TaxTMI 
TaxTMI 
2023 (11) TMI 493
X X X X Extracts X X X X
X X X X Extracts X X X X
....titioner herein together with interest at the rate of 7.25 % from the date of the Award till final payment and/or realization. 3. Further by the impugned order dated 20.07.2020 the Arbitral Tribunal has decided preliminary issue "whether the dispute involves allegations of serious fraud by the Claimant thereby rendered the dispute non-arbitrable?" against the Petitioner herein. Thus, the Arbitral Tribunal held that at the higher the allegation in the statement of Defence is a case of simple fraud and not a case of serious allegations of fraud thus held that the claims are arbitrable. 4. By an order dated 01.01.2022 passed by this Court in the above Commercial Arbitration Petition, this Court was of the opinion that the Commercial Arbitration Petition can be heard and disposed of at the admission stage. This was whilst considering the application of the Respondent herein for withdrawal of the awarded amount deposited by the Petitioner in this Court pursuant to the order dated 16.12.2021. Accordingly, directions were issued to the Counsel for the parties for placing on record brief written notes of arguments and compilation of judgments if any, within a period of four weeks fro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of coal to Chandrapur TPS. vii) The Respondent submitted PBG of Rs. 46.62 crores of Yes Bank for the Chandrapur TPS on 30.09.2013. viii) A Circular No. 41/2013 was issued on 21.10.2013 by which importers of coal from ASEAN countries could pay for the first time a total duty of 2% i.e. 0% BCD + 2% CVD (instead of 6% CVD). ix) The Contract for supply of 9,56,500 MT to Chandrapur TPS was executed on 25.10.2013 whereunder Contract period began on 13.09.2013. x) The Petitioner released on 04.12.2013 the 1st payment (90% through LC) for invoice submitted by the Respondent for Bhusawal TPS. The payment included the BCD component. xi) The Petitioner released the 1st payment (90% through LC) for invoice submitted by the Respondent for Chandrapur TPS on 31.12.2013. This payment included the BCD component. xii) The Petitioner addressed a letter on 01.03.2014 to the Respondent raising the issue of availing concessional BCD. By this time, approximately 47.44% of the final quantity was supplied to Bhusawal TPS and 38% of the final quantity was supplied to Chandrapur TPS. xiii) The Respondent replied to the Petitioner's letter dated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me. xxii) The Petitioner addressed a letter to the Respondent on 09.10.2014 informing the Respondent about its refusal to take into consideration the full quantity received at Chandrapur TPS for the last rake. xxiii) This was responded to by the Respondent vide letter dated 13.10.2014 protesting against the decision taken by the Petitioner in letter dated 09.10.2014. The Respondent issued final invoice for the full MIR quantity. xxiv) The PBG for Bhusawal TPS was discharged on 31.10.2014 and the PBG for Chandrapur TPS was discharged on 01.11.2014. xxv) The Petitioner addressed a letter to the Respondent on 28.11.2014 alleging that the tolerance/variation of +/- 2% was applicable separately for supplies made to Chandrapur TPS and Khaparkheda TPS. xxvi) The Respondent addressed several letters to the Petitioner for releasing balance payments which were outstanding against the contracts. xxvii) The Respondent addressed a letter to the Petitioner on 22.01.2015 requesting it to accept the quantity tolerance for supplies made under the Chandrapur Contract TPS and accept the final invoice. xxviii) On 31.03.2015, the Petitioner....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ms (except the claim for 2% BCD) are beyond the scope of reference. xxxix) The Respondent moved an application on 14.12.2018 before this Court for modifying/altering the statement about restricting its claim to 2% BCD only. This application was rejected by this Court on 17.12.2018. xl) The Directorate of Revenue Intelligence (DRI) had investigated the supply of coal by the Claimant to the Respondent/ Petitioner herein and the DRI had found that the Claimant has perpetrated fraud and misrepresentation in importing and supplying the said coal. The Order of DRI was set aside by CESTAT. The Appeal from the said order by CESTAT was thereafter dismissed by this Court. xli) The impugned order dated 20.07.2020 was passed dismissing the preliminary objection raised of disputes being non-arbitrable on account of serious fraud allegedly committed by the Respondent. xlii) The impugned Award was passed on 21.04.2021 directing the Petitioner to pay the Respondent a sum of Rs. 22,06,47,321/- alongwith interest @7.25% p.a. from the Award date till payment. xliii) On 20.08.2021, the present Commercial Arbitration Petition was filed. xliv) The Ci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rm A-1 after supplies have already begun, this contradicts its own interpretation of the contract. He has submitted that the Claimant must avail of any concession that becomes available after the contract has come into force. In the event, the Claimant's argument is accepted, it would lead to an absurd situation where the Claimant agreed not to avail of a duty concession that was available in law. Moreover, there is no evidence to suggest that obtaining Forms A-1 would have cost more than 2% BCD exemption that was not claimed. 