Delhi High Court
The State Trading Corporation Of ... vs Helm Dungemittel Gmbh & Anr. on 10 August, 2016
THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 10.08.2016
+ O.M.P. (COMM) 352/2016 & IA No.9050/2016
THE STATE TRADING CORPORATION OF
INDIA LTD. ..... Petitioner
versus
HELM DUNGEMITTEL GMBH & ANR. ..... Respondents
Advocates who appeared in this case:
For the Petitioner : Mr Maninder Singh, ASG, Senior Advocate
with Ms Sumati Anand.
For the Respondents : Mr A. S. Chandhiok, Senior Advocate with
Mr Rahul P. Dave, Mr Bhaskar Tiwari, Mr Rohit
Mahajan and Mr Sumit Chopra for Respondent
no. 1.
Ms Anupam Dhingra for Respondent no.2
alongwith Ms Ruchi Sharma, Manager (Legal)
of Respondent no.2.
CORAM:-
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. State Trading Corporation of India Ltd. (hereafter „STC‟) has filed
the present petition under Section 34 of the Arbitration and Conciliation
Act, 1996 (hereafter 'the Act') for setting aside the award dated 29.04.2016
(hereafter „the impugned award‟) passed by the Arbitral Tribunal (by
majority). The Arbitral Tribunal was constituted by Justice A.P. Shah
(Retd.), Justice B.A. Khan (Retd.) and Justice Devinder Gupta (Retd.)
(presiding). The impugned award was made by Justice Devinder Gupta
(Retd.) and Justice A.P. Shah (Retd.); Justice B.A. Khan (Retd.) passed a
dissenting award dated 07.04.2016.
2. The Arbitral Tribunal considered the disputes that had arisen
between STC and Helm Dungemittel GmbH (hereafter „HDG‟) - a
company incorporated in Germany - in respect of a contract dated
01.10.2008, entered into between the said parties for sale and purchase of
bulk prilled/granular Urea CFR India. By the impugned award, the Arbitral
Tribunal, inter alia, held that HDG was entitled to receive the consideration
for the urea supplied at the contracted price - US$ 685.5 PMT. STC's claim
that HDG had accepted the reduced price of US$ 359 PMT for 20,563.01
MTs of Urea -being the quantity in excess of 3,00,000 MTs - was rejected.
3. Justice B.A Khan (Retd.) did not concur with the majority and
delivered a dissenting award dated 07.04.2016. He held that there was a
concluded contract, which could be inferred from the communications
dated 24.10.2008, whereby HDG had agreed to the reduced price of US$
359 PMT for 20,563.01 MTs. He, accordingly, awarded a sum of US$
73,82,117/- along with interest at the rate of 18% p.a. from the date of
receipt, in favour of STC.
4. The principal controversy involved in the present petition is whether
HDG had entered into a binding contract to accept a reduced price of US$
359 PMT - instead of US$ 685.5 PMT - for 20,563.01 MTs being the
quantity in excess of 3,00,000 MTs.
Factual Background
5. STC is a trading house owned by the Government of India. On
17.09.2008, STC floated a tender for supply of bulk prilled/granular Urea.
The said tender was opened and HDG's bid was accepted as it was the
lowest. STC confirmed the same by issuing a Letter of Intent on 25.09.2008
for supply of 3,00,000 MTs of Urea; it was specified that under no
circumstances the quantity was to exceed 3,00,000 MTs.
6. Thereafter, STC sought confirmation from Department of Fertilizers,
Government of India (hereafter 'DOF') for permitting STC the flexibility to
place orders and receive shipment of 3,00,000 +/- 10% MTs of bulk
prilled/granular Urea. On receipt of such confirmation, STC and HDG
signed a contract dated 01.10.2008 (hereafter 'the Contract') for sale and
purchase of 3,00,000 +/- 10% MTs of bulk prilled/granular Urea at the rate
of US$ 685.50 PMT CFR. The shipment of cargo was latest by 15.10.2008.
