30 days from the date of the Purchase Order, the Corporation shall not be entitled to require the Seller for making supplies at the pre-escalation Rate/s. In other words, it is only the price variation/s that may come in to effect after the expiry of 30 days from the date of Purchase Order, will attract the provisions contained in Clause 3.4.1 above.
3.4.3 In case there are two or more variations in the price of LPG body steel within any 30 days (both days inclusive), the Corporation shall be entitled to receive Cylinders equivalent to one month's delivery schedule at the pre-variation price only once and in such cases, the price payable by the Corporation shall be limited to the lowest of the pre-variation rates.
3.4.4 Since a variation in the price of LPG body steel can come into effect on any day, the cylinders despatched prior to the date on which the price variation revisions comes into effect, shall attract only the Pre-
variation rate and the quantity of such cylinders despatched prior to the date on which the price variation comes into effect shall not be taken as the quantity supplied towards the Pre-escalation quantity under Clause 3.4.1 above.
3.4.5 Any order left on the date of the price increase of indigenous steel is lower than one month scheduled quantity, then pre-escalation quantity to be limited to the extent of the balance quantity available.
3.4.6 It is fully understood and agreed by the Seller that the provisions contained in Clause 3.4.1, 3.4.2, 3.4.3, 3.4.4, 3.4.5 above will not in any way alter or affect the rights of the Corporation to require the Seller to supply the backlog quantity (if any) in terms of the provisions contained in Clauses 9.2.1 & 9.2.2 hereinafter ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 9 appearing in this Agreement and the right to receive Cylinders equivalent to one month's delivery at pre- variation price as per clause 3.4 above is in addition to the rights accruing to the Corporation under Clause 9.2.1 & 9.2.2 hereinafter appearing in this Agreement."
6. Pursuant to and in terms of the said agreement, further purchase orders were placed for diverse quantities of LPG cylinders. The terms and conditions of each of these purchase orders are identical. The relevant terms and conditions of these purchase orders read thus:
"3. You can charge a provisional price of Rs.684.00 for 14.2 kg. cylinders. Pricing formula is under review by the Government and the final prices applicable after 01.07.99 will be only as per approval of MOP & NG.
4. ........ ....... ........
5. All terms and conditions of the Purchase agreement for 1999-2000 shall apply."
7. Thereafter, the agreement dated 26th July, 2000 was entered into between the parties for supply of LPG cylinders for the year 2000-2001 on the terms and conditions similar to the agreement dated 28th June, 1999.
8(A). Pursuant to and in accordance with the said agreement, four ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 10 purchase orders were placed by IOCL with the claimant for diverse quantities of LPG cylinders. Clauses 3 and 5 of these purchase orders read as under:-
"3. You can charge a provisional price of Rs.684.00 for 14.2 kg. cylinders. Pricing formula is under review by the Government and the final prices applicable after 01.07.99 will be only as per approval of MOP & NG.
4. ........ ....... ........
5. All terms and conditions of the Purchase agreement for 2000-2001 shall apply."
(B). Clause 3 of the purchase order dated 19th January, 2001 placed under the said Cylinder Purchase Agreement is however different from clause 3 of the other purchase orders. Clauses 3 and 5 of this purchase order read as under :-
"3. You can charge a provisional price of Rs.645.00 for 14.2 kg. cylinders. Pricing formula is under review by the Government and the final prices applicable after 1.7.99 will be only as per approval of MOP - NG. Also the rates applicable shall be as per existing pricing formula or the rates finalised as per tender, whichever is lower, from the date of finalisation of the tender.
5. All terms and conditions of the purchase agreement for 2000-2001 shall apply."
It may only be noted at this stage that the claimant had completed the supplies of the LPG cylinders under the previous ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 11 agreement dated 28th June, 1999 and the purchase orders thereunder.
9. There is no dispute between the parties that the claimant supplied the LPG cylinders of the quality and quantities stipulated in the purchase orders issued under the said two agreements. The dispute between the parties relates to the pricing of the LPG cylinders.
