TaxTMI 
TaxTMI 
2020 (5) TMI 242
X X X X Extracts X X X X
X X X X Extracts X X X X
....are as follows: appellant was awarded the work order dated 20.07.1995 pursuant to a tender floated by the Respondent in 1994. The contract agreement was for the purpose of well drilling and other auxiliary operations in Assam, and the same was effectuated from 05.06.1996. Although, the contract was initially only for a period of two years, the same was extended for two successive periods of one year each by mutual agreement, and finally the contract expired on 04.10.2000. 3. During the subsistence of the contract, the prices of HighSpeed Diesel ("HSD"), one of the essential materials for carrying out the drilling operations, increased. Appellant raised a claim that increase in the price of HSD, an essential component for carrying out the contract triggered the "change in law" clause under the contract (i.e., Clause 23) and the Respondent became liable to reimburse them for the same. When the Respondent kept on rejecting the claim, the Appellant eventually invoked the arbitration clause vide letter dated 01.03.1999. The dispute was referred to an Arbitral Tribunal comprising of three arbitrators. 4. On 19.12.2003, the Arbitral Tribunal issued the award in A.P No. 8 of 1999. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of this Court in McDermott International Inc. v. Burn Standard Co. Ltd. [(2006) 11 SCC 181] to support his contention. c. The question of law decided by the Arbitral Tribunal is beyond judicial review and thus the High Court could not have interfered with a reasoned award which was neither against public policy of India nor patently illegal. 9. In response, the learned counsel for the Respondent, supporting the findings of the High Court, submits that a. the award passed by the Arbitral Tribunal is contrary to the terms of the contract and essentially rewrites the contract. The Arbitral Tribunal has to adjudicate the dispute within the four corners of the contract and thus awarding additional reimbursement not contemplated under Clause 23 is perverse and patently illegal. b. Overlooking the terms and conditions of a contract is violative of Section 28 of the Arbitration Act and thus the tribunal has exceeded its jurisdiction. c. This is not a case where the Arbitral Tribunal accepted one interpretation of the terms of the contract where two interpretations were possible. Findings of the Tribunal are perverse and unreasonable as the Tribunal ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India. Explanation. -Without prejudice to the generality of subclause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81. (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter. (4) On receipt of an application under subsection (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time det....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he award of the Tribunal was reasonable and fair, so that the same passes the muster under Section 34 of the Arbitration Act? 15. In the present case, respondent has argued that the view taken by the Arbitral Tribunal was not even a possible interpretation, therefore the award being unreasonable and unfair suffers from perversity. Hence, the respondent has pleaded that the award ought to be set aside. In this context, we may state that usually the Court is not required to examine the merits of the interpretation provided in the award by the arbitrator, if it comes to a conclusion that such an interpretation was reasonably possible. 16. We begin by looking at the clause, i.e Clause 23 which is extracted below: SUBSEQUENTLY ENACTED LAWS: Subsequent to the date of price of Bid Opening if there is a change in or enactment of any law or interpretation of existing law, which results in additional cost/reduction in cost to Contractor on account of the operation under the Contract, the Company/Contractor shall reimburse/pay Contractor/Company for such additional/reduced cost actually incurred. 17. The Arbitral Tribunal held that this clause must be liberal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ght under the Clause 23 of the contract. Further the Arbitral Tribunal identifies the aforesaid clause to be a 'Habendum Clause', wherein the rights granted to the appellant are required to be construed broadly. 18. On the other hand, the High Court in the impugned order, interpreted the same clause as follows: "27...I am of the firm view that clause 23 was inserted in the agreement to meet such uncertain and unforeseen eventualities and certainly not for revising a fixed rate of contract. I also find that both parties had agreed to keep "force majeure" clause in the agreement. Under this doctrine of commercial law, a contract agreement can be rescinded for acts of God, etc. Under clause 44.3 of the agreement, 'force majeure" has been clearly defined, which includes acts and regulations of the Government to rescind a contract. In this way, clause 23 is very close and akin to the "force majeure clause". Besides this, I may also declare that clause 23 is pari materia to the "doctrine of frustration and supervening impossibility". In other words, under clause 23 rights and obligations of both the parties have been saved due to any change in the existing law or enactm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....frustration to fall on the party who sustained loss before the frustrating event. The best example of such an interpretation can be seen in the line of cases which came to be known as 'coronation cases'. In Chandler v. Webster, [1904] 1 KB 493, Mr. Chandler rented space from Mr. Webster for viewing the coronation procession of King Edward VII to be held on 26th June 1902. Mr. Chandler had paid part consideration for the same. However, due to the King falling ill, the coronation was postponed. As Mr. Webster insisted on payment of his consideration, the case was brought to the Court. The Court of Appeals rejected the claims of both Mr. Chandler as well as Mr. Webster. The essence of the ruling was that once frustration of contract happens, there cannot be any enforcement and the loss falls on the person who sustained it before the force majeure took place. 22. This formulation was overruled by the House of Lords in the historic decision of Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd., [1942] UKHL 4, wherein the harsh consequences of frustration as per the old doctrine was moderated by the introduction of the law of restitution. Interestingly, Lord Shaw in Cantiar....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the doctrine of frustration. Rather, under Indian contract law, the effect of the doctrine of frustration is that it discharges all the parties from future obligations. In order to mitigate the harsh consequences of frustration and to uphold the sanctity of the contract, the parties with their commercial wisdom, chose to mitigate the risk under Clause 23 of the contract. 27. Our attention was drawn to Sumitomo Heavy Industries Limited v. Oil and Natural Gas Corporation Limited, (2010) 11 SCC 296, where this Court interpreted an indemnity clause and found that an additional tax burden could be recovered under such clause. Based on an appreciation of the evidence, the Court ruled that additional tax burden could be recovered under the clause as such an interpretation was a plausible view that a reasonable person could take and accordingly sustained the award. However, we are of the opinion that the aforesaid case and ratio may not be applicable herein as the evidence on record does not suggest that the parties had agreed to a broad interpretation to the clause in question. 28. In this context, the interpretation of Clause 23 of the Contract by the Arbitral Tribunal, to provide....