In terms of the Contract, HDG was obliged to furnish an irrevocable
performance bank guarantee (hereafter „PBG‟) for a value of 3% of the
total Contract value of the maximum guaranteed quantity to be shipped
under the Contract, including tolerance quantity.
7. HDG submitted the PBG in the sum of US$ 6,169,500/-, which was
increased to US$ 6,786,450/- so as to include the tolerance quantity of +/-
10%. The PBG was issued by Canara Bank at the request of HDG's banker,
Hypo-Vereins Bank; Hypo-Vereins in turn issued a counter guarantee in
favour of Canara Bank.
8. STC claims that on 13.10.2008 certain discussions were held
between representatives of HDG and STC and it was decided that the
maximum delivery of Urea be capped to 3,00,000 MTs. On 15.10.2008,
STC sent a message to HDG indicating its decision to cap the delivery of
Urea at 3,00,000 MTs. However, prior to that six out of nine vessels had
already been loaded and sailed; two had completed loading (MV Habibe
Ana and MV Lindos) and only one vessel, that is, MV Jia Hua was under
loading which was ultimately loaded with 23,011 MTs as against the
intended quantity of 32,447 MTs. HDG claims that it withheld loading of
9,436 MTs of Urea in good faith, although it was not obliged to do so in
terms of the Contract.
9. Thereafter, on 22.10.2008, STC informed HDG that it would accept
only 3,00,000 MTs of Urea. STC claimed that it had agreed to the tolerance
of +/- 10% in good faith for efficiency in shipments but HDG had
continued loading even though the vessels carrying the contractual quantity
of 3,00,000 MTs had been loaded.
10. The controversy arose in the context of a sharp decrease in the price
of Urea; the lowest tendered price pursuant to a tender that opened on
15.10.2008 was US$ 359 PMT.
11. On 23.10.2008, HDG's Agent made a representation to the Minister
of Chemicals and Fertilizers requesting the Minister to instruct STC to
perform its contractual obligations. On 24.10.2008, STC wrote a letter to
HDG wherein it was stated that HDG "may like to look into the
possibilities of accepting the last tender/ordered price in IPL tender which
was finalized on 15 October 2008 for the excess quantities loaded". This
was responded to by Everest Fertilizers (HDG's Agent and hereafter
referred to as 'Everest') inter alia stating that "we confirm our acceptance to
your proposal and agree to the ordered price of US$ 359 PMT CFR
Pipavav in the IPL tender which closed on 15.10.08 for the additional
quantity of 20,563.01 PMT on board vessel MV Jia Hua". This letter was
subsequently withdrawn. It is STC's case that the above communications
resulted in a binding contract; HDG disputes this.
12. STC was notified about the arrival of the vessel(s) and their readiness
to discharge the Cargo. The representatives of STC also accepted the
notices of readiness. The entire cargo of all the three aforesaid vessels was
received by STC without demur. HDG received payment for the said
quantity under a Letter of Credit dated 01.10.2008. Thus, both the parties,
notwithstanding the aforesaid controversy, discharged their obligations
under the Contract.
13. Hypo-Vereins Bank by a letter dated 12.11.2008 put STC on notice
of due performance of Contract. However, STC by a letter dated
10.02.2009 invoked the PBG wherein it stated that HDG "has failed to
perform their contractual obligations".
14. HDG challenged such invocation before this Court in CS(OS)
313/2009. By order dated 13.02.2009, this Court granted an ad-interim
injunction restraining Canara Bank from releasing the amount of the PBG
and STC was restrained from encashing the same. Canara Bank applied to
vacate the injunction which was allowed by an order dated 11.03.2011.
HDG appealed against the aforesaid order before a Division Bench of this
Court (in FAO (OS) 170 of 2011). The Division Bench, by an order dated
28.03.2011, directed HDG to deposit the amount stated in the PBG with the
Registrar General of this Court which was duly complied with. As per the
directions of this Court in its order dated 16.05.2011, HDG also deposited
an additional amount of `3,04,37,228/-.
