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CASE NO.: Appeal (civil)  4079 of 2007

PETITIONER: Numaligarh Refinery Ltd

RESPONDENT: Daelim Industrial Company Ltd

DATE OF JUDGMENT: 06/09/2007

BENCH: A.K.MATHUR & MARKANDEY KATJU

JUDGMENT: J U D G M E N T    

CIVIL APPEAL NO.  4079             OF 2007 [Arising out of S.L.P.(c) No.20989 of 2006] With : Civil Appeal No.  4080                          of 2007 [ Arising out of S.L.P.(c) No. 4409 of 2007]

A.K. MATHUR, J.

1.              Leave granted.

2.       Both these appeals arise out of the order dated 24.8.2006   passed by the Division Bench of the High Court of Gauhati at  Guwahati in Arbitration Appeal No.1 of 2002. Therefore they are  taken up together and disposed of by this common order.          3.              Brief facts which are necessary for disposal of these  appeals are  that  the  respondent, Daelim Industrial Company  (hereinafter to be referred to as ’DIC’ ) is a company incorporated in  Seoul, Korea having its registered office there. During the pendency  of the arbitration proceedings, Daelim Engineering Company Limited  (DEC) got merged with Daelim Industrial Company Limited (DIC), and   therefore DEC ceased to  exist.  For our convenience we will take up  DIC for all practical purpose. The appellant, Numaligarh Refinery  Limited  (hereinafter to be referred to as ’NRL’) is a Government of  India undertaking incorporated under the Companies Act, 1956,  having its registered office at Guwahati, in the State of Assam.  NRL  through its consultant Engineers India  Limited (hereinafter to be  referred to as ’EIL’), also a Government of India undertaking,  on  22.11.1993 invited global quotations for building of a Cogeneration  Captive Power Plant for its Petroleum Refinery at Numaligarh in  Assam.  DIC  with its consortium partner, Turbotecnica SPA of Italy,  contested the global bid and after negotiation with NRL, the contract  was awarded to DIC by its fax of intent dated 31.1.1995. Three  contract agreements were signed between NRL and DIC  and  Turbotecnica.  The  total contract price embodied in the above   contract agreements dated 11.4.1995 was on a Turnkey basis and  the time schedule for completion of the works as per the consolidated  contract was as follows :

"  (i) First train of Gas Turbine Generator (GTG),  Heat Recovery Steam Generator (HRSG) and Utility  Boiler (UB) within 21 months of the issue of Fax  Intent i.e. by 31.10.1996 and (ii) balance plant within  24 months of issue of the Fax Intent i.e. by

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30.01.1997."

In course of the execution of the project disputes arose between the  parties and therefore, in terms of Clause 9(b) of the Consolidated  Agreement, DIC referred  the matter on 7.8.1997  before the  International Chamber of Commerce; International Court of  Arbitration, Paris for resolution thereof and claimed Rs.37.9 crore  under different heads. NRL disputed the claim and submitted its  written reply on 20.9.1997 and a rejoinder was filed by the DIC on  4.11.1997.  In terms of the International Chamber of Commerce’s  Arbitration Rules, 1988, (hereinafter to be referred to as the ’Rules’)  the DIC and NRL nominated  their Arbitrator.  The International Court  of Arbitration  confirmed the appointment of Arbitrators and  nominated a third Arbitrator-cum-Chairman to constitute the Arbitral  Tribunal.  Meanwhile, DIC updated its claim to be at Rs.55.8 crore to  which NRL submitted its written reply. DIC in response thereto,  submitted its rejoinder. However, no counter claim was made by  NRL.  The Tribunal framed necessary issues.  The majority  award  of  the Arbitrators by the order dated 23.9.2000 held  that the respondent  was entitled to Rs.29.76 crore and further an amount of  US $  170,000 being 50% of the cost of arbitration paid by it, in addition to  its share of the total cost of US$ 340,000. The appellant having  refused to  pay its portion thereof interest at the rate of 12% per  annum pendente lite on Rs.29.76 crore from 7.8.1997 till the date of  the award was also sanctioned. In addition,  the appellant, NRL was  saddled with the liability of post award interest at the rate of 18% per  annum on the above awarded amounts in case of its failure to make  the payments within 60 days of the receipt the award.  However,  Justice M.M.Dutt,  Member of the Arbitral Tribunal gave a dissenting  award. He awarded  DIC an amount of Rs.13,74,55,272/-  with  interest at the rate of 10% till realization, in case of failure on the part  of NRL  to disburse the sum.  DIC was also further awarded an  amount of Rs.1.65 crore to be recovered from the Customs  authorities exacted on goods not chargeable to duty. Being aggrieved  with the majority award dated 23.9.2000, NRL filed application under  Section 34 of the Arbitration and Conciliation Act, 1996 ( hereinafter  to be referred to as the’ Act’) in the Court of the District Judge at  Golaghat which  was registered as Misc. Arbitration Case No.1 of  2001.  Notice was issued and in pursuance of such notice  the  respondent appeared. The learned District Judge after hearing  the  parties and on consideration of the  materials on record, set aside the  award.  Aggreived against that order of the District Judge an  appeal  was preferred by the DIC before the High Court.  DIC itemized their  claims as under : "  A.   Transfer of US$ 6 million               :       Rs.9.6 crores

