Dismissed

Hindustan Petroleum Corporation Ltd. v. Tema India Ltd. and Anr.

Bombay HC11 Oct 2012ARBP/1025/2009

Case brief

AI extract

What is this about?

The High Court dismissed an arbitration petition challenging an award that directed the petitioner to pay withheld dues. The Court held that the contract price was fixed, the petitioner failed to justify the retention of funds as per the contract terms, and the Arbitrator's interpretation was not perverse.

What did the court decide?

The arbitration petition was dismissed and the arbitral award was maintained in all respects with no order as to costs.

Hindustan Petroleum Corporation Ltd. Vs Tema India Ltd. and Anr. — Arbitration | Bombay HC (2012)

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO. 1025 OF 2009

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Hindustan Petroleum Corporation Ltd. a Government of India Company, registered under the Companies Act, 1956 having its registered office at Petroleum House, 17, J. Tata Road, Churchgate, Mumbai 400020 .. Petitioner

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V/s.

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1 TEMA India Limited, a company having its office at B-607, BSEL Tech Park, Sector 30A, Opp. Vashi Railway Station, Vashi, Navi Mumbai 400705

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2 Mr. T. Sita Ramaiah, Sole Arbitrator having address at 201, Topaz, Bhakti Park, Wadala East, Mumbai-400 037.

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.. Respondents

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Mr. Minoo Siodia with Mr. Kaushik N. Singh i/by M/s. Rustomji & Ginwala for the Petitioner.

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Dr. Virendra Tulzapurkar, Senior Advocate with Mr. Sandip Parikh i/by M/s. Vigil Juris for Respondent No.1.

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CORAM : ANOOP V. MOHTA, J. RESERVED ON : 4 SEPTEMBER 2012. PRONOUNCED ON : 11 OCTOBER 2012.

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ORAL JUDGMENT :-

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The Petitioner, original Respondent, has challenged the

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Award under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, “the Arbitration Act”) dated 2 March 2009 passed by the sole Arbitrator. The operative part of the Award is as under :-

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“(a) I direct the Respondent to release and pay to the Claimant the amount of Rs. 2,66,48,000/- withheld by the Respondent out of the bills payable to the Claimant.

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(b) Not many arguments were made for payment of interest. However, the rate claimed is too high as per today's standards. I, therefore, direct the Respondent to pay to the Claimant interest at the rate of 8% p.a from the date of the submission of the statement of claim i.e. 9^th September, 2008 till payment of the awarded amount.

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(c ) The arbitration proceedings were held at the premises of the Respondent. I am not awarding cost to either party in the arbitration and I am directing both the parties to pay their own costs.

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(d) I am not inclined to pass any award or direction in respect of the Claimant for loss of profits as the same was neither pressed nor substantiated or argued by either party. In any event, to compensate the Claimant, I have already awarded payment of interest. Hence, this claim is rejected.”

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2 The basic events are as under :-

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The Petitioner as a part of its Green Fuels Project for its refinery at Mumbai, required 28 stainless steel heat exchangers. Tender enquiry for supply of 28 NOS S S Duplex Heat Exchangers for GFEC Project was floated by M/s. Engineers India Ltd. (EIL), the Project Management Consultants (PMC). Respondent No. 1 emerged as L1 bidder for supply of all 12 items at a total basic cost of Rs.33,86,00,000/-.

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3 On 18 July 2005, Purchase Order No. 5000233 – OQ-

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48009 for total basic value of Rs.33,86,00,000/- was issued to Respondent No.1. The CIF value of import content indicated in the P. O. was Rs.26,65,00,000/-. Initially, the quotations were obtained on the basis of two conditions (I) project rate of customs duty against issue of PAC (Project Authority Certificate) and (ii) Merit rate of customs duty. The Petitioner had reserved the right to place Purchase Order based on any of the conditions. The Petitioner was not in a position to submit PAC and therefore, the P. O. was issued on basis of merit rate of customs duty.

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4 On 11 May 2007, after supply of the Heat Exchangers, by letter, the Petitioner asked Respondent No.1 to furnish documentary evidence in support that they have actually imported the materials. Respondent No.1 failed to do so, as alleged. Hence, an amount of Rs.2,66,00,000/- was retained by the Petitioner from the bills of Respondent No.1. The disputes and differences arose between the parties and the same were referred to Mr. T. Sita Ramaiah, as Sole Arbitration (Respondent No.2 herein).

