TMI Blog2006 (4) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... washery grade II coal on 8.11.1991 (540.02) that is ₹ 258.96 multiplied by the factor of 1.65 and arrive at the escalation as ₹ 427.28 per MT. This is in clear violation of the provisions of Clause 5 of the purchase order relating to price variation. The contract only mentioned the specifications of metallurgical coke and did not specify the quality of coal to be used for producing the metallurgical coke. It was open to the respondent to use any grade of coal, provided it supplied the coke of the quality specified. The purchaser was concerned with the specifications of the product it purchased, namely, metallurgical coke. It was not concerned with the quality of the raw material (that is coal) used for producing the metallurgical coal. The price of metallurgical coke was not linked to or based on the basic price of any particular quality of washery coal. Therefore, neither the respondent nor the Arbitral Tribunal could assume that the contract price of ₹ 2231/- was based on the base price of washery grade II as on 8.11.1991. Having regard to the escalation clause, the price increase should be with reference to the coal that is used. It cannot be worked out by taki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fic terms of the contract. On the other hand, the trial court had correctly decided the matter. Therefore, we allow this appeal, set aside the judgment of the High Court and restore the judgment of the trial court. Parties to bear their respective costs. - ARUN KUMAR R V RAVEENDRAN JJ. JUDGMENT: RAVEENDRAN, J. This appeal by special leave is against the judgment dated 17.8.2001 of the Rajasthan High Court in Civil Misc. Appeal No. (SB) 227/1997. 2. In pursuance of a tender invitation dated 14.10.1991 issued by the appellant for supply of Metallurgical coke (for short coke ), the respondent submitted its offer dated 8.11.1991. The appellant accepted the said offer and placed a purchase order dated 16/18.12.1991 on the respondent for supply of 15,000 MT of coke, to be supplied to its Vizag Unit and Tundoo Unit. Clause (2) of the purchase order contained the specifications for the supply of coke and Clause (3) related to price. The price agreed, exclusive of taxes and duties, was ₹ 2,231/- per MT of coke. The loading charges was ₹ 32 per MT. The transportation charges were ₹ 950 per MT for delivery at Vizag Unit and ₹ 120 per MT for delivery at Tundoo Unit. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, granted escalations only on the basis of price variation of Washery Grade II coal (that is difference between base price of Washery Grade II coal as on 8.11.1991 and the prevalent price of Washery Grade II coal) and not with reference to Washery Grade I coal. 6. The respondent was not satisfied with the price escalation given by the appellant. There was some correspondence in that behalf. The respondent ultimately sent a letter dated 16.12.1996 claiming that in regard to 7995.135 MT of Metallurgical Coke supplied to Vizag Unit from 14.7.1992 onwards, the amount due on account of escalation was ₹ 19,89,977.37. It was alleged that the Vizag Plant had refused to accept the claim of the respondent that it were using washery grade I and continued to give the difference on the basis of the price of washery grade II. In regard to Tundoo Plant, it was alleged that though the appellant agreed to the use of washery grade I, payment on account of escalation was not made and ₹ 21,18,355.92 was due for the supplied made from 14.7.1992. Therefore, the respondent sought reference to arbitration in regard to its said claims. The dispute relating to said claims was referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l realization. 4. Both parties will bear their own cost of Arbitration. 5. This Award is full and final settlement of all claims of the claimants referred to us for our adjudication. 8. The appellant filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (for short the Act ) numbered as Civil Suit No.2/1998 on the file of the Additional District Judge (No.II), Udaipur, praying that the said award by set aside. It contended that the award was contrary to the price escalation clause contained in the contract. It also submitted that the amount awarded had been arrived at arbitrarily without disclosing how the said sum of ₹ 41,78,353.36 was arrived at. 9. The trial court by judgment dated 3.2.1999 allowed the petition in part. The operative portion of the trial court s judgment (translation) is extracted below : It is, therefore, ordered that Friends Coal Carbonisation is entitled to get increase in price from Hindustan Zinc Ltd. on the basis of price increase considering basic price of washery grade I after 14.7.92 under clause 5. The difference in the price of washery grade I and washery grade II on 14.7.92 cannot be considered as price increase of wash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the said decision, the only ground urged in this appeal is that for calculating the price escalation, the difference should be with reference to base price of the washery coal used and not with reference to base price of a lower quality of washery coal. 12. This Court in Oil Natural Gas Corporation Ltd. v. Saw Pipes Ltd. [2003 (5) SCC 705] held that an award contrary to substantive provisions of law or the provisions of the Arbitration