BHAGAWATI OXYGEN LTD.versusHINDUSTAN COPER LTD.

A                           BHAGA WA TI OXYGEN LID.
                                            v.
                              HINDUSTAN COPER LTD.

                                    APRIL 5, 2005

B                      [RUMA PAL AND C.K. THAKKER, JJ.]


           Indian Arbitration Act, 1940; Section 30 :

           Agreement entered into between a Company and a supplier for supply
C    ofoxygen-Arbitration Clause -Breach ofterms-Claims and counter-c/aims-
     Arbitrator gave award in favour of the supplier-Challenge to-Set aside by
     Single Judge of the High Court-Affirmed by Division Bench of the High
     Court-On appeal, Held: Court while exercising the power under Section 30
     ofthe Act cannot re-appreciate the evidence/examine correctness ofthe award-
D    The Court could interfere with the award only on the ground of misconduct
     or when the award was either improperly procured or otherwise invalid--
     Since the company failed to prove that they purchased oxygen from other
     sources in breach of the agreement by the supplier, Arbitrator was right in
     rejecting their claim- High Court not justified in setting aside the Award on
     ground of misconduct-Sale of Goods Act, 1930-Section 61.
E
            Interest-Power of Arbitrator-Held: Arbitrator is competent ·to award
      interest for pre-reference period, pendente lite and post award period provided
      the rate of interest is reasonable-Since the company had advanced load to
     'the supplier@ 18%, Arbitrator was right in awarding the same rate ofinterest
F     in favour of the supplier.

           The questions which arose for determination in these appeals were
     as to whether on the facts and in the circumstances of the case, the
     Arbitrator was right in allowing the claim of the appellant-supplier against
     the respondent, a Public Sector Undertaking/company in terms of the
G    arbitration clause and on the ground of breach of agreement; as to whether
     the Arbitrator had miscondu'!ted himself in passing the impugned award
     by dismissing the counter claim of the company and as to whether the
     Single Judge and the Division Bench of the High Court were right in
     setting aside a part of the award by directing the Arbitrator to re-consider
     the matter and decide it afresh; as to whether the Arbitrator had pow~r
fI                                         232
                       BHAGAWATI OXYGEN LTD. v. HINDUSTAN COPER LTD.              233

          to award interest at the rate of eighteen per cent per annum for pre-           A
          reference period, pendente lite and post reference future interest from the
          date of award till the date of payment and as to whether the single Judge
          as also and the Division Bench was justified in reducing the rate of interest
          from eighteen per cent to six per cent.

              Allowing Civil Appeal Nos. 2412-13 of 2005 and dismissing Civil             B
          Appeal No. 2414 of 2005, the Court

               HELD : 1.1. In view of the finding recorded by the Arbitrator and
          non-interference by the High Court, no case has been made out by the
          company as regards the claim allowed by the Arbitrator in favour of the         C
          supplier to the extent of supply of oxygen gas to the company. Hence, th~
          appeal filed by the company is dismissed. (243-D]

                1.2. The Court, while exercising the power under Section 30 of the
          Indian Arbitration Act, cannot re-appreciate the evidence or examine
          correctness of the conclusions arrived at by the Arbitrator. The.               D
          jurisdiction is not appellate in nature and an award passed by an
          Arbitrator cannot be set aside on the ground that it was erroneous. It is
          not open to the Court to interfere with the award merely because in the
          opinion of the Court, other view is equally possible. It is only when the
          Court is satisfied that the Arbitrator had misconducted himself or the
          proceedings or the award had been improperly procured or is 'otherwise'         E
          invalid that the Court may set aside such award. (244-B-C)

