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Tuesday, October 7, 2014

Section 34 of the Arbitration and Conciliation Act, - Disputes arose - Arbitrator passed award - filed petition to cancellation - High court declined - DB also rejected - Apex court held that As noticed above, the parties have entered into concluded contract, agreeing terms and conditions of the said contract, which was finally acted upon. In such a case, the parties to the said contract cannot back out and challenge the award on the ground that the same is against the public policy. Even assuming the ground available to the appellant, the award cannot be set aside as because it is not contrary to fundamental policy of Indian law or against the interest of India or on the ground of patent illegality.= CIVIL APPEAL NO.9048 OF 2014 (Arising out of Special Leave Petition (Civil) No.10849 of 2013) Swan Gold Mining Ltd. …Appellant (s) Versus Hindustan Copper Ltd. …Respondent(s) = 2014- Sept. Month - http://judis.nic.in/supremecourt/imgst.aspx?filename=41946

Section 34 of the Arbitration and Conciliation Act, - Disputes arose - Arbitrator passed award - filed petition to cancellation - High court declined - DB also rejected - Apex court held that As noticed above, the  parties  have  entered into  concluded  contract,  agreeing  terms  and  conditions  of  the   said contract, which was finally acted upon.  In such a case, the parties to  the said contract cannot back out and challenge the award  on  the  ground  that the same is against the public policy.  Even assuming the  ground  available to the appellant, the award cannot  be  set  aside  as  because  it  is  not contrary to fundamental policy of Indian law  or  against  the  interest  of India or on the ground of patent illegality.=


Learned Single  Judge
had dismissed the appellant’s petition under Section 34 of  the  Arbitration
and Conciliation Act (in short, ‘the Act’)  challenging  the  award  of  the
Arbitrator.=
On refusal  by  the  respondent  to
make payment in  respect  of  excise  duty  and  other  taxes  paid  by  the
appellant relating to the work executed, the arbitration clause was  invoked
and the dispute was referred to a sole  Arbitrator,  who  after  considering
the pleadings and evidence led by the parties, held that the  price  bid  of
the appellant was not exclusive of  applicable  taxes.

Learned  Arbitrator
held that the clause relating  to  payment  of  taxes  was  deleted  by  the
appellant’s representative Mr. Ahlawat on 19.1.2007  and  since  work  order
was acknowledged, it is binding on the appellant. =

Aggrieved  by  the
decision of the learned Single Judge, appellant preferred appeal before  the
Division Bench of the High Court, which although upheld  the  contention  of
the appellant relating to the evidence on the issue of  deviation  in  price
bid on 19.1.2007, dismissed the Appeal on the ground of terms  contained  in
NIT and Work Order being in consonance with each other.  Hence, this  appeal
by special leave by the Australian company. =

 Section 34 of the Arbitration and Conciliation Act,  1996  corresponds
to Section 30 of the Arbitration Act, 1940 making a  provision  for  setting
aside the arbitral award.  In terms of sub-section (2) of Section 34 of  the
Act, an arbitral award may be set  aside  only  if  one  of  the  conditions
specified therein is satisfied.
The  Arbitrator’s  decision   is  generally
considered binding between the parties  and  therefore,  the  power  of  the
Court to set aside the award would be exercised  only  in  cases  where  the
Court finds that the arbitral award is on  the  fact  of  it   erroneous  or
patently illegal or in contravention  of the provisions of the Act.
 It  is
a well settled proposition that the Court shall  not  ordinarily  substitute
its interpretation for that of the Arbitrator. Similarly, when  the  parties
have arrived at a concluded contract and acted on the basis of  those  terms
and conditions of the contract then substituting new terms in  the  contract
by the Arbitrator or by the Court would be erroneous or illegal.

13.   It is equally well  settled  that  the  Arbitrator  appointed  by  the
parties is the final judge of the facts. The finding of  facts  recorded  by
him cannot be interfered with on the ground that the terms of  the  contract
were not correctly interpreted by him. =
As noticed above, the  parties  have  entered
into  concluded  contract,  agreeing  terms  and  conditions  of  the   said
contract, which was finally acted upon.  In such a case, the parties to  the
said contract cannot back out and challenge the award  on  the  ground  that
the same is against the public policy.  Even assuming the  ground  available
to the appellant, the award cannot  be  set  aside  as  because  it  is  not
contrary to fundamental policy of Indian law  or  against  the  interest  of
India or on the ground of patent illegality.

