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CASE NO.: Appeal (civil)  1280 of 2007

PETITIONER: BOC India Ltd

RESPONDENT: Bhagwati Oxygen Ltd

DATE OF JUDGMENT: 12/03/2007

BENCH: Dr.AR.Lakshmanan & Tarun Chatterjee

JUDGMENT: J U D G M E N T (Arising out of S.L.P. [C] No. 13662/2005 )

TARUN CHATTERJEE,J. Leave granted.         This is an appeal from a judgment of a Division  Bench of the Calcutta High Court dismissing an appeal  which was filed against the judgment of a learned Judge  refusing to accept the objection filed by the appellant  under Section 30 read with Section 33 of the Arbitration  Act, 1940 (hereinafter referred to as the "Act"). The brief facts of this appeal are as follow:

       BOC Ltd. being the appellant herein and one  Nippon Sansa K.K. (NSKK) entered into an agreement in  order to facilitate the respondent to import components  for setting up a 25 tons per day Oxygen plant at  Ghatsila, Bihar (now in the State of Jharkhand).  In the  month of April/May 1990 the appellant and the  respondent entered into a contract for erection,  installation and commission of the aforesaid plant at  Ghatsila, Jharkhand.   On 5th June 1990 a tripartite  meeting between the representatives of the appellant  and the respondent and NSKK were held where the  letter of intent was signed and purchase orders were  issued by the respondent in favour of the appellant. The  respondent awarded a turnkey contract on 6th June,  1990 to the appellant for manufacture, supply, erection  and commission of the said plant. Vide letter dated 18th  December 1990, the respondent had agreed to pay  interest on margin money and reimburse the same to  the appellant.  The appellant thereafter on 31st March  1992 raised final invoices and subsequently on   13th  April 1992 the respondent raised claims and sought  refund from the appellant. By a letter dated 9th March  1993 the appellant informed the respondent indicating  therein the interest payable by them to the respondent.   Finally, when the prior invoice and letter were not  responded to, on 13th September 1993 the respondent  again raised claims and sought refund from the  appellant.   When the refund was not made by the  appellant, the respondent made an application under  Sections 8 and 33 of the Act for the appointment of an  arbitrator on 24th November 1995 in the High Court at  Calcutta.    In the meantime, on 21st September 1995 the High  Court directed the appellant to release the spares to the  respondent on payment of Rs. 10,19,000/- by them. A  lawyer was thereafter appointed as Arbitrator by

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consent of the parties and the said arbitrator  subsequently was replaced on 12th February, 1996 by  Late Arbitrator Shri P.K. Roy. On 29th July 2000, Late  Shri Roy had passed his award in favour of the  respondent for a sum of Rs. 24,92,165/- with an  interest of 12 per cent on the amount. However, the  counter claim of the appellant was rejected.  On 30th October, 2000, the appellant filed an  application for setting aside the award passed by the  arbitrator under Section 30 of the Act before the High  Court at Calcutta. In the said application, the appellant  raised objection to the effect that the award in question  suffered errors apparent on the face of it. It was alleged  that the arbitrator erred in awarding the claim of the  respondent for a sum of Rs. 17,95,710/- relating to  claim no. 9 although the learned arbitrator held issue  no. 4 in favour of the appellant. It was also alleged that  since the appellant had not realised any sum in excess  of Rs. 50 lacs against indigenous supply, the award of  the learned arbitrator to the effect that the respondent  was entitled to receive back from the appellant, the said  sum of Rs. 17,95,710/-, was not only erroneous on the  face of the award but also contradictory and  inconsistent with the findings of the arbitrator against  issue no. 4. It was further alleged by the appellant  under Section 30 of the Act that the learned arbitrator  committed error apparent on the face of the award and  had acted in excess of his jurisdiction by awarding the  aforesaid sum of  Rs. 17,95,710/- in favour of the  respondent as the award was contrary to the findings  made by the learned arbitrator himself and therefore  was liable to be set aside. We are not dealing with the  other objections taken by the appellant in its objection  under Section 30 of the Act as noted herein after. A  learned Judge of the High Court by a detailed judgment  had rejected the objection filed under Section 30 of the  Act and had refused to set aside the award passed by  the arbitrator on the ground that on the materials on  record, the award was not liable to be set aside on such  grounds.  Feeling aggrieved by the judgment of the learned  Single Judge, the appellant filed an appeal before the  Division Bench of the High Court which was also  dismissed against which the present Special Leave  Petition was filed in respect of which leave has been  granted.          We have heard Mr. Soli J. Sorabjee, learned senior  counsel appearing for the appellant and Mr. Bhaskar P.  Gupta, learned senior counsel appearing for the  respondent. We have also considered the award passed  by the Sole Arbitrator Late Mr. P.K. Roy and the  objection raised against such award under Section 30 of  the Act and also the judgment of the learned Single  Judge as well as the Division Bench of the High Court  in detail.         Before we proceed further, as noted herein earlier,  we keep it on record that before the Division Bench of  the High Court, the appellant restricted his grounds for  setting aside the award in respect of Claim No.9 of the  statement of claim only and prayed for the same. Before  us, Mr. Sorabjee also restricted his submissions only in  respect of Claim No.9 of the statement of claim and also  prayed for setting aside the award restricted to Claim  No.9 only. In view of this stand taken by the appellant,  we need not dwell upon other questions and are