                 Union of India v. Rallia Ram, AIR (1963) SC 1685; U.P. Hotels v. U.P.
          State Electricity Board, (1989) 1SCC359; Rajasthan State Mines & Minerals
          Ltd. v. Eastern Engineering Enterprises & Anr., [1999) 9 SCC 283; U.P. State
          Electricity Board v. Searsole Chemcia/s Ltd., (2001) 3 sec 397; Indu            F
          Engineering & Textiles Ltd v. Delhi Development Authority, (2001) 5 SCC
          691 and Bharat Coking Coal Ltd. v. Mis. Annapurna Construction, [2003) 8
          sec 154, relied on.
               Hodgkinson v. Fernie,(1857) 140 ER 712, referred to.
                                                                                          G
.,..._.         2.1. In the instant case, the Arbitrator has considered the relevant
          evidence on record and observed that oxygen was supplied by the supplier,
          which was accepted by the company. Certain letters were, no doubt,
          written by the company to the supplier complaining about the quantity
          and quality of oxygen gas. The Arbitrator also observed that the evidence       H
    234                   SUPREME COURT REPORTS                  [2005] 3 S.C.R. '

A disclosed that verbal complaints were made regarding purity of gas. He,
  however, recorded a finding that Clause 10.4 of the agreement which
  allowed the company to purchase oxygen from·other sources at the cost
  and consequence of the supplier was never invoked. The said clause which
  was "risk purchase" from elsewhere was not resorted to by the company.
  The Arbitrator noted that in some of the letters, the company stated that
B it would have no option but to purchase liquid oxygen at the cost of the
  supplier during non-availability of oxygen from the supplier, but ultimately
  it was a letter dated October 11, 1993 whereby the company informed the
  supplier that if they would not supply oxygen by certain date, it would be
  constrained to purchase oxygen from other sources. Thus, time was
C granted up to October 26, 1993. fl) the light of the letter, the Arbitrator _
  concluded that the company could not have purchased oxygen from other
  sources in August, 1993 and hence it was not entitled to put forward
  counter claim. (245-E-F-G)

          2.2. Though all those letters also go to show that the company had
D some complaint against the supplier and it had also disclosed its intention
    to purchase oxygen gas from other sources but as observed by the
    Arbitrator, it was not proved t'1at the.company had in fact purchased
    oxygen from other sources under Clause 10.4 of the agreement. If in the
    light of such evidence, the Arbitrator did not think it fit to allow counter
    claim, it could not be· said to be a case of misconduct covered by Section
E   30 ot the Act. Single Judge as also the Division Bench were, therefore, not
    justified in setting aside the award passed by the Arbitrator dismissing
    the counter-claim. (247-C-DI
          3.L The Arbitrator awarded interest to the supplier at the uniform
F   rate of eighteen per cent for all the three stages, pre-reference period,
    pendente lite and post award period; that in the arbitration agreement
    there is no provision for payment of interest. The single Judge as well as
    the Division Bench of the High Court were right in observing that the
    Arbitrator, in the facts and circumstances, could have awarded interest.
                                                                    [247-E-F)
G
        3.2. Section 34 of the Code of Civil Procedure has no application to
  arbitration proceedings since Arbitrator cannot be said to be a 'court'
  within the meaning of the Code; But an Arbitrator has power and
  jurisdiction to grant interest for all the stages (pre-reference period,
  pendente lite and post award period) provided the rate of interest is
H reasonablt. As to the rate of interest,_ a relevant and germane factor
      BHAGAWATI OXYGEN LTD. v. HINDUSTAN COPER LTD. [THAKKER, J.]      235
weighed with the Arbitrator in awarding eighteen per cent interest was .A
that at the same rate the company had given advance to the supplier. In
view of the said circumstance, even that part of the award passed by the
Arbitrator did not deserve interference and single Judge and also the
Division Bench of the High Court were not right in reducing the rate of
interest. Hence, the Award passed by the Arbitrator is restored.
                                              (247-F-G; 249-H; 250-A-Bj B

     Executive Engineer, Dhenkanal Minor Irrigation Division and Ors. v.
N.C. Budhraj (Deceased) by Lrs. and Ors. , [2001) 2 SCC 721; Irrigation'
Department, Government ofOrissa and Ors. v. G.C. Roy, [1992) 1 SCC 508
and Hindustan Construction Co. Ltd v. State ofJammu and Kashmir, (1992) C
4 sec 217, relied on.

     CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2412-2413.
of 2005.

     Fonn the Judgment and Order pated 3.7.2003 of the Calcutta High           D
Court in A.P.O.T. Nos. 721 and 736 of 2002.
                                     WITH
     C.A. No. 2414 of 2005.

     P.K. Ghosh, A. Datta and Praveen Swamp with him for the Appellant.        E
    D.A. Roychaudhary, Ms. Nandini Mukherjee and Deba Prasad
Mukherjee for the Respondent.

     The Judgment of the Court was delivered by

     C.K. THAKKER, J. Leave granted.                                           F

      All these appeals arise out of common judgment and order passed by
the Division Bench· of the High Court of Calcutta in APOT Nos. 721 of 2002
and 736 of 2002 on July 03, 2003 by which the Division Bench confirmed
the order passed by learned single Judge on July 24, 2002 in A.P. No. 369      G
of 2002. That A.P. was filed by Hindustan Copper Limited against Arbitration
award passed by Justice L.M. Ghosh (Retd.) on September 25, 2000, under
the Arbitration Act, 1940 (hereinafter referred to as 'the Act').

      To appreciate the controversy raised in the present appeals, relevant
facts may be stated in brief. On March I 0, 1988, Hindustan Copper Limited     H
                                                                                        t
                                                                                        I




    236                    SUPREME COURT REPORTS                    [2005] 3 S.C.R.

A ('HCL' for short) invited tender for supply of oxygen for its plant at Ghatsila.
     The tender contained a condition that successful bidder will set up an oxygen
                                                                                       -
     plant in the vicinity ofHCL. The tender of Bhagwati Oxygen Limited ('BOL'
     for short) was accepted and an agreement had been entered into between
     HCL and BOL on March 17/April 14, 1990. It was for a period of seven
     years from the date of commencement of supply of oxygen. The agreement
B   stated that the supplier i.e. BOL will at its own cost install, operate and
     maintain an oxygen plant of 25 TPD capacity of. pressure vacuum swing
    ,absorption type with suitable compressors for supply of high purity oxygen
     gas to HCL. It also stated that the purity of oxygen would be 99 per cent. The    f'
     agreement further stated; ''The oxygen plant should have the capacity to          t:a
C   supply not less than I ,25,000 mm3 of gas of 99 per cent purity per week on
     a sustained basis as and when required by HCL. Clause 2.3 clarified that the
     minimum acceptable purity of the oxygen gas should be 85 per cent for both
     flash furnace and converter. Meter readings for invoicing billing purpose
    were to be taken jointly by authorized representatives of HCL and BOL as
     and when the plant stopped/started. Provision was also made for periodical
D   checking and calibration of meters. lt\vas the duty of BOL to erect plant and
    pipe line system. A right to inspection and review was conferred upon HCL.
    Requirement of gas and supply thereof had been mentioned in Clause 2. I.
    Water supply required for the plant was to be arranged by BOL at its own
    cost but HCL agreed to supply water for operation of the plant. BOL had
E   undertaken to erect and commission the plant and start supply of gas
    continuously to HCL within I 8 months from the date of receipt of order or
     letter of intent whichever was earlier and the gas was to be made available
    to HCL in the requisite quality and quantity as per conditions agreed upon.
    Provisions had also been made with regard to price of gas and minimum off-
    take guaranteed. Time was the essence of the contract and penalty had been
F   provided for in case of breach of contract.

          Clauses 10.4 and 10.5 are relevant and they read as under :-

            "10.4. In case BOL fail to supply oxygen from the Captive plarit as
            per the contract tenns after commissioning of the plant, it will be the
G           responsibility of BOL to arrange liquid oxygen from other"sources at
            c~ntracted rates and keep HCL requirement feed uninterruptedly failing
            which HCL will have the right to procure the gas from elsewhere and
            the difference of such procurement cost and the agreed price subject
            to a limit of 80% of the total requirement as per NIT, will be recovered
            from BOL forthwith. However, HCL will give adequate chance to
H
--
lil
                 BHAGAWA TI OXYGEN LTD. v. HINDUSTAN COPER LTD. (THAKKER, J.]

