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Judgment
Heard Mr. Sumeet Gadodia, counsel appearing on behalf of the petitioner along with Mr. Mohan Kumar Dubey, Advocate.
Heard Mr. Rajesh Kumar, counsel appearing on behalf of the Respondent.
This appeal has been filed under Section 37 of Arbitration and Conciliation Act, 1996 against the order dated 09.02.2007 in Misc. Arbitration Suit (Objection) No. 21 of 2004 passed by learned Sub-judge-I, Bokaro refusing to interfere with the award dated 03.07.2004 by the learned sole Arbitrator, to the extent of claim was not allowed by the learned Arbitrator and with a prayer to allow the claim of the Claimant as prayed for in the claim statement.
The learned counsel for the appellant submits that the appellant/applicant is a small scale industry and an ancillary to Bokaro Steel Plant. The Respondent Bokaro Steel Plant is a steel, Manufacturing Unit of Steel Authority of India Ltd. engaged in manufacturing various steel products. He submits that the appellant vide seven purchase orders entered into an agreement whereby the appellant was to convert the aluminum ingots provided by the respondent to aluminum shots and aluminum notched bars. He further submits that dispute in the present matter arose with respect to the agreements and the said agreements were divided into three categories by the learned arbitrator.
Counsel for the appellant while referring to the award itself submits that there were altogether three categories of claims and so far as category-III is concerned, the same being of a small amount, he is not pressing it.
So far as category-I is concerned, the counsel for the appellant submits that under the various purchase orders which were dated 18.03.1993, 17.11.1994 and 30.01.1995, the appellant had to convert aluminum ingots to aluminum shots and Notched Bars. In the instant case, the main dispute arose on account of percentage of aluminum contents of the Notched Bars to be manufactured by the appellant and the specification of the aluminum ingots to be supplied by the respondent to the appellant for conversion. He further submits that the same was never stated in any of the purchase orders.
The counsel further submits that usually in the general parlance, the Price Fixation Committee takes consideration of the percentage of aluminum in aluminum ingots to be supplied by the party. The same is usually taken as 99.5% of aluminum in aluminum ingots and 97.5% in Notch Bars. According to BSI Standards, the ingots supply should not have any iron impurity. The respondent supplied ingots of import origin which were sub-standard due to such supply, the appellant suffered loss and difficulty in converting the aluminum. The respondent on being appraised of the situation appointed a committee to look into the matter and the committee had given finding in favour of appellant as follows: -
(i) Iron which is present as impurity in aluminum ingots does not melt fully and retain the balance aluminum at bottom to form a heavy lump which cannot be taken out of liquid to make aluminum bars.
(ii) With the present aluminum, it is difficult to manufacture aluminum shots.
(iii) It was observed that better result can be achieved only if melting is done continuously at 10 to 25 tonnes of aluminum ingots and the lump formation of heavy metal will melt further and will be very less.
In spite of the above difficulties, the appellant executed the purchase orders produced the quantity required even though he incurred extra cost of metal, fuel and labour.
The opposite party did not consider the above facts and after much persuasion paid the appellant an amount of Rs. 1,20,852 against extra cost of metal, which is much disproportionate to the cost incurred by the appellant. The calculation was disclosed at the time of arbitral proceedings where the respondents have clearly applied erroneous method of calculation and have made up for the purity during conversions. The same was also found to be miscalculated by the learned arbitrator.
Counsel for the appellant by referring to the award submits that the learned Arbitrator while considering the claim under Category-I has clearly held that there was shortage of aluminum metal in ingots supplied by the respondent Bokaro Steel Limited and also there was a shortage of metal in converted aluminum shots and aluminum Notched Bars supplied by the claimant and ultimately found that the net shortage was 1162 Kgs and correspondingly calculated value of the net shortage at Rs. 88,823.28 only. He further submits that even as per the learned Arbitrator, there was a net shortage of supply of metal, but the learned Arbitrator while considering the loss and damage occurred as extra labour charges and extra fuel consumption, on the cost of conversion of aluminum ingots, has totally rejected the claim of the appellant. He further submits that once the shortage of metal was found on account of sub-standard quality of supply by the respondent, the loss and damage occurred on account of extra labour charges and extra fuel consumption was consequential to such shortage. He submits that on this account the Award passed by the learned Arbitrator was against the public policy of India and ex-facie perverse.