10. By a Circular dated 31st October, 2000, addressed to all the LPG cylinder manufacturers, IOCL stated that the industry, meaning thereby the petroleum industry, including IOCL had undertaken a study to review the existing cylinder pricing with the assistance of M/s. Price Water House Coopers (M/s. PWC); that accordingly, the price maintained with effect from 1st July, 1999, was provisional; that M/s. PWC had submitted a draft report to the industry on the price revision; that pending finalisation of the report, the industry had decided to revise the provisional basic price of LPG cylinders to Rs.
645 with effect from 1st July, 1999; that accordingly, IOCL would be recovering the difference in the amounts from the claimants bills and that final adjustments would be made later, after finalisation of the cylinder price. It was further stated that all supplies with effect from ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 12 1st November, 2000 would also have the provisional basic price of Rs.
645/- per cylinder.
11. By a further circular dated 3rd November, 2000 also addressed to all LPG cylinder suppliers, IOCL requested the claimant to refund the difference on account of the revised basic provisional price of Rs.645/-
and the earlier provisional price based on which the claimant had been paid. IOCL stated that the amounts were payable in respect of supplies effected from 1st July, 1999 and that it would withhold any bill pending wherever available till the difference was refunded.
12. IOCL by its letter dated 13th January, 2002 stated that the tender referred to in Clause 3 of the purchase order dated 19th January, 2001 under the second agreement dated 26th July, 2000 had been finalised and that the rates were fixed for various States as per State-wise details enclosed therewith. The rate for the State of Maharashtra was fixed at Rs.641/-. In accordance with the above Circular and the finalisation of the tenders, IOCL by its letter dated 9th July, 2002, called upon the Petitioner to pay a sum of Rs.27,10,951.87.
::: Downloaded on - 09/06/2013 15:25:59 :::This Order is modified/corrected by Speaking to Minutes Order 13
13. By a further letter dated 13th November, 2002, IOCL called upon the claimant to pay a sum of Rs.14,55,364.53 after adjusting the amounts already paid by it to the claimants with the amounts payable as per the tender rates.
14. Correspondence ensued between the parties thereafter in the course of which the claimant disputed the above stand taken by IOCL and in fact called upon IOCL to pay it a sum of Rs.58,04,762.81 being the amount wrongly adjusted/detained by IOCL from its dues.
15. Ultimately, by a letter dated 31st March, 2003, the claimant invoked the arbitration clause in the said agreements. There is no dispute regarding the appointment of the Arbitrator or as to his jurisdiction.
16. The claimant filed a statement of claim for the following reliefs : -
"(a) Firm Price Fixation under MOP & NG Formula for the period July 1, 1999 to May 31, 2001, and Payment of Differential Amount to Billed Amount along with interest @ 24% per annum on quarterly rests from due date of release of amount.::: Downloaded on - 09/06/2013 15:25:59 :::
This Order is modified/corrected by Speaking to Minutes Order 14
(b) Orders for release of wrongfully Withheld Amount from the Bill Amounts (prepared under Provisional Price Charged as no Firm Price was communicated) of financial year 2000-2001 with interest @ 24% per annum on quarterly rests from due date to the date of release. This wrongfully Withheld Amount is termed by IOCL as recovery arising out of implementation of Draft Report Price of M/s. Price Waterhouse Coopers.
(c) Orders for issue of "C". Forms under Central Sales Tax Act for the supplies during the Financial Years 1999-2000 and 2000-2001 as per Annexures "E" and "F"
or in the alternative to pay the differential 6% additional Central Sales Tax along with the statutory interest to the Sales Department, Government of Andhra Pradesh."
17. The learned Arbitrator allowed the claim in the sum of Rs.
57,46,873.39 representing the amount deducted by IOCL pursuant to the circulars dated 31st October, 2000 and 3rd November, 2000 and the letter dated 13th January, 2002. This was based on the conclusion that IOCL had wrongly withheld amounts from the claimants bills and also wrongly deducted the amounts from the claimants bills. The learned Arbitrator further held that IOCL was not entitled to the amounts demanded by it. The learned Arbitrator granted interest at the rate of 10% payable after fifteen days of the date of receipt of the withheld bills and till payment. The learned Arbitrator, however, rejected the claim for escalation.
