# 1· NUMALIGARH REFINERY LID v. DAELIM INDUSTRIAL COMPANY LID

- **Citation:** [2007] 9 S.C.R. 724
- **Court:** Supreme Court of India
- **Decided:** 2007-09-06
- **Case number:** Civil Appeal No. 4079 of2007
- **Bench:** A.K Mathur, Markandey Ka Tju
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1-numaligarh-refinery-lid-v-daelim-industrial-company-lid-23323
- **Pages:** 25

## Headnote

Arbitration and Conciliation Act, 1996-Works contract between
Government Undertaking and foreign company-:-Dispute during execution of
C project-Contractor-foreign company referring to Arbitration-Appointment
of three arbitrators-Claim of Rs 55.8 crores under different headingsMajority award of arbitrators and minority award of arbitrator-Majority
award partly upheld by High Court-On appeal held·' Order of High Court
modified to the extent that claimant entitled to Rs.2 crores for substituted
material, Rs. 8.9 crores for liquidity damages, Rs.0.2 crore as interest paid
D on the delayed funds and 12 % interest pendente lite from the date of the
claim petition till realization and 15% intere5t per annum in case of failure
to make payment within six months.
Appellant, Governm~nt oflndia Undertaking (NRL) awarded contract to
respondent-DIC for building of Power.Ylant for its Petroleum Refinery. The
E parties signed contract agreements. The total contract price was on a Turnkey
basis and the time schedule for completion of the works was as per the'
consolidated contract. Disputes arose between the parties during execution
of contract DIC raised a claim and referred the matter before the International
Chamber of Commerce; International Court of Arbitration. DIC and NRL
F nominated their Arbitrator and the International Court of Arbitration
nominated a third Arbitrator to constitute the Arbitral Tribunal DIC raised
a total claim ofRs.55.8 crore under different heads.
With regard to claim of sum of Rs.9.6 crore under heading transfer of
US $6 million, DIC arranged procurement of the substituted indigenous
G materials for which it incurred cost and ex~nses to the tune of Rs. 25.3 crore,
based on clause 14.3 of the ITB, that items quoted in the bid to be imported .
could be subsequently transferred to indigencius supply for which NRL was
to pay at actuals maximum whereof to be limited to the computed value on site
delivery basis on the pricings quoted originally for that of the imported origin; •
H
724
I.
NUMALIGARH REFI. LTD. v. DAELIM INDUS. CO. LTD.
725
However, DIC claimed Rs.21.7 crores by applying the conversion rate. NRL A
paid Rs.12 crores and thus, DIC claimed Rs.9.6 crores. The majority of the
arbitrators accepted the value expressed by the prime consultant of NRL for
the execution of the project-Rs.17.68 crores and added 15% profit margin
and awarded Rs.20.33 crores (Rs.17.65 crores + Rs.2.65 crores ). DIC had
already received Rs.12.19 crores under this head and thus, awarded Rs.8.14
crores with US$ exchange rate at $1 = Rs.36.28 as equivalent on 26.2.1996. B
However, minority arbitrator held that as per the cost given by NRL their
liability was Rs.14.19 crores and awarded Rs.4,81,50,272.00 after total
calculations.
Under head-Turbo technical price, consortium partner of DIC in the C
contract agreement with NRL; had to supply various imported items for a
consideration of US $4150000 and DM 22990009 as specified in the Price
Schedule of the Overseas Contract DIC requested NRL to bifurcate the total
consideration of the import items into CIF cost and service cost and to amend
the contract agreement otherwise it had to pay customs duty on service portion
of the price consideration also. NRL did not carry out amendment and DIC D
could not avail necessary concession. DIC claimed Rs.1.65 crores under this
head. The majority of Arbitrators allowed the claim. The minority held that
NRL was not responsible for framing of such agreement and it was the fault
of DIC and rejected the claim.
Under heading-excess customs duty on account of fluctuation of E
exchange rate DIC claimed Rs 2.9 crores. The majority of the Arbitrators
held that the DIC was entitled to Rs.2.09 crores. However, the minority rejected
the claim.
·,.