  B.   Turbotecnica’s Contract price   :       Included in Item C

  C.   Countervailing Duty                     :       Rs.13.0 crores

  D.   Excess Custsoms Duty due to         Fluctuation of exchange rate            :       Included in Item C

  E. Liquidated damages for delay         In approval of Design and          Engineering                             :       Rs.8.9 crores F.       Excess expenses due to lack of infrastructure                               :       Rs.4.6 crores

G.      Additional expenses cost by       Schedule delay                             :       Rs.12.0 crores

H.      Interest for borrowed funds,      Delayed opening of LC for

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    Design                                             :       Rs.0.5 crore

I.  Escalation                                 :       Rs.4.1 crores

 J.   Change Order                             :       No dispute

 K.  Extra tax burden as per  AGSI       With effect from 1st May 1997              :      Rs.3.1 crores

L.       Indian statutory taxes included in       Item No.C.

(Total Claim of DEC)                           [Rs.55.8 crores ]" No counter claim was filed by NRL.  With regard to transfer of US   $6 million equivalent to Rs.9.6 crore, the issue framed was to the  following effect.         " Is the claimant entitled to a sum of Rs.9.6 crores  as claimed under heading Transfer of US $ 6 million "

Under this heading it was pleaded by the DIC that the  overseas  contract required supply by it of various imported items priced at US  $8,750,000.  However, after ascertaining the indigenous sourcing of a  good number of such items to be satisfactory, DIC vide its letter dated  13.9.1995, requiring the bidder to bid on the basis of indigenization  scope to the maximum extent possible.  The request was based on  clause 14.3 of the ITB, which prescribed  that items quoted in the bid  to be imported could be subsequently transferred to indigenous  supply for which NRL was to pay at actuals maximum whereof to be  limited to the computed value on site delivery basis on the pricings  quoted originally for that of the imported origin. Clause 14.3 of the  Instructions to Bidders reads as under:                 "  In case any item, quoted as imported in  the bid, but is subsequently transferred to the Indian  category, the total cost on project-site-delivery basis  for such item will be payable by Owner at actuals but  maximum limited to the computed value on site  delivery basis based on the pricings quoted originally  for that of imported origin."

Though this was agreed by NRL but  it delayed  the formal decision  and DIC  arranged procurement of the substituted indigenous  materials by undertaking market survey, selecting Indian  manufactures, supplying of design and drawing to the manufacture,  ensuring product with quality control and supplies of finished project  within a stipulated time frame for which it incurred  cost and expenses   to the tune of Rs. 25.3 crore which included the cost borne by DIC  towards procurement , service charges, inspection and expediting  charges, overhead expenses and profit.  NRL duly  approved  the  indigenous manufacturers from whom the substituted items were  procured and permitted them to be incorporated in due execution of  the contract.  NRL extended  its formal approval for the substitution  eventually by its letter dated 13.3.1997.  Though the DIC had claimed  Rs.25.3 crore  incurred as the total cost,  but it limited its claim to  Rs.21.7 crores being the procurement cost of indigenous materials by  applying the conversion rate of Rs. 36.28 per US $ as on 26.2.1996.  Rs.12 crores was paid by NRL  and therefore DIC  registered its  claim under the above head to the extent of Rs.9.6 crores. For  computing  the actual cost of Rs. 25.3 crores, the DIC  took into  consideration various factors; like bare cost,  Excise duty, Central  Sales tax, freight and insurance, procurement service charges,  inspection and expediting charges, overhead expenses, profit and tax  deduction at source.  The majority of the arbitrators after considering   all the materials placed before them came to the conclusion that  since EIL  was the prime consultant of NRL for the execution of the