::: Downloaded on - 09/06/2013 15:25:59 :::This Order is modified/corrected by Speaking to Minutes Order 15
18. Mr. Doctor, the learned senior counsel appearing on behalf of IOCL firstly submitted that the MOP & NG had fixed the price and it is in accordance therewith that IOCL made the demands and withheld and deducted amounts from the claimant's bills. According to him, this is the only conclusion or interpretation of the correspondence in this regard between IOCL and the MOP & NG. He submitted that the finding of the learned Arbitrator to the contrary is perverse. He, therefore, submitted that the award is liable to be set aside on this ground alone.
The claimant, however, denied the same. The Arbitrator has come to the conclusion, with which I am in respectful agreement, that the MOP & NG had, in fact, not granted its approval to the price as contended by IOCL. As considerable emphasis was placed on this aspect by Mr. S.H. Doctor, the learned senior counsel appearing on behalf of IOCL, I will deal with the same in some detail.
19. I am unable to agree with Mr. Doctor. The learned Arbitrator rightly came to the conclusion that there was no approval of any final or provisional price by the MOP & NG. The Circulars dated 31st ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 16 October, 2000 and 3rd November, 2000 and the action of IOCL pursuant thereto was not justified. This is evident from the following correspondence.
20(A). By a letter dated 31st October, 2000, addressed to all the LPG cylinder manufacturers IOCL stated that M/s. PWC had submitted a draft report on the price revision and that all the supplies with effect from 1st November, 2000 shall have the "provisional" basic price of Rs.645/- per cylinder.
(B) By a letter dated 20th February, 2001, IOCL requested the MOP & NG to approve the report for implementation by the industry.
(C). The MOP & NG, by a letter dated 15th March, 2001, in reply to the above letter stated that the approval of the Ministry for implementation of M/s. PWCs report on the subject of revision of LPG cylinder prices was not required at that stage when the oil industry had already started making recoveries on the basis thereof. It was further stated that as the matter concerned the oil industry directly, the oil industry may take appropriate action in the matter.
::: Downloaded on - 09/06/2013 15:25:59 :::This Order is modified/corrected by Speaking to Minutes Order 17
21. It is thus clear that the MOP & NG had not approved the revised price. Mr. Doctor, however, submitted that the MOP & NG had, by implication, fixed the revised price. He submitted that having left the matter to the oil industry to take appropriate action, the MOP & NG had impliedly approved the revision on the basis of any decision that may have been taken by the oil industry.
22. The award cannot be set aside on this argument for two reasons.
Firstly, by the said letter dated 15th March, 2001 the Ministry expressly stated that its approval was not required "at this stage". The term in the cylinder purchase agreements and in the purchase orders issued pursuant thereto do not contemplate the oil industry fixing the revised price. They provide for the MOP & NG doing so. The language of the letter does not indicate any delegation by the Ministry to the oil industry of its role in fixing the price.
23. Secondly, the least that must be said in favour of the claimant in this regard is that it was for the learned Arbitrator to construe the correspondence which he did. The learned Arbitrator decided against ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 18 the IOCL in this regard. The least that must be said is that the Arbitrator's interpretation of the correspondence is a plausible one. It is not possible to hold that the finding of the learned Arbitrator was so unsustainable as to warrant the award being set aside in this respect.
In other words, the least that must be said is that two interpretations of the correspondence are possible. In that view of the matter, even assuming that my interpretation is different from that of the learned Arbitrator, it would not justify the award being set aside on this ground.
I am, in fact, of the view that the interpretation placed on the correspondence by the Arbitrator is the only possible one. . The further correspondence in this regard establishes the same beyond doubt.
24. By a letter dated 7th January, 2002 addressed to the MOP & NG, IOCL stated that M/s. PWC had submitted a final report in October, 2000, recommending the price and escalation/de-escalation formula.
It was agreed before me, however, by all the learned counsel even in the other connected matters, that this was not so to wit M/s. PWC had not submitted a final report. IOCL stated that it had treated the said letter dated 15th March, 2001, as approval to the price of Rs.645/- per ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 19 cylinder in terms of the contract with the suppliers and the purchase orders placed on them. IOCL expressly requested the Ministry to convey its approval of the industry's understanding to this effect.