15. On 31.05.2011, this Court directed that the amount deposited with
this Court be kept with Canara Bank. On 12.09.2011, this Court further
directed that the sum of `3,04,37,228/- lying with this Court would
continue to remain so till a decision is rendered in CS(OS) 313/2009.
Thereafter, in the order dated 30.09.2011, this Court recorded that Canara
Bank was willing to go for arbitration on certain terms of reference and
granted HDG and STC time to examine the same. On 10.01.2012, this
Court expressed its anguish in respect of the unreasonable stand taken by
Canara Bank for not agreeing to resolution of disputes by arbitration. HDG
carried the matter to the Supreme Court by way of a Special Leave Petition
(being SLP (Civil) No.8589 of 2012) against the orders dated 12.09.2011
and 10.01.2012, which was dismissed by an order dated 10.05.2012 but
HDG was granted liberty to move this Court for review of its order.
16. Pursuant to the above order, HDG filed a review petition (being RP
No.356 of 2012) in this Court. This Court, vide order dated 02.11.2012,
referred the disputes between HDG and STC along with Canara Bank to
arbitration.
Proceedings before the Arbitral Tribunal
17. Before the Arbitral Tribunal, HDG filed a Statement of Claim as
under:-
"A. For a sum of US$6,786,450 (United States Dollars Six
Million Seven Hundred Eighty Six Thousand Four Hundred and
Fifty), payable to the claimant by the respondents jointly and
severally as both parties acted in collusion with each other;
B. Interest at the rate of 18% per annum from the Award
amount from 15th April, 2011 till realization payable jointly and
severally by the respondents;
C. For a sum of US$ 676,910 (United States Dollars Six
Hundred Seventy Six Thousand Nine Hundred and Ten) along
with interest calculated at the rate of 8.5% per annum from 23rd
May, 2011 till realization and direct respondent No.1 to make
good any deficiency in view the exchange rate fluctuation
besides interest at the rate of 18% per annum minus the interest
that would have accrued on the fixed deposit made with the
Hon'ble High Court of Delhi (Registrar General of Hon'ble High
Court of Delhi);
D. For a sum of US$ US$ 2,763,710 (United States Dollars Two
Million Seven Hundred Sixty Three Thousand Seven Hundred
Ten) from respondent No.1 along with interest calculated at the
rate of 18% per annum from 15th October, 2008 till realization;
E. Pendente lite and future interest jointly and severally payable
by the respondents at the rate of 18% per annum;"
18. It is HDG‟s case that the Contract was for the supply of 3,00,000 +/-
10% MTs quantity of Urea and HDG was not obliged to cap the quantities
at 3,00,000 MTs as messaged by STC on 15.10.2008. However, in good
faith, it did not load a quantity of 9,436 MTs onto the vessel MV Jia Hua -
the only vessel under loading. HDG claimed that it had incurred heavy
losses on dead freight, due to cancellation of the quantities already bought.
19. STC claimed that its communication dated 24.10.2008 to HDG and
Everest's response thereto resulted in a binding contract, whereby STC's
obligation to pay for 20,563.01 MTs of Urea stood reduced to US$ 359
PMT. As indicated earlier, this was stoutly disputed by HDG.
20. In respect of invocation of PBG, it was HDG‟s stand that once the
payments were released against the letter of credit under which the
documents were negotiated and accepted, there was no occasion for STC to
have invoked the PBG; the PBG stood discharged on delivery of the cargo.
Further, it was submitted that Hypo Vereins Bank by its communication
dated 12.11.2008 had conveyed to Canara Bank that HDG had "duly
delivered goods as per the related contract". HDG submitted that it had
shipped the entire quantity of goods within the time stipulated, that is,
15.10.2008 and STC had taken the delivery without any protest. There was
no allegation as to the quality of the goods supplied. Therefore, encashment
of PBG by STC by wrongly alleging that it was invoked due to non-
performance of the Contract was fraudulent.