So far as the claim under Category-II is concerned, the learned counsel for the appellant submits that under this category purchase order No. 79992 dated 30.10.1995 is involved. The main dispute arose because the opposite party unilaterally amended the rate of conversion of aluminum ingots to notched bars, from Rs. 5806/MT to Rs. 4080/MT for 305.730 MT out of 500 MT vide amendment dated 20.08.1996. The learned Arbitrator while considering the claim under Category-II has taken note of the fact that the purchase order itself indicates that the price would remain firm during the currency of the contract and the same was one of the special conditions of contract and has also observed that there was revision of rate at the instance of the respondent and the entire claim under Category-II of the appellant was based on differential rate. He further submits that the reason which was assigned by the learned Arbitrator while refusing the claim on this account was that the appellant did not raise any objection or protest at any point of time, though as a matter of principle the objection should have been raised regarding validity of contract as the price of the contract was changed unilaterally by the respondent contrary to the terms and conditions of the contract. The learned Arbitrator on this basis held that the change/amendment having already been accepted by the appellant by their actions/conduct and further held that amendment made unilaterally turned into a lawful and valid amendment and on this ground the claim of the appellant was rejected under category-II. While assailing the finding of the learned Arbitrator under the Category-II, the counsel for the appellant has relied upon a judgment passed by Hon'ble Supreme Court reported in 2019 SCC Online SC 677 {Ssangyong Engineering & Construction Co. Ltd. Vs. National Highways Authority of India (NHAI)} and has referred to Para-76 of the said judgment to submit that it has been held that unilateral amendment in contract is against the Public Policy of India and the same principle would apply in the instant case also. He further submits that there has been unilateral amendment of contract by unilateral change of rate and accordingly the Award passed by the learned Arbitrator is ex-facie against the Public Policy of India. He has further referred to another judgment passed by Hon'ble Supreme Court reported in (2003) 8 SCC 154 (Bharat Coking Coal Ltd. Vs. Annapurna Construction) and has referred to Para-9 of the said judgment and submits that it has been held that merely because the bills have been accepted without protest, the same does not preclude the claimant from raising any further claim. He further submits that in the said case, the party had accepted the final bill and did not state unequivocally that he would not raise any further claim, and in absence of such declaration, it was held that the claimant could not be held to be estopped or precluded from raising any claim.
Counsel appearing on behalf of the respondent, on the other hand, has opposed the appeal and has submitted that the learned court below has rightly appreciated the case of the appellant. He submits that the scope of interference in arbitral Award is very limited and the courts do not sit in appeal against the Award passed by learned Arbitrator. He further submits that unless the Award comes within one of the categories of challenge as mentioned in the Arbitration and Conciliation Act, 1996, it was not open to the learned court below to interfere with the Award and he submits that the learned court below has passed the impugned judgment within the four corners of the Arbitration and Conciliation Act, 1996.
Counsel for the respondent further submits that the impugned Award is a well-reasoned Award considering all the arguments advanced by the appellant before the learned Arbitrator and there is neither any perversity nor it is against the Public Policy of India. He submits that the judgments which have been relied upon by the counsel for the appellant reported in 2019 SCC Online SC 677 {Ssangyong Engineering & Construction Co. Ltd. Vs. National Highways Authority of India (NHAI)} and (2003) 8 SCC 154 (Bharat Coking Coal Ltd. Vs. Annapurna Construction), do not apply to the facts and circumstances of this case.
After hearing the counsel for the parties and after considering the materials on record, this Court finds that the dispute between the parties was in connection with three categories of claims. So far as Claim under category-III is concerned, the counsel for the appellant has given it up during the course of argument.
So far Category No. 1 is concerned, this Court finds that the learned court below had calculated the shortage of aluminum metal by appreciating the materials on record passed a detailed well-reasoned order and the learned court below found that there was shortage of 1162 Kgs and on that ground the monitory value of the same was calculated at Rs. 88,823.28.
This Court further finds that so far as claim of loss and damages is concerned, the learned Arbitrator allowed the claim only to the extent of Rs. 88,823.28 against claim of Rs. 15,21,348. While rejecting the claim, the learned Arbitrator held that the said claim on account of loss and damages occurred as extra labour charges and extra fuel consumption cost was not considered worth, as there was hardly any appreciable difference in cost of melting these Aluminum Ingots and converting them into Aluminum Shots/Notched Bars.
This Court finds that the learned Arbitrator has assigned reason while rejecting substantial claim which appears to be sound reason based on materials on record and it was not open to the learned court below to re-appreciate the evidences on record and come to a different finding. Accordingly, this Court does not find any illegality in the impugned order passed by the learned court below while rejecting the challenge of the appellant under Category-I so as to call for any ground available for interference under section 34 of Arbitration and Conciliation Act, 1996.
So far as Category-II is concerned, this Court finds that although in the purchase order which was dated 30.10.1995, there was a specific stipulation that the price to remain firm during currency of the contract which was one of the special conditions of the contract, but the delivery schedule was extended up to May 1996 without liquated damages and thereafter up to August 1996 without liquated damages and the respondent vide amendment dated 20.08.1996 amended the purchase order and the rate regarding certain item was revised and this purchase order was again amended thrice for extension of delivery schedule and the last extension was up to 28.02.1998. The learned Arbitrator while considering the change of the rate observed that the contract/P.O. was changed by the Respondent unilaterally on 20.08.1996 during currency contract. The learned Arbitrator also found that it is true that the "price to remain firm during currency of the contract" is one of the Special Terms and Conditions of the contract and that contract cannot be amended unilaterally and further that the amended contract cannot be valid unless it is accepted either in writing or by action by the other side of the party. This Court further finds that the learned Arbitrator also considered that the claimant did not raise any objection or protest at any point of time, though as a matter of principle the objections should have been raised regarding validity of the contract as the price of the contract was changed unilaterally by the respondent contrary to the terms and conditions of the contract. The learned Arbitrator clearly held that the change/amendment under reference was already accepted by the appellant by their actions/conduct and amendment made unilaterally turned into a lawful valid amendment. Accordingly, the learned Arbitrator held that the claim of the claimant in this respect does not deserve any consideration and hence rejected the same.