Under heading-claim of liquidity damages to the extent of Rs.8.9 crores, F
DIC claimed compensation on account of delay on the part of the owner. The
majority held that there was a delay of 929 days and on the basis of fa

## Text

_Characters 0–39,956 of 62,591. This is a partial read: ask again with offset=39956 for what follows._

A
B
1·
NUMALIGARH REFINERY LID.
. ..
v.
DAELIM INDUSTRIAL COMPANY LID.
SEPTEMBER 6, 2007
'
~
I
1.L. : ~ •..
[A.K MATHUR AND MARKANDEY KA TJU,JJ.)
Arbitration and Conciliation Act, 1996-Works contract between
Government Undertaking and foreign company-:-Dispute during execution of
C project-Contractor-foreign company referring to Arbitration-Appointment
of three arbitrators-Claim of Rs 55.8 crores under different headingsMajority award of arbitrators and minority award of arbitrator-Majority
award partly upheld by High Court-On appeal held·' Order of High Court
modified to the extent that claimant entitled to Rs.2 crores for substituted
material, Rs. 8.9 crores for liquidity damages, Rs.0.2 crore as interest paid
D on the delayed funds and 12 % interest pendente lite from the date of the
claim petition till realization and 15% intere5t per annum in case of failure
to make payment within six months.
Appellant, Governm~nt oflndia Undertaking (NRL) awarded contract to
respondent-DIC for building of Power.Ylant for its Petroleum Refinery. The
E parties signed contract agreements. The total contract price was on a Turnkey
basis and the time schedule for completion of the works was as per the'
consolidated contract. Disputes arose between the parties during execution
of contract DIC raised a claim and referred the matter before the International
Chamber of Commerce; International Court of Arbitration. DIC and NRL
F nominated their Arbitrator and the International Court of Arbitration
nominated a third Arbitrator to constitute the Arbitral Tribunal DIC raised
a total claim ofRs.55.8 crore under different heads.
With regard to claim of sum of Rs.9.6 crore under heading transfer of
US $6 million, DIC arranged procurement of the substituted indigenous
G materials for which it incurred cost and ex~nses to the tune of Rs. 25.3 crore,
based on clause 14.3 of the ITB, that items quoted in the bid to be imported .
could be subsequently transferred to indigencius supply for which NRL was
to pay at actuals maximum whereof to be limited to the computed value on site
delivery basis on the pricings quoted originally for that of the imported origin; •
H
724
I.
NUMALIGARH REFI. LTD. v. DAELIM INDUS. CO. LTD.
725
However, DIC claimed Rs.21.7 crores by applying the conversion rate. NRL A
paid Rs.12 crores and thus, DIC claimed Rs.9.6 crores. The majority of the
arbitrators accepted the value expressed by the prime consultant of NRL for
the execution of the project-Rs.17.68 crores and added 15% profit margin
and awarded Rs.20.33 crores (Rs.17.65 crores + Rs.2.65 crores ). DIC had
already received Rs.12.19 crores under this head and thus, awarded Rs.8.14
crores with US$ exchange rate at $1 = Rs.36.28 as equivalent on 26.2.1996. B
However, minority arbitrator held that as per the cost given by NRL their
liability was Rs.14.19 crores and awarded Rs.4,81,50,272.00 after total
calculations.
Under head-Turbo technical price, consortium partner of DIC in the C
contract agreement with NRL; had to supply various imported items for a
consideration of US $4150000 and DM 22990009 as specified in the Price
Schedule of the Overseas Contract DIC requested NRL to bifurcate the total
consideration of the import items into CIF cost and service cost and to amend
the contract agreement otherwise it had to pay customs duty on service portion
of the price consideration also. NRL did not carry out amendment and DIC D
could not avail necessary concession. DIC claimed Rs.1.65 crores under this
head. The majority of Arbitrators allowed the claim. The minority held that
NRL was not responsible for framing of such agreement and it was the fault
of DIC and rejected the claim.
Under heading-excess customs duty on account of fluctuation of E
exchange rate DIC claimed Rs 2.9 crores. The majority of the Arbitrators
held that the DIC was entitled to Rs.2.09 crores. However, the minority rejected
the claim.