 22.  The  words  “public  policy”  or  “opposed  to  public  policy”,  find
reference in Section 23 of the Contract Act and also Section  34  (2)(b)(ii)
of the Arbitration  and  Conciliation  Act,  1996.   As  stated  above,  the
interpretation of the contract is   matter  of  the  Arbitrator,  who  is  a
Judge, chosen by the parties to  determine  and  decide  the  dispute.   The
Court is precluded from  re-appreciating  the  evidence  and  to  arrive  at
different conclusion by holding that  the  arbitral  award  is  against  the
public policy.

23.   We have given our anxious consideration in the matter.   In  our  view
the High Court has rightly came to the conclusion that no ground exists  for
setting aside the award as contemplated under Section 34 of the Act.

24.   For the reasons aforesaid, we do not find any merit  in  this  appeal,
which accordingly stands dismissed with no order as to costs.

2014- Sept. Month - http://judis.nic.in/supremecourt/imgst.aspx?filename=41946

                                                                  REPORTABLE

                          IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION


                        CIVIL APPEAL NO.9048 OF 2014
      (Arising out of Special Leave Petition (Civil) No.10849 of 2013)


Swan Gold Mining Ltd.                   …Appellant (s)

                                  Versus

Hindustan Copper Ltd.                   …Respondent(s)



                                  JUDGMENT

M.Y. Eqbal, J.:

      Leave granted.

2.    This appeal by special leave is  directed  against  the  judgment  and
order dated 19.9.2012 passed by the Division  Bench  of  the  Calcutta  High
Court whereby appeal  preferred  by  the  appellant  against  the  order  of
learned Single Judge of the High Court was dismissed.  Learned Single  Judge
had dismissed the appellant’s petition under Section 34 of  the  Arbitration
and Conciliation Act (in short, ‘the Act’)  challenging  the  award  of  the
Arbitrator.

3.  The case of the appellant is that a notice  inviting  tender  (NIT)  was
issued  by  the  respondent-Hindustan  Copper  Ltd.  inviting   offers   for
operation of its Surda Mine and Mosabani  Concentrator  Plant.   Respondent-
company was having several mines rich with natural resources being  metallic
ores.  The global tender floated by the respondent provided  that  it  shall
be the responsibility of successful bidder  for  payment  of  all  statutory
duties.  The appellant-company submitted its technical and  financial  bids.
It is contended on behalf of the appellant that the NIT contained  a  techno
commercial bid and a  separate  price  bid.   Price  bid  of  the  appellant
provided  that  any  Excise  Duty/Service  taxes  or  any   levy   presently
applicable or any variation or new  levy  in  future  to  be  reimbursed  on
actual basis.

4.  After negotiation and acceptance of the final price offer,  on  3.3.2007
respondent issued a Letter of Intent to  the  appellant  on  the  terms  and
conditions  of  the  NIT  and   other   terms   agreed   during   subsequent
discussions/negotiations.  Finally, on 26.3.2007  a  contract  was  executed
between the parties for re-commissioning and operation  of  the  Surda  Mine
and Mosabani Concentrator Plant.  Thereafter, a work  order  was  issued  on
14.4.2007 and the appellant raised its  Invoices  on  31.12.2007,  by  which
reimbursement  of  basic  excise  duty  and  other  duties  payable  by  the
appellant to the Government was sought.  On refusal  by  the  respondent  to
make payment in  respect  of  excise  duty  and  other  taxes  paid  by  the
appellant relating to the work executed, the arbitration clause was  invoked
and the dispute was referred to a sole  Arbitrator,  who  after  considering
the pleadings and evidence led by the parties, held that the  price  bid  of
the appellant was not exclusive of  applicable  taxes.   Learned  Arbitrator
held that the clause relating  to  payment  of  taxes  was  deleted  by  the
appellant’s representative Mr. Ahlawat on 19.1.2007  and  since  work  order
was acknowledged, it is binding on the appellant.

5.  The appellant challenged the award  by  way  of  filing  petition  under
Section 34 of the Arbitration and Conciliation Act before the Calcutta  High
Court on the grounds inter alia of perversity and contrary to law.   Learned
Single Judge of the High Court upholding the award and reasons  assigned  by
the learned Arbitrator, dismissed appellant’s petition.   Aggrieved  by  the
decision of the learned Single Judge, appellant preferred appeal before  the
Division Bench of the High Court, which although upheld  the  contention  of
the appellant relating to the evidence on the issue of  deviation  in  price
bid on 19.1.2007, dismissed the Appeal on the ground of terms  contained  in
NIT and Work Order being in consonance with each other.  Hence, this  appeal
by special leave by the Australian company.

