TaxTMI 
TaxTMI 
2025 (6) TMI 673
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....pugned judgment has set aside the Awards holding that the conclusion arrived at by the learned Arbitral Tribunal was patently illegal and resulted in a manifest disregard of the terms of the contract. FACTUAL BACKGROUND: 4. The dispute has arisen out of the contracts entered into between the Appellant and the Respondent for Pipeline Replacement Project on lump sum basis. ('the Project') The line pipes were a significant part of the project, which involved installation and commission of line pipes. 5. As the Respondent was the successful bidder, the project was awarded to the Respondent vide Notice of Award ('NOA') dated 25.06.2008 and 30.06.2008 for a lump sum cost of Rs. 1,43,84,30,000 and Rs. 77,31,42,972 respectively ('Contract Price'). The Contract Price was inclusive of all tariffs, taxes, duties, levies etc. including but not limited to custom duty, excise duty, service tax etc. The NOA required a formal contract to be signed by the parties within 30 days from the date of the NOA. 6. After the NOA, the Appellant and the Respondent exchanged correspondences by which the Respondent explained to the Appellant that there was difficulty in procuring the 'lines pipes' domestica....
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....amount of Excise Duty indicated in the Contract Price Schedule (emphasis supplied) 8. In order to facilitate reimbursement of CVD in lieu of excise duty, the following changes were agreed: i. In Price Schedule (Annexure C) -Note 9 was added in General Notes "9. Reimbursement of only CVD (Countervailing duty) portion of Custom duty, for import of line pipes, equivalent to Central Excise Duty (ED) leviable on a like product manufactured in India shall be done. The CVD reimbursement shall be limited to amount of ED quoted in the price offer for import of line pipes only, against submission of supporting document (for payment of CVD). The CVD (14.42%) shall be calculated on the basis of assessable CIF value (and not on CIF + BCD + Surcharge, if any) for only line pipes imports made by contractor. Maximum reimbursement amount will be limited to amount of ED quoted in your offer." ii. Milestone Payment Formula (Annexure E) Note No 2 was added in respect of ED in same terms as above. 2.* Reimbursement of only CVD (Countervailing Duty) portion of Custom Duty, for import of line pipes, equivalent to Central Exise Duty (ED) leviable on a like product manufactured in India shall be....
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....Outside Experts Committee ("OEC"). The OEC vide their recommendation dated 12.12.2011, recommended that the Appellant should reimburse the excise duty. The Appellant refused to accept the recommendation of the OEC and requested the OEC to give another recommendation. The OEC reiterated their recommendation to their first recommendation and reiterated that the Appellant should reimburse Respondent for the excise duty. The Appellant was not agreeable to the same and thereafter, the Respondent invoked the arbitration clause and the dispute was referred to a three member arbitral tribunal. 14. The said arbitral tribunal rendered an award dated 20.02.2015, in favour of the Respondent and held that the Respondent was entitled to the reimbursement of the excise duty along with interest @12%. The said award was set aside by the consent of the parties and a Sole Arbitrator was appointed vide order dated 15.02.2019, passed by this Court in O.M.P. No. 429 of 2015 to adjudicate the dispute between the parties. 15. The learned Sole Arbitrator vide the Awards dated 10.01.2020 rejected the claim of the Respondent and held that the Appellant was not liable to reimburse the excise duty considerin....
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....envisaged under Section 34 of the Act. It is further contended that the learned Single Judge has done a factual review of the findings of the Awards and reviewed the merits in the application under Section 34 of the Act which is impermissible. 20. The learned counsel for the Appellant has submitted that the learned Single Judge has erroneously held that the award suffered from patent illegality and while finding the award to be patently illegal the learned Single Judge reinterpreted the terms of the contract and substituted his view with the findings of the arbitrator which were plausible and well-reasoned. The Appellants relied upon Raghunath Builders (P) Ltd. v. Anant Raj Ltd. 2023 SCC OnLine Del 7202, to submit that there is a limited scope of interference under Section 34 of the Act and the learned Single Judge has gone beyond the established contours of the scope of intervention. 21. The learned counsel for the Appellant has further contended that the reliance of the learned Single Judge on the decision of the Hon'ble Supreme Court in Provash Chandra Dalui vs Biswanath Banerjee 1989 Supp. (1) SCC 487, to hold that if the contractual principles are unambiguous then they shoul....