·,.
Under heading-claim of liquidity damages to the extent of Rs.8.9 crores, F
DIC claimed compensation on account of delay on the part of the owner. The
majority held that there was a delay of 929 days and on the basis of factual
assessment granted damages to the extent of 5 % of the total contract valueRs.8.9 crores. However, the minority rejected the claim.
With regard to the heading, interest on borrowing of the funds, DIC 0
claimed Rs.0.5 crores. The majority of the Arbitrators granted Rs.0.2 crores.
However, the minority award rejected the claim.
With regard to the rate of interest, the majority of the arbitrators
granted interest on the amount at the rate of 12 per cent pendente lite and
post pendente lite at rate of 18% but the minority arbitrator granted 10 per H
726
SUPREME COURT REPORTS
[2007] 9 S.C.R.
A cent interest uniformally.
'
I•
•·
. •
.
Under heading countervailing duty, DIC claimed Rs 8.78 crores which
'
'
,
,
had l_>een paid on acc.ount of excise duty o_n t,he premise that at the time when
the parties executed the agreement, countervailing ~uty was not there and it
came into force subsequent to the contract. Both the majority and minority
'
'
.
B arbitrators allowed the claim. .
- l
Aggrieved appellant filed applica.tion ch~llenging the majority awa.~d.'
'
'
District Judge set aside the award. DIC filed appeal before High Court ~!aiming
total Rs. 55.8 crores under different heads. High Court allowed all the claims
C but set aside the o~der with regard to c~m~tervailing duty. Hence the P!"esent
appeals by the appellant-NRL an~ respondent-DIC
. , . :
·,
'Disposing of the appeals, the court
HELD: 1. The claimant-DIC is entitled to Rs;2 crores for substituted
material, Rs.8.9 crores for liquidity damages, Rs.0.2 crore as interest paid
D on the delayed funds i.e. Rs.11.1 crore ( Rs.2 crore +' Rs.8.9 crore + Rs.02
crore) and interest at the rate of-12 per cent pendente lite from the date of
the claim petition till realization. The payment should be made within a period,,
of six months from today failing which it will carry interest at the rate of
.E
15% per annum. [Par-a 15) [747-H; 748-A)
--
· ·
2. With regard to claim of sum of Rs.9.6 crore under heading transfer
of US $6 million, 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 of the ITB, in normal course the parties should have led
evidence to substantiate their claims with reference-to vouchers and other
F documents in evidence in order to justify their claim, but in the instant case
when NRL accepted the total ~aloe to the extent ofRs.14.19 crores, then there
was no reason why· this should not have been accepted as they examined all
the items in their letter. Nevertheless, ·the fact remains that DIC purchased
the indigenous materials and substituted that as permissible under Clause·
G 14.3, then there was no reason to deny them the cost for the same e~pecially
. when intrinsic evidence is_ ~vailable i.e~ an indepen~ent _ body-~JlL, 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, under this head, the DIC
is legitimately entitled to a sum of Rs.2 crores against their claim of Rs.9.6
H crores. However, the view taken by the minority Arbitrator with regard to
r
;,
NUMALIGARH REFI. LTD. v. DAELIM INDUS. CO.LTD.
727
procurement service, inspection and expediting, overhead and claim of profit A
appears to be correct and that has been rightly disallowed by the minority
Arbitrator and that view is upheld. Hence, with regard to the claim for the
substituted material, the respondent-DIC is entitled to a sum of Rs.2 crores.
(Para 4) [734-F, G, H; 735-A, B, CJ
B
Mls.Brij Paul & Ors. v. State of Gujarat AIR (1984) SC 1703,
distinguished.
3. Under heading turbo technical price, 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 C
their duty to have excluded the services charges but they did not properly
frame 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 not 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 D
does not appear to be correct. Secondly, it was not possible for the NRL to
amend the agreement as the same was already been registered with the
Customs Authorities and the Reserve Bank of India. Hence, the DIC is not
entitled to the amount ofRs.1.65 crores under the head-Turbo technical price.