                 BOL to meet the HCL's requirements by their own means from other
                 sources at the contract price.
                                                                                    237
                                                                                            A

                 "10.5. In case, for any period the quantity of Gas supplied goes down
                 below the guaranteed purity or pressure, no payment will be made for
                 that period or quantity unless specifically prior acceptance is obtained
                 from HCL."                                                                 B
---   '
               A security deposit·of Rs. 20 lacs (Rupees twenty lacs only) had been
          made by BOL to HCL in the form of bank guarantee issued by the Central
          Bank of India, New Delhi. There was an arbitration clause being Clause
          No.12. The said clause reads thus:
                                                                                            c
                 "Except where it has been provided otherwise, any dispute or
                 difference arising out of or in connection with the work or any
                 operation covered by the contract and any dispute or difference arising
                 out of in connection with the agreement entered into between HCL
                 and BOL including any dispute or difference relating to the
                 interpretation of the agreement or any clause thereof, shall be referred D
                 to sole arbitration of a person appointed jointly by the Chairman of
                 HCL and BOL. The provisions of the Arbitration Act, 1940 and the
                 rules thereunder and any amendinent thereto from time to time shall
  I   -          apply. The award of the arbitrator shall be final, conclusive and binding .
                 to all the parties to the contract. The arbitrator shall be competent ~o E
                 decide whether any matter, dispute of difference referred to him falls
                 within the purview of arbitration as provided for above."

                 In accordance with the terms and conditions of the contract, BOL set
          up its oxygen producing plant on 31st July, 1992 and commenced supply of

•         oxygen to HCL. It is the case of BOL that it supplied oxygen to HCL from
           10th February, 1993 to 12th August, 1993. According to the BOL, however,
                                                                                            F
          no payment was made by HCL to BOL on the ground that oxygen supplied
          by BOL to HCL did not meet the purity standard as agreed between the
          parties. It was also alleged by BOL that bad water was supplied by HCL as
          a result of which the plant was damaged and ultimately was shut down on
          August 12, 1993. On October 11, 1993, a letter was written by HCL to BOL G
.L        calling upon BOL to supply or to arrange for supply of oxygen to HCL on
          or before August 26, 1993. But the gas was not supplied by BOL to HCL.
          On July 27, 1994, an agreement was arrived at between the parties to refer
          the dispute to the Arbitration of Justice L.M. Ghosh, retired Judge of the
          High Court of Calcutta. On lst April, 1995, arbitration commenced. BOL H
    238                     SUPREME COURT REPORTS                 [2005] 3 S.C.R.

A. claimed Rs. 1,80,81,402.93 ps. :
           (i)   Dues on account of unpaid bills;
           (ii) Cost of repairing and over hauling its plant due to bad water
                supplied by HCL;

B          (iii) Loss of revenue due to .shut down of the plant by reason of bad
                 water supplied by HCL; and
           (iv) Interest.

          HCL, on the other hand, filed a counter claim in the arbitration
C proceedings for Rs. 2,66,26,023.14 ps. inter a/ia claiming :
           (i)   Recovery of excess amount paid to BOL;
           (ii) Difference of price of oxygen purchased by HCL from other
                sources (risk purchase);
           (iii) Extra expenditure due to consumption of excess furnace oil due
D                to low purity of oxygen;
           (iv) Loss of production by HCL; and
           (v) Interest.