10. Mr. Sawant has submitted that as per Clause 10 of Annexure III of the ASEAN Notification, an AIFTA certificate of origin could even be obtained retroactively in exceptional cases and no longer than 12 months from the date of shipment. He has submitted that the Claimant could have availed the benefit of this provision by making an application for the AIFTA certificate for the remaining goods to be shipped after the enforcement of the Notification No. 41/2013. 11. Mr. Sawant has submitted that the Claimant did not produce any evidence to suggest that they had ever applied for the AIFTA certificate of origin. Therefore, this clearly indicates the appro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eaning of a contract must be gathered by adopting a common sense approach and must not be allowed to be thwarted by a pedantic and legalistic interpretation. 16 Mr. Sawant has also placed reliance upon the decision of the Supreme Court in Pawan Alloys & Casting (P) Ltd. vs. U.P. SEB (1997) 7 SCC 251 at page 284 wherein the Supreme Court has quoted with approval from Chitty on Contracts that the law does not approach the task of construction with too nice a concentration on individual words. The mercantile contract should be construed in a business fashion and in a manner that would make good commercial sense. He has placed reliance upon Chitty on Contracts, 27th Edn., Vol. I 1994, and in particular paragraph 45 regarding contracts in standard form and paragraph 12.013 regarding onerous or unusual terms. He has also referred to paragraph 12.040 regarding intention of parties wherein the Author has commented that one must consider the meaning of the words used, not what one may guess to be the intention of parties. Further, the law does not approach the task of construction with too nice a concentration on individual words with regard to dealing with mercantile Contracts, the auth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion Mr. Sawant has relied upon the following Supreme Court Judgments: i) Union of India v. Raman Iron Foundry, (2 Judges); ii) H.M. Kamaluddin Ansari & Co. v. Union of India, (3 Judges) over-ruling Raman Iron Foundry - paras 21, 24, 27, 28, 31; iii) Gangotri Enterprises Ltd. v. Union of India, (2 Judges) follows Raman Iron Foundry - without noticing that it has been over-ruled by a 3-Judge Bench in H.M. Kamaluddin Ansari; and iv) State of Gujarat v. Amber Builders, (2 Judges) paras 19 to 21 - holds that Gangotri Enterprises is per incuriam because it relies upon Raman Iron Foundry which has been specifically over-ruled by a 3-Judge Bench in H.M. Kamaluddin Ansari. 20. Mr. Sawant has submitted that the Petitioner being a Public Sector Undertaking is considered a State according to Article 12 of the Constitution of India. As the funds involved in the contracts in question are public money, the terms of the contracts have been designated to protect the public interest and ensure that the work is carried out with care and diligence. 21. Mr. Sawant has thereafter made submissions with regard issues Nos. 2 to 5 being beyond the scope of referenc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Petitioner is correct and in accordance with the terms of the contract viz, communications dated 02.09.2014, 12.09.2014, 09.10.2014, 26.11.2014 and 10.09.2015. He has submitted that Amendment No. 4 clearly states that "The total quantity for Chandrapur TPS after diversion of 80,000 MT quantity to Khaperkheda TPS is 8,76,500 MT". He has submitted that the Arbitral Tribunal ought to have considered the said clause 8.7 of Schedule-A while deciding the Issue No. 2, which states that "The seller shall note that if any excess quantity beyond contractual quantity considering tolerance of +2% is received at the TPS: the payment for such quantity shall not be made". He has submitted that the Arbitral Tribunal ought to have considered that clause 8.7 of Schedule-A is an express prohibition in the contract and that if the claim is granted then the same will be contrary to the express prohibition in the contract. He has submitted that on the same principles of 'business-like interpretation', 'common sense interpretation' and 'purposive interpretation' of the contract (as per the supreme Court decisions already quoted above), it is clear that the tolerance levels of +/- 2% is to be applied sep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....velopment Authority and Another. (2015) 4 Supreme Court Cases 136, where the Supreme Court has placed reliance upon its prior decision in ONGC Ltd. Vs. Saw Pipes Ltd. SCC pp.740-43 paras 64 & 67-68., where it was held that if compensation named in a contract for such breach is a genuine pre-estimate of loss which the parties knew when they made contract to be likely to result from the breach of it, there is no question of proving such loss. He has submitted that the Arbitral Tribunal has erred in holding that liquidated damages has not been proved by leading evidence. 