Bombay High Court
M/S. Prathima Industries Private ... vs Bhavan on 17 December, 2009
Bench: S.J. Vazifdar
This Order is modified/corrected by Speaking to Minutes Order
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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
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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".
This Order is modified/corrected by Speaking to Minutes Order
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
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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.
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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
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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
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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.
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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
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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
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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
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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
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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.
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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.
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(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.
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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
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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.
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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
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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
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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.
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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
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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
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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.
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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
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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
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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
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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
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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
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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.
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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."
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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.
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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
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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.
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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.
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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.