E          The Arbitrator, after holding several meetings, gave an award on
    September 25, 2000. He held that the claim put forward by BOL was well
    founded and BOL was thus entitled to an amount of Rs. 74,84,521.34 ps. He
    also held that HCL was unable to prove its case and counter claim. The
    counter claim, therefcre, was liable to be dismissed. Regarding' interest, he
    held that BOL.was entitled to claim interest at the rate of eighteen per cent
F   per annum for pre-reference period, pendente lite and from the date of award
    till the date of payment. According to the Arbitrator, BOL was also entitled
    to an amount of Rs. 1,50,000 (One lakh and fifty thousand only) on account
    of costs.
                                                              .
          The award was ch'allenged by HCL by filing A.P. No. 369 of 2000
G   under Sections 30 and 33 of the Act. A prayer was made to set aside the
    award. It was contended that the Arbitrator had misconducted himself and the
    proceedings. It was also contended that the Arbitrator had exceeded his
    jurisdiction and decided the questions not covered by Clause 12 of the
    Arbitration agreement and hence, the award was invalid. It was argued that
H   the Arbitrator ought not to have allowed the claim of BOL nor could have
-          BHAGA WA Tl OXYGEN LTD. v. HINDUSTAN COPER LTD. [THAKKER, J .]

    dismissed the counter claim of HCL. Since there was breach of contract by
                                                                              239

                                                                                      A
    BOL, it was not entitled to any amount. On the other hand, in view of non-
    compliance with the terms and conditions of the contract and breach of
    agreement, BOL was liable to pay and HCL was entitled to the amount
    claimed in the counter claim. It was also urged th~t the Arbitrator had no
    jurisdiction and had committed an error of Jaw as well as of jurisdiction in      B
    awarding interest at the rate of eighteen per cent for pre-reference, pendente
    lite and post award period.

          The learned single Judge heard the parties and held that so far as the
    claim of BOL was concerned, the Arbitrator was right in allowing the said
    claim and no interference was called for. Regarding counter claim, however,       C
    the learned single Judge was of the opinion that Clause I 0.4 as extracted
    hereinabove was clear and it provided for "default". The learned single
    Judge referred to several letters and communications by HCL to BOL and
    observed that from those documents, it was proved that objection was raised
    by HCL as to non supply of oxygen gas by BOL and BOL was expressly
    intimated that HCL would be constrained to purchase oxygen gas at the cost        D
    and consequences of BOL. Since all those letters and communications had
    not been considered by the Arbitrator, the award dismissing the counter claim
    of HCL deserved to be interfered with. Accordingly, order dismissing the
    counter claim by HCL was set aside by the learned single Judge and the
    matter was remitted to the Arbitrator to take an appropriate decision in          E
    accordance with law on that issue.

          So far as the payment of interest to BOL on the claim which had been
    allowed by the Arbitrator is concerned, the learned single Judge was of the
    view that Section 6 I of the Sale of Goods Act, I 930 did not provide rate of
    interest. Section 34 of the Code of Civil Procedure, I 908 had no application     F
    to arbitration proceedings. In absence of any contract between the parties
    with regard to the rate of interest payable, the learned single Judge held that
    it would be appropriate if interest is awarded to BOL at the rate of six per
    cent per annum. For taking that view the learned single Judge relied upon a
    decision of this Court in State of Rajasthan v. Nav Bharat Construction Co.,
    (2002] I sec 659 wherein this Court reduced the rate of interest awarded by       G
    the Arbitrator from eighteen per cent to six per cent per annum. The learned
    single Judge accordingly partly allowed the appeal and remitted the matter to
    the Arbitrator to decide counter claim of HCL.

         Being aggrieved by the order passed by the learned single Judge, HCL         H
    240                     SUPREME COURT REPORTS                     [2005) 3 S.C.R.