6.    Mr.  Amarendra  Sharan,  learned  senior  counsel  appearing  for  the
appellant assailed the award and the  impugned  order  passed  by  the  High
Court on various grounds. Learned counsel contended that the appellant is  a
reputed Australian Mining Company and it submitted bid in response  to  NIT.
The price bid submitted by the appellant provided for “base price plus  55%”
and that any excise duty/service tax or any levy to be reimbursed on  actual
basis.  A meeting of the Tender  Evaluation  Committee  of  the  respondent-
company with the bidders  was  held  on  18.1.2007  and  19.1.2007  and  the
respondent did not object to the price bid submitted by the appellant  which
was exclusive of taxes.  It is further contended by the senior counsel  that
after opening of price bid, although the respondent made a request to  lower
the bid price, there was no request to change provision  relating  to  taxes
mentioned in the price bid by  which  respondent  was  liable  to  reimburse
taxes.  The appellant-company submitted the revised  bid  on  27.1.2007  and
reduced the percentage from 55% to 50% (over the base price) and  reiterated
its earlier offer of payment of taxes  by  the  respondent.   After  further
negotiation and reduction of price bid to “base price plus 49%”,  respondent
issued Letter of Intent on 3.3.2007 and the contract was signed between  the
parties on 26.3.2007.

7.   Learned senior counsel contended  that  on  14.4.2007  Work  Order  was
issued with its Clause 4.9, which provided  for  payment  of  taxes  by  the
appellant.  For the settlement of disputes pertaining to taxes  and  duties,
appellant invoked clause 4.14 of NIT and sought  appointment  of  Arbitrator
where it was claimed by the  appellant  that  price  bid  submitted  by  the
appellant  is  exclusive  of  taxes  and  clause  4.9.1  of  Work  Order  is
inoperative and void. This claim was dismissed by the Learned Arbitrator  on
the ground that the clause relating to payment of taxes was  denied  by  the
appellant’s representative Mr. Ahlawat  on  19.1.2007  and  since  the  work
order was acknowledged, it is binding on the appellant.

8.  Mr. Sharan has submitted that there had never been any negotiation  with
regard to the liability of payment of excise duties and taxes  as  the  same
was finally concluded to the effect that the taxes shall  be  liable  to  be
reimbursed by the respondent. The negotiation was only with respect  to  the
percentage which was finally reduced to  49%.   It  is  submitted  that  the
respondent gave a calculation  which  does  not  include  taxes.  All  these
backgrounds have neither been considered by the Arbitrator nor by  the  High
Court.  It was submitted that non consideration of the offer, counter  offer
and letter of acceptance by the Arbitrator  amounts  to  serious  error  and
patent illegality in the Award.  NIT is only invitation to offer, which  has
been superseded by subsequent offers  and  counter  offers  and  hence,  NIT
cannot become the contract. Lastly, Mr. Sharan contended that work order  is
a unilateral document and there was  no  consensus   ad  idem  on  the  Work
Order.

9.    Mr. Sharan, learned counsel put heavy  reliance  on  the  decision  of
this Court in the case of Oil and  Natural  Gas  Corporation  Ltd.  vs.  Saw
Pipes Ltd., (2003) 5 SCC 705, and submitted that if the  Award  is  contrary
to the substantive provision of law, or the provisions of  fact  or  against
the terms of contract, it would be patently illegal and could be  interfered
under Section 34 of the Act.  Mr. Sharan finally contended that the  parties
have expressly agreed that the bid price shall be exclusive of the  duty  of
taxes, deviation from such contract will go to the root of  the  matter  and
on  that  ground  Award  could  be  set  aside  if  it  is  so  unfair   and
unreasonable.  This will also be opposed to the public policy  and  required
to be adjudged void.

10.   Per contra, Mr. P.P. Rao, learned senior counsel for  the  respondent,
firstly submitted that the Award cannot be set aside except where the  Award
on the face of it suffers from patent illegality  and  perversity.   As  the
learned single Judge and the Division Bench  after  re-appreciation  of  the
entire facts and documents came to the conclusion that no ground  exists  to
set aside the Award, this Court should not interfere with the order  of  the
High Court.