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5 Respondent No.1 filed the claim Petition which was replied by the Petitioner and also filed the counter claim. Ultimately, the learned Arbitrator on 2 March 2009, by considering the written submissions filed by the parties, awarded the amount by observing as under :-

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“20 Considering the aforesaid rival submissions, I am not convinced with case of the Respondent and the argument put forth for the reasons set out above viz. That the prices were fixed and firm and not subject to any variation due to change in payment of customs duty as the said P.O. Was admittedly issued on basis of merits rate of customs duty. No PAC was issued to the Claimant and clauses 1(v)(b) to (i) are hence, not

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applicable. The claimant has already submitted as evidence by way of copies of Bills of Entry and hence, the ground of non-submission of document as a proof for the import of raw materials is also not available to the Respondent. I am, therefore, passing an award in favour of the Claimant.”

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6 There is no dispute with regard to the existence of Arbitration Clause, appointment of Arbitrator and the jurisdiction to decide the dispute between the parties. There is also no dispute with regard to the terms and conditions of the purchase order. The amount so calculated and withheld and details thereof, is also not in dispute. The Respondent supplied the Heat Exchangers as per the contract. No objection of any kind with regard to the delivery, quantity and quality of the goods supplied.

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7 Both the learned counsel appearing for the parties referred and read the various clauses of the agreement specifically clause 1 (v) (a) and clauses 1 (v) (b) to (i). It is clear from the clauses that referred by the learned Arbitrator that clause (a) speaks of merits rate of customs duty and subclause (b) speaks of project rate of customs duty, the other sub-

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clauses are extensions of sub-clause (b), which would be applicable to the project rate of customs duty. The purchase order was based on merits rate of customs duty. Therefore, the prices and variation in customs duty cannot be read as contended by the learned counsel appearing for the Petitioner and as observed by the learned Arbitrator.

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8 There is no dispute that PAC was not issued by the Petitioner therefore, related clauses, just cannot be extended to the merits rate of customs duty as provided in clause (a). The CIF value of import was Rs.26,65,00,000/- (Rupees twenty six crores sixty five lacs only) for the consideration of customs duty in case the PAC is issued by the Respondents. The import material components also provided in details. The Petitioner, therefore, fully aware of the imported components and its requirement while supplying the products in question. The learned Arbitrator, therefore, taking overall view of the matter decided the issues by interpreting the clauses by holding that clauses 1(v)(b) to (i) are not applicable to the contract in question. The learned Arbitrator has also rightly accepted the

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case of the Respondent-Claimant, based upon the clauses and the submission that the price was fixed for all the purposes. Once it is held that the agreement was to provide product and/or material based upon the fixed price, the change or variation in customs duty, in my view, should not affect the rate so fixed.

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9 The Petitioner by letter dated 11 May 2007 requested the Respondent-Claimant to provide the documentary evidence. Prior to that the Respondent by letter dated 16 March 2007, though not required, still submitted the copies of the Bills of Entry under which the materials were imported by the Respondent-Claimant. As recorded, these Bills of Entry show that the materials were duly imported and also the date of import. Importantly, even as per the Petitioner, the details of the imported material components have already been mentioned, based upon which the Respondent-Claimant proceeded and accepted the contract. The learned Arbitrator right in observing that having once not issued the PAC, the provisions as referred and relied by the learned counsel

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appearing for the Petitioner revolving around the same, are not applicable. Therefore, the conclusion that the Petitioner has no right to detain and/or retain the amount for want of documents, apart from giving possible and proper interpretation to the terms and conditions, in my view, just cannot be stated to be perverse and/or illegal and/or contrary to the law.

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10 I have already in Union of India Vs. M/s. Suraj Infrastructures Pvt. Ltd.,1 maintaining similar types of award of compensation on the ground of delay on the part of employer observed as under:-

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“26 The Apex Court in J.G. Engineers Private 2 Limited Vs. Union of India & Anr. , referring to Section 34 read with the provisions of Contract Act observed as under:-

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“Once it is held that the issues relating to who committed breach and who was responsible for delay were arbitrable, the findings of the arbitrator that the contractor was not responsible for the delay and that the termination of contract is illegal are not open to challenge.”

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1 Arbitration Petition No. 324 of 2009, dated 17 September 2012 2 (2011) 5 SCC 758

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In the result, the escalation price so awarded on the basis of delay and consequential termination of contract by the employer upheld.