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project, assessed the value of Rs.17.68 crores by applying its mind to  the submission of DIC,  the majority of the Arbitrators accepted the  value  expressed by EIL by its communication dated 4.11.1996 and   the majority of the Arbitrators as per clause 14.3 accepted, the advice  of EIL.  Though NRL tried to withhold  this letter,  however same was  brought on record and the majority of the Arbitrators accepted it and  they added 15% profit margin and that worked out to Rs.2.65 crores   on the basis of the decision of this Court in M/s.Brij Paul & Ors. Vs.  State of Gujarat [ AIR 1984 SC 1703]. The majority of the Arbitrators  accepted the claim of the DIC to the extent of Rs.20.33 crores  (Rs.17.65 crores + Rs.2.65 crores ). An amount of Rs.12.19 crores  under this head was already received by the DIC therefore, rest of the  claim amount was accepted and awarded  in favour of DIC i.e.  Rs.8.14 crores  with US $ exchange rate at $1 = Rs.36.28 as  equivalent on 26.2.1996.  As against this, the minority  Arbitrator,   Justice M.M.Dutt held that the original documents and vouchers were  not produced by DIC as it was their duty to have produced the whole  vouchers to justify  the purchases made in India for the substituted  materials.  The minority arbitrator took the view  that since the claim  of the DIC  was to the tune of Rs.21.77 crores, Rs.12.19 crores  having been paid, there remains only Rs.9.58 crores. But according  to the minority award, as per the cost given by NRL  their liability   comes to Rs.14.19 crores and therefore, DIC is not entitled  to  beyond this amount. NRL also contested the expenses on account of  procurement service, inspection and expediting for Rs.97 lakhs and  overhead for Rs.3.47 crores  as well as the claim of profit for Rs.3.14  crores and tax deduction at source for Rs.1.32 crores was not  payable. After discussion, Justice M.M.Dutt took the view that  the  claimant  was entitled to Rs.141,920,735.00  plus  Rs.1,32,13,395.00   as tax deduction at source aggregating to Rs.15,51,34,130.00 only  out of which the claimant has received Rs.10,69,83,850.00.  Therefore, the claimant was entitled to  receive the balance amount  of Rs.4,81,50,272.00 only  and not Rs.9.6 crores as claimed.  The  District Court disapproved the approach of the arbitrators and  emphasized that the word ’actual’ occurring in Clause 14.3 means  that the party should have produced the necessary evidence to  substantiate it. The High Court  however did not approve the same  and took into consideration the letter dated 4.11.1996 of the EIL as  the basis and observed that the Tribunal has rightly accepted the  letter and set aside the order of the District Court. The High Court  further held that while construing the ’actuals’ under Clause 14.3.  the  DIC in addition to the charges is also entitled to reasonable margin of  profit amounting to 15 per cent of the  cost amount of Rs.17.68 crores  which does not appear to be illogical or arbitrary and confirmed the  finding of the majority award of the Arbitrators.  4.              After considering the findings given by the majority and  minority Arbitrators and the view taken by the High Court on the  interpretation of Clause 14.3, in normal course the parties should  have led evidence to substantiate their claims with reference to  vouchers and other documents in evidence  in order to justify their  claim, but in the present case  we find that when NRL  through the  communication dated 4.11.1996 have accepted the total value to the  extent of Rs.14.19 crores, then there is no reason why this should not  have been accepted as they have examined all the items in their  letter.  Be that as it may, the fact remains that  the DIC has  purchased the indigenous materials and substituted that as  permissible under Clause 14.3, then there is no reason to deny them  the cost for the same especially when intrinsic evidence is available  i.e. an  independent body \026 NRL which is a Government of India  undertaking  and conceded the amount to the extent of Rs.14.19  crores as the actual cost.  Therefore, taking that Rs.14.19 crores as  the actual and Rs.12.19 crores having been paid, we think under this  head, the DIC is legitimately entitled to a sum of Rs.2 crores against  their claim of Rs.9.6 crores. However, the view taken by the minority  Arbitrator with regard to procurement service, inspection and

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expediting, overhead and claim of profit  appears to be correct and  that has been rightly disallowed by the minority Arbitrator and we  uphold  that view. M/s. Brij Paul’s case  (supra) related to breach of  contract under section 73 of the Contract Act and while allowing the  petition, 15% was assessed as loss of fright. This case was decided  on peculiar facts, it cannot provide any assistance to the contractor.  Hence, so far as the claim under Item No.1 for the substituted  material the respondent \026 DIC is entitled to a sum of Rs.2 crores.                         [ Rs.2 crores allowed under item No.1]             5.              Now, coming to another head \026 Turbo technical price,  under this head  Turbocechnica SPA of Italy, a consortium partner of  DIC in the contract agreement with NRL, had to supply various  imported items for a consideration of US $4150000 and DM  22990000 as specified in the Price Schedule of the Overseas  Contract. The said consideration under Item No.2.1.1 was a  consolidated figure including payment on account of service like third  party inspection charges, ocean fright and marine insurance.  Note 1  of the above Price Schedule permitted DIC / Turbotechnica to furnish  list of goods with CIF (cost insurance and freight)  value of NRL for  availing concession in payment of customs duty payable in respect of  import from overseas. Note 2 reiterated that third party inspection  charges were included in the above price. DIC vide letter dated  13.9.1995 requested NRL to bifurcate the total consideration of the  import items into CIF cost and service cost and to amend the contract  agreement for that purpose but no amendment was made. It was  pointed out that if no amendment was made for the relevant portion,  Turnotechnica shall have to declare  the entire contract value as CIF  cost to the customs authority and since payment of customs duty was  DIC’s responsibility, DIC will have to pay customs duty on service  portion also.  DIC vide letter dated 25.11.1995 pointed out to NRL  that contract price consisted of CIF value, cost of design and  engineering and supervision and other incidental costs and requested  for break-up  of costs,  so that DIC may not pay customs duty on the  total contract price when such duty was payable on CIF value by the  owner.  Therefore, the amendment not being carried out by the NRL,  DIC could not avail necessary concession in customs duty.  Therefore, they claimed under this head a sum of Rs.1.65 crores and  the same was accepted by the majority of the Arbitrators. The  majority took the view that DIC had to unnecessarily pay the customs  duty on service portion of the price consideration and as such allowed  the claim. As against this, Justice M.M.Dutt in minority took a contrary  view and held that NRL was not responsible for framing of such  agreement and it was held that it was  the fault of DIC and as such  the claim was turned down. However, it  was observed that DIC   could justify and claim the said amount from the Customs department   but NRL could not be held responsible for the extra duty paid by the  DIC.  The District Judge agreed with the minority award. However,  the  Division Bench of the High Court reversed the finding and  approved the view taken by the majority of the Arbitrators.  We have  heard learned counsel for the parties and find that it depends upon  the framing of the terms of the agreement, if the DIC would have  been vigilant then they could have excluded the service charges; like   design engineering etc.  It was their duty to have excluded the  services charges but they have not properly framed the contract and  they cannot insist on amendment of the contract. If all the services  were subjected to duty which they could have segregated  the same  but since they did not do this, therefore they could claim the benefit.  No direction could be given to the contracting party to amend their  agreement. It is a mutual affair of the contracting party. The view  taken by the High Court does not appear to be correct. Secondly, it  was not possible for the NRL to amend the agreement as the same   has already been registered with the Customs authorities and the  Reserve Bank of India/ Hence, the DIC is not entitled to the aforesaid  amount of Rs.1.65 crores under this head.                 { Claim of Rs.1.65 crores under this head not allowed]