29. Mr. Sawant has made submissions with regard to Issue No. 4 - short payment under Contract No. 2041 dated 30.08.2023. He has submitted that reconciliation proceedings are not yet concluded as the Claimant have made various alterations in view of the disputed amount which is yet to be identified. The Respondent denies that an amount of Rs. 21,76,555/- is due and payable under the Bhusawal Contract. 30. Mr. Sawant has in respect of Issue No. 7 - Limitation, submitted that the cause of action first arose on 19.03.2014, when the Petitioner informed the Claimant that the Petitioner would be recovering the said amo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection-1 containing the instruction to Bidders. Mr. Nankani has submitted that consequently, when the Petitioner and the Respondent executed the Contract, Schedule B thereof expressly provided for BCD calculated @2% of the landed value (also the assessable value under the provisions of the Customs Act, 1962) calculated @101% of the CIF (CIF + 1%). He has referred to the relevant portion of Schedule-B in respect of the price break up relating to 2% BCD. 35. Mr. Nankani has submitted that the Petitioner's challenge to the impugned Award and interim order are based on the premise that the Arbitral Tribunal had incorrectly interpreted the terms of the Supply Contracts. He has submitted that there are a plethora of judgments which have defined the limited contours or the restricted remit of a Court when a Petition is adjudicated under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act). Regarding the question of interpretation of contracts, it is settled law that the Arbitrator is empowered to interpret the contract. This means that no Court can interpret the contract for the Arbitrator. The interpretation and construction of a contract is therefore primarily f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....been issued during the contractual period, but since Clause 5.2 does not apply to or cover CVD, the same is of no relevance. He has submitted that Section 151A of the Customs Act provides for the Central Board of Excise & Customs (now known as 'Central Board of Indirect Taxes & Customs') may issue a Circular to bring about uniformity in matters of classification and levy of duty. The Circular is executive and not legislative in nature. It has been held in large number of cases including in Jayant Dalal vs. Commissioner (1997) 10 SCC 402 that the said Circular is binding only on the Department and not on the Assessee. Being clarificatory in nature, the same only confirms the law as it existed at the onset. 40 Mr. Nankani has submitted at the beginning of the contractual period, coal attracted 3 rates of basic customs duty. 10% as per Customs Tariff, 2% as per Notification 12/2013 Cus. and Nil as per Notification 46/2011 as amended on 31.12.2012. There was no change in the rate of BCD after the contractual period started to run. Hence, Clause 5.2 of the Contract is not attracted. The parties chose to apply the concessional rate of the basic customs duty @ 2%. There has been no cha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r against the order of CESTAT was then referred to the Supreme Court and was pending, the Arbitral Tribunal rightly did not consider the DRI order. 44. Mr. Nankani has submitted that the Arbitral Tribunal had correctly decided the issue of obtaining AIFTA Certificate (Form A-1) upon a reading of Notification No. 46/2011 and which provided that it has to be obtained pre-shipment. Moreover, since the procedure and machinery as per ASEAN Trade Rules for obtaining Form A-1 required the exporter to apply for the Form A-1 pre-shipment, it was not possible to make this happen midway. 45. Mr. Nankani has addressed the other issue raised by Mr. Sawant during arguments and which relates to Claim Nos. 2 to 5 being beyond the scope of reference. He has submitted that the Arbitral Tribunal has correctly interpreted that Section 11 of the Arbitration Act does not require the Chief Justice or his designate to identify the disputes or refer them to the Arbitral Tribunal for adjudication. Hence, the order dated 30.10.2018 passed in the Section 11 Application referring the disputes to arbitration could not have restricted the Respondent from making its claims as per its notice of invocation da....