A   and BOL preferred appeals before a Division Bench of the High Court. The
    grievance of HCL was that the learned single Judge ought to have allowed
    the appeal in its entirety and ought to have dismissed the claim of BOL by
    allowing counter claim of HCL. The complaint of BOL, on the other hand,                 k
    was that the learned single Judge ought to have dismissed the counter claim
B   and should not have interfered with the rate of interest gnmted by the Arbitrator
    in favour of BOL. In short, the learned single Judge ought to have dismissed
    ~~~~~                                                                                \
                                                                                           1
           The Division Bench considered the rival contentions of the parties and          \.
    dismissed both the appeals confirming the order passed by the learned single             ,
C   Judge. The Division Bench observed that by confirming the claim of BOL,              ___;
    the learned single Judge did not commit any error of law. Similarly, the
    learned single Judge was also right in upholding the argument of HCL that
    the Arbitrator was wrong in dismissing the counter claim and he had not
    considered several communications to BOL. The order of the learned single
    Judge thus did not call for interference. Regarding rate of interest, the Division
D   Bench was of the v.iew that learned single Judge was right in observing that
    Section 61 of Sale of Goods Act did not provide the rate of interest. It was
    also true that there was no indication in the contract as to payinent of interest.
    In the opinion of the Division Bench, however, the learned single Judge was
    right in reducing the rate of interest keeping in view the provisions of Section
E   34 of the Code,ofCivil Procedure and as such that part of the order also did
    not warrant interference. The Division Bench thought it proper to dismiss the
    appeals and accordingly both the appeals were dismissed.

          Both the parties, i.e. HCL and BOL have approached this Court.

          We have heard learned counsel for the parties.
F
           Learned counsel _for ·sol. submitted that the Arbitrator was wholly
    right in passing the award· and in allowing the claim of BOL. It was urged
    that learned. single Judge as well as the Division Bench were totally wrong
    in partly setting aside the award passed by the Arbitrator. The counsel
G   contended that the jurisdiction of the court under Section 30 of the Act is
    extremely limited and an award can be set aside only on one or more grounds
    specified therein. Since none of the grounds existed, the court co~ld not have
    1




    interfered with the award nor the award could be set aside. According to the
    learned counsel, the Arbitrator considered the evidence on record -
    documentary as well as oral - and came to the conclusion that no case was
H   made out by HCL on the basis of which counter claim could be allowed and

                                                                                               1
       BHAGAWATI OXYGEN LTD. v. HINDUSTAN COPER LTD. [THAKKER, J.]         241
accordingly dismissed it. The learned single Judge and the Division Bench          A
re-appreciated the evidence and set aside that part of the award by remitting
the matter to the Arbitrator to reconsider and decide afresh the counter claim
of HCL. It was not within the jurisdiction of the learned single Judge or the
Division Bench and the order deserves to be quashed and set aside. Regarding
interest, the counsel submitted that the agreement did not contain any clause      B
as to interest. Section 34 of the Code of Civil Procedure was not applicable.
Section 61 of the Sale of Goods Act does not provide rate of interest nor it
applied to the case on hand. If in the light of these facts, the Arbitrator
awarded interest to BOL at eighteen per cent considering the fact that that
was the rate at which HCL had given advance to BOL, such an order could
not be termed as unlawful or otherwise objectionable. Neither the learned          C
 single Judge nor the Division Bench was justified in interfering with the rate
 of interest. It was, therefore, submitted that the appeal filed by HCL deserves
 to be dismissed and appeal filed by BOL deserves to be allowed.

       The learned counsel for HCL, on the other hand, supported the orders
passed by the learned single Judge and the Division Bench so far as they           D
relate to remanding the matter to Arbitrator for deciding afresh the counter
claim of HCL. Regarding payment of interest at the rate of six per cent per
annum to BOL, it was submitted. that even that part of the order was not
warranted and the claim of BOL was liable to be rejected. The Arbitrator
committed an error of law and has misconducted himself as well as proceedings      E
in allowing such claim. According to the learned counsel, there was breach
of contract on the part of BOL, oxygen was not supplied as per the agreement
entered into between the parties; purity of oxygen was not maintained; other
terms and conditions were also not fulfilled by BOL and as such, BOL was
not entitled to any relief. It was, therefore, prayed that the award passed by     F
the Arbitrator deserves to be quashed in its entirety by allowing the appeal
of HCL.