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11 The Apex Court has also recently in Rashtriya Ispat Nigam Limited Vs. Dewan Chand Ram Saran3 reiterated that

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the possible view and the interpretation given by the Arbitrator, need not be interfered by the Court.

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12 I have also, in similar situation, observed in Hindustan

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Petroleum Corporation Ltd. Vs. M/s. ISGEC & Anr.4 that-

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“11 Apart from above, there is no terms and conditions referred and/or pointed out to show that the Petitioner is entitled to withhold the amount in any of such conditions and basically for want of the documents. The Petitioner, therefore, in absence of any contract clauses acted beyond the contract. The withholding action, therefore, rightly observed by the learned Arbitrator to be illegal. I am not inclined to accept the case of the Petitioner that the contract price was not fixed but subject to variation. The submission is contrary to the plain reading of the terms itself. The learned Arbitrator, therefore, having once held that the contract price was fixed / lump sum, which in the present facts and circumstances, cannot be stated to be illegal and contrary interpretation of the clauses. The reasoning in support of grant of award in favour of the Respondents, in my view, needs no interference.”

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3 (2012) 5 SCC 306

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4 2012 (3) Bom. C,R. 243=2012(114) Bom. L.R. 1679

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13 In the present case, an additional factor is that there is no clause and/or condition which permits the Petitioner-employer to detain and/or retain the amount, in any such circumstances and/or even otherwise. Therefore also, there was no question of retaining such huge amount only for want of documents as sought to be contended. The action was unauthorized and illegal.

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14 If there is no clause permits the Petitioner to retain and/or withheld the amount, the burden lies upon them to justify their action. Any retention of amount in such type of contract, specifically when there was no dispute of whatsoever nature, with regard to the quantity, quality and receipt of the goods, itself is contrary to the terms and conditions and impermissible. The Petitioner failed to discharge the basic burden in this regard. It is not the case that the Respondent-claimant not submitted their reply and details when asked for. The bills so referred and submitted, if provides the basic details, including quantity, material and the date of import, in my view, burden

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lies upon the Petitioner to show and prove that the customs duty rates were decreased and/or changed at the relevant time. The documents and/or evidence must be placed before the Arbitrator at the relevant time during the course of the trial and not later on. Therefore, the documents so placed on record after conclusion of the trial, just cannot be taken note of in such fashion, basically when the learned Arbitrator has interpreted the clauses and given findings against them. The scope and power of Court under Section 34 of the Arbitration Act is quite limited in this regard. One cannot overlook the fact that this is a commercial transaction with clear terms and conditions. Both the parties based upon the same acted upon and the goods were supplied accordingly.

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15 In this background, the submission of the learned counsel appearing for the Petitioner that the release of this amount and/or payment of this amount to the Respondent would be "Unjust Enrichment" is also unacceptable. The doctrine of “ quantum meruit” is also referred and relied. It is necessary to note that having once agreed and accordingly the Petitioner

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supplied the goods on a foundation of the fixed price basis, inclusive of customs duty, the variation, as sought to be contended by the Petitioner is also untenable, considering the terms and conditions of the contract. I am also of the view that there is no question of unjust enrichment, as sought to be contended by the learned counsel appearing for the Petitioner in the present facts and circumstances of the case.

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16 Therefore, taking note of rival contentions and the submissions so made by the learned counsel appearing for the parties and after reconsidering even the clauses so referred and relied, I am inclined to observe that, in the present facts and circumstances, the view taken by the learned Arbitrator based upon the clauses, is a possible and plausible view. Therefore, considering the commercial nature of transaction; and that there is no dispute with regard to the quality, quantity and supply of the goods; and that there is no provision in the contract to retain/detain the amount in such fashion; and that the Petitioner failed to discharge the burden to prove any variation to the customs duty at the relevant time; and that the

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findings with the agreement to supply goods based upon the fixed rate, no case to interfere with the award. The reasons so given by the learned Arbitrator is well within the purview of law and the record. There is no perversity. The interest so awarded from the date of statement of claim i.e. from 9 September 2008 till payment, is also reasonable and correct.

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17 Resultantly, the Petition is dismissed. Award is maintained

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in all respect. There shall be no order as to costs.

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(ANOOP V. MOHTA, J.)

Hindustan Petroleum Corporation Ltd. v. Tema India Ltd. and Anr.

Case brief

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Hindustan Petroleum Corporation Ltd. v. Tema India Ltd. and Anr.

Case brief

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