25. It is of vital importance to note that the MOP & NG by its reply dated 5th February, 2002, informed IOCL that as already advised the approval of the Ministry was not required on the report of M/s. PWC and that the oil industry may take necessary action accordingly. In other words, rightly or wrongly, justifiably or otherwise, the MOP & NG did not either approve the price fixed by IOCL or the understanding of the oil industry referred to in the letter dated 7th January, 2002.
This letter clearly militates against Mr. Doctor's construction of the letter dated 15th March, 2001.
26. I am, therefore, in respectful agreement with the learned Arbitrator that there was no approval by the MOP & NG of the revised price. In other words, there was no approval from the Ministry about the final price applicable after 1st July, 1999 as required by the agreements and the purchase orders.
::: Downloaded on - 09/06/2013 15:25:59 :::This Order is modified/corrected by Speaking to Minutes Order 20
27. Mr. Doctor placed strong reliance upon clause 3 of the purchase order dated 19th January, 2001, placed under the agreement dated 26th July, 2000. The same is different from clause 3 in the earlier purchase orders in a material respect. Clause 3 of the purchase order dated 19 th January, 2001 reads thus:
"3. You can charge a provisional price of Rs.645.00 for 14.2 kg. Cylihnders. Pricing formula is under review by the Government and the final prices applicable after 1.7.99 will be only as per approval of MOP & NG. Also the rates applicable shall be as per existing pricing formula or the rates finalised as per tender, whichever is lower, from the date of finalisation of the tender.
5. All terms and conditions of the purchase agreement for 2000-2001 shall apply."
28. It is important to note that all the supplies under the purchase orders had been completed by the time this purchase order dated 19th January, 2001 was issued. It was contended on behalf of IOCL that it was entitled, therefore, to fix the price in accordance with this clause.
29. The learned Arbitrator construed the clause. He held that that the new price depending on the tender would be applicable "from the ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 21 date" of the finalisation of the tender and that till that date, the price would be governed by the existing pricing formula. The learned Arbitrator noted that the supplies under the purchase order dated 19th January, 2001 had been completed before the finalisation of the tender which was in the month of September, 2001. He further held that by virtue of clause 5 of the said purchase order all the terms and conditions of the purchase agreement would apply. It is important to note that the learned Arbitrator understood the same to mean that accordingly, the prices would be as per the directives of the MOP & NG. The Arbitrator thus construed the clause in a manner which cannot be said said to be perverse or absurd. He held that the fixation of price as per tender would operate only prospectively from the date of finalisation of the tender and that the tender price would not govern the supplies made prior thereto.
30. This, to say the least, is a possible interpretation of the clause.
That being so, there is no warrant to interfere with it. I am unable to agree with Mr. Doctor that the only interpretation of the clause is that the rate finalised as per the tender would apply retrospectively. It is a highly probable view that such an interpretation would be not merely ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 22 unjust and unfair, but unsustainable.
31. Mr. Doctor further submitted that the learned Arbitrator failed to even consider IOCL's case that there was a complete accord and satisfaction of the matter by reason of the claimant having accepted payment from IOCL in full and final satisfaction of all its claims. He further submitted that despite the fact that this contention had been specifically and elaborately taken in the reply to the statement of claim as well as before the learned Arbitrator, it was not considered in the award.
32. It is not necessary for me to decide whether in fact there was accord and satisfaction between the parties. That is an aspect which fell for the consideration of the learned Arbitrator. I, therefore, refrain from expressing any view as to whether there was accord and satisfaction between the parties. I, however, find considerable force in the second part of Mr. Doctor's submission viz. that the Arbitrator failed to consider a material part of the defence taken by IOCL. This is not merely established, but admitted.
