Holding

The Supreme Court upheld the minority arbitrator’s view, awarding DIC Rs 2 crore for substituted material, Rs 8.9 crore liquidity damages, Rs 0.2 crore interest, and rejecting the turbo‑technical price, counter‑vailing duty, and exchange‑rate fluctuation claims, while modifying the High Court order accordingly.

Summary

Numaligarh Refinery Ltd (NRL), a Government undertaking, awarded a turnkey power plant contract to Daelim Industrial Co Ltd (DIC). During execution, DIC lodged a claim of Rs 55.8 crore covering substituted material, turbo‑technical price, counter‑vailing duty, exchange‑rate fluctuation, liquidity damages, and interest, which was referred to an ICC arbitration tribunal consisting of three arbitrators. The majority award granted most of DIC’s claims, while the dissenting arbitrator limited the substituted‑material claim to Rs 2 crore and rejected the turbo‑technical price, counter‑vailing duty, and exchange‑rate claims; the District Judge set aside the award, and the Gauhati High Court partially restored the majority view. On appeal, the Supreme Court examined the contractual clauses, the applicability of Section 34 of the Arbitration Act, Section 64‑A of the Sale of Goods Act and Section 69 of the Contract Act, and held that the minority view on the disputed items was correct. Consequently, the Court modified the High Court order, awarding DIC Rs 2 crore for substituted material, Rs 8.9 crore liquidity damages, Rs 0.2 crore interest, and rejecting the other claims, while dismissing the separate appeal on counter‑vailing duty.

Issues considered

The entitlement of DIC to Rs 2 crore for substituted indigenous material under Clause 14.3 of the Instructions to Bidders.
The liability for turbo‑technical price and whether NRL could be compelled to amend the contract.
The responsibility for payment of counter‑vailing duty imposed after contract execution.
The claim for excess customs duty arising from exchange‑rate fluctuations.
The award of liquidity damages for a 929‑day delay and the applicable contractual clause.
The quantum and rate of interest on delayed payments (pendente lite and post‑pendente lite).
The scope of judicial review of an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996.
The applicability of Section 64‑A of the Sale of Goods Act, 1930 and Section 69 of the Indian Contract Act, 1872 to tax‑related claims.

Legislation cited

Arbitration and Conciliation Act, 1996s. 34
Indian Contract Act, 1872s. 69
Sale of Goods Act, 1930s. 64-A

Subjects

arbitrationcontract interpretationcounter‑vailing dutyliquidity damagesinterestexchange‑rate fluctuationsubstituted materialInternational Chamber of CommerceSection 34Section 64‑ASection 69

Judgment

1·

A NUMALIGARH REFINERY LID.
v.
...
DAELIM INDUSTRIAL COMPANY LID.
~
SEPTEMBER 6, 2007 ' I

1.L. : ~ •..
B [A.K MATHUR AND MARKANDEY KATJU,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 headings-
Majority 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 offailure
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; •
I.
H 724
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 value-
Rs.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
r
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
15% per annum. [Par-a 15) [747-H; 748-A) -- ··
.E
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
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

Mls.Brij Paul & Ors. v. State of Gujarat AIR (1984) SC 1703,
B
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.
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

F
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
F
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]
G
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4079 of2007.

> From the final Judgment and Order dated 24.08.2006 of the Gauhati High
Court in Arbitration Appeal No. l of 2002.

H
730 SUPREME COURT REPORTS [2007] 9 S.C.R.

A WITH

C.A. No. 4080 of2007.

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...

The Judgment of the Court was delivered by

A.K. MATHUR, J. I. Leave granted.
c 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 :

"(i) First train of Gas Turbine Generator (GTG), Heat Recovery Steam
Generator (HRSG) and Utility Boiler (UB) within 21 months of the
H
/

NUMALIGARH REF!. LTD. v. DAELIM INDUS. CO. LTD. [AK. MATHUR, 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
c
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 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
~
'
732 SUPREME COURT REPORTS (2007) 9 S.C.R.

A "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
B 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
c 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
D 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 )"
E 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 E
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
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 (i) (1992) 4 set 440
Thermax Private Limited. v. Collector of Customs (Bombay)
New Customs House.
(iI) (1968) 3 SCR 3 87
D 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
E
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.
D
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 nonnally the finding of the arbitrator should be accepted without demur. E
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, F
duties and levies have to be borne by the contracting party. Countervailing
duty which came into force with effect from l.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. G
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 H
140 SUPREME COURT REPORTS (2007) 9 S.C.R.
A from the tenns 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 a5 to the
payment of tax where tax was not chargeable at the time of the making
of the contract, or for the sale or pur~hase of such goods tax-paid
B 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
c 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
D equivalent to the decrease of tax '!r 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 (I) apply to the following taxes,
namely;-

E (a) any duty of customs or excise on goods;
· (b) any tax on the sale or purchase of goods."

