Case Note & Summary
The judgment concerns two arbitration petitions filed under Section 30 of the Arbitration Act, 1940, challenging an arbitral award dated 25th September, 2006. The dispute arose from a supply contract between Oil and Natural Gas Corporation Limited (ONGC) and Dai-Ichi Karkaria Limited (Contractor) for the supply of Pour Point Depressant (PPD). ONGC floated tenders in 1985, and the contractor was awarded a supply order in September 1986 for 3500 MT of PPD. The contractor completed supply in January 1987. Disputes arose regarding the quality of the product, excess dosage required in field use, and the contractor's claim for price revision. The matter was referred to arbitration. The arbitrator passed an award partly allowing claims of both parties. ONGC challenged the award on grounds that the arbitrator erred in allowing the contractor's claim for price revision and in awarding interest at 18% per annum. The contractor challenged the award on grounds that the arbitrator erred in allowing ONGC's claim for excess dosage compensation and in not awarding pendente lite interest. The court held that the arbitrator's interpretation of the price variation clause was perverse and contrary to the express terms of the contract, as the contractor failed to provide any evidence of change in raw material costs. Therefore, the award on price revision was set aside. Regarding excess dosage compensation, the court found that the arbitrator's decision was based on evidence and was not perverse, and thus upheld it. On interest, the court reduced the rate from 18% to 12% per annum, holding that the rate was excessive. The court also held that the arbitrator had correctly awarded interest from the date of the award and not pendente lite, as the contract did not provide for such interest. The petitions were disposed of accordingly.
Headnote
A) Arbitration - Judicial Review under Section 30 of Arbitration Act, 1940 - Error Apparent on Face of Award - The court can interfere with an arbitral award if there is an error apparent on the face of the award, but cannot reappreciate evidence or substitute its own view. Held that the arbitrator's interpretation of the price variation clause was perverse and contrary to the express terms of the contract, warranting interference (Paras 1-10). B) Contract Law - Price Variation Clause - Interpretation - The price variation clause in the supply order provided for revision based on changes in raw material costs, but the contractor's claim for revision was based on a different formula not supported by the contract. Held that the arbitrator erred in awarding price revision without any evidence of change in raw material costs, and the award on this issue was set aside (Paras 11-20). C) Contract Law - Excess Dosage Compensation - The contract provided for compensation if the product required dosage beyond 300 ppm. The arbitrator awarded compensation based on actual dosage used. Held that the award on this issue was based on evidence and was not perverse, and thus upheld (Paras 21-30). D) Interest - Pendente Lite Interest - The arbitrator awarded interest at 18% per annum from the date of the award until payment. Held that the rate of interest was excessive and reduced to 12% per annum, following the principle that interest should be compensatory and not punitive (Paras 31-35).
Issue of Consideration
Whether the arbitral award dated 25th September, 2006 is liable to be set aside under Section 30 of the Arbitration Act, 1940 on grounds of error apparent on the face of the award and misconduct.
Final Decision
The court partially allowed ONGC's petition and set aside the award on the issue of price revision. The court upheld the award on excess dosage compensation. The interest rate was reduced from 18% to 12% per annum. The contractor's petition was dismissed. Both petitions disposed of accordingly.
Law Points
- Arbitration Act
- 1940
- Section 30
- Scope of judicial review
- Error apparent on face of award
- Interpretation of contract terms
- Price variation clause
- Excess dosage compensation
- Interest rate
- Pendente lite interest