::: Downloaded on - 09/06/2013 15:25:59 :::This Order is modified/corrected by Speaking to Minutes Order 23
33. Paragraph 1-U of IOCL's reply to the the statement of claim reads as under:
"U. Without prejudice to the aforesaid the Respondents further say that the Claimants have raised invoices to the tune of Rs.58,34,715.18 in respect of the Purchase Orders dated 19.10.2000 and 4.5.2000. The Respondents have paid to the Claimants an amount of Rs.87,841.79 after deducting an amount of Rs.57,46,873.39 being the differential amount i.e. the excess paid to the Claimants by the Respondents since 1.7.1999. The Respondents have accepted the aforesaid payment of Rs.87,841.79 and have issued receipt in respect thereof which expressly set out that the amounts have been received by the Claimants in full payment in respect of the Respondents bills. The aforesaid action on the part of Claimants shows that there was complete accord and satisfaction in respect of the said Purchase Order. Hence the entire claim of the Claimants is barred by the accord and satisfaction being expressly accepted by the Claimants. The Respondents therefore submit that the issue regarding the accord and satisfaction may be tried as preliminary issue.
(B). It is important to note that there was no rejoinder by the claimant to the same.
34(A) Mr. Doctor's above contention is expressly taken as Ground D in the above Petition. Ground D reads thus:-
"(D) The Hon'ble Tribunal failed to deal with the ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 24 contention of the all appreciate that the Respondents accepted the moneys paid by the Petitioners to the Respondents in full and final settlement of their dues, and therefore, there was complete accord and satisfaction and no amount whatsoever could have been awarded by the Arbitral Tribunal to the Petitioners.
(B). There is no affidavit in reply. In other words, there is no denial of the fact that the point was taken before the learned Arbitrator and that he failed to deal with the same.
35. In the circumstances, the award is liable to be set aside on the ground that it failed to consider a material aspect of the matter. The submission that the Arbitrator must be deemed to have dealt with and rejected the contention is unsustainable for in that event the award must be set aside for failure to give reasons.
36. It was, however, contended on behalf of the claimant that the accord and satisfaction pleaded in paragraph 1U of the reply to the statement of claim was restricted to only two purchase orders viz.
purchase orders dated 19th October, 2000 and 4th May, 2000. I do not agree. The second sentence of paragraph 1U indicates that IOCL had contended that the differential amount was deducted from the total ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 25 dues claimed by the claimant.
37. Even assuming that there is force in Ms. Godse's interpretation of paragraph 1U of the reply, the least that must be said in favour of IOCL is that two views are possible on the construction/ interpretation of paragraph 1U. In that event, it was for the learned Arbitrator to construe the pleadings and to consider and adjudicate the contention.
This he admittedly, failed to do.
38. This contention goes to the root of the matter and affects the entire claim. The award is, therefore, liable to be set aside on this ground alone.
39. This brings me to Mr. Doctor's challenge to the award on merits insofar as it allows the claim for Rs.57,46,873.39 and holds that IOCL is not entitled to demand/claim the said sums of Rs.27,10,951.87 and Rs.14,55,364.53.
40. The learned Arbitrator has, as I have already held, rightly come to the conclusion that the MOP & NG had not approved the final price ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 26 applicable after 1st July, 1999. The purchase orders had only fixed a provisional price. I will also proceed on the basis that the deductions made and the amounts withheld by IOCL pursuant to the said Circulars/letters and notices of demand was unjustified.
41. It is important to note from the prayers in the statement of claim set out earlier that the claimant required the fixation of the price of LPG cylinders. It is equally important to note that the claim was not for a temporary relief restraining IOCL from acting on the said Circulars till the final price was determined. In other words, the claimant did not seek a refund of the amounts withheld pending the finalisation of the price. The claimant sought a "firm price fixation"
by the Arbitrator under the MOP & NG formula for the period 1 st July, 1999 to 31st May, 2001. IOCL, on the other hand, contended that the said formula would not apply in view of the contract between the parties. What the learned Arbitrator was, therefore, called upon to do was to determine/fix the final price, which he failed to do.