21. Insofar as STC‟s contention that HDG had agreed to accept the
reduced price is concerned, HDG contended that Everest did not have the
authority to alter or modify the Contract entered into between STC and
HDG and, therefore, HDG was not bound by Everest's communication to
accept reduced price for the excess quantity of 20,563.01 MTs. In the
alternative, HDG also contended that Everest‟s communication dated
24.10.2008 did not result in a concluded contract as STC's letter could not
qualify to be an offer, the acceptance of which could lead to a binding
contract.
22. Whilst the Arbitral Tribunal rejected the contention that STC could
not bind Everest as HDG‟s agent, the Arbitral Tribunal (by majority)
accepted HDG's contention that STC's letter dated 24.10.2008 was not an
offer, the acceptance of which could result in a binding contract between
the parties.
23. The Arbitral Tribunal referred to the decision given by the Supreme
Court in Bank of lndia and Ors. v. O.P. Swarnakar: (2003) 2 SCC 721
and held that the question whether a statement is an offer or an invitation to
treat, would depend primarily on the intention with which it was made. It
observed that a statement would be an offer if the person making the said
offer intends to be bound by it upon the other party communicating its
assent thereto.
24. In the given facts of the present case, the Arbitral Tribunal held that
STC's communication of 24.10.2008 calling upon HDG "to look into the
possibilities of accepting the last tender/ordered price in IPL Tender which
was finalized on 15 October, 2008 for the excess quantities loaded" was
essentially in the nature of eliciting a response and did not bind HDG on
Everest confirming its willingness to accept the lower price.
25. With regard to the issue of encashment of the PBG, the Arbitral
Tribunal observed that HDG had performed its obligation under the
Contract and therefore, there was no occasion for STC to utilize the PBG to
avail of price reduction.
Submissions
26. Mr Maninder Singh, learned Additional Solicitor General appearing
for STC submitted that the impugned award was contrary to the provisions
of the Indian Contract Act, 1872 (hereafter „the Contract Act‟). He
submitted that having held that Everest was authorized to accept a reduced
price on behalf of HDG, the Arbitral Tribunal had grossly erred in holding
that Everest's fax dated 24.10.2008 did not result in a binding contract
between HDG and STC. He submitted that the Arbitral Tribunal's
conclusion that STC's communication dated 24.10.2008 did not amount to
offer under Section 2(a) of the Contract Act was untenable. He emphasized
that the fax dated 24.10.2008 sent by Everest in response to STC's letter,
clearly referred to STC's letter as a „proposal‟. He contended that, therefore,
there could be no dispute that STC's communication of the said date was a
proposal since the parties had always understood that to be so. He further
contended that the Arbitral Tribunal's reasoning that the communications
between the parties did not result in a binding contract since the same had
not been approved by DOF was also perverse and contrary to the terms of
the Contract.
27. Mr Singh referred to clause 18 of the Contract, which expressly
recorded that Government of India was not a party to the Contract and had
no liability, obligation or rights under the Contract. Further, it was
expressly stated that STC was an independent legal entity with power and
authority to enter into contracts on its behalf. He submitted that in view of
clause 18 of the Contract, the reasoning that since the approval of DOF had
not been received, there was no binding contract, was ex facie flawed.
28. Mr Singh relied strongly on the dissenting award dated 07.04.2016
passed by Justice, B.A. Khan (Retd.), wherein the Arbitrator had held that
STC's letter dated 24.10.2008 was a proposal within the meaning of Section
2(a) of the Contract Act. In his view, the said letter had to be read in the
context and the background in which it was addressed by STC to HDG. He
observed that STC had refused to accept the surplus quantity above
3,00,000 MTs and in this context HDG had made a representation to the
Minister of Chemicals and Fertilizers requesting him to instruct STC to
accept the excess quantity. He observed that STC's communication of
24.10.2008 must be evaluated in the context of the efforts being made by
the parties to resolve the disputes through meetings and negotiations. In his
view, STC's letter dated 24.10.2008 encapsulated the sum and substance of
the negotiations and in that context it must be read to be an offer which was
duly accepted by HDG (through Everest), resulting in a binding contract.
