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2013 DIGILAW 1036 (BOM)

Hindustan Petroleum Corporation Ltd. v. ISGEC

2013-06-11

A.A.SAYED, D.Y.CHANDRACHUD

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Judgment: (Dr. D.Y. Chandrachud, J.) This appeal arises from a decision of a learned Single Judge dated 4 April 2012 on a petition under Section 34 of the Arbitration and Conciliation Act, 1996. The learned Single Judge has declined to set aside an arbitral Award of a Sole Arbitrator dated 4 November 2009. 2. The Appellant floated a global tender for six Reactors with S.S. Clading for a Green Fuels Project. The first Respondent submitted a bid. A Purchase Order was placed by the Appellant upon the first Respondent on 1 June 2005. The Purchase Order provided that the contract value would be Rs.14,50,10,000/-. The contract envisaged that the price which was mentioned in the Purchase Order would be firm; the relevant condition being as follows:- “i) The price mentioned in this Purchase Order shall remain firm and fixed till complete execution of this order.” Disputes between the parties were referred to arbitration. Claim no.1 of the first Respondent related to an amount of Rs.60,93,323/- where payment was withheld by the Appellant. Claim no.2 pertained to a deduction of Rs.14.80 lakhs by the Appellant on account of a delayed delivery of certain parts. The Appellant also had raised a counter claim. 3. The Arbitral Tribunal by its Award dated 4 November 2009 allowed the first claim of Respondent no.1 and directed the Appellant to pay over an amount of Rs.60,93,323/-which had been withheld. The deduction of Rs.14.80 lakhs which formed the basis of the second claim was however upheld, resulting in a rejection of the second claim. The Counter Claim of the Appellant was rejected. 4. The learned Single Judge has dismissed the petition filed by the Appellant under Section 34 for setting aside the Award. 5. In this appeal, the Appellant has contested the decision of the learned Single Judge and resultantly the legality of the Award on two aspects: (i) the grant of claim no.1 for the payment of Rs.60,93,323/- which was withheld by the Appellant; and (ii) the rejection of the Counter Claim. For convenience of reference, the submissions in respect of these heads can be taken up separately. Claim no.(1): 6. The Appellant had deducted an amount of Rs.60.93 lakhs while effecting payment to the first Respondent. For convenience of reference, the submissions in respect of these heads can be taken up separately. Claim no.(1): 6. The Appellant had deducted an amount of Rs.60.93 lakhs while effecting payment to the first Respondent. The basis of this was that whereas the contract quantified the C.I.F. value of imported components at Rs.8.16 crores, the first Respondent produced documents which indicated that the value of imported components was Rs.5.97 crores. According to the Appellant, since the C.I.F. value of the imported components was less than what was stipulated in the contract, it was entitled to withhold the customs duty element. 7. The relevant conditions governing the contract are to be found in clause 6 of the Statement of Agreed Variations to General Purchase Conditions which reads as follows:- “a. Quoted prices are inclusive of built in import content of maximum CIF amount of Rs.816 Lakhs based on merit rate of Custom duty including custom duty etc. thereon. Supplier to provide item wise details within two weeks hereof. b. The quoted prices shall remain firm and fixed except statutory variation in C.D. The prices shall remain firm and fixed on account of Foreign exchange variation also. c. Statutory variation, if any, in the rate of custom duty shall be admissible only upto a maximum period of 2/3rd of the contractual delivery period. d. Any increase in price due to increase in the rate of customs duty, due to any reason, whatsoever, beyond the above specified period i.e. 2/3rd of contractual delivery period shall be to supplier's account. However, any decrease in customs duty rate at the time of actual clearance of imported materials shall be passed on to Owner. e. The CIF value (1) indicated by the supplier shall be deemed to be the maximum value(s) for the purpose of payment of variation in customs duty and/or other statutory variations, if any, thereon. f. Variation in price due to customs duty rate will be dealt with separately against documentary evidence after receipt of equipment/material at site.” The Arbitrator held that the C.I.F. value of the imported components was fixed at Rs.816 lakhs in order to place a cap on the liability of the Appellant arising as a result of any variation in the rate of customs duty. According to the Award, the first Respondent had quoted a lump sum price which was to be fixed or firm barring statutory variations in the rate of customs duty. It was for this reason that clause 6 stipulated that the quoted prices were inclusive of a built in import content of a maximum C.I.F. amount of Rs.816 lakhs based on a merit rate of customs duty. In other words, according to the Arbitrator, since the price which was quoted under the contract was firm and fixed, it was not open to the Appellant to unilaterally make a deduction on the ground that the value of the import components was less than what was envisaged in the contract. 8. This part of the reasoning of the Arbitral Tribunal has been affirmed by the learned Single Judge. 9. The contract expressly provided that the price which was stipulated in the Purchase Order shall remain firm and fixed until the order was executed. Clause 6 stipulated that the quoted prices were inclusive of a built in import content of a maximum C.I.F. value of Rs.816 lakhs. This quoted price was to remain firm and fixed except for statutory variations in the customs duty. In the event of an increase in the rate of customs duty, the contractor was entitled to be reimbursed to the extent stipulated. In the event of a decrease in the rate of customs duty, the benefit was required to be passed on to the Appellant. The first claim did not admittedly pertain to any variation in the rate of customs duty. Clause 6 made it abundantly clear that the C.I.F. value of the import content which was indicated by the first Respondent shall be deemed to be the maximum value for the purpose of the payment in respect of a variation in the customs duty or statutory variations. In other words, the object of making a reference