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....een placed on McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181, D.D. Sharma v. Union of India, (2004) 5 SCC 325, Board of Trustees of Chennai Port Trust v. Chennai Container Terminal (P) Ltd., 2014 SCC OnLine Mad 73 to submit that the correspondences exchanged between the parties shall be looked into while adjudicating a contract for the purpose of interpretation and construction of the contract. 27. The learned Counsel for the Appellant has further relied on Tarapore & Co. v. Cochin Shipyard Ltd. (1984) 2 SCC 680 and DLF Universal Limited v. Director, Town and Country Planning Department, Haryana (2010) 14 SCC 1 to further submit that the background, purpose and intention of the contract must be looked at while interpreting a contract. Further, if there were assumptions made while executing a contract such assumptions must be considered while adjudicating a dispute arising out of the contractual terms. 28. Further it was submitted that the learned Single Judge, while observing that the learned Sole Arbitrator's reliance upon the letter dated 27.08.2008 was unnecessary has overlooked the fact that the letter dated 27.08.2008 formed part of the contract an....
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....bmit that there is a limited scope of interference under Section 37 of the Act, and it is only limited to whether the Section 34 court has not gone beyond the scope of interference under Section 34 of the Act . 33. The learned Counsel for the Respondent submitted that the impugned judgment is well reasoned and properly adjudicates why the impugned award was liable to be set aside, as the learned Sole Arbitrator had erroneously interpreted clause 3.4.1.5 of the GCC. The learned Sole Arbitrator had failed to consider the hierarchical precedence of documents under recital (b) of the Agreement. The clause 3.4.1.5 of the GCC was without any ambiguity and therefore internal aids of interpretation should not have been relied upon. The learned Sole Arbitrator has essentially re-written the terms of the contract which is impermissible. 34. It was further submitted that it is not disputed that the Respondent had paid the excise duty for procurement of line pipes and the only dispute is in regard to the method of the payment of the excise duty. The case of the Appellant is that only the excise duty paid directly to the tax authorities would be reimbursed, the contention of the Appellant is ....
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....biguous, plain and simple. It is only when the words of the contract are ambiguous or unclear then only should the aids for interpretation be looked at. 39. The learned counsel for the Respondent submitted that the Awards failed to consider the material terms of the contract and as a result the Awards were rightly set aside and relied on the decision of Indian Oil Corporation Ltd. v. Shree Ganesh Petroleum, (2022) 4 SCC 463, to further his argument that if the arbitral award fails to consider the material terms of the contract, the award cannot stand. 40. Further, the learned counsel for the Respondent contended that it is trite law that when the interpretation of an award by the arbitrator is completely unsound, unreasonable and untenable, then such an award is liable to be set aside. The learned counsel for the Respondent has relied on South East Asia Marine Engineering & Constructions Ltd. v. Oil India Ltd., (2020) 5 SCC 164, Patel Engineering Ltd v. Northern Eastern Electric Power Corporation Ltd., (2020) 7 SCC 167, and DMRC Ltd. v. Delhi Airport Metro Express (P) Ltd., (2024) 6 SCC 357, to submit that when the award is completely unsound, unreasonable, perverse and untenable....
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....he Hon'ble Supreme Court in Pandit Chunchun Jha (supra), United India Insurance Co. Ltd. (supra), State Bank of India (supra) and Rajasthan State Industrial Development and Investment Corporation (supra) relied upon by the Respondent. 47. The decision in Provash Chandra Dalui (supra) relied on by the Appellant would not be applicable in the present facts and circumstances as the clause 3.4.1.5 of the GCC is unambiguous, plain, clear and express. 48. The impugned judgment has correctly held that when the terms of the contract were unambiguous, the negotiations between the parties in the contract should not have been looked into considering clause 1.2.5 of the GCC, which stated that the contract constitutes an entire agreement and supersedes all past negotiations, communications and agreements entered into between the parties prior to the execution of the contract. Ignoring an explicit clause of the contract or acting contrary to the terms of the contract amounts to patent illegality. The above law has been settled in the decision of the Hon'ble Supreme Court in Indian Oil Corporation Ltd. (supra). 49. The Awards relied on the letter dated 27.08.2008 to hold that the Respondent wa....