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6.      Next issue is with regard to countervailing duty. DIC claimed a  sum of Rs.8.78 crores  which was paid on account of excise duty.   The claim of the DIC was that in fact at the time when the agreement  was  executed between the parties, countervailing duty was not there  and  it was introduced with effect from 1.1.1995 by Customs Tariff  (Amendment) Ordinance, 1994.  New Sections 9, 9A and 9B were  introduced. This Ordinance was subsequently replaced by Customs  Tariff (Amendment) Act, 1995  which was deemed to have come into  force with effect from 1.1.1995.  DIC submitted its initial  bid on  16.3.1994 and final bid on 23.11.1994 by taking into consideration  customs duty on imported materials at 25% as operative then. DIC  could not have imagined  the levy of countervailing duty at 12.5 %  brought into force with effect  from 1.1.1995. Bid settlement was  made on 24.1.1995  and NRL finally awarded the contract to DIC by  fax of intent dated 31.1.1995.  Therefore, the submission of DIC was  that at the relevant time  there was no countervailing duty and it came  into force  subsequent to the contract, therefore as per Section 64-A  of the Sale of Goods Act, 1930, the DIC is entitled to get this claim  reimbursed. NRL contended that as per Clause 14.1 in the statement  of claim pertaining to the contract clear instructions were given to the  bidders  under clauses 15, 15.1, 15.2, 15.3  that entire customs  duties or levies including  the stamp duty and import licence fee  levied on the equipments  by Government of India or any State  Government will have to be borne by  DIC.  The payment of  countervailing duty  was allowed by  both the Arbitrators i.e. the  Majority and Minority.  But the Division Bench of the High Court  reversed the finding. Aggrieved against this part of the order,  appeal  has been filed by DIC  which has been registered as Civil Appeal   arising out of S.L.P.(c) No.4409 of 2007. 7.      In order to appreciate the submission of rival parties it will be  appropriate to refer to necessary clauses of the agreement;  Clause 6  of the Consolidated Agreement read with Clauses 1.8, 13.2, 15.3.  The crucial clause is Clause 6 which reads as under :                 "   It is specifically understood and agreed  between the parties hereto that if there is any liability  towards taxes/ duties (including custom duty on  foreign component of supply portion) as may be  assessed/ claimed/ demanded by the concerned  Indian or Foreign authorities, it shall be the sole  responsibility/ liability of the contractor to pay all such  taxes/ duties and that the owner shall not be  responsible at all the payment of such taxes/ duties. "

Mr.Ganguli, learned senior counsel for the appellant in this case  submitted that the view taken by the High Court  is not correct and as  per Section 64-A of the Sale of Goods Act, 1930, if there is no  contract to the contrary, then  the parties are entitled to include the  amount of duties to the contract   the equivalent amount paid. It was  submitted that   both the majority and minority view of the Arbitrators  has upheld the claim and in that connection learned counsel has  placed reliance on a decision of this Court in  Pure Helium India (P)  Ltd. v. Oil & Natural Gas Commission [ (2003) 8 SCC 593]. As  against this,  learned counsel for the respondent herein has  supported the view taken by the High Court. The Division Bench of  the High Court after considering all the relevant provisions  came to  the conclusion that as per various clauses of the contract since it was  the duty of the DIC to pay all taxes and customs duty and levies, they  cannot escape their liability to bear the countervailing duty imposed  by the Government. Mr. Ganguli, learned senior counsel for the  appellant in this appeal argued that in fact  this was a new levy and at  the time when the negotiation was entered  into it was not in  contemplation and in that connection learned senior counsel invited  our attention to a decision of this  Court in The State of Madras v.  Gannon Dunkerley & Co., (Madras) Ltd. ( [1959] SCR 379).  Mr.Ganguli, learned senior counsel for the appellant submitted that so

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far as interpretation of contract is concerned, the arbitrator is the best  judge  because he has the jurisdiction to interpret the contract having  regard to the terms and conditions of the contract,  the circumstances  of the case, the  pleadings of the parties,  the High Court should not  substitute  its interpretation. In this connection, learned senior  counsel  has invited our attention to the following decisions of this  Court.

(i)     (1992) 4 SCC 440 Thermax Private Limited. V. Collector of Customs  (Bombay)  New Customs House.          (ii)    (1968) 3 SCR 387 Kollipara Sriramulu v. T.Aswathanarayana & Ors.