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concentrating only on the issue raised before us by the  learned senior counsel appearing for the appellant.          As noted, we may reiterate that the respondent  placed Purchase Order (P.O.) dated 6th of June, 1990 to  the appellant for supply, installation and commissioning  of oxygen plant at a lump sum price of Rs.347.40 lacs.  This fixed price was, however, subject to variation only  in respect of imported components of supply on account  of exchange rate variation and customs duty variation.  This would be evident from clause 1.1 of the P.O. as  quoted herein after. It is not in dispute that the job was  completed in June/July, 1992.  Due to variation in exchange rate and also in  customs duty, the lump sum price of Rs.347.40 lacs  increased to Rs.4,62,60,543. The appellant submitted  its bill inclusive of taxes as per the contract and the  break up which is as follows:   " A. Annexure 1 Invoice No.    3224                     Rs.4,62,60,543/- B.  Invoice dated 31.3.1992     Rs.     5,91,625/-      C.  Taxes paid as per contract (as mentioned in Invoice  No.3225 and 3227)                       Rs.     6,25,984/-                                                 =============                                 Total           Rs.4,74,78,152/-"                                                 =============

       As stated herein earlier, in view of the arbitration  clause accepted by the parties, the respondent had  raised a dispute after payment and the matter was  referred to arbitration. The respondent submitted its  claim before the arbitrator under 12 heads for a total  amount of Rs.1,79,76,716/-. The appellant also  submitted its counter claim. The sole arbitrator Late      Shri P.K.Roy passed an award on 29th of July, 2000, as  noted herein earlier and allowed the claim of the  respondent in respect of the following items:

"A.   Claim No.1: Interest           on margin money                        Rs.1,80,000/-

 B.   Claim No.3: Bank charges          and interest                                    Rs.3,10,932/-

 C.   Claim No.7:  Refund           on REP Licence                         Rs.   35,000/-

 D.  Claim No.8 :  Foreign Technician          fees, Air fare, hotel expenses          Rs. 1,70,523/-

 E.Claim No.9 Indigenous Supply                Rs.17,95,710/-                                                         ===========                                                         Rs.24,92,165/-"                                                         ===========

As noted herein earlier, the arbitrator, however,  dismissed all other claims of the respondent and also  the counter claim of the appellant.  Mr. Sorabjee contended that since the award in  question was contrary to the findings of the learned  arbitrator himself, the learned arbitrator in passing the  award had misconducted himself and accordingly the  award was arbitrary and liable to be set aside in respect  of claim No.9 of the respondent. Mr. Sorabjee had drawn our attention to the

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purchase order, which contained price for manufacture  and supply of plant and equipment comprising both  imported and indigenous components for installation,  erection and commissioning thereof. He had also drawn  our attention to the fact that a lump sum of Rs.379.49  lacs was fixed as a price for doing the job. The ’basis of  price’ is mentioned in      Clause 1.1. of the contract  which is as follows :-  