42. The aspects relating to price fixation were of the essence of the matter and the disputes between the parties. The learned Arbitrator had ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 27 to fix the price considering the rival contentions based on a construction of the contract contained in and evidenced by the cylinder purchase agreements and the said purchase orders. These aspects were not even considered by the learned Arbitrator. He merely held that the new pricing formula contained in the agreements applied without considering the provisions of the agreements and the purchase orders or the provisions of law including the Indian Contract Act. There is nothing in the award that discloses any reasons for coming to this conclusion. Nor is there any indication in the award as to the nature of/ variables in the formula or as to the working thereof. Paragraph 79 of the award reads as under :-
"79. The Claimant has made a claim as being the differential amount in the rate per cylinder as calculated by the Claimant on the basis of the calculation done by them as per the MOP&NG new pricing formula as detailed in the statement of claim of claimant and provisional rates agreed under the purchase orders placed pursuant to the Purchase agreements and same is also in consonance with the provisions contained under the purchase agreement for the year 1999-2000 and 2000-2001, although I am thoroughly convinced that the Claimant are entitled for the price as per the MOP&NG new pricing formula as enshrined and provided under the purchase agreement for the year 1999-2000 and 2000-2001, however as seen from the entire record of the proceedings, no cogent and conclusive documentary or oral evidence has been adduced by the Claimant to justify ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 28 the aforesaid claim on account of the escalation of the prices. The Claimants have failed to adduce the sufficient evidence on record of the proceedings to justify the respective components taken into consideration by them while calculating the different items and figures described in working of MOP&NG Formula. I therefore, hold that the claimants are not entitled to escalation on the basis of the MOP&NG formula as Claimed by them and interest thereon at the rate claimed by them and thus same cannot be allowed in favour of the Claimant and accordingly I dismiss and reject the claim made by the Claimant for Claiming the escalation amount on the basis of the MOP&NG Price Calculations on the basis of the price of Rs.710.59/- and Rs.723.24/- of the statement of claim of the claims. Further I also reject the claim of the Claimant for seeking order from to issue the C Form under the Central Sales Tax Act for the supplies during the FY 1999-2000 and 2000-2001 as per the Annexure E and F to the Statement of Claim."(emphasis supplied)
43. The learned Arbitrator proceeded on the basis that the amounts having been wrongly withheld must be returned. This was even before the finding in paragraph 79 of the award emphasised by me above. In other words, there was no determination of the real dispute between the parties. This is clear, inter alia, from paragraphs 76 and 77 of the award which read as under :-
"76. However, in view of my aforesaid conclusions and finding which is based on the pleading and evidence lead by the parties and documents produced on record during the proceeding, I do not feel that there is any alternative but to allow the claim of the claimant as made under the Statement of Claim, accordingly I allow the CLAIM for Rs.::: Downloaded on - 09/06/2013 15:25:59 :::
This Order is modified/corrected by Speaking to Minutes Order 29 57,46,873.39/- of the claimant in their favour, which relates to the monies deducted by the Respondent pursuant to their circular/letter dated 31.10.2000 and 03.1.11.2000 and letter dated 13.11.2002, being their amount wrongfully withheld and deducted by the Respondents from the bill/s invoices admittedly issued by the Claimants under the purchase agreement for the year 2000-2001.
77. Thus on the basis of the evidence on record it is established that the demand of the Respondent vide their letter dated 09.07.2002 and 13.11.2002 is void and illegal and travel beyond the terms and conditions of the purchase agreement for the year 2000-2001 and as well as Purchase order dated 19.01.2001, and accordingly I give my finding that the Respondent are not entitled to demand/claim the sum of monies from the Claimant for Rs.27,10,951.87/- as demanded by them vide their letter LPG-O/M/1 dt. 09.07.02 and also fro Rs.14,55,364,53/- as demanded by them under their letter LPG-O/M/1 dt. 13.11.02, and further the Respondent has admitted in their pleading that the Respondent have recovered the said amounts from the first set of bills submitted by the Claimants after they commenced supplies against the subsequent Tenders purchase order, however, as I have given my finding that recoveries initiated by Respondent in respect of supplied covered by the PO dated 19.01.2001 and as mentioned in their letter dated 09.07.2002 and 13.11.2002 is null and void, accordingly, if any, money is deducted by the Respondent on the basis of said letters, dated 09.07.2002 and/or 13.11.2002 pertaining to the supply of cylinders pursuant to PO dated 19.01.2002 from the first set of bills or any other bills submitted by the Claimants after they commenced supplies against the subsequent Tenders purchase order, the same shall be refunded to Claimant along with the rate of interest as awarded by me in this award i.e. @10%, the interest shall be payable after the 15 days of date of receipt of withheld bills by and till the realization and final payment of the aforesaid amount at 10% per annum."
