TaxTMI 
TaxTMI 
2005 (4) TMI 611
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated in brief. On March 10, 1988, Hindustan Copper Limited ('HCL' for short) invited tender for supply of oxygen for its plant at Ghatsila. The tender contained a condition that successful bidder will set up an oxygen plant in the vicinity of HCL. The tender of Bhagwati Oxygen Limited ('BOL' for short) was accepted and an agreement had been entered into between HCL and BOL on March 17/April 14, 1990. It was for a period of seven years from the date of commencement of supply of oxygen. The agreement stated that the supplier i.e. BOL will at its own cost install, operate and maintain an oxygen plant of 25 TPD capacity of pressure vacuum swing absorption type with suitable compressors for supply of high purity oxygen gas to HCL. It also stated that the purity of oxygen would be 99 per cent. The agreement further stated; ''The oxygen plant should have the capacity to supply not less than 1,25,000 mm^3 of gas of 99 per cent purity per week on a sustained basis as and when required by HCL. Clause 2.3 clarified that the minimum acceptable purity of the oxygen gas should be 85 per cent for both flash furnace and converter. Meter readings for invoicing billing purpose were to be ta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rising out of in connection with the agreement entered into between HCL and BOL including any dispute or difference relating to the interpretation of the agreement or any clause thereof, shall be referred to sole arbitration of a person appointed jointly by the Chairman of HCL and BOL. The provisions of the Arbitration Act, 1940 and the rules thereunder and any amendment thereto from time to time shall apply. The award of the arbitrator shall be final, conclusive and binding to all the parties to the contract. The arbitrator shall be competent to decide whether any matter, dispute of difference referred to him falls within the purview of arbitration as provided for above." 6. In accordance with the terms and conditions of the contract, BOL set up its oxygen producing plant on 31st July, 1992 and commenced supply of oxygen to HCL. It is the case of BOL that it supplied oxygen to HCL from 10th February, 1993 to 12th August, 1993. According to the BOL, however, no payment was made by HCL to BOL on the ground that oxygen supplied by BOL to HCL did not meet the purity standard as agreed between the parties. It was also alleged by BOL that bad water was supplied by HCL as a result of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....allowed the claim of BOL nor could have dismissed the counter claim of HCL. Since there was breach of contract by BOL, it was not entitled to any amount. On the other hand, in view of noncompliance with the terms and conditions of the contract and breach of agreement, BOL was liable to pay and HCL was entitled to the amount claimed in the counter claim. It was also urged that the Arbitrator had no jurisdiction and had committed an error of law as well as of jurisdiction in awarding interest at the rate of eighteen per cent for pre-reference, pendente lite and post award period. 10. The learned single Judge heard the parties and held that so far as the claim of BOL was concerned, the Arbitrator was right in allowing the said claim and no interference was called for. Regarding counter claim, however, the learned single Judge was of the opinion that Clause 10.4 as extracted hereinabove was clear and it provided for ''default''. The learned single Judge referred to several letters and communications by HCL to BOL and observed that from those documents, it was proved that objection was raised by HCL as to non supply of oxygen gas by BOL and BOL was expressly intimated that HCL would ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e argument of HCL that the Arbitrator was wrong in dismissing the counter claim and he had not considered several communications to BOL. The order of the learned single Judge thus did not call for interference. Regarding rate of interest, the Division Bench was of the view that learned single Judge was right in observing that Section 61 of Sale of Goods Act did not provide the rate of interest. It was also true that there was no indication in the contract as to payment of interest. In the opinion of the Division Bench, however, the learned single Judge was right in reducing the rate of interest keeping in view the provisions of Section 34 of the Code of Civil Procedure and as such that part of the order also did not warrant interference. The Division Bench thought it proper to dismiss the appeals and accordingly both the appeals were dismissed. 14. Both the parties, i.e. HCL and BOL have approached this Court. 15. We have heard learned counsel for the parties. 16. Learned counsel for BOL submitted that the Arbitrator was wholly right in passing the award and in allowing the claim of BOL. It was urged that learned single Judge as well as the Division Bench were totally wron....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the agreement entered into between the parties; purity of oxygen was not maintained; other terms and conditions were also not fulfilled by BOL and as such, BOL was not entitled to any relief. It was, therefore, prayed that the award passed by the Arbitrator deserves to be quashed in its entirety by allowing the appeal of HCL. 18. In the light of rival contentions of the parties, in our opinion, three questions arise for our consideration : (1) Whether on the facts and in the circumstances of the case, the Arbitrator was right in allowing the claim of BOL? (2) Whether the Arbitrator had misconducted himself in passing the impugned award and by dismissing the counter claim of HCL and whether the learned single Judge and the Division Bench of the High Court were right in setting aside that part of the award by directing the Arbitrator to re-consider the matter and decide it afresh? and (3) Whether the Arbitrator had power to award interest at the rate of eighteen per cent per annum for pre-reference period, pendente lite and post reference, i.e. future interest from the date of award till the date of payment and whether the learned single Judge and the Di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of furnace oil nor drop in production by HCL. Referring to the decisions of this Court in Associated Hotels of India Ltd. v. S.B. Sardar Ranjit Singh, [1968] 2 SCR 545 and Brijendra Nath Bhargava and Anr. v. Harsh Vardhan and Ors., [1988] 1 SCC 454, the Arbitrator held that even if it was the case of HCL that there was non-compliance of certain terms and conditions by BOL, there was waiver and abandonment of the rights conferred on HCL and it was not open to HCL to refuse to make payment to BOL on that ground. In view of waiver on the part of HCL, it was incumbent on HCL to make payment and since no such payment was made, BOL was right in making grievance regarding non-payment of the amount and accordingly an award was made in favour of BOL. The learned single Judge as well as the Division Bench of the High Court considered the grievance of HCL so far as the claim of BOL allowed by the Arbitrator and upheld it. 22. In view of the finding recorded by the Arbitrator and non-interference by the High Court, we are of the view that no case has been made out by HCL as regards the claim allowed by the Arbitrator in favour of BOL to the extent of supply of oxygen gas to HCL. Hence,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es have fully established that position, where awards have been attempted to be set aside on the ground of the admission of an incompetent witness or the rejection of a competent one. The court has invariably met those applications by saying, 'You have constituted your own tribunal; you are bound by its decision." (emphasis supplied) 27. In Union of India v. Rallia Ram, AIR (1963) SC 1685, this Court said; "An award being a decision of an arbitrator whether a lawyer or a layman chosen by the parties, and entrusted with power to decide a dispute submitted to him is ordinarily not liable to be challenged on the ground that it is erroneous. In order to make arbitration effective and the awards enforceable, machinery is devised for lending the assistance of the ordinary Courts. The Court is also entrusted with power to modify or correct the award on the ground of imperfect form or clerical errors, or decision on questions not referred, which are severable from those referred. The Court has also power to remit the award when it has left some matters referred undetermined, or when the award is indefinite, or where the objection to the legality of the award is apparen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted beyond the jurisdiction conferred on him. 30. In U.P. State Electricity Board v. Searsole Chemcials Ltd., [2001] 3 SCC 397, this Court held that where the Arbitrator had applied his mind to the pleadings, considered the evidence adduced before him and passed an award, the court could not interfere by reappraising the matter as if it were an appeal. 31. In Indu Engineering & Textiles Ltd. v. Delhi Development Authority, [2001] 5 SCC 691, it was observed that an Arbitrator is a Judge appointed by the parties and as such the award passed by him is not to be lightly interfered with. 32. In Bharat Coking Coal Ltd. v. M/s. Annapurna Construction, [2003] 8 SCC 154, this Court held that there is distinction between error within jurisdiction and error in excess of jurisdiction. The role of the Arbitrator is to arbitrate within the terms of the contract and if he acts in accordance with the terms of the agreement, his decision cannot be set aside. It is only when he travels beyond the contract that he acts in excess of jurisdiction in which case, the award passed by him becomes vulnerable and can be questioned in an appropriate court. 33. In the instant case, the Arbitrator h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id to a case of misconduct covered by Section 30 of the Act. The learned single Judge as also the Division Bench were, therefore, not justified in setting aside the award passed by the Arbitrator dismissing the counter-claim and hence the order of the learned single Judge as confirmed by the Division Bench deserves to be set aside by restoring dismissal of counter-claim of HCL by the Arbitrator. 36. The last question relates to payment of interest. The Arbitrator awarded interest to BOL at the universal rate of eighteen per cent for all the three stages, pre-reference period, pendente lite and post award period. It is not disputed that in the arbitration agreement there is no provision for payment of interest. The learned single Judge as well as the Division Bench were right in observing that the Arbitrator, in the facts and circumstances, could have awarded interest. The Arbitrator had granted interest at the rate of eighteen per cent on the ground of loan so advanced by HCL to BOL at that rate. 37. Now Section 34 of the Code of Civil Procedure has no application to arbitration proceedings since Arbitrator cannot be said to be a 'court' within the meaning of the Code. But an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nces arising between the parties. If the arbitrator has no power to award interest pendente lite, the party claiming it would have to approach the court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings. (iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to section 41 and Section 3 of Arbitration Act illustrate this point). The arbitrator must also act and make his award in accordance with the general law of the land and the agreement. (iv) Over the years, the English and Indian courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite, Thawardas has not been followed in the later decisions of this court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated....