Case Note & Summary
The matter arose from an arbitration petition under Section 34 of the Arbitration and Conciliation Act, 1996, filed by the original respondent in the arbitration, challenging the award dated 30 March 2000. The dispute concerned a contract for the sale and supply of superior kerosene oil (SKO) between the petitioner as buyer and the second respondent, Indian Oil Corporation Ltd., as seller. The initial agreement was executed on 6 July 1993 for a one-year term, with subsequent amendments and extensions in December 1993, July 1994, and July 1995, each incorporating the original terms. Deliveries of SKO took place between 10 October 1995 and 23 January 1996. The contract contained a claims limitation clause (10.2) requiring any claim to be filed within 150 days from delivery, with automatic lapsing if not admitted within 90 days, and requiring arbitration to be commenced within 360 days of delivery. By letter dated 6 June 1997, the second respondent invoked arbitration, alleging outstanding dues of Rs.38,58,107.86. The petitioner responded on 10 June 1997 with a request for waiver of interest and a payment plan, which later became a point of contention regarding admission of liability. The Director (Marketing) appointed a sole arbitrator, initially Mr. G.R. Menon and subsequently Mr. B.L. Bansal after Mr. Menon’s resignation. In the arbitration, the petitioner argued that the claims were time-barred under clause 10.2, as the arbitration notice was issued more than 360 days after delivery. The arbitrator held that clause 10.2 was void under Section 28 of the Indian Contract Act, 1872, and thus not a bar; he further rejected allegations of bias, found that demurrage charges were payable by the petitioner, and concluded that the petitioner had admitted the claim. The award directed the petitioner to pay Rs.48,11,103 with interest at 7% per annum from the date of claim to award and 18% per annum thereafter. In the present petition under Section 34, the petitioner contended that the arbitrator exceeded jurisdiction by declaring clause 10.2 void, causing patent illegality, and that the claims were clearly barred. It also argued that the letter of 10 June 1997 was a conditional counter-offer, not an admission, and that the seller had failed to provide final invoices within the contractually stipulated 45 days. The High Court’s judgment, as provided, recites these facts and the petitioner’s submissions but the text ends abruptly before the court’s analysis and final order. Consequently, the decision and ratio decidendi are not available from the extracted portion.
Issue of Consideration
Whether the arbitral award suffers from patent illegality due to the arbitrator declaring clause 10.2 of the agreement void as opposed to Section 28 of the Indian Contract Act, and whether claims were barred by limitation under clause 10.2.
Law Points
- arbitration
- limitation
- contractual claim bar
- section 28 Indian Contract Act
- patent illegality
- arbitrator’s jurisdiction
- clause 10.2 interpretation
Case Details
2015 LawText (BOM) (03) 35
ARBITRATION PETITION NO.653 OF 2011
Prateek Seksaria, Nidhi Singh, Smiriti Churiwal for petitioner; Sharan Jagtiani, S.R. Ganoo, Omprakash Jha for respondent no.2
M/s. Visakha Petroleum Products Pvt. Ltd.
B.L. Bansal, Sole Arbitrator and Indian Oil Corporation Ltd.
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Nature of Litigation
Challenge to arbitral award under Section 34 of Arbitration and Conciliation Act, 1996 arising from a kerosene supply contract dispute.
Remedy Sought
Petitioner sought to set aside the arbitral award dated 30 March 2000 that directed payment of Rs.48,11,103 plus interest to respondent no.2.
Filing Reason
Petitioner alleged that claims were barred by limitation under clause 10.2 of the agreement, the arbitrator erroneously declared the clause void under Section 28 of the Indian Contract Act, and the award suffered from patent illegality.
Previous Decisions
The arbitrator allowed respondent no.2's claims, rejected the limitation defense, held clause 10.2 not a bar, permitted respondent no.2 to argue the clause void under Section 28, and rejected the bias allegations.
Issues
Whether the arbitrator exceeded jurisdiction by declaring clause 10.2 void as opposed to Section 28 of the Indian Contract Act.
Whether the claims were barred by limitation under clause 10.2 of the agreement.
Whether the award was vitiated by patent illegality.
Whether the petitioner's letter dated 10 June 1997 constituted an admission of liability.
Submissions/Arguments
Arbitrator could not declare clause 10.2 void as it was beyond scope; award shows patent illegality.
Claims were barred as not made within 150 days and arbitration not commenced within 360 days of delivery as per clause 10.2.
Respondent no.2 failed to provide final invoices within 45 days as per clause 5.2; all final invoices were beyond 116 days.
Petitioner's letter dated 10 June 1997 was conditional and a counter-offer, not an admission of liability.
Judgment Excerpts
The petitioner was the original respondent in the arbitration proceedings whereas the respondent no.2 was the original claimant.
Clause 10.2 of the said agreement which is relevant for the purpose of deciding this matter is extracted as under :- “ 10.2 CLAIMS : Any claim regarding quality, quantity, demurrage, non-delivery or otherwise which either party may have against the other party shall be filed with that other party within 150 days from the date of delivery of the product to the buyer or the last date on which such delivery should have been made (hereinafter referred to as “the Delivery date”). If such claim is not admitted in full within 90 days of its being filed with the other party, it shall automatically lapse and be forfeited and the other party against whom it is made shall be discharged of all liability with regard thereto unless arbitration proceedings in respect thereof are commenced and notice thereof is given within 360 days of the delivery date to the party against whom the claim is made.”
The learned arbitrator ... held that the claims of respondent no.2 were not barred by limitation under clause 10.2 ... also held that respondent no.2 (original claimant) could be permitted to urge that clause 10.2 of the agreement was void as opposed to Section 28 of the Indian Contract Act, 1872.
The award shows patent illegality on the face of the award.
Procedural History
The parties entered into an agreement on 6 July 1993 for sale/supply of kerosene oil. A revision letter was issued on 20 December 1993. The agreement was extended on 6 July 1994 and again on 6 July 1995 on the same terms. Deliveries occurred between 10 October 1995 and 23 January 1996. Respondent no.2 invoked arbitration on 6 June 1997. Petitioner replied on 10 June 1997 with a conditional request for waiver of interest. The Director (Marketing) appointed Mr. G.R. Menon as sole arbitrator; after his resignation, Mr. B.L. Bansal was appointed. The arbitral award was passed on 30 March 2000. The present petition under Section 34 of the Arbitration and Conciliation Act, 1996 was filed in 2011. The High Court reserved judgment on 13 January 2015 and pronounced it on 4 March 2015.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 34
- Indian Contract Act, 1872: Section 28