[Para 51 (736-B-EI
E
4. Under heading countervailing duty of Rs 8.78 crore, clause 2(b) &
clause 6 of the Consolidated Agreement read with clause 2.1 (g) of the
Instructions to Bidders and clause 13(t) of the Bid document 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 F
of ordinance is a duty enforced by the Statute (subsequently converted into an
Act). This leaves no manner of doubt that DIC has to pay the same. Therefore,
levy has to be borne by the DIC and they cannot escape from this situation.
The view taken by the Division Bench appears to be correct and there is no
ground to interfere with this part of the order.
(Para 8) (739-E-G; 740-H; 741-FJ G
Hermax Private Limited. v. Collector of Customs (Bombay) New
>
Customs House, (1992] 4 SCC 440; Kollipara Sriramulu v. T.
AswathD»arayana & Ors., [1968] 3 SCR 387; Mis. Sudarsan Trading Co. v.
Government of Kera/a & Anr., (1989) 2 SCC 38 and H.P. State Electricity H
728
SUPREME COURT REPORTS
[2007) 9 S.C.R.
A Boardv. R.JShah & Company, (1999) 4 SCC 214.
5.1. In the parameters of the terms and conditions of the Instructions
to the Bidder, 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
B of fluctuation on the exchange rates. 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 therefrom shall be permitted by the owner. 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 DIC cannot raise this
claim of excess payment made towards customs duty on account of fluctuation
C on exchange rate. The mi!lority view 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,
D 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. (Para 10) (743-C-D]
Pure Helium India (P) Ltd. v. Oil & Natural Gas Commission, (2003) 8
E sec 593, distinguished.
F
5.2. In the instant case, in the peculiar state of affairs when there is
variation of views; the majority award fakes one view and the minority award
takes another view, the District Judge takes the third view and the High Court
takes the fourth view accepting some items of the majority award of the
Arbitrators and some items ~f the minority award of the Arbitrator, in the
state of these conflicting views on the subject, the merit is to be seen to put
an end to the controversy by adjudicating the conflicting views ofvarious
Forum. However, 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
G 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. The view taken by the High Court in accepting
the majority view is set aside and the minority view is accepted and the claim
of DIC in the sum of Rs.2.9 crores on account of fluctuation in the exchange
rate is rejected. (Para ll) (744-C-F)
H
..
)<:
I
'
NUMALIGARH REFI. LTD. v. DAELIM INDUS. CO. LTD.
729
Tarapore and Company v. Cochin Shipyard Ltd, Cochin & Anr., (1984) A
2 sec 680, referred to.
6. With regard to the claim of liquidity damages to the extent of Rs.8.9
crores, the majority took 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 was taken as the B
yardstick and the compensation was worked out at 5% of the contract value
and damages to the tune of Rs.8.9 crores was awarded to the claimant. The
issue of liquidity damages for delay of929 day is purely dependent on the
factual controversy of the matter and the majority of the arbitrators assessed
the loss on account of the delays on the part of the owner and awarded 5% of C
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. Therefore, the view taken by the Division
Bench of High Court in accepting the view of the majority of the Arbitrators
in granting damages for delay of 929 days to the tune of Rs.8.9 crores in D
favour of the claimant- DIC is correct (Para 13) (746-D-H; 747-A-B)
7. With regard to the heading, interest on borrowing of the funds, since
in view of the finding on the issue of delay in liquidity damages, the view taken
by the majority of the arbitrators was correct as there was delay on the part
of the owner-NRL and therefore, DIC had to pay interest on the delayed sum. E
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, the grant of Rs.0.2
crore towards interest on delayed amount has been rightly held by the majority
of the arbitrators and upheld by the High Court. (Para 13] (747C, D, EJ
8. The grant of interest is discretionary and the majority of the
arbitrators rightly granted interest at the rate of 12 per cent pendente lite
and at the rate of 18 per cent post pendente lite. Therefore, no exception can
be taken to grant of such interest. The finding of the majority of the
Arbitrators and of the High Court is upheld. (Para 14] (747-G]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4079 of2007.
