Delhi High Court
Gail (India) Ltd vs Jindal Saw Ltd. on 7 May, 2019
$~56
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ FAO(OS) 94/2019
GAIL (INDIA) LTD ..... Appellant
Through: Ms. Maninder Acharya, Additional
Solicitor General of India with Mr.
Ajit Pudussery, Mr. Ajeet Singh
Verma, Advocates.
versus
JINDAL SAW LTD. ..... Respondent
Through: Mr. Arun Kumar Varma, Senior
Advocate with Mr.Abhay Raj Varma,
Advocates.
CORAM:
JUSTICE S.MURALIDHAR
JUSTICE REKHA PALLI
ORDER
% 07.05.2019
REKHA PALLI, J.:
C.M.No.20758/2019 (for exemption)
1. Exemption allowed, subject to all just exceptions. The application is
disposed of.
C.M.No.20759/2019 (for condonation of delay)
2. For the reasons stated in the application, the delay in filing is condoned.
The application is disposed.
FAO(OS) 94/2019 & C.M No.20757/2019 (stay)
3. The present appeal under Section 37 of the Arbitration and Conciliation
Act, 1996 (hereinafter referred to as „the Act‟) assails the order dated 13th
February, 2019 passed by the learned Single Judge in O.M.P. No.410/2009,
whereby the learned Single Judge has rejected the objections filed by the
Appellant/GAIL (India) Ltd. to the arbitral Award dated 20th February,
2009.
4. Under the arbitral Award, the learned Arbitrator had allowed the claim of
the Respondent by directing the Appellant herein to pay to the Respondent
an amount of US$ 5,060,565.06/- and Rs.5,91,27,019/- along with interest
@ 14% per annum from the date of Award till the date of payment.
5. The relevant facts of the case are that, pursuant to a request for quotation
floated by the Appellant for supplying of line pipes for the Dahej-Vijaipur
Pipe Lines (DVPL), the offer submitted by the Respondent was accepted by
the Appellant at the unit rate of US$ 282.85/- per meter. On 3rd February,
2003 a purchase requisition was issued by the Appellant followed by a
formal contract being concluded between the parties on 11th February, 2003,
for supply of 270 km of 42 inches pipes. As per the terms of the contract,
out of the agreed 270 kms of line pipes, 180 kms was to be manufactured by
the Respondent from plates at the Mundra Plant, while the remaining 90 kms
of the unfinished pipes was to be imported either from Saw Pipes, USA or
from any other pipe mill approved by the Appellant and the finishing thereof
was to be done at the Mundra plant of the Respondent.
6. The relevant terms of the contract dealing with price as also the delivery
schedule for supply of goods under the contract read as under:
"1.0 PRICES AND PRICE BASIS
1.1 The total price of USD 77,687,662.56 (US Dollars Seventy
Seven Million Six Hundred Eighty Seven Thousand Six hundred
Sixty Point Five Six only) stipulated in Annexure-2 shall remain
firm and fixed till complete execution of order.
1.2 The prices of 42"size (1067 mm) line pipe, qty 270,000 meter
(at item 1.1 of Annexure-2 to this order) are on FOT dispatch
point Mundra basis and the prices of 36"size (914.4 mm) line pipe,
qty. 4,576,meters (at item 2.1 of Annexure-2 to this order) are on
FOT dispatch point kosikalan basis.
The above prices are inclusive of packing, forwarding, and
loading of pipes on trailers but exclusive of Excise Duty, Central
Sales Tax (CST is not applicable on 42"sixe linepipe) freight
charges and transit insurance charges.
1.4 The seller will supply 42"size line pipes through two routs of
manufacturing viz. a) manufacture from plates and b) manufacture
from unfinished pipes.
The supplies of 180,000 mtr. Pipes shall be through plate route
and the balance quantity of 90,000 meters through manufacture
from unfinished pipes. The seller shall source the unfinished pipes
from SAW Pipes USA Inc. or any other pipe mill qualified by
owner/EIL against this Tender No.VKG/ICB/4844-00QA-
MR9010/1001.