This Court further finds that the learned Arbitrator has considered the conduct of the parties and has clearly held by a well-reasoned order that the unilateral amendment of rate which was made by the respondent was duly accepted by the appellant by their conduct. This Court also finds that there is no bar under law that the altered terms and conditions of the contract cannot be accepted by conduct of the parties.
The counsel for the appellant has relied upon judgment passed by Hon'ble Supreme Court reported in 2019 SCC Online SC 677{(Ssangyong Engineering & Construction Co. Ltd. Vs. National Highways Authority of India (NHAI)} Para-76, which is quoted as follows: -
"76. However, when it comes to the public policy of India argument based upon "most basic notions of justice", it is clear that this ground can be attracted only in very exceptional circumstances when the conscience of the Court is shocked by infraction or fundamental notions or principles of justice. It can be seen that the formula that was applied by the agreement continued to be applied till February, 2013 - in short, it is not correct to say that the formula under the agreement could not be applied in view of the Ministry's change in the base indices from 1993-94 to 2004-05. Further, in order to apply a linking factor, a Circular, unilaterally issued by one party, cannot possibly bind the other party to the agreement without that other party's consent. Indeed, the Circular itself expressly stipulates that it cannot apply unless the contractors furnish an undertaking/affidavit that the price adjustment under the Circular is acceptable to them. We have seen how the appellant gave such undertaking only conditionally and without prejudice to its argument that the Circular does not and cannot apply. This being the case, it is clear that the majority award has created a new contract for the parties by applying the said unilateral Circular and by substituting a workable formula under the agreement by another formula de hors the agreement. This being the case, a fundamental principle of justice has been breached, namely, that a unilateral additional or alteration of a contract can never be foisted upon an unwilling party, nor can a party to the agreement be liable to perform a bargain not entered into with the other party. Clearly, such a course of conduct would be contrary to fundamental principles of justice as followed in this country, and shocks the conscience of this Court. However, we repeat that this ground is available only in very exceptional circumstances, such as the fact situation in the present case. Under no circumstance can any Court interfere with an arbitral award on the ground that justice has not been done in the opinion of the Court. That would be an entry into the merits of the dispute which, as we have seen, is contrary to the ethos of Section 34 of the 1996 Act, as has been noted earlier in this judgment."
This Court finds that there are no such circumstances similar to the circumstances which were present before the Hon'ble Supreme Court. In the instant case, the learned Arbitrator has held that the parties by their conduct had accepted the amendment made, though, unilaterally by the respondent. In such circumstances, if any contrary finding is given, the same would amount to entering into the merits of the dispute which is clearly not permissible, as observed by the Hon'ble Supreme Court in the very same Paragraph i.e. Paragraph-76, which has been relied upon by the counsel for the appellant. The Hon'ble Supreme Court also clearly observed that such ground is available only in very exceptional circumstances and under no circumstance can any Court interfere with an arbitral award on the ground that justice has not been done in the opinion of the Court and such course would be an entry into the merits of the dispute and the same would be contrary to the ethos of Section 34 of the aforesaid Act of 1996. This Court is of the considered view that no such exceptional case is made out by the appellant calling for interference in the arbitral award under section 34 of Arbitration and Conciliation Act, 1996.
So far as the other judgment which has been relied upon by the counsel for the appellant passed by Hon'ble Supreme Court reported in (2003) 8 SCC 154 (Bharat Coking Coal Ltd. Vs. Annapurna Construction) is concerned, this Court finds that in the said case the claimant had accepted the final bill and unequivocally stated that he would not raise any further claim. In the said case, the issue of change in terms and conditions of the contract, was not involved. In the instant case, the learned Arbitrator has clearly held that by the conduct of the appellant, there was an acceptance on the part of the appellant regarding the amendment of the rate. In this background, this Court finds that the aforesaid judgment which was been relied upon by the counsel for the appellant passed by Hon'ble Supreme Court reported in (2003) 8 SCC 154 (Bharat Coking Coal Ltd. Vs. Annapurna Construction) does not apply to the facts and circumstances of this case and accordingly does not held the appellant in any manner whatsoever.
This Court further finds that the learned court below has appreciated the scope of grounds for interference under Section 34 of the Arbitration & Conciliation Act, 1996 and has refused to interfere with the Award. This Court finds that there is no illegality or perversity in the impugned judgment passed by the learned court below while refusing to interfere in the award under section 34 of Arbitration and Conciliation Act, 1996 and accordingly, the same does not call for any interference.
Accordingly, the instant appeal, is hereby dismissed.