(iii)   (1989) 2 SCC 38  M/s. Sudarsan Trading Co. v. Government of Kerala  & Anr.

(iv)    (1999) 4 SCC 214 H.P.State Electricity Board v. R.J.Shah & Company

Learned senior counsel for the appellant also invited our attention to  Section 64-A  of the Sale of Goods Act, 1930 and Section 69 of the  Contract Act, 1872 and submitted that the contract party is entitled to  reimbursement of tax liability.  As against this,  learned counsel for  the respondent submitted that  Clause 2 (b) &  Clause 6  of the  Consolidated Agreement  read with Clause 2.1 (g) of the Instructions  to Bidders and Clause 13(f) of the Bid Document,  leave no manner  of doubt  that it is the duty of the contracting party to pay all taxes,  duties and levies.   Relevant provisions are reproduced below :

               " "Clause 2(b)  all taxes and duties in  respect of job mentioned in the aforesaid contracts  shall be the entire responsibility of the contractor\005 "                 " Clause  6.     It is specifically understood  and agreed between the parties hereto that if there is  any liability towards taxes/ duties (including custom  duty on foreign component of supply portion) as may  be assessed/ claimed/ demanded by the concerned  Indian or foreign authorities, it shall be the sole  responsibility/ liability of the contractor to pay all such  taxes/ duties and that the owner shall not be  responsible at all for the payment of such taxes/  duties\005"

       " Clause 2.1 (g). The scope of this proposal \005  will include the following (g) payment of customs  duty, port clearance charges etc. and customs  clearance at Indian port of entry\005"         " Clause 13(f) , Bid Documents:         \005.. Prices for the entire scope of work on  divisible contract basis and indicate the following  break-up: (f) lump sum charges on accounts of  customs duty, port charges etc. for imported  equipment and materials\005""

Reading of these documents leave s no manner of doubt that all the  taxes and levies shall be borne by the contracting party i.e. DIC. 8.      We have  considered the rival submissions of the parties. So far  as the legal proposition  as enunciated by this Court in various  decisions mentioned above,  it is correct that Courts shall not  ordinarily  substitute  its interpretation for that of the arbitrator.  It is  also true that if the parties with their eyes wide open have consented  to refer the matter to the  arbitration, then normally the finding of the

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arbitrator should be accepted without demur. There is no quarrel with  this legal proposition.  But in a case where it is found that the  Arbitrator has acted without jurisdiction and has put an interpretation  of the clause of the agreement which is wholly contrary to law then in  that case, there is no prohibition  for the Courts to set things right. In  the present case, the aforesaid clauses reproduced above,  clearly  lays down that all taxes, duties and levies have to be borne by the  contracting party.  Countervailing duty which came into force with  effect from 1.1.1995 by way of ordinance  (subsequently converted  into an Act)  is a  duty enforced by the Statute and hence in face of  Clause 2(b) and Clause 6 of the Consolidated Agreement read with  Clause 2.1 (g) of the Instructions to Bidders and Clause 13 (f) of the  Bid Document. There is  leaves no manner of doubt that DIC has to  pay the same.  Therefore, this levy has to be borne by the DIC and  they cannot escape from this situation.  In this connection, learned  counsel has invited our attention to Section 64-A of the Sale of Goods  Act, 1930 which reads as under:

               "  64-A. In contracts of sale, amount of  increased or decreased taxes to be added or  deducted.- (1) Unless  a different intention appears  from the terms of the contract, in  the event of any  tax of the nature described in sub-section (2) being  imposed, increased, decreased or remitted in respect  of any goods after the making of any contract for the  sale or purchase of such goods without stipulation as  to the payment of tax where tax was not chargeable  at the time of the making of the contract,  or for the  sale or purchase of such goods tax-paid where tax  was chargeable at that time,- (a)     if such imposition or increase so takes effect  that  the tax or increased tax, as the case may be, or  any part of such tax is paid or is payable, the seller  may add so much to the contract price as will be  equivalent to the amount paid or payable  in respect  of such tax or increase of tax, and he shall be entitled  to be paid and to sue for and recover such addition;  and (b)      if such decrease or remission so takes effect  that the decreased tax only, or no tax, as the case  may be, is paid or is payable, the buyer may deduct  so much from the contract price as will be equivalent  to the decrease of tax or remitted tax, and he shall  not be liable to pay, or be sued for,  or in respect of,  such deduction. (2) The provisions of sub-section (1) apply to the  following taxes, namely;-          (a) any duty of customs or excise on goods;         (b) any tax on the sale or purchase of goods."

This section also clearly says that unless a different intention appears  from the terms of the contract, in case of  the imposition or increase  in the tax after  the making of  a contract,  the party shall be entitled  to be paid such tax or such increase. In this connection, the intention  of the parties is to be ascertained, as per the clauses mentioned  above.  A perusal of the contract makes it  clear that  DIC is under  obligation to pay the taxes, duties and  levies. Therefore, the   intention is very clear that  taxes and duties will be the obligation of  the DIC. Section 69 of the Indian Contract Act, 1872 deals with   reimbursement of  a person paying money due by another, in  payment of which he is interested. Section 69 has no role to pay in  the present case in view of the clear terms of the agreement that the  taxes, levies  have to be paid by the DIC. Therefore, nothing turns on  Section 69 of the Contract Act.  In view of the above discussion, we  are of opinion that so far as the payment  of countervailing duty is

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concerned, it was the obligation of the DIC and the view taken by the   Division Bench of the Act appears to be correct  and there is no  ground to interfere with this part of the order.  Consequently, we  uphold the judgment of the High Court and dismiss the appeal arising  out of S.L.P.(c) No.4409 of 2007  filed by the DIC.