J?is section also clearly says that unless a different intention app'!_t;zrs from
the terms of the contract, in case_ of the imposition or increase in the tax after
t~e making of a contract, the party shall be entitled to be paid such. tax or _.
F such increase. In this ~onnection, 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
G 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 Co~tract Act. In •
view of the above discussion, we are of opinion that so far as the payment
of countervailing duty is concerned, it was the obligation of the DIC_and the
H view taken by the Division Bench of the High Court appears to be correct
NUMALIGARH REFI. LTD. v. DAELIM INDUS. CO. LTD. [A.K. MATHUR, J.]741

and there is no ground to interfere with this part of the order. Consequently, A
we uphold the judgment of the High Court and dismiss the appeal arising out
ofS.L.P.(c) No.4409 of2007 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 vie'¥ that the DIC was entitled to Rs.2.09 crores on B
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 C
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 affrrme~
the majority view. D
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 E
· 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. F
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 G
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 : H
"(
\
742 SUPREME COURT REPORTS (2007] 9 S.C.R.
A "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
(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.
•
c (d) . Lump sum Price on FOR/FOT dispatch point basis for 5 all
indigenous equipment/ material, cement and steel, inclusive of
taxes, duties, levies, licence feee etc.
(e) Lump sum service charges towards documentations, handling,
forwarding, payment of customs duty, inland transportations,
D 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
E 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.
F (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
G
(I) List of components with itemi7.ed 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
H by Lloyds Register or third party inspection for IMPORTED
NUMALIGARH REFI. LTD. v. DAELIM INDU3. CO. LTD. (A.K. MATHUR. J.)743

equipment. A
(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 B
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. C
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 on exchange rate. The minority view expressed by Justice
M.M.Dutt appears to be correct. Had there been downward trend in the D
exchange rate, then th~ 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 E
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 Rs.2 crores allowed under item No. I. In this case this Court granted the
contractor's claim for being compensated for foreign exchange fluctuation and F
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 G
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:, [I <)&4] 2 H
744 SUPREME COURT REPORTS

-
[2007] 9 S.C.R.

A sec 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
B decisions of this Court mentioned above, that the Court should aceept 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
C 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
D 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
E 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
F fluctuation in the exchange rate.

[Claim of Rs.2.9 crores on account of fluctuation exchange rate
declined]

12. The next item is with regard to liquidity damages for delay of 929
G 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
H Tribunal concluded that on account of delay for about 929 days, the contractor
NUMALIGARH REFI. LTD. v. DAELIM INDUS. CO. LTD. [AK. MATHUR, J.] 745

had suffered loss on account of fluctuation in the prices as well as fluctuation A
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 B
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 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
c
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."
D
But this clause was amended subsequently and one percent was reduced to
J' 112 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 EVENT OF
DEIAYS: E
If the contractor fails to comply any of the_ time schedule mentioned
hereinabove, the Contract price shall be reduced @ 1/2% 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/l 0091 and 3244-00-LZ-PO-7013/l 0092 F
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 l 0 weeks, owner
may exercise their rights to invoke any or all provisions under this
agreement."
G
This was for the contractor's failure to complete the contract.

l3. 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 :
H
746 SUPREME COURT REPORTS [2007] 9 S.C.R.

A "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
B 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
c of compensation shall be mutually agreed depending upon the
circumstances at the time''blsuch 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
D compensation if such delay has resulted in any increase in the cost-iii' that
case, the owner shall examine the justification for such claim and if satisfi~d
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 account of delay on the part of the owner, !herefore, it was the obligation
E 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
F 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
G 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 beeri 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
H controversy of the matter and the majority of the arbitrators has assessed the
NUMALIGARH REFI. LTD. v. DAELIM INDUS. CO. LTD. [AK. MATHUR, J.] 747

loss on account of the delays on the part of the owner and awarded 5% of A
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·arby the majority of Arbitrators and affirmed by the High Court. B
Therefore, we accept the view taken by the Division Bench of the High Court
in accepting the view of 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 C
head, the DIC has c.laimed Rs.0.5 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 D
on the part of the owner - NRL and therefore, DIC had to pay interest 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. E
(Rs.0.2 ~~ores 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 F
M.M.Dutt has granted I 0 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 G
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 -DIC is entitled to Rs.2 crores for substituted material, Rs.8.9 H
748 SUPREME COURT REPORTS (2007] 9 S.C.R.

A crores for liquidity damages, Rs.0.2 crore as interest paid on the delayed
funds i.e. Rs.l 1.1 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. 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
B per annum. The appeal arising out of S.LP.(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 ofS.L.P.(c) No.4409 of2007 filed by the DIC is dismissed.
No order as to costs. ).

N.J. Appeals disposed of.