and Conciliation Act, 1996 or against the terms of the contract, would be patently illegal, and if it affects the rights of the parties, open to interference by court under Section 34(2) of the Act. This Court observed : The question, therefore, which requires consideration is whether the award could be set aside, if the Arbitral Tribunal has not followed the mandatory procedure prescribed under Sections 24, 28 or 31(3), which affects the rights of the parties. Under sub-section (1)(a) of Section 28 there is a mandate to the Arbitral Tribunal to decide the dispute in accordance with the substantive law for the time being in force in India. Admittedly, substantive law would include the Indian Contract Act, the Transfer of Property Act and other such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged void. 13. The High Court did not have the benefit of the principles laid down in Saw Pipes (supra), and had proceeded on the assumption that award cannot be interfered, even if it was contrary to the terms of the contract. It went to the extent of holding that contract terms cannot even be looked into for examining the correctness of the award. This Court in Saw Pipes (supra), has made it clear that it is open to the court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India. 14. After the matter was argued at some length, both counsel on instructions submitted that they agreed in principle on the following aspects : a) the respondent is entitled to escalation in price, calculated as per the escalation clause (clause 5 of the purchase order) on the basis of the price difference between the actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of ₹ 43,09,075/- was due, with interest from 17.1.1998, and even after adjusting ₹ 24,17646/- paid by appellant on 6.2.1999 and ₹ 30,36,149/- (amount deposited by appellant as a condition for stay granted by this Court and withdrawn by respondent on 1.1.2003) a sum of ₹ 122,88,796/- is due as on 31.3.2006. The respondent has not filed any calculation-sheet showing the break-up of the said sum of ₹ 43,09,075/-. As there was no agreement, we heard further arguments in the matter. 17. The following facts are not in dispute : (i) The respondent supplied in all 19,033.84 MT of metallurgical coke to the appellant as detailed below : S.No. Unit Name Supplied upto 14.7.2002 Supplied after 14.7.2002 1. Tundoo 1761.69 MT 7248.040 MT 2. Vizag 2036.513 MT 7987.597 MT Total 3798.203 MT 15235.597 MT (ii) The contract price for supply of metallurgical coke was ₹ 2231/MT. If there was any increase in the price of coal used for producing the met. coke, the respondent was entitled to a price increase of ₹ 1.65 per MT for every ₹ 1/- per increase in the price per MT of such coal over and above the base price of such coal (price as on 8.11.1991). (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . They rejected the contention of the appellant that the escalation should be worked out only with reference to the prevailing price of washery grade II coal, even if Washery Grade I was used. They also rightly stated that the difference in price for purposes of escalation should be worked out with reference to the base price of coal on 8.11.1991. Where they apparently committed a mistake is in stating that escalation should be worked out with reference to the base price of washery grade II, even when respondent was using washery grade I. 19. Having regard to clause (5) of the Purchase Order, the escalations have to be worked out with reference to the increase in price of coal. If washery grade II coal was used, the difference between the prevailing price of washery grade II and the base price of washery grade II on 8.11.1991, multiplied by a factor of 1.65 was to be the escalation. Similarly, if washery grade I coal was used, the difference between the prevailing price of washery grade I coal and the base price of washery grade I coal on 8.11.1991 multiplied by a factor of 1.65, was the escalation. This meant that if the base price of washery grade II was A (as on 8.11.1991) and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .65 and arrive at the escalation as ₹ 427.28 per MT. This is in clear violation of the provisions of Clause 5 of the purchase order relating to price variation. 21. The contract only mentioned the specifications of metallurgical coke and did not specify the quality of coal to be used for producing the metallurgical coke. It was open to the respondent to use any grade of coal, provided it supplied the coke of the quality specified. The purchaser was concerned with the specifications of the product it purchased, namely, metallurgical coke. It was not concerned with the quality of the raw material (that is coal) used for producing the metallurgical coal. The price of metallurgical coke was not linked to or based on the basic price of any particular quality of washery coal. Therefore, neither the respondent nor the Arbitral Tribunal could assume that the contract price of ₹ 2231/- was based on the base price of washery grade II as on 8.11.1991. Having regard to the escalation clause, the price increase should be with reference to the coal that is used. It cannot be worked out by taking the difference between the higher cost of superior quality coal and lower base price of i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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