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r. Nankani has submitted that the Petitioner had deducted sum of Rs. 1,12,16,141/- on the ground of alleged shortage in excess of - 2% at Khaparkheda. The Petitioner had directed the Respondent to divert 80,000 MTs from Chandrapur Contract to Khaparkheda. As against 80,000 MTs, the Respondent actually delivered 58,297 MTs. Applying +/-2% tolerance limit under Clause 8.7 of the Chandrapur Contract to the quantity of 80,000 MT (1600 MT), the Petitioner alleged that there was shortage beyond 1600 MTs, and non-performance of the entire contract or part thereof and that the Petitioner was entitled to deduct liquidated damages under Clause 15.1 of the Chandrapur Contract. He has submitted that this calculation of +/-2% with reference to 80,000 MT is erroneous. The tolerance limit of +/-2% had to be calculated on the total quantity of 9,56,500 as per the Chandrapur Contract. The tolerance limit cannot independently or on stand-alone basis, be applied to diverted quantity of 80,000 MT since it is part of the ordered quantity under the Chandrapur Contract. There is undisputedly no separate contract for 80,000 MT diverted to Khaparkheda. He has accordingly submitted that there is no merit to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d thereafter, the Chief Engineer (FMC) of the Petitioner had rejected the Respondent's claims vide letters dated 24.07.2015 and 10.09.2015. In the Arbitral Tribunal's view, the Petitioner was not bound to make payment of the balance amount to the Respondent until the balance payments could have been sought only after stipulated factors were determined and adjustments were carried out, which happened only upon joint reconciliation of accounts which was completed by the parties on 24.05.2017 in relation to Bhusawal Contract and on 22.03.2017 in relation to Chandrapur Contract. Hence, the Arbitral Tribunal has rightly held that the claims of the Respondent were within limitation. 52. Mr. Nankani has submitted that the notice of arbitration is dated 31.08.2017 and in view of part payments made by the Petitioner to the Respondent between October and November, 2015, these factors have been rightly taken into consideration by the Arbitral Tribunal including as aforementioned the Joint Reconciliation of Accounts completed by the parties on 24.05.2017 in case of Bhusawal Contract and on 22.03.2017 in respect of the Chandrapur Contract in which the amounts deducted (and now claimed) were ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... contractual period. In any event the Arbitral Tribunal had noted that the parties chose not to lead oral evidence and having done so, there was nothing on record to show as to when the said Circular dated 03.10.2013 was issued. There is much merit in the submission of the Respondent that the Petitioner cannot now call back the Circular which according to the Petitioner was not in existence on the date of the execution of the contract. 56. It is settled law that the Arbitral Tribunal is empowered to interpret the contract and the Court cannot interpret contracts for the Arbitrator. The interpretation and construction of a contract is primarily for the Arbitrator. The Arbitrator's view on the interpretation of the Clauses of the contract, is a possible view and hence calls for no interference under Section 34 of the Arbitration and Conciliation Act, 1996. Thus, in my view there is no merit in the challenge to the finding of the Arbitral Tribunal with regard to issue No. 1. The Arbitral Tribunal having interpreted the aforementioned clauses which this Court finds is a possible interpretation cannot be a ground of challenge under Section 34 of the Arbitration Act. 57. The decisi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....drapur Contract. 60. The Arbitral Tribunal in considering this issue has interpreted Clauses 8.7 to 8.11 of the Contract. The Arbitral Tribunal has considered that Clause 8.11 of the Chandrapur Contract only permitted the Petitioner to divert rakes from designated TPS to another TPS as per requirement. The Respondent only had the right to have coal diverted to the Khaperkheda TPS. The Arbitral Tribunal by interpreting Clause 8.7 has considered the expression 'ordered quantity/contracted quantity' which meant the tolerance of +/ -2% was against contracted quantity if fully ordered or against the ordered quantity. The parties were required to follow the procedure under Clause 35 of the Contract and no independent contract was entered into between the parties for the purpose of diversion of quantity. 61. The Arbitral Tribunal in my view has correctly accepted the contention of the Respondent that the tolerance limit of +/- 2% under Clause 8.7 of the contract cannot independently or on stand alone be applied to the diverted quantity of 80,000 MT since it is a part of the ordered quantity and the tolerance limit of +/-2% necessarily would have to be calculated on the total quantit....