29. Mr A.S. Chandhiok, learned Senior Advocate countered the
arguments advanced by Mr Singh. He referred to the communications of
24.10.2008 and submitted that the said communications clearly indicated
that STC's letter dated 24.10.2008 was not a proposal. Therefore Everest's
fax dated 24.10.2008, at best, could be read as an offer and since the same
was withdrawn prior to its acceptance, there was no contract whereby HDG
could be bound to accept a lower price for the goods already supplied and
accepted by STC.
Reasoning and Conclusion
30. As rightly noticed by the Arbitrator (Justice, B.A. Khan (Retd.)) in
his dissenting opinion/award, the central controversy revolves around
issues No.3 and 20 struck by the Arbitral Tribunal, which read as under:-
"3. Whether the Claimant agreed for price reduction from USD
685.5 PMT to USD 359 PMT for the quantity supplied
above 3,00,000 MT?
xxxx xxxx xxxx xxxx xxxx
20. Whether acceptance of the proposal of STC by the Claimant
vide communication dated 24.10.2008 resulted in / or
amounted to novation/amendment of the contract? If so,
what is the effect of novation/amendment?"
31. The decision on the aforesaid two issues depends on the
interpretation of the communications exchanged between Everest (on
behalf of HDG) and STC and HDG. The same are set out hereafter.
32. On 24.10.2008, at 07:35 PM, STC addressed a letter to HDG which
reads as under:-
"Dear Sir,
This has reference to letter dated 23 October 2008 addressed
by your resident agents in India, M/s Everest Fertilizers,
Mumbai to Hon'ble Minister for Chemicals & Fertilizers,
Government of India. Department of Fertilizers, Ministry of
Chemicals & Fertilizers, has forwarded a copy of the above
letter to us for necessary action on our part.
2. The issue regarding tolerance of the total quantities was
discussed in a series of meetings with the official of
Department of Fertilizer (DOF) with a view to resolve the
impending issue of quantities loaded beyond 3.00 Lakh MT.
Based on our discussion with DOF, you may like to look into
the possibilities of accepting the last tender/ordered price in
IPL tender which was finalized on 15 October 2008 for the
excess quantities loaded.
3. We would request you to kindly let us have your written
confirmation at the earliest, preferably by early next week so
that we can approach DOF with a view to find a solution to
this issue.
Thanking you,
Yours truly,
For STC of India Limited
(Samir Kaul)
Chief General Manager"
33. The aforesaid letter was responded to by HDG's agent, Everest, on
the same date and reads as under:-
"Dear Sir,
Sub.: Supply of urea against contract No. STC/UREA/
HELM/1/2008-09 dt. 01.10.08
Kindly ref your letter dated 24.10.08 on the above mentioned
subject MV JIA HUA which was nominated and accepted for
discharging of Pipavav was under loading at the time of
receipt of your letter of 15.10.08. We immediately restricted
the quantity in this vessel and loaded 23012.208MT to MV
JIA HUA is carrying the alleged additional quantity of
20563.011 MT.
Keeping in view our relationship with STC and DOF we
confirm our acceptance to your proposal and agree to the
ordered price of US$ 359 PMT CFR Pipavav in the IPL tender
which closed on 15.10.08 for the additional quantity of
20,563.01 PMT on board vessel MV JIA HUA.
Kindly confirm same at the earliest.
Thanking you
Yours truly
Sd/-
Rajiv Kapur
Stamp Everest Fertilisers"
34. On the same date, that is, 24.10.2008, Everest sent another letter to
STC which reads as under:-
"Dear Sir,
Sub.: Supply of urea against contract No.
