Internal inconsistency in arbitral reasoning can justify setting aside an exchange-rate claim and related interest.

An arbitral award granting an exchange-rate difference on funds retained and later deposited towards surtax liability was found vulnerable because its reasoning was internally inconsistent. The award treated the money as already credited in rupees and held for the respondent's tax liability, which meant the respondent owned it from the date of credit and the petitioner held it as depositee; yet it used the later deposit date for currency conversion and awarded the foreign-exchange difference. That inconsistency was held to amount to an error of law apparent on the face of the award. Claim No. 9, and the consequential interest on that claim, were set aside, while the remaining award was sustained.

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Issues: Whether Claim No. 9 in the arbitral award, granting the respondent the difference in exchange rate on the amount retained and later deposited towards surtax liability, suffered from an error apparent on the face of the award and was liable to be set aside.

Analysis: The amount retained by the petitioner was credited in its books in rupees towards the respondent's tax liability and was treated by the income-tax authorities in the petitioner's capacity as representative assessee. On that footing, the money belonged to the respondent from the time of credit and the petitioner held it as a depositee. The award nevertheless treated the later date of deposit as the operative date for currency conversion and allowed the respondent the exchange difference in US dollars. That approach was held to be internally inconsistent with the finding that the money had already been credited and retained for tax purposes, and therefore amounted to a manifest error of law apparent on the face of the award.

Conclusion: Claim No. 9 was set aside, along with the interest awarded on that claim.

Final Conclusion: The petition succeeded only in part, with the award sustained on the remaining claims and interfered with only to the extent of Claim No. 9 and the consequential interest.

Ratio Decidendi: Where an arbitral award proceeds on findings that are mutually inconsistent on a material legal issue, and the inconsistency is apparent from the award itself, the award is vulnerable to challenge for error apparent on the face of the record.

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