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South-East Asia Marine Engineering& Construction v. OIL India Ltd.
The appeal has been filed in the Supreme Court due to the passing of the impugned judgment dated 11th May 2020 passed by the High Court Of Guwahati, where the High Court allowed the appeal preferred by Oil India Ltd. which is the respondent under Sec 37 of the Arbitration Act and set aside the award given by Arbitral Tribunal dated 19th December 2003.
The appellant was awarded the work order on 20th July 1995 by a tender floated by the respondent in 1994. The contract agreement was for well drilling and auxiliary operation in Assam, the same was put into force from 5th June 1996. Initially, the contract was for 2 years but it got extended for 1 year each twice and got expired on 4th October 2000.
When the contract was still in force the price of High-Speed Diesel (HSD) increased. Because this appellant raised a claim that the increase in the price of HSD which is essential for carrying out the operations triggered the change in the clause under the contract and the respondent is liable to reimburse. The respondent kept on rejecting the claim, due to which the appellant involved the arbitration clause which was referred to Arbitral Tribunal on 1st March 1999.
The Tribunal issued the award on 19th December 2003 and allowed the claim of the appellant and awarded a sum of Rs 95,89,564 with an interest of 10% per annum from the date of the award will the date of recovery. On 11th March 2005, the amount was revised to Rs 1,32,32,126. The Arbitral Tribunal held that while a price increase is issued under the authority of the state is not a law, but has the force of law. Thus falls within the ambit of clause 23. The minority held that the executive does not come within the ambit of clause 23 of the contract.
The Respondent challenged the award in District Court which upheld the award and did not warrant judicial interference. The respondent further challenged the judgment of the District judge under Sec 37 of the Arbitration Act before the High Court, which allowed the appeal and set aside the award passed by the Tribunal. The High Court held that the decision given is mistaken and against the public policy of India. The High Court under Sec 37 of the Arbitration Act, on the scope of judicial review, held that the Court has the power to set aside the award as it was overlooking the terms and conditions of the contract. Aggrieved by the decision the appellant has filed the appeal by the way of special leave petition.
Learned Counsel for the Appellant has contended that the High court has imparted its personal views as to the intent for the inclusion of clause 23 and the construction of clause 23 is a matter of the interpretation and has been correctly interpreted by the Tribunal. The High Court cannot substitute one view of the Tribunal. The question of law decided by Tribunal is beyond judicial review and thus the High Court could not have interfered with a plausible award.
Learned counsel for the respondent submits that the award passed by the Tribunal is contrary to the terms of the contract. Neglecting the terms and conditions if the contract is violative of Sec 28 of the Arbitration Act and the Tribunal stepped over its jurisdiction.
After listening to both the parties it is settled that a Court can set aside the award only the grounds provided in the Arbitration Act or as interpreted by the courts. Sec 34 is different in approach and cannot be equated with a normal appellate jurisdiction. Further, it is also settled that when there are two views possible, the Court cannot interfere in the reasonable view taken by the arbitrator.
The High Court in its reasoning suggests that clause 23 is akin to a force majeure clause. Under contract law, Sec 56 states that on the occurrence of an event that renders the performance impossible, the contract becomes void. When the contracted act becomes impossible the parties are exempted from further performance and the contract becomes void.
Sec 65 of the Contract Act states that when a contract becomes void, any person who has received any benefit is bound to restore it. The Court does not substitute either High Court or Arbitral Tribunal based on the reasons provided. Although, the tribunal correctly held that a contract needs to be interpreted taking into consideration all the clauses of the contract further it has failed to apply the same standard while interpreting clause 23 of the contract. In this case, the basic rule of thumb rule of interpretation was ignored by the Tribunal while interpreting the clause.
Both the parties entered into the contract through a tender issued by the respondent which after considering the bids, the appellant was issued a work order. The contract was entered for drilling oil and auxiliary operation, the contract was based on a fixed rate. Both parties entered into the contract after mitigating the risk of a price increase. Interpretation of tribunal to expand the meaning of clause 23 to include rate change of HSD is an impossible interpretation of the contract. Further, the appeal was dismissed by the Supreme Court.
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