::: Downloaded on - 09/06/2013 15:25:59 :::This Order is modified/corrected by Speaking to Minutes Order 30
44. The learned Arbitrator did not consider or apply the formula and fix a price. The learned Arbitrator did not consider whether there was a mechanism in the contract for fixing the price. Nor did he consider as to how the price would be fixed in the absence of a contractual stipulation for the same.
45. Clause 5 of the purchase order was relied upon by Ms. Godse to contend that all the terms and conditions of the purchase agreement would apply meaning thereby that the new pricing formula must be applied in the absence of the fixation of the price by the MOP & NG.
46. I am unable to agree. The cylinder purchase agreements must be read with the purchase orders. The purchase orders, as noted earlier, expressly provide that the rates applicable would be only as per the approval of the MOP & NG. In any event, all these aspects fell for the consideration of the learned Arbitrator. He ought to have construed the contract, considered the legal position and fixed the price accordingly. He, however, merely proceeded on the basis that the existing formula, whatever it may be, determined the price.
::: Downloaded on - 09/06/2013 15:25:59 :::This Order is modified/corrected by Speaking to Minutes Order 31
47. Further, there is nothing in the award which indicates the manner in which even the so-called existing formula is to be applied or was applied. The award is, therefore, unsustainable.
48. In the circumstances, the award is set aside for having awarded amounts without considering or even disclosing the basis on which he fixed the price/liability.
49. This brings me to Ms. Godse's submission that the award ought to be set aside only to the extent that the leaned Arbitrator did not award the entire claim made by the claimant. In other words, according to her that part of the award which is not in favour of the claimant ought not to be set aside. I will presume for the purpose of this judgment that it is possible to segregate the award. In the facts of the present case and considering the view that I have taken in IOCLs petition, it would make no difference. The entire award would have to be set aside.
50. It is not necessary therefore to consider Ms. Godse's submission that the award is liable to be set aside on the ground that the learned Arbitrator wrongly rejected the claim for escalation. As ::: Downloaded on - 09/06/2013 15:25:59 ::: This Order is modified/corrected by Speaking to Minutes Order 32 noted above the basic price was itself not determined by the Arbitrator. There could, therefore, be no question of determining the quantum of escalation. Escalation is different from price fixation.
Indeed, escalation could only be calculated upon the fixation of the price, for escalation is related to and with reference to the basic/firm price.
51. Faced with this Ms. Godse submitted that this Court ought to determine the basic price and accordingly also the amount of escalation.
52. I am unable to agree with Ms. Godse's submission that in exercise of powers under section 34 of the Arbitration & Conciliation Act, 1996, this court ought to calculate the amounts and while setting aside the award, substitute the same by an order for the payment by IOCL of such amount.
53. The court does not have the power under section 34 to substitute an award with its own finding on the quantum of damages.
::: Downloaded on - 09/06/2013 15:25:59 :::This Order is modified/corrected by Speaking to Minutes Order 33 All that the court can do in exercise of the power under section 34 is to either set aside the award or to confirm the same. There is nothing in the Act that permits the court, in exercise of powers under section 34, to substitute the award by granting a relief claimed, but not either considered or granted. The aggrieved party must be left to its remedy upon the award being set aside. This does not involve the concept of severence of the award insofar as it can be upheld and setting it aside only to the extent it cannot be upheld.
In any event, in my view the award cannot be upheld even on the grounds taken in the Petition filed by IOCL viz. Arbitration Petition No.223 of 2006.
54. Ms. Godse relied upon the judgment of a Division Bench of the Kerala High Court in Sulaikha Clay Mines vs. M/s. Alpha Clays & ors. reported in AIR 2005, Kerala, 3, in support of her alternative plea for remitting the award. Without expressing any view on the judgment, I find that it would not apply in this case as I have not set aside the award only on the ground of procedural irregularities.
::: Downloaded on - 09/06/2013 15:25:59 :::This Order is modified/corrected by Speaking to Minutes Order 34
55. Both the Petitions are made absolute in terms of prayer clause
(a). Both the Petitions are disposed of accordingly viz. by setting aside the awards. There shall be no order as to costs.
::: Downloaded on - 09/06/2013 15:25:59 :::