STC/UREA/HELM/1/2008- 09 dt. 01.10.08
In continuation to our letter dated 24.10.08, we have been
advised by our principals M/s Helm Dungemittel GmbH that
their Board of Directors have not approved the proposal and
accordingly, our letter dated 24.10.08 may kindly be treated as
withdrawn.
Thanking you
Yours truly
Rajiv Kapur
Stamp Everest Fertilisers"
35. STC claims that the above-mentioned communication from Everest
withdrawing its earlier letter was received by STC on 27.10.2008. STC
claims that in the meanwhile, STC sent a letter dated 24.10.2008 to DOF
seeking confirmation for accepting the quantity of 20,563.01 MTs at a price
of US$ 359 PMT. The said letter reads as under:-
"Dear Sir,
Kindly refer to the tender by STC on 17 September 2004 for
import of Urea on Government account which opened on 23
September 2008. Based on the tender results, M/s Helm
Dungemittel GmbH, Hamburg, Germany(L-1 bidder) was
awarded the contract on the basis of their CFR quotation,
Department of Fertilizers had asked STC for releasing order
for 3,00,000 MT and accordingly L/C was opened on M/s
Helm Dungemittel, Hamburg. Since these were CFR contracts
and M/s Helm Dungemittel was required to arrange for the
shipping speed, +- 10% was offered based on tender terms. We
had also written letter dated STC/UREA/MP/2008 dated 30
September 2008 to Department of Fertilizers seeking their
formal approval for this +-10% flexibility which is a standard
international notion.
In view of the delivery schedule, M/s Helm Dungemittel were
required to complete the shipping on an urgent basis and the
details of shipment undertaken by them against STC's order is
given in the Annexure attached herewith.
Having regard to the drastic fall in Urea prices in the
international market, M/s Helm Dungemittel was asked in
writing to cap the quantity to be shipped within 3,00,000 MT
on 15.10.2009. Since by that time most of the vessels were
already loaded and had sailed, M/s Helm Dungemittel reduced
the quantity on the last vessel which was under loading for
discharge at Pipavav port. However, the total Urea shipment
affected by M/s Helm Dungemittel under this contract stands
at 320,563.01 MT which is within the standard shipment
tolerance level.
Since Urea prices were perpetually falling, discussion were
held with M/s Helm Dungemittel and accordingly they have
proposed, in writing, that for the quantities sipped (sic) beyond
3,00,000 MT they are willing to accept the price of L-1 bid for
CFR Pipavav port finalized by IPL in their tender which
closed on 15 October 2008, since the last vessel which was
loaded on 15 October 2008 by M/s Helm Dungemittel was for
discharge of cargo at Pipavav port.
Accordingly, we would request you to kindly let us have your
confirmation for accepting the quantity of 20,563.01MTs
(which is the quantity shipped beyond 3,00,000 MT) per MV
JIA HUA destined to discharge Urea cargo at Pipavav may be
paid @ L-1 price of US$ 359 PMT CFR Pipavav, which was
the rate ordered by IPL on 15 October 2008 for the cargo
destined for discharge at Pipavav port.
Kindly consider our request favorably and let us have your
confirmation on the above at the earliest.
Thanking you,
Yours sincerely
Sd/-
(S.S. Roy Burman)
Director -Marketing"
36. On 27.10.2008, STC responded to Everest's letter dated 24.10.2008
(stated to have been received by fax on 27.10.2008). The said letter dated
27.10.2008 is reproduced as under:-
"Dear Sir,
We write w.e.f. your letter dated 24.10.2008 relayed on 27 th
October, 2008 over fax to us at around 14:21 hrs. The letter
refers to the captioned matter. Be that as it may, we hasten to
inform you that based on your letter of 24 October, 2008,
which was received by us the same day, we have since
submitted our proposal to the Department of Fertilizers during
early hours on 27th October, 2008 conveying your willingness
to supply the quantities of Urea in excess of 3,00,000 MT @
US$ 359 PMT CFR i.e. the L-1 bid received against IPL
tender which closed on 15.10.2008.