9.      The next question is with regard to payment of extra customs  duty due to fluctuation of the exchange rate.  In this connection, the  majority of the Arbitrators took the view that the DIC was entitled to  Rs.2.09 crores on account of excess payment of customs duty on  account of fluctuation of the exchange rate. As against this,  the  minority view taken by Justice MM Duty  was to the contrary. He has  observed that  the NRL had entered into a  turnkey firm-price contract  with the sole object of avoiding any future additional burden till the  completion of the contract.  He has also observed that  the price  quoted in the bid documents is fixed and cannot be varied according   the variation of the fluctuation of the exchange rate of US dollar.  He  has also observed that this also holds good both for upward and  downward variations.  Therefore, he found that the claim of DIC  cannot be acceded to  and accordingly rejected the claim of DIC. The  Division Bench of the High Court has  affirmed the majority view.  10.             We have heard learned counsel for the parties and  perused both the views expressed by majority as well as minority.  In  this connection, it is relevant to mention Clause 12.2   of the  Instructions to the  Bidders which clearly stipulates that it must be  understood and agreed  that such factors have properly been  investigated and considered while submitting the bids.  It also clearly  stipulates that no financial adjustments arising thereof shall be  permitted by the owner. Clause 12.2. of the Instructions to Bidders is  reproduced as under :

               " 12.2.  It must be understood and  agreed that such factors have  properly been  investigated and considered while submitting the  bids. No claim for financial adjustment to the contract  awarded under these specifications and documents  will be entertained by the owner. Neither any change  in the time schedule of the contract nor any financial  adjustments arising thereof shall be permitted by the  owner, which are based on the lack of such clear  information of its effect on the cost of the works to  the bids."   

Similarly, clause 13 which deals with price scope and basis clearly  stipulates that price   for the entire scope  of work on divisible contract  basis, break up has been given in the  schedule. In this connection,  clause 13  which is most relevant reads as under :                 " 13.0. Price Scope & Basis:                 The Bidders shall quote in their proposals,  Prices for the entire scope of work on divisible  contract basis and indicate the following break-up  schedule: a)      Dosing and Engineering charges for the  complete works. b)      Lump sum Price on F.O.B.port of Shipment  basis for all Imported equipment and  materials. c)      Lump sum ocean fright and Insurance for  the above imported goods. d)      Lump sum Price on FOR/FOT dispatch  point basis  for5 all indigenous equipment/  material, cement and steel, inclusive of  taxes, duties, levies, licence feee etc. e)      Lump sum service charges towards  documentations, handling, forwarding,

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payment of customs duty, inland  transportations, transit insurance of all the  imported goods. f)      Lump sum charges on account of customs  duty, port charges etc. for Imported  equipment and materials. g)      Lump sum charges, forwards,  transportations through waterways for over  Dimensional consignment inclusive or en  route Indian/ Bangladesh Custom clearance  to Project site. h)      Lump sum charges toward clearance,  handling, transportation ( other than ODCS)  storage, preservation and conservation of  all equipment at project site. i)      Lump sum cost of all civil works. j)      Lump sum charges toward pre-assembly, if  any, erection, testing and commissioning of  the complete system. k)      LIST OF RECOMMENDED SPARES  for  two years normal operation indicating Parts  name, cagalogues No., quantity and Unit  Prices. l)      List o components with itemized unit rate for  all individual equipment and materials, to  enable Price Adjustment, if required during  detailed engineering and execution of the  work. m)      Fees/ Charges payable, if Owner/  Consultant opts for inspection by Lloyds  Register or third party inspection for  IMPORTED equipment. n)      Agency commission if any, included for  Indian Agents."

Clause 14 deals with pricing and currency changes. Clause 14.1.  reads as under :

       " The prices quoted for the entire scope of work  shall remain firm and fixed till complete execution of  the work."

In these parameters of the terms and conditions, that the price quoted  for the entire work shall remain firm and fixed till the complete  execution of the work,  the heading pricing and currency changes  leaves no manner of doubt that there is no scope for giving any  benefit of fluctuation on the exchange rates. Once the price is fixed  there is no provision for giving any benefit for fluctuation in terms of  the contract then in that case, the claimant \026DIC  cannot raise this  claim of excess payment made towards customs duty on account of  fluctuation on exchange rate.  The minority view expressed by Justice  M.M.Dutt appears to be correct. Had there  been downward trend in  the exchange rate, then the DIC  would not have slashed the   exchange rate. If the downward trend cannot benefit either party then   equally the up-ward trend cannot benefit the DIC  for claiming the  payment of the higher customs duty on account of fluctuation in  exchange rate.  Therefore, the expression, ’firm and fixed’ is clear  answer to the question if during the course of contract certain  fluctuation has taken place  in the market then  on that count  the  claimant cannot raise extra demand  on account of  upward trend in  the exchange rate. In this connection, reliance was placed on a  decision of this Court in Pure Helium India (P) Ltd. v. Oil & Natural  Gas Commission [(2003) 8 SCC 593]. In this case this Court granted  the contractor’s claim for being compensated  for foreign exchange