"4.0 DELIVERY PERIOD AT F.O.T. DESPTACH POINT
(MUNDRA FOR ITEM 1.1 & KOSIKALAN FOR ITEM 2.1)
BASIS:
4.1 Delivery is the essence of this purchase Order and the Seller
shall try to improve upon the same.
4.2 Goods covered in this purchase order shall be delivered within
4 to 9 months from the date of Fax of Intent, i.e. latest by
27.10.2003 as per delivery schedule attached at Annexure-3.
4.3 The date of LR/Gr shall be considered as date of delivery. The
seller shall give 15 days advance notice to Owner for arranging
the trailer to be provided by coating contractor. However in case
the trailer is not arranged within the above period, the date of
Inspection Release note issued by EIL shall be considered as the
date of delivery for the purpose of application of price reduction
clause only."
The delivery schedule on FOT dispatch print basis as mentioned in
Annexure-3 to the Purchase Order:-
Delivery before Lot 42" API 5L 36" API 5L
following Pipe (Item 1.1 Linepipe item
period of PR) 1.5 (2.1 of PR)
28.04.2003 to I 65,000 meter -
27.06.2003
28.06.2003 to II 103,000 meter -
27.08.2003
28.08.2003 to III 102,000 meter 5,576 meter
27.10.2003
Total quantity 270,000 meters 4,576 meter
7. On 16th March, 2003, the Appellant requested the Respondent to supply
all pipelines within a shorter time span than the one agreed in the contract.
Therefore, it was suggested to the Respondent that instead of procuring and
manufacturing the unfinished pipes in the U.S.A, if the Respondent could
ensure production of the said pipes from any other line pipes manufacturers
from Europe, it would save time. In response to this request, the Respondent
after a series of meetings with the Appellant came up with the proposal to
source the mother pipes from the Mundra Mill itself, which proposal was
accepted by the Appellant on 26th August, 2003, though by placing a rider
that it would be subject to passing of commercial benefit to the Appellant.
8. On receipt of the aforesaid letter, there was some further correspondence
exchanged between the parties. The Respondent clearly brought out that
since the contract in question under which the supplies were being made was
a fixed price contract and the Respondent was required to make deliveries of
furnished pipes from a single point i.e. Mundra, there was no provision,
occasion or scope for raising a demand to pass any commercial benefit. The
Appellant thereafter vide its letter dated 21st October, 2003 to the
Respondent stated that due to the change of route the Respondent would be
benefited to the tune of Rs.23 crores. This was denied by the Respondent,
who in turn informed the Appellant that its assessment of cost saving was
not correct and that the Respondent is saving only a sum of Rs.10.31 crores.
9. Without any further correspondence on the aspect of commercial benefits
accruing to the Respondent as a result of the change in the source of supply
in respect of the 90 kms of line pipes, the supplies were completed within
the prescribed time. The Appellant made part payment to the tune of
Rs.102.04 crores but did not release the entire amount which was Rs.148
crores.
10. In these circumstances, the Respondent invoked the arbitration clause
and the matter was referred to the sole Arbitrator. After examining the terms
of the contract and the entire correspondence exchanged between the parties,
the Arbitrator passed the impugned Award whereby the Appellant was
required to pay the Respondent US$ 5,060,565.06/- and Rs.5,91,27,019.00/-
towards the balance amount qua the respective invoice amount in USD and
INR along with interest @ 14% per annum from the date of passing of the
Award till the date of actual payment.
11. The Appellant feeling aggrieved by the Award allowing the
Respondent‟s claim for the balance contractual amount along with interest,
filed objections under Section 34 of the Act which, as noted hereinabove
came to be rejected by the impugned order. The learned Single Judge after
considering the correspondence exchanged between the parties and the
specific terms of the contract came to the conclusion that the contract was a
fixed price contract. The learned Single Judge held that there was no
infirmity in the arbitral Award directing payment of balance contractual
amount to the Respondent along with interest.