to the maximum C.I.F. value of the import content was to prescribe a cap on the liability of the Appellant should there be an increase in customs duty or statutory variations. In the present case, the amount of Rs.60.93 lakhs was not withheld on the ground of a variation in the rate of customs duty but on the ground that the import content was less than what the contract envisaged. In the present case, the amount of Rs.60.93 lakhs was not withheld on the ground of a variation in the rate of customs duty but on the ground that the import content was less than what the contract envisaged. The Arbitrator was, in our view, justified in holding that this action could not be sustained on a correct interpretation of the contract, having regard to the fact that the contract in question stated that the price was fixed and firm subject to statutory variations in the rate of customs duty. The interpretation of the relevant conditions by the Arbitrator is evidently correct. In any event, it cannot be regarded as an interpretation contrary to the terms of the contract. Even if the Arbitrator had taken a plausible view of the matter, the learned Single Judge would have been justified in declining to adopt an alternate construction in a petition under Section 34. An Arbitral Tribunal which adopts a possible view on an interpretation of the terms of a contract acts within jurisdiction. We, therefore, do not find any merit in the first point of challenge. Counter Claim: 10. The contention of the Appellant is that its Counter Claim was rejected by the Arbitrator without any reasoning. Counsel submitted that the Arbitrator in the operative part of the Award rejected the Counter Claim only on the ground that the first claim had been decided in favour of the claimant. Counsel further submitted, based on the averments in paragraph 11 of the rejoinder filed before the learned Single Judge, that a Chart has been produced before the Arbitrator in support of the contention that the rate of customs duty at the time of actual import had reduced as a result of which the Appellant was entitled to assert a Counter Claim. 11. The Counter Claim which was submitted by the Appellant was for a variation in customs duty and was to the following effect:- “V. Counter Claim for Variation in Custom Duty: As a matter of fact in executing the PO this respondent has suffered some losses due to the Claimant as this respondent is giving below the details of its Counter Claim: - Claim for custom duty on short imports (Already deducted): Rs. 60,93,323 - Claim of 10% (Average) being the variation in Custom duty. Variation as per merit rate of custom duty as per PO for Rs.598 Lacs. Rs. 60,93,323 - Claim of 10% (Average) being the variation in Custom duty. Variation as per merit rate of custom duty as per PO for Rs.598 Lacs. Rs. 59,80,000 Interest on Rs.59.80 Lacs not deducted due to Vendor delight. Rs. 8,80,000 Total Counter Claim : Rs.1,29,53,323 Amount Already Deducted : Rs. 60,93,323 Balance Counter Claim recoverable from Vendor : Rs. 68,60,000 Since the amount was not available in this purchase order therefore using clause number 25 of GPC we have deducted the amount from PO number 5000098-OQ-48009. As can be seen from above considering the deduction made are as per PO terms & conditions rather considering vendor relations & vendor delight, the deductions on account of variation for actual imports was not deducted earlier. Since the vendor has opted to go for arbitration, we are forced to raise Counter claim of Rs.68,60,000/- based on above calculations. This Respondent will make submissions at the time of hearing. This Respondent while submitting to reject the claims of the claimant request the Ld Sole Arbitrator to award the amount of Rs.68,60,000/- as Counter claim.” The arbitral Award makes a reference to what had actually transpired during the course of the proceedings in regard to the Counter Claim, thus:- “The Respondents have briefly touched on their “Counter Claim” for Custom duty. They have stated that exact amount can not be worked out in the absence of documentation for imported components. Respondent had stated that they are willing to pay the custom duty withheld provided the Claimant submits the necessary documentation in support of payment made by them towards custom duty. Respondents' arguments are concluded during this hearing.” 12. Now, reading the Counter Claim, it is evident that it is in two parts. The first part of the Counter Claim is in respect of the same amount of Rs.60.93 lakhs in respect of which the first Respondent had submitted the first claim. The second part of the Counter Claim was on the basis of an average rate of 10%, which according to the Appellant, was a variation in the customs duty. It is evident from the extract quoted above that the Appellant informed the Arbitrator that the exact amount could not be worked out in the absence of documentation for imported components. There is no dispute about the fact that the Appellant chose to lead no evidence in respect of its Counter Claim. It is evident from the extract quoted above that the Appellant informed the Arbitrator that the exact amount could not be worked out in the absence of documentation for imported components. There is no dispute about the fact that the Appellant chose to lead no evidence in respect of its Counter Claim. The burden lay on the Appellant to establish, by leading cogent evidence, that there was a variation in the rate of customs duty and that as a result of a reduction in the rate of customs duty, the Appellant was entitled to the benefit thereof. The Counter Claim could not have been allowed merely on a hypothetical basis or on the basis of a generalised submission or conjecture absent documentary evidence. The Appellant clearly, in our view, failed to discharge the burden of doing so. In these circumstances, the rejection of the Counter Claim cannot be faulted. 13. We have considered the reasoning of the learned Single Judge on this aspect of the matter. The learned Single Judge has proceeded on the basis that the Appellant had failed to prove the loss on any account. We, however, make it clear that we are confirming the conclusion which has been arrived at by the learned Single Judge, but for the reasons which have been indicated hereinabove. 14. For these reasons, no case for interference in appeal has been made out. The appeal shall accordingly stand dismissed. There shall be no order as to costs.