11.   Learned senior  counsel  drawn  our  attention  to  various  documents
including NIT, initial bid proceedings of the meeting,  revised  bid,  offer
and counter offers, on the basis of which the letter of intent  was  issued.
Finally, the Work Order was issued and a contract was  signed  by  both  the
parties.  These documents would show that the appellant was made liable  for
payment of duty and taxes, which were inclusive of the bid price arrived  at
between the parties.

12.   Section 34 of the Arbitration and Conciliation Act,  1996  corresponds
to Section 30 of the Arbitration Act, 1940 making a  provision  for  setting
aside the arbitral award.  In terms of sub-section (2) of Section 34 of  the
Act, an arbitral award may be set  aside  only  if  one  of  the  conditions
specified therein is satisfied.  The  Arbitrator’s  decision   is  generally
considered binding between the parties  and  therefore,  the  power  of  the
Court to set aside the award would be exercised  only  in  cases  where  the
Court finds that the arbitral award is on  the  fact  of  it   erroneous  or
patently illegal or in contravention  of the provisions of the Act.   It  is
a well settled proposition that the Court shall  not  ordinarily  substitute
its interpretation for that of the Arbitrator. Similarly, when  the  parties
have arrived at a concluded contract and acted on the basis of  those  terms
and conditions of the contract then substituting new terms in  the  contract
by the Arbitrator or by the Court would be erroneous or illegal.

13.   It is equally well  settled  that  the  Arbitrator  appointed  by  the
parties is the final judge of the facts. The finding of  facts  recorded  by
him cannot be interfered with on the ground that the terms of  the  contract
were not correctly interpreted by him.

14.  We have gone through the facts of the case and  perused  the  documents
on the basis of which the Arbitrator gave the Award on 24.7.2009.

15.   The respondent issued notice inviting tender (NIT) for  the  operation
of its mine.  Clauses 4.9.1 to 4.9.5 of the NIT are extracted hereinbelow:-
“4.9.1.      The rates quoted by the successful bidder shall  be  deemed  to
be (inclusive) of the sales taxes, other taxes  and  service  tax  that  the
successful bidder will have to pay in India & Abroad for the performance  of
this contract.  HCL will perform such duty regarding the deduction  of  such
taxes at source as per applicable laws.

4.9.2. The successful bidder shall also be responsible to bear and  pay  any
taxes, cess,  fees  and/or  duties  levied  including  but  not  limited  to
interest, penalty and/or fine imposed by any authorities  including  revenue
authorities in India and/or abroad at any time even  beyond  the  expiry  of
the Contract period with respect  of  the  work  to  be  performed   by  the
successful bidder in accordance with the Contract.

4.9.3.      The successful bidder  shall  also  be  responsible  for  filing
income  tax  return  and/or  complying  with  necessary   procedure   and/or
formalities as required or may be required under the fiscal  laws  of  India
and/or abroad in respect of the work  to  be  performed  by  the  successful
bidder in accordance with the Contract.

4.9.4.      Corporate Tax and/or Income Tax,  if  any  applicable/levied  in
India and/or abroad on the successful bidder and/or its personnel and/or  on
the sub-contractors engaged by the successful bidder and /or  the  personnel
of  such  sub-contractors  in  respect  of  this  contract   will   be   the
responsibility of the successful  bidder.   All  the  necessary  return  and
other formalities will be the responsibility of successful bidder.

4.9.5.      All other statutory levies including but not limited  to  Custom
Duties/Excise Duties, Sales Taxes,  Works  Contract  and  other  levies   of
whatsoever  nature  payable  in  accordance   with   the   law   of   India,
levied/leviable on the  successful  bidder  and/or  its  sub-contractors  in
respect of performance of this contract shall be the responsibility  of  the
successful bidder or any of its sub-contractors.”

16.    The  appellant  in  response  to  NIT  submitted  its  technical  and
financial bids.  Subsequent to submission  of  the  technical  bid  and  the
price bid, the parties entered into negotiation and thereafter a  letter  of
intent on the terms and conditions of NIT and the other terms agreed  during
subsequent negotiations was issued. In  the  said  letter  of  intent  dated
3.3.2007, it was specifically mentioned that the execution of work shall  be
on  the  terms  of  notice  inviting   tender   (NIT)   and   other   agreed
discussions/negotiations subsequently held  between  the  parties.   Finally
the Work Order was issued on 14.4.2007 in continuation with  the  letter  of
intent dated 3.3.2007.  The relevant portion of the work order is  extracted
herein-below:-
                                 “WORK ORDER
 SUB:- Re-opening and operating of Sudra Mine & Mosaboni concentrator plant
                     at Indian Copper Complex, Ghatsila
Dear Sir,
With reference to the above subject, Hindustan Copper Limited is  please  to
issue  work  order  to  continuation  with  LOI  dated  03-03-2007  to   re-
commission, operate and maintain Surda Mine and Mosaboni concentrator  plant
to supply and deliver copper concentrate at rates Rs 1,53,470.00 per ton  of
mental in concentrate (Excluding Royality)  to  Maubhandar  work  of  Indian
Copper Complex, produced from the operations of these units.