We are therefore, unable to act on your letter received a while
ago at this juncture.
Thanking You,
Yours truly,
Sd/-(Samir Kaul)
Chief General Manager"
37. There can be no quarrel to the question as to whether a statement is
an offer or an invitation to treat, would depend primarily on the intention
with which it was made. Indisputably, a statement would be an offer if the
person making the said offer intends to be bound by it upon the other party
communicating its assent thereto. Further, the statement would be an offer
if acceptance of it by the offeree would result in a binding contract.
38. Thus, the principal question that needs to be addressed is whether on
Everest confirming to accept the lower price of US$ 359 PMT for the
additional quantity of 20,563.01 MTs by its communication dated
24.10.2008, STC became bound to pay the aforesaid price. Plainly, the
answer to the aforesaid question would have to be in the negative. There
was no confirmed offer by STC agreeing to pay US$ 359 PMT in its
communication dated 24.10.2008. It is also relevant to note that STC had
requested HDG to give its written confirmation in order that STC "can
approach DOF with a view to find a solution to this issue". This clearly
indicated that STC was seeking the confirmation only to find an amicable
solution.
39. This communication by no stretch confirmed that STC would be
bound to pay the price as was finalized on 15.10.2008 under the IPL's
tender (that is, US$ 359). It is amply clear that the confirmation by Everest
did not bind STC as STC's communication to HDG was clearly not an
unequivocal offer or proposal. In the present case, STC is pursuing its
contention that HDG is bound by its confirmation - made through Everest -
to accept a lower price of US$ 359 PMT; however, the question to ask is
whether HDG could - on the basis of STC's letter of 24.10.2008 - compel
STC to pay the price of US$ 359 PMT if STC did not want to pay that
price? The answer is obviously in the negative because STC's letter dated
24.10.2008 cannot by any stretch be held to be STC's firm offer.
40. On 24.10.2008, STC also sent a letter to DOF seeking confirmation
for accepting the quantity of 20,563.01 MTs at US$ 359 PMT. This also
clearly indicated that STC's letter to HDG to look into the possibility of
accepting the lowest price tendered in a tender finalized on 15.10.2008 (that
is, US$ 359 PMT) was not a confirmed offer at the material time since, at
that time, STC had not got the confirmation from DOF as requested by it.
41. Mr Singh's contention that communication between STC and DOF
were internal matters and are not relevant, is wholly bereft of any merit.
The reliance placed by him on clause 18 of the Contract which clarifies that
Government of India was not a party to the contract, is also completely
misplaced. The issue is not whether there was any contractual relationship
between DOF and HDG or whether HDG was bound by any decision of
DOF. The point in issue is whether STC's letter dated 24.10.2008 to HDG
constituted a proposal/offer within the meaning of Section 2(a) of the
Contract Act. In order to address that issue, it is relevant to refer to the
correspondence between STC and HDG. The aforesaid letter of STC to
HDG did not, on the face of it, indicate that it was an offer; on the contrary,
the letter reads as eliciting HDG's willingness to accept the L-1 price of the
15.10.2008 tender, so as to enable STC to take up the matter with DOF.
The communication between STC and DOF is, thus, material and relevant
as it clearly indicates the reason as to why STC's letter could not be
considered as its firm offer. It clearly, indicates that STC had not
committed to be bound as according to it, it still required the confirmation
from DOF for proceeding ahead. The question whether STC required any
confirmation from DOF is not relevant but the fact that STC was seeking
confirmation from DOF does provide the reason as to why the letter
addressed by STC to HDG was worded the way it was.
42. I find the dissenting view recorded by Justice B.A. Khan (Retd.)
unsustainable. HDG had approached the Minister of Chemicals and
Fertilizers by its letter dated 23.10.2008 requesting him to instruct STC to
honour its contractual commitments. Learned Arbitrator has held that STC's
letter to HDG that followed on 24.10.2008 must be read in the context of
the negotiations and the representation made by HDG and this itself
indicates STC's letter to contain a firm offer to which STC would be bound
by immediately on its acceptance by HDG. As I see it, the communications
between STC and DOF as well as the background of negotiations adverted
to by the learned Arbitrator are indicative of an exercise to find an amicable
solution. It does not indicate the formation of a binding contract.