"Basis of price includes \026 1.1.1 -The value of the imported components will be  128.66 million YEN CIF Calcutta.  1.1.2 Customs duty @ 80% of CIF value based on  ’Project Import".  1.1.3 Stevedoring, port handling, customs  clearance, inland transportation and transit  insurance from port to site @ 5% of CIF Value. 1.1.4 Exchange rate has been taken at 100 yen          Rs.10.9. 1.1.5 The price includes excise duty towards  supply wherever applicable as on date, but  does not include sales tax, entry tax, income  tax on foreign technicians and other Govt.  impositions, if any, which will be paid extra,  as applicable. 1.1.6   Any variation in 1.1 to 1.1.5 except 1.1.3  indicated above will be adjusted. 1.1.7  The premium of Rs.5 lakhs towards purchase  of REP Licences is the maximum amount  payable by us. Any decrease below RS.5  lakhs will be passed on to us. 1.1.8 The above price is also subject to ’General  Conditions of sale and installation of Plant  and Equipment’. In the event of any conflict  between the clauses, one mentioned herein  shall prevail. Where General Conditions are  not applicable, have been marked accordingly  and initiated by competent authority."              Clause 4 of the contract contains Terms of Payment.  Indigenous supply is included in clause 4.4 which reads  as following-  "Supply Portion         -                       Rs.50 lacs. 10% advance against order. 10% advance within 3  months. 80% advance against proforma  invoice before dispatch. 4.5 For Erection and                            Rs.15 lakhs.       commissioning \026        10% advance against order 10% advance on opening of site 70% pro rata on monthly  basis. 10% on completion of erection  and commissioning."              In the statement of claim, as made by the  respondent, the value of projected imported components  worked out to Rs.264.44 lacs in the order shown below  :- "(i) CIF value of JY 128.66 million           Rs.1,40,23,940/-   (ii) Handling charges @ 5% of CIF-    Rs.     7,01,198/-   (iii) Import Duty @ 80% (based on            Project Import)                            Rs.1,12,19,152/-   (iv) REP Licence premium                    Rs.     5,00,000/-  

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                                               =============                 Total                 Rs.2,64,44,290/-"                                                 =============

       In the said statement of claim the total value of  the order worked out as imported components  (Rs.264.44 lacs) plus indigenous components (Rs.50  lacs) plus erection and commissioning (Rs.15 lacs)  comes to Rs.329.44 lacs. But the value was kept at  Rs.347.40 lacs, i.e., a cushion money of  Rs.18 lacs  approximately was provided for securing the forward  cover for foreign exchange and other variations.         In paragraph 21 of the said statement of claim, the  respondent stated that under the aforesaid order, the  appellant was required to supply indigenous  components plants and machinery as set out in Clause  2.1.2 to 2.3.4 of the order for a sum of Rs.50 lacs. The  appellant further stated that the indigenous supply was  not subjected to variation as per the order. The  appellant contrary to and in breach of the said order  raised invoices for a sum of Rs.67,95,710/- against  indigenous supply and realized an excess amount of  Rs.17,95,710/- from the respondent. Therefore, the  respondent claimed refund of Rs.17,95,710/- from the  appellant.                       According to Mr. Sorabjee, the learned Arbitrator  had misconducted himself in passing the award under             Section 30(1)(a) of the Act and thus the award was liable  to be set aside so far as Claim No.9 (Award No.9) of the  Arbitrator is concerned.  According to Mr. Sorabjee, the  award in respect of Award No.9 is contrary to the  findings of the learned Arbitrator and liable to be set  aside as it amounted to judicial misconduct. As noted  herein earlier, purchase order dated    5th June, 1990  provided for a lump sum price of Rs.347.40 lacs subject  to variation of importation of the contract and exchange  rates. He further submitted that since price was a lump  sum amount no specific price could be allotted to a  particular item. He contended that the value of Rs.50  lacs and Rs.15 lacs mentioned against indigenous  supply under Clause 4.4 of the P.O. and against  erection and commissioning mentioned in Clause 4.5 of  the P.O. was not appearing as a component of price but  appearing as "terms of payment"    (4.0 of P.O.).   Accordingly, Mr. Sorabjee sought to contend that the  Arbitrator had gone beyond his jurisdiction in awarding  Rs.50 lacs and Rs.15 lacs, mentioned against  indigenous supply and against erection and  commissioning, as the same was not appearing as  ’component of price’. Therefore, he had misconducted  himself in awarding the amount in respect of Award  No.9 (Claim No. 9 of the Statement Of Claim). In  support of this contention, Mr. Sorabjee relied on a  decision of this Court in K.P. Poulose vs. State of  Kerala, [1975 (2) SCC 236]. Mr. Sorabjee particularly  relied on para 6 of the judgment and submitted that the  Arbitrator was guilty of legal misconduct as he had gone  beyond his jurisdiction to pass an award on Claim No.9.          This submission of Mr. Sorabjee was contested by        Mr. Bhaskar P. Gupta, learned Senior Counsel,  appearing on behalf of the respondent. Mr. Gupta  contended that considering the terms of the contract, it  cannot be said that the Arbitrator had acted beyond his  jurisdiction in passing the award in respect of Claim  No.9. So far as the decision of this Court, relied on by

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Mr. Sorabjee, is concerned, Mr. Gupta submitted that  this decision cannot be applied in the facts and  circumstances of the present case. In that decision,  according to Mr.Gupta documents produced before the  Arbitrator were contrary to the award passed. In this  connection, Mr. Gupta had also drawn our attention to  the fact that the arbitrator in that case had ignored two  very material documents resulting in miscarriage of  justice. If we read para 6 of this decision carefully we  will find that the principle which was laid down in the  decision was that an award could be set aside on the  ground that the arbitrator had misconducted himself  when it was found that the arbitrator on the face of the  record arrived at an inconsistent decision even on his  own finding or arrived at a decision by ignoring very  material documents which throw abundant light on the  controversy to help in arriving at a just and fair  decision. Keeping this principle in mind, this court held  that the arbitrator had misconducted the proceedings in  that case. This is not the position in the present case. For  deciding this question, it would be necessary for us to  look into the P.O. Clause 4.0 contains "terms of  payment". Clause 4.4 of the P.O. contains the  indigenous supplies which clearly indicates     Rs.50  lacs would be the advance at the rate of 10% against the  date of order within 30 days and 10% advance within  three months and 80% advance against proforma  invoice before dispatch. Clause 4.5 of the terms of  payment provides for erection and commissioning which  indicates Rs.15 lacs in respect of which 10% advance  against order, 10% advance on opening of site, 70% on  pro rata on monthly basis, 10% on completion of  erection and commissioning. The Arbitrator had taken  into consideration the claim of the respondent on  indigenous supplies. He had also taken into  consideration the total value of the contract which was  Rs.347.40 lacs.         A bare perusal of the award of the Arbitrator  would show that he had considered the figure of  17,95,710/- which is included in the lump sum  contract price as consideration payable to the  respondent for services rendered by it towards  importation of plants components.  From the award it  will also be evident that in respect of the claim of  Rs.17,95,710/- against indigenous supply attention was  drawn to the works given in para 10 [a], 10 [b] and 10  [c] of the statement of claim.  If we assign individual  value to the individual jobs, the total works out to  Rs.3,29,44,290/- leaving a balance of Rs.17,95,710/-. The learned Arbitrator in his award also  considered that the break-up was an admitted position  which would appear from para 10[c] of the Statement of  Claim and the sum of Rs.17,95,710/-, the appellant  had recovered under the bill issued against indigenous  supply and the respondent paid the amount without  any objection.  While the Arbitrator has considered the  fact that the appellant had realised the differential  amount of Rs.17,95,710/- from the respondent against  indigenous supply, it cannot be said to mean that the  value of indigenous supply had gone up from Rs.50 lacs  to Rs.67,95,710/- as according to the terms of the  contract the value of indigenous supply remained at  Rs.67,95,710/- and the appellant realised the  differential amount of Rs.17,95,710/- against

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indigenous supply.  Accordingly the Arbitrator was  justified in holding that the said sum of Rs.17,95,710/-  was on account of expenses that might have been  incurred by the respondent in executing the contract.           In the case of Trustees of the Port of Madras Vs.  Engineering Construction Corporation Ltd. [AIR 1995  SC 2423], while this Court dealing with a situation  when an award can be set aside under Section 30 of the  Arbitration Act  held as under:  "The above decisions make it clear that the  error apparent on the face of the award  contemplated by Section 16 (I) (c) as well as  Section 30(c) of the Arbitration Act is an error of  law apparent on the face of the award and not  an error of fact. It is equally clear that an error  of law on the face of the award means an error  of law which can be discovered from the award  itself or from a document actually incorporated  therein. A note of clarification may be  appended viz., where the parties choose to  refer a question of law as a separate and  distinct matter, then the Court cannot interfere  with the award even if the award lays down a  wrong proposition of law or decides the  question of law referred to it in an erroneous  fashion. Otherwise, the well settled position is  that an arbitrator "cannot ignore the law or  mis-apply it in order to do what he thinks is  just and reasonable." (See Thawardas Perumal  v. Union of India, (1955)’-) SCR 48: (AIR 1955  SC 468)."