F
G
>
From the final Judgment and Order dated 24.08.2006 of the Gauhati High
Court in Arbitration Appeal No. l of 2002.
H
730
A
SUPREME COURT REPORTS
WITH
C.A. No. 4080 of2007.
[2007] 9 S.C.R.
Ashok H. Desai, Dr. Rajeev Dhavan and A.K. Ganguli, S.C. Ghosh,
Soumitra Ghose Chaudhuri, R. Rea Sinha, Snehasish Mukherjee, De~apriya
B Samanta, Parijat Sinha, Sumeet Kachwaha, Ashok Sagar, Dharmendra Rautray,
R. Vasanth, Meenakshi Arora and Ashok Sagar for the appearing parties ...
c
The Judgment of the Court was delivered by
A.K. MA THUR, J. I. 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 ai Guwahati in Arbitration
Appeal No. I of 2002. Therefore they are taken up together and disposed of
by this common order.
D
3. Brief facts which are necessary for disposal of these appeals are that
the respondent, Daelim Industrial Company (hereinafter fo 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
E 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 ofAssam. NRL through its consultant Engineers India
Limited (hereinafter to be referred to as 'EIL'), also a Government of India
F undertaking, on 22.11.1993 invited global quotations for building of a
Cogeneration Captive Power Plant for its Petroleum Refine!")'. at Nunialigarh in
Assam. DIC with its consortium partner, TurbotecniCa SPA ofltaly, 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
G 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 :
H
"(i) First train of Gas Turbine Generator (GTG), Heat Recovery Steam
Generator (HRSG) and Utility Boiler (UB) within 21 months of the
/
NUMALIGARH REF!. LTD. v. DAELIM INDUS. CO. LTD. [AK. MA THUR, J.] 731
issue ofFax Intent i.e. by 31.10.1996 and (ii) balance plant within 24 A
months of issue of the Fax Intent i.e. by 30.01.1997."
In course of the execution of the project disputes arose between the parties
and therefore, in tenns 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 B
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 Internation~l 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 confinned 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
c
its rejoinder. However, no counter claim was made by NRL. The Tribunal
framed necessary iss~es. 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 D
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 E
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 ofRs.13,74,55,272/-with
interest at the rate of 10% till realization, in case of failure on the part ofNRL
to disburse the sum. DIC was also further awarded an amount of Rs.1.65 crore F
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. I of 2001.
Notice was issued and in pursuance of such notice the respondent appeared. G
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 :
H
A
B
c
D
E
732
SUPREME COURT REPORTS
(2007) 9 S.C.R.
"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 croies
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
lnterest for borrowed funds, Delayed
opening of LC for Design
Rs.0.5 crore
I.
Escalation
Rs.4. l 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 ofRs.9.6 crores as claimed under
heading Transfer of US $ 6 million"
F
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 indigeniz.ation scope to the maximum extent
G 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 p~icings
quoted originally for that of the imported origin. Clause 14.3 of the Instructions
to Bidders reads as under:
H
~
'
.,..
NUMALIGARH REFI. LTD. v. DAELIM INDUS. CO. LTD. [A.K. MATHUR, J.] 733
"In case any item, quoted as imported in the bid, but is subsequently A
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 B
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 C
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
foQDal 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 D
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 project, assessed the value
E
of Rs. l 7 .68 crores by applying its mind to the submission of DIC, the majority F
of the Arbitrators accepted the value expressed by EIL by its communication
dated 4. l l. l 996 and the majority of the Arbitrators as per clause 14.3 accepted,
the advice ofEIL. 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 Mls.Brij Paul & Ors. v. State of Gujarat, AIR G
(1984) SC 1703. The majority of the Arbitrators accepted the claim of the DIC
to the extent ofRs.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 H
734
SUPREME COURT REPORTS
[2007] 9 S.C.R.
A 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
B 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 Iakhs 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
C Rs.1.32 crores was not payable. After discussion, Justice M.M.Dutt took the
view that the claimant wa5 entitled to Rs.141,920,735.00 plus Rs.l,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
D 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
E 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.