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fluctuation and not for any escalation in the price.  This Court held   that  the claimant does not violate any terms of contract. In the  present case,  in view of the fact that the price is firmly fixed and  DIC  has clearly understood and agreed the terms of the contract, and it  was clearly stipulated  in Clause 12.2. that no financial adjustment  arising there  from shall be permitted by the owner. In these  circumstances, the minority view taken by the Arbitrator, Justice  M.M.Dutt appears to be well founded.  Pure Helium India (P) Ltd.  (supra) was decided on  peculiar facts. As such, it cannot provide us  any assistance.  11.             Similarly, our attention was invited to a decision of this  Court in Tarapore and Company v. Cochin Shipyard Ltd., Cochin &  Anr. [ (1984) 2 SCC 680]. In this case, their Lordships held that if a  question of law is specifically referred by the parties to the arbitrator  for decision, award of the arbitrator would be binding on the parties  and court will have no jurisdiction to interfere with the award even on  ground of error of law apparent on the face of  award. We have no  quarrel with this proposition. So far as  other decisions of this Court  mentioned above, that the Court should accept the interpretation of  the terms of the agreement made by the arbitrator, and should not  interfere, there is no two opinion on that question  but in the present  case, we are faced with a peculiar situation that the three Arbitrators  out of whom two has taken one view of the matter and the third has  taken another view of the matter. The District Judge has also set  aside the award on some issues and the  High Court has also  accepted some items of the majority award of the Arbitrators and  some items of the minority award of the Arbitrator.  Therefore, in the  peculiar state of affairs in the present case when there is variation of  views ; the majority award takes one view  and the minority award  takes another view, the District Judge takes the third view and the  High Court takes the fourth view, in the state of these conflicting  views on the subject, we have to enter into the merit  to put an end to  the controversy by adjudicating the conflicting views of various  Forum.  However, general consensus of the view emerging from  various judgments of this Court is there is no two opinion that the  Court should not sit in appeal and normally should not interfere with  the views of the Arbitrator in interpretation of the terms of   agreements interpreted  by the Arbitrator when the Arbitrator is  appointed with consent of parties. However, in peculiar facts and  circumstances of the case, the view taken by the High Court in  accepting the majority view of the arbitrators cannot be accepted. We  overrule the view taken by the High Court in accepting the majority  view and accept the minority view taken by Justice M.M.Dutt and  decline the claim of  DIC  in the sum of Rs.2.9 crores on account of  fluctuation  in the exchange rate.                 [Claim of Rs.2.9 crores on account of fluctuation on                 exchange rate declined]   12.     The next item is with regard to liquidity damages for delay of  929 days. So far as this liquidity damages is concerned, it was  decided purely on the question of fact. The majority of the Arbitrators   after review of the factual aspect held that whole contract was time  bound  delay  occurred at various level, like delay in approval of  drawing and designs submitted by DIC, delay in opening of letter of  credit. After review of all these factual aspects,  the Tribunal  concluded that on account of delay for about 929 days, the contractor  had suffered loss on account of fluctuation in the prices as well as  fluctuation in the exchange rates and therefore,  the claimant claimed  liquidity damages to the extent of Rs.8.9 crores under this head. The  question is whether the case of DIC  for such liquidity damages was  covered under Clause 18 or Clause 22 of the General terms and  conditions of the contract.   Clause 18  stipulates  the price reduction  schedule for delay in co-operation.  In case the contractor fails to   complete successfully  the system within the time fixed under the  contract,  the contract price shall be reduced at the rate of 1% of the

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contract value per week of delay or part thereof subject to the  maximum of 15% of the contract value. Clause 18 of the General  conditions of the contract reads as under :

               " 18.0  Price Reduction Schedule for  delay in Co-operation:   If the Contractor fails to  successfully commission the complete system within  the time fixed under the Contract, the Contract Price  shall be reduced at the rate of 1% of the Contract  value per week of delay or part thereof subject to the  maximum of 15% of the Contract value. "

But this clause was amended subsequently and one percent was  reduced to = percent and 15 percent was reduced to 5 per cent as  per the consolidated agreement.  The said amendment reads as  under:

               " II)   PRICE REDUCTION SCHEDULE IN  THE ENVENT OF DELAYS:                 If the contractor fails to comply any of the  time schedule mentioned hereinabove, the Contract  price shall be reduced @ =% of the total contract  value per week of delay or part thereof subject to a  maximum of 5% of the total contract value i.e. total  aggregate contract value  of Contract Nos.3244-00- LZ-PO-7012/10091 and 3244-00-LZ-PO-7013/10092  mentioned hereinabove. Price reduction as set forth  in this clause shall be the sole remedy available to  owner and the sole liability of the contractor for delay.  In the event of delay of over 10 weeks, owner may  exercise their rights to invoke any or all provisions  under this agreement."