12. The factual findings in the impugned judgement of the learned Single
Judge inter alia were as under:
"41.....Admittedly the petitioner accepted the proposal of
production of such unfinished pipes of 90 ton at Mundra plant
of the respondent and the respondent in its initial
correspondence was very clear of not passing commercial
benefit and though in its later correspondence had disclosed
about its alleged saving Rs.6.92 crores or 110.31 crores but in
no clear terms ever the respondent had agreed, to; pass on such
benefit to the petitioner. More importantly, it was never a
condition of the contract. The unfinished pipes were got
manufactured in India from Mudra facility only because of
crash in the supply schedule and that too at the instance of the
petitioner. The learned arbitrator thus rightly noted the claimant
had agreed to unreasonable and unlawful concession only under
compelling circumstances; viz a) the petitioner being, its
important customer; and b) huge chunk of money was held-up
by the petitioner causing great financial hardship to respondent
and hence consent was given to recover its payment
expeditiously and that it was not fair or reasonable for the
petitioner to ask the respondent to share its savings, it being a
fixed price contract."
47. .....Admittedly there was crash in supply schedule at the
instance of petitioner. The passing of the commercial benefit
was never accepted by the Respondent as noted in its letters
dated 27.08.2003 and 19.09.2003. It is also an admitted fact the
entire production was completed and entire pipes were supplied
on or before 21.10.2003. Between 06.08.2003 till 21.10.2003
the petitioner has been accepting the delivery of the product and
it did not refuse its delivery by saying the commercial benefit
be first passed onto them only then the petitioner shall accept
the delivery. It was only after the delivery was fully received by
the petitioner, it started raising this demand/plea. Since the
Respondent was to recover more than 100 crores from the
petitioner it was made a silent spectator and thus had to disclose
its savings on the project. At no stage the Respondent ever
adhered to the demand of the petitioner.
13. The learned Single Judge, on a detailed analysis of the evidence on
record, concurred with the learned Arbitrator that the Appellant had
failed to prove the trade practice or usage alleged by it whereby even
though the contract was a fixed price contract, the price could be varied
if the cost of manufacture (which includes transport costs) got reduced
for any reason, but if the cost of manufacture increased, the price would
remain constant. The learned Single Judge agreed with the Arbitrator
that "this contention is contrary to the clear terms of the Contract. The
Purchase Order specifically provides that the price shall remain firm and
fixed till complete execution of the order. It also lays down that the
Seller shall source the unfinished pipes from Saw Pipes U.S.A Inc. or
any other pipe mill qualified by the Owner/EIL." The conclusion of the
learned Arbitrator that "the price payable for the supply by the Claimant
cannot be reduced because of the fact that the entire 270 KMs pipes were
manufactured at Mundra in India and nothing was manufactured in
USA" was also upheld.
14. The learned Single Judge also did not find any merit in the Appellant‟s
challenge to the award of interest @ 14% per annum by the learned
Arbitrator. It was held that once Section 37 (7) (b) of the Act provided for
payment of interest @ 18% p.a. from the date of award to the date of
payment, the direction of the learned Arbitrator to award interest at a rate
lower than the one prescribed by the statute could not be faulted with in any
manner.
15. Before us, Ms. Maninder Acharya, learned ASG appearing for the
Appellant, contends that the impugned judgment, as also the arbitral Award,
are liable to be set aside as they overlook the specific admission of the
Respondent in its various letters to the effect that there was a commercial
benefit of Rs.10.31 crores to the Respondent as a result of the change in the
source of supply of the 90 km line pipes. She submits that the logical
consequence thereof, in terms of what had been agreed between the parties,
was that the said amount had to be passed on to the Appellant. Therefore,
the Appellant was justified in deducting the said amount while making the
payment to the Respondent towards the supply of goods.