F
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. I 1. I 996 have accepted the
G 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
H intrinsic evidence is available i.e. an independent body - NRL which is a
NUMALIGARH REFI. LTD. v. DAELIM INDUS. CO. LTD. [A.K. MATHUR, J.] 735
Government of India undertaking and conceded the amount to the extent of A
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 expediting, overhead and claim of B
profit appears to be correct and that has been rightly disallowed by the
minority Arbitrator and we uphold that view. Mis. 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 freight. This case was
decided on peculiar facts, it cannot provide any assistance to the contractor.
Hence, so far as the claim under Item No. I for the substituted material the C
respondent - DIC is entitled to a sum of RS.2 crores.
[Rs.2 crores allowed under item No.1)
5. Now, coming to another head - Turbo technical price, under this head
Turbocechnica SPA of Italy, a consortium partner of DIC in the contract D
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 I of the above
Price Schedule permitted DIC/Turbotechnica to furnish list of goods with CIF E
(cost insurance and freight) value ofNRL 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 F
agreement for that purpose but no amendment was made. It was pointed out
that if no amendment was made for the relevant portion, Tumotechnica 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 G
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 H
736
SUPREME COURT REPORTS
[2007) 9 S.C.R
A this head a sum of Rs. l .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 ailowed 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
B 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.
C 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 sel'Vices 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
D segregated the same but since they did not do this, therefore they could not
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
E registered with the Customs authorities and the Reserve Bank of India/ Hence,
~he DIC is not entitled to the aforesaid amount ~f Rs. l .65 crores under this
head.
(Claim ofRs.1.65 crores under this head not allowed)
F
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
G 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. l l. l 994 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
H effect from 1.1.1995. Bid settlement was made on 24.1.1995 and NRL finally
NUMALIGARH REFI. LTD. v. DAELIM INDUS. CO. LTD. [A.K. MATHUR, J.] 737
awarded the contract to DIC by fax of intent dated 3 l. l. l 99S. Therefore, the A
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.l in the statement of
claim pertaining to the contract clear instructions were given to the bidders B
under clauses IS, IS.I, IS.2, lS.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 C
has been registered as Civil Appeal arising out of S.L.P.(c) No.4409 of2007.
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, IS.3. The crucial clause
is Clause 6 which reads as under :
D
"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 E
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- F
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 Indi~
(P) Ltd v. Oil & Natural Gas Commission [2003] 8 SCC S93. As against this, G
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 H
duty imposed by the Government. Mr. Ganguli, learned senior counsel for the
738
SUPREME COURT REPORTS
[2007] 9 S.C.R.
A 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., (Madra.s)
Ltd, [1959] SCR 379. Mr.Ganguli, learned senior counsel for. the appellant
B submitted that so 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.
c
D
E
(i)
(1992) 4 set 440
Thermax Private Limited. v. Collector of Customs (Bombay)
New Customs House.
(iI)
(1968) 3 SCR 3 87
Kollipara Sriramulu v. T.Aswathanarayana & Ors.
(ill) (1989) 2 sec 38
Mis. Sudarsan Trading Co. v. Govern,,:,ent of Kera/a & Anr.
(iv) (1999) 4 sec 214
HP.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
F 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 l3(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 :
G
"Clause 2(b) all taxes and duties in respect of job mentioned in
the aforesaid contracts shall be the entire responsibility of·the
contractor ... "
" Clause 6 It is specifically understood and agreed betw)en the
parties hereto that if there is any liability towards taxes/ duties
H
(including custom duty on foreign component of supply portion) as
•
NUMALIGARH REFI. LTD. v. DAELIM INDUS. CO. LTD. [A.K. MATHUR, J.] 739
may be assessed/ claimed/ demanded by the concerned Indian or A
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 ... "
"Clause 2.1 (g). The scope of this proposal ... will include the
following (g) payment of customs duty, port clearance charges etc. B
and customs clearance at Indian port of entry ... "
"Clause 13(f) , Bid Documents:
..... Prices for the entire scope of work on divisible contract basis
and indicate the following break-up: (f) lump sum charges on accounts C
of customs duty, port charges etc. for imported equipment and
materials ... "
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.