This was for the contractor’s failure to complete the contract. 13.             However in this connection, our attention was invited to  clause 22. This relates to delay on the part of the owner or its various  agents. Clause 22 reads as under :

               " 22.0 Delay by  Owner or his Authorised  Agents : 22.1. In case the Contractor’s performance is  delayed due to any act of omission on the part of the  Owner or his authorized agents, then the Contractor  shall be given due extension of time for the  completion of the works, to the extent such omission  on the part of the owner has caused delay in the  Contractor’s performance of his work.  22.2. In addition, the Contractor shall be entitled  to claim demonstrable and reasonable compensation  if such delays have resulted in any increase in the  cost. The owner shall examine the justification  for  such a request for claim, and if satisfied, the extent of   compensation shall be mutually agreed depending  upon the circumstances at the time of such an  occurrence."

In terms of this clause if delay has been caused to the contractor  on  account of the omission or commission on the part of the owner or its  authorized agent then the contractor is entitled to claim demonstrable  and reasonable compensation  if such delay has resulted in any  increase in the cost. In that case, the owner shall examine the  justification for such claim and if satisfied then compensation shall be  mutually agreed depending upon  the circumstances at the time of  such an occurrence.  Since DIC’s claim  for compensation was on

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account of delay on the part of the owner, therefore, it was  the  obligation on the part of DIC to demonstrate as to how delay has  escalated the  loss to it.  Then and then alone the claimant will be  entitled to the compensation for this delay.  The minority Arbitrator  has taken  the view that since the claimant has nothing to  demonstrate therefore, it is not entitled to any compensation  whatsoever.   However,  the majority has taken  the factum of delay  by reviewing all evidence on record and has come to the conclusion  that there was a delay of 929 days and on the basis of factual  assessment  has granted damages to the extent of 5 % of the total  contract value. An argument was raised that in fact 5 % damages  could be granted under clause 18 to the owner for the delays on   account of the contractor and  the contractor  has to demonstrate  reasonably  how loss has occurred to him. However, the majority of  the Arbitrators has taken into consideration the parameter that in  case the delay was occasioned  on the part of the contractor,  then  the owner would have been entitled to the damages to the extent of  5%. This has been taken as the yardstick and  the compensation has  been worked out at 5% of the contract value and damages to the tune  of Rs.8.9 crores has been awarded to the claimant.  We are of  opinion that this issue is purely dependent on the factual controversy  of the matter and the majority of the arbitrators has assessed the loss  on account of the delays on the part of the owner and awarded 5% of  the contract value as a measure to award compensation to the owner  on account of the delay on the part of the owner  in completing the  work and no exception can be taken to this approach.  The amount  cannot be said to be a wrong assessment of the situation.  We cannot  sit over  the finding of fact arrived at by the majority of Arbitrators  and  affirmed by the High Court. Therefore, we accept the  view taken by  the Division Bench of the High Court in accepting the view the  majority of the Arbitrators in granting damages to the tune of Rs.8.9  crores in favour of the claimant- DIC.         [  Rs.8.9 crores granted as damages for delay of 929 days ]

13.             Next item relates to interest on borrowing of the funds.  Under this head, the DIC has claimed Rs.6.5 crores. The majority of  the Arbitrators has granted Rs.0.2 crores.  However, the minority   award has denied the claim.  The High Court has affirmed the  majority view of the Tribunal. Since in view of our finding on the issue  of delay in liquidity damages we are of opinion that the view taken by  the majority of the arbitrators is correct as there was delay on the part  of the owner \026 NRL and therefore, DIC had to pay interested on the  delayed sum.  Therefore,  the view taken by the majority of the  arbitrators cannot be said to be wrong as it is a  pure question of fact  and therefore, we are of opinion that the grant  of Rs.0.2 crore  towards interest on delayed amount has been rightly held by the  majority of the arbitrators and affirmed by the High Court.         [ Rs.0.2 crores granted  as interest paid on delayed funds] 14.             The next claim is with regard to interest.  The majority of  the arbitrators have granted interest on the amount at the rate of 12  per cent pendente lite  and post pendente lite at rate of 18 per cent  but the minority  arbitrator, Justice M.M.Dutt has granted 10 per cent  interest uniformally.  The grant of interest is discretionary  and the  majority of the arbitrators has rightly granted interest at the rate of 12  per cent  pendente lite and at the rate of 18 per cent post pendent  lite. Therefore, no exception can be taken to grant of such interest.   Consequently, we affirm this finding of the majority of the Arbitrators  and of the High Court.         [Interest at the rate of 12% P.I. & at the rate of 12% post P.I.]  15.               Hence, as a result of our above discussion, we are of  opinion that the claimant \026DIC is entitled to Rs.2 crores for  substituted material, Rs.8.9 crores for liquidity damages, Rs.0.2 crore   as interest paid on the delayed funds i.e. Rs.11.1 crore ( Rs.2 crore +  Rs.8.9 crore + Rs.02 crore) and finally interest at the rate of 12 per  cent pendente lite from the date of the claim petition till realization.

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The payment should be made within a period of six months from  today failing which  it will carry interest at the rate of 15 per cent per  annum. The appeal arising out of S.L.P.(c) No.20989 of  2006 is  partly allowed. The order passed by the High Court is modified as  indicated above.  The claim of the DIC is decreed to the extent  indicated above. However, the appeal arising out of S.L.P.(c)  No.4409 of 2007  filed by the DIC  is dismissed. No order as to costs.