16. Ms. Acharya submits that the learned Single Judge, as also the learned
Arbitrator, have failed to appreciate that the Appellant had agreed to the
manufacture of the entire 270 kms at Mundra through the plate route instead
of 180 kms as originally agreed, only on the condition of passing on of
commercial benefits to it, which fact was specifically mentioned in the
Appellants‟ various letters. She, thus, contends that in view of the admission
of the Respondent themselves that there was a commercial benefit of
Rs.10.31 crores to them as a result of the Appellant agreeing to their
proposal for production of unfinished pipes of 90 km at the Mundra plant
itself, there was no reason as to why the said benefit should not have been
passed on to the Appellant. Ms. Acharya further submits that once there is
an admission by the Respondent itself, the principles of Order XII Rule 6 of
the Civil Procedure Code, 1908 would apply. The Award having overlooked
this legal position and would fall foul of the public policy of India. It was,
therefore, liable to be set aside.
17. Ms. Acharya further submits that the award of interest @ 14% by the
learned Arbitrator overlooks the various decisions of the Supreme Court
wherein it has been held that under the Act and the present interest regime in
the country, the award of interest @ 9% per annum would be just and
proper. She, therefore, contends that the impugned order and arbitral Award
are liable to be set aside on this ground as well.
18. We have considered the submissions of the learned ASG and, with her
assistance, perused the record.
19. What emerges from the record is that the entire controversy between the
parties relates to the short issue as to whether, as per the terms of the
contract, the Appellant was entitled to claim that the commercial benefit, if
any, arising to the Respondent, as a result of the 90 km land pipes being
produced at Mundra itself instead of being sourced from Saw Pipes U.S.,
had to be passed on to the Appellants or not. We find that both the learned
Arbitrator and the learned Single Judge have consistently found that under
the contract even though the source of pipes in respect of 90 km was not
fixed as it provided that the seller shall source the unfinished price qualified
by the owner/EIL, the contract was still a fixed price contract. It was also
found that no condition of passing on of any commercial benefit was ever
envisaged in the contract and, therefore, merely because the parties had, in
their correspondence, referred to the commercial benefits which had accrued
to the Respondent, the basic terms of the contract, making it a fixed price
contract, had not been altered. The learned Single Judge, as also the
Arbitrator, did not find any specific admission on the part of the Respondent
to pass on this commercial benefit to the Appellant and, therefore, did not
find any merit in the Appellant‟s claim that it was entitled to the commercial
benefit accruing to the Respondent.
20. Even though in exercise of jurisdiction under Section 34 of the Act, the
scope of interference by the Court is very limited, as any such interference is
called for only where the finding of the Arbitral Tribunal is found to be
either contrary to the terms of the contract, or to be perverse in any manner,
we find that the learned Single Judge has again examined the relevant
clauses of the purchase requisition and the purchase order as noted
hereinabove. The correspondence exchanged between the parties has also
been analysed exhaustively. At the end of that exercise, the learned Single
Judge concurred with the learned Arbitrator.
21. The scope of the present appeal under Section 37 of the Act is even
narrower. Nevertheless, we too have once again been invited to examine the
clauses of the contract, the correspondence between the parties in light of the
concurrent findings of the learned Arbitrator and the learned Single Judge.
In our view, there can be no manner of doubt that the price of the pipes
under the contract was fixed and the Respondent was, therefore, entitled to
claim the amount in accordance with the contract. We are also unable to find
any specific admission in the Respondent‟s letters, on which heavy reliance
has been placed by Ms. Acharya to contend that the Respondent had agreed
to pass on the commercial benefit to the Appellant. We are also unable to
find any perversity in the rate of interest as awarded by the learned
Arbitrator, which, admittedly, is at a rate lower than the statutory rate
prescribed under the Act. We, thus, find no ground to interfere with the
impugned order of the learned Single Judge or the arbitral Award.
22. The appeal and application are accordingly dismissed.
REKHA PALLI, J.
S. MURALIDHAR, J.
MAY 7, 2019
sr