43. Although, this Court has examined the decision of the Arbitral
Tribunal on merits, that is not the scope of Section 34 of the Act. It is well
settled that a Court while considering a petition under Section 34 of the Act
does not sit as an Appellate Court to re-appreciate the evidence and the
conclusions arrived at by the Arbitral Tribunal.
44. The substratal rationale of restricting the interference by a Court is to
hold the parties to their bargain and the parties having committed to accept
the decision of the Arbitral Tribunal as final and binding cannot be
permitted to assail the same except on the limited grounds as specified in
Section 34 of the Act. STC seeks to place its challenge within the scope of
Section 34(2)(b)(ii) of the Act, that is, it contends that the impugned award
is in conflict with the public policy of India.
45. In order for STC to succeed, it would be necessary to conclude that
the Arbitral Tribunal's view is not a plausible one and could not have been
arrived at on the basis of the evidence on record. In other words, no
reasonable person instructed in law could not have, on the basis of the
aforementioned communications of 24.10.2008, come to the conclusion
that there was no binding contract between STC and HDG. In the facts of
the present case, such conclusion is not possible.
46. In Steel Authority of India Ltd. v. Gupta Brother Steel Tubes Ltd.:
(2009) 10 SCC 63, the Supreme Court held as under :-
"(vi) If the conclusion of the arbitrator is based on a
possible view of the matter, the court should not interfere
with the award.
(vii) It is not permissible to a court to examine the
correctness of the findings of the arbitrator, as if it were
sitting in appeal over his findings."
In that case, the arbitrator had taken a view that refusal on the part of Steel
Authority of India to supply material did not fall within the ambit of the
relevant terms in the compensation clause (7.2). In that context the
Supreme Court observed that:
"27...Whether this is or is not a totally correct view is
really immaterial but such view is a possible view that
flows from reasonable construction of Clause 7.2....
28...Once the arbitrator has construed Clause 7.2 in a
particular manner, and such construction is not absurd
and appears to be plausible, it is not open to the courts to
interfere with the award of the arbitrator..."
47. A similar view was expressed by the Supreme Court in Sumitomo
Heavy Industries Limited v. Oil and Natural Gas Commission of India:
(2010) 11 SCC 296. In that case the Supreme Court held as under:-
".....The umpire has considered the fact situation and
placed a construction on the clauses of the agreement
which according to him was the correct one. One may at
the highest say that one would have preferred another
construction of Clause 17.3 but that cannot make the
award in any way perverse. Nor can one substitute one's
own view in such a situation, in place of the one taken by
the umpire, which would amount to sitting in appeal. As
held by this Court in Kwality Mfg. Corpn. v. Central
Warehousing Corpn. the Court while considering
challenge to arbitral award does not sit in appeal over the
findings and decision of the arbitrator, which is what the
High Court has practically done in this matter. The umpire
is legitimately entitled to take the view which he holds to
be the correct one after considering the material before
him and after interpreting the provisions of the agreement.
If he does so, the decision of the umpire has to be
accepted as final and binding."
48. Although, the aforesaid judgments were in context of the Arbitration
Act, 1940, the above view expressed by the Supreme Court is still good law
since the scope of interference in an arbitration award has been further
restricted under the Act. In Rashtriya Ispat Nigam Ltd. v. Dewan Chand
Ram Saran: (2012) 5 SCC 306, the Supreme Court referred to the above
quoted passage from the decision in Sumitomo Heavy Industries Limited
(supra) as instructive.
49. In view of the above, the petition is dismissed. The pending
application also stands disposed of.
VIBHU BAKHRU, J
AUGUST 10, 2016
RK/pkv