       In paragraph 20 of the said decision this Court  also held that the proposition that emerges is that in the  case of a reasoned award, the Court can interfere if the  award is based upon a proposition of law which is  unsound in law and that the erroneous proposition of  law must be established to have vitiated the decision.  It  has also been held in that decision that the error of law  must appear from the award itself or from any  document or note incorporated in it or appended to it.   This Court also held that it was not permissible to travel  and consider materials not incorporated or appended to  the award.  So far as the facts of the present case are  concerned, we do not think that the award of the  Arbitrator can at all be interfered with as the award was  not based upon either a proposition of law which is  unsound or an erroneous proposition of law was  established to have vitiated the decision.  As noted  herein earlier, the Arbitrator had considered all aspects  of the matter including the terms of the contract and all  the materials on record and the statement of claim and  has come to a conclusion of fact.  Such being the  position, we cannot but hold that the award was not  based upon a proposition of law which is unsound or an  error of law must have appeared from the award itself or  from any document or note incorporated in the award or  appended to it. That apart, according to the Arbitrator, this figure  was nothing but a mark up which the parties agreed to  keep in the contract for rendering of service towards  importation of plant components from Japanese  supplies. The appellant had realized this difference  amount of Rs. 17 lacs from the respondent against

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indigenous supplies. Therefore, it was not the case that  the arbitrator had misconducted himself in passing the  award by ignoring to consider material documents,  which had thrown light on the controversy raised by the  parties. As noted herein earlier, the arbitrator had  looked into the terms of the contract, arbitration clause  and the statement of claim of the respondent disputed  by the appellant. It was not the case that the arbitrator  had decided erroneously a question of law referred to  him but on consideration of the terms of contract and  statement of claim came to a conclusion that Claim No.  9 of the respondent should be awarded in its favour.   Such being the position, we do not find any reason to  interfere with the award of the arbitrator which was  passed on consideration of all material put on record.  In this view of the matter, it is not open to the  court to set aside the award on the ground that the  learned Arbitrator had, while continuing with the  proceeding, acted beyond his jurisdiction and violated  the contract while awarding Rs. 17,95,710/- in the form  of Award No.9. In our view, this cannot be said to have  an award, which is contrary to the contract entered into  by the parties. It is also not the case where the learned  Arbitrator had failed to consider material documents  produced by the parties for arriving at a right decision.  On the other hand as noted herein earlier, we are of the  considered view that the Learned Arbitrator had duly  considered the statement of claim and the terms and  conditions of the contract and the material documents  produced by the parties, which were available on record,  and came to a conclusion rightly in favour of the  respondent. The Learned Arbitrator also came to a  conclusion that the aforesaid figure of Rs. 17,95,710/-,  was included as lump sum contract price as  consideration payable to the respondent for service  rendered by them for importation of plants and  components. In any view of the matter, when the  Arbitrator had taken a plausible view on interpretation  of contract, it is not open to the court to set aside the  award on the ground that the Arbitrator had  misconducted himself in the proceedings and therefore,  the award was liable to be set aside. In Indu Engineering and Textile Limited vs.  Delhi Development Authority [2001 (5) SCC 691] this  court laid down a principal when the court could set  aside an award in the exercise of its powers under  Section 30 of the Act. This court in the said decision  held that when a plausible view had been taken by the  arbitrator and unless the award of the arbitrator was  vitiated by a manifest error on the face of the award or  was wholly improbable or perverse, it was not open to  the court to interfere with the award within the  statutory interpretation set out in Section 30 of the Act.          That apart, the amount of Rs.17,95,710/- was  recovered by the appellant under the bill issued against  indigenous supplies and amount were paid without any  objection by the respondent. Such being the position we  are unable to agree with Mr. Sorabjee that the award  was liable to be set-aside on the aforesaid ground. We, therefore, do not find any merit in this appeal.  The appeal is dismissed without any order as to costs.