This Work shall be governed by the terms and conditions of  the  Expressions
of Interest  of  dated  21-09-2006,  Notice  Inviting  Tender  No.  HC/HO/GM
(M&S)/SUDRA  dated  11-12-2006  and  the  other  agreed  during   subsequent
discussions/negotiations, and the final offer.”
                                                            (Emphasis given)

17.   In the course  of  hearing,  Mr.  P.P.  Rao,  learned  senior  counsel
appearing for the respondent produced before us a xerox  copy  of  the  Work
Order  dated  14.4.2007.  Clause  4.9.1  quoted   hereinabove   specifically
mentions therein that the rate quoted by  the  appellant  was  inclusive  of
sales tax, service tax and the  other  taxes.   The  representative  of  the
appellant signed the Work Order on each pages (20  pages)  and  acknowledged
and admitted the terms and conditions for the said work.

18.    From  the  facts  mentioned  hereinabove,  it  is  evident  that  the
appellant has accepted the liability of payment of excise duty,  sales  tax,
service tax and other taxes and hence it cannot  be  held  that  the  clause
4.9.1 of the Work Order is inconsistent with the  terms  and  conditions  of
contract documents.

19.   The learned Arbitrator has gone in detail of  the  dispute  raised  by
the appellant and rightly came to the conclusion that the responsibility  on
the appellant is to abide by the terms and conditions of the Work Order.

20.   We have also gone through the order passed by the  High  Court.    The
Court rightly came to the conclusion that there is no patent  illegality  in
the Award passed by the Arbitrator which needs  interference  under  Section
34 of the Act.

21.   Mr. Sharan, learned senior counsel appearing for the  appellant,  also
challenged the arbitral award on the ground that the  same  is  in  conflict
with the public policy of India.  We do not find any substance in  the  said
submission.  This Court, in the case of  Oil  and  Natural  Gas  Corporation
Ltd. (supra), observed that the term ‘public policy of  India’  is  required
to be interpreted in the context of jurisdiction  of  the  Court  where  the
validity of award is challenged before  it  becomes  final  and  executable.
The Court held that an  award  can  be  set  aside  if  it  is  contrary  to
fundamental policy of Indian law or the interest of India, or  if  there  is
patent illegality.  In our view, the said decision will not in any way  come
into rescue of the appellant.  As noticed above, the  parties  have  entered
into  concluded  contract,  agreeing  terms  and  conditions  of  the   said
contract, which was finally acted upon.  In such a case, the parties to  the
said contract cannot back out and challenge the award  on  the  ground  that
the same is against the public policy.  Even assuming the  ground  available
to the appellant, the award cannot  be  set  aside  as  because  it  is  not
contrary to fundamental policy of Indian law  or  against  the  interest  of
India or on the ground of patent illegality.

 22.  The  words  “public  policy”  or  “opposed  to  public  policy”,  find
reference in Section 23 of the Contract Act and also Section  34  (2)(b)(ii)
of the Arbitration  and  Conciliation  Act,  1996.   As  stated  above,  the
interpretation of the contract is   matter  of  the  Arbitrator,  who  is  a
Judge, chosen by the parties to  determine  and  decide  the  dispute.   The
Court is precluded from  re-appreciating  the  evidence  and  to  arrive  at
different conclusion by holding that  the  arbitral  award  is  against  the
public policy.

23.   We have given our anxious consideration in the matter.   In  our  view
the High Court has rightly came to the conclusion that no ground exists  for
setting aside the award as contemplated under Section 34 of the Act.

24.   For the reasons aforesaid, we do not find any merit  in  this  appeal,
which accordingly stands dismissed with no order as to costs.

                                                              …………………………….J.
                                                              [ M.Y. Eqbal ]


                                                               …………………………….J
                                                      [Pinaki Chandra Ghose]
New Delhi
September 22, 2014










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