      In the light of rival contentions of the parties, in our opinion, three
questions arise for our consideration :

      (I) Whether on the facts and in the circumstances of the case, the           G
Arbitrator was right in allowing the claim of BOL?

      (2) Whether the Arbitrator had misconducted himself in passing the
impugned award and by dismissing the counter claim of HCL and whether
the learned single Judge and the Division Bench of the High Court were right       H
    242                    SUPREME COURT REPORTS                    [2005] 3 S.C.R.

A in setting aside that part of the award by directing the Arbitrator to re~
    consider the matter and decide it afresh? and

          (3) Whether the Arbitrator had power to award interest at the rate of
    eighteen per. cent per annum for pre-reference period, pendente lite and post
    reference, i.e. future interest from the date of award till the date of payment
B   and whether the learned single Judge and the Division Bench were justified
    in reducing the rate of interest from eighteen per cent to six per cent?           I   I

           Now, so far as the first question is concerned, the Arbitrator considered
    the matter in detail. He observed that after the agreement was entered into
C   between the parties, BOL set up its plant and commenced supply of oxygen
    to HCL. It was the case of BOL that though oxygen was supplied to HCL,
    no payment was made by HCL. It was alleged by HCL that oxygen supplied
    by BOL did not meet the purity standard of 99 per cent nor the minimum
    standard of 85 per cent but it varied between 45 per cent to 65 per cent. BOL
    was,. therefore, not entitled to payment for the supply. It was also contended
D   that Clause 10.5 (referred to earlier by us) specifically provided that in case
    quantity of gas supplied goes down below the guaranteed purity, no payment
    would be made. Since the purity of oxygen gas was below 85 per cent, HCL
    was justified in refusing payment. It was also submitted that as per agreement,
    BOL was required to establish a 50,000 Litres Vacuum Insulated Storage
E   Tank (VIST) evaporation and distribution system in the plant and was to
    maintain constant stock of 50,000 Litres of liquid oxygen but BOL failed to
    establish it. There was thus breach of condition by BOL. Keeping that fact
    in view, payment was not made by HCL and it could not have been held that
    HCL was wrong in not making payment. BOL,. in view of breach of condition
    could not have asked for payment. The Arbitrator, therefore, was wrong in
F   allowing the claim of BOL.

          Now, the Arbitrator has considered the contention of both the parties.
    He observed that as per the contract, BOL had undertaken to provide a VIST
    for storage of liquid oxygen of 50,000 litres. It was not disputed that VIST
    was not established by BOL and there was no provision for storage of liquid
G   oxygen. He, however, ·observed that HCL neither insisted for establishing
    VIST nor objected for not establishing it.

         Regarding purity of oxygen, the Arbitrator observed that HCL never
    complained regarding the fall of purity of oxygen during the relevant period.
H   Referring to the letters written by HCL to BOL, the Arbitrator observed that
           BHAGAWATI OXYGEN LTD. v. HINDUSTAN COPER LTD. [THAKKER,J.]           243

    HCL continued to accept oxygen gas supplied by BOL without avoiding the             A
    contract on the ground that there was breach of agreement by BOL. The
    Arbitrator observed that there was neither excess consumption of furnace oil
    nor drop in production by HCL. Referring to the decisions of this Court in
    Associated Hotels of India Ltd. v. S.B. Sardar RaPjit Singh, [l 968] 2 SCR


-   545 and Brijendra Nath Bhargava and Anr. v. Harsh Vardhan and Ors.,
    [1988] I SCC 454, the Arbitrator held that even if it was the case of HCL
    that there was non-compliance of certain terms and conditions by BOL, there
    was waiver and abandonment of the rights conferred on HCL and it was not
                                                                                        B

    open to HCL to refuse to make payment to BOL on that ground. In view of
    waiver on the part of HCL, it was incumbent on HCL to make payment and
    since no such payment was made, BOL was right in making grievance                   C
    regarding non-payment of the amount and accordingly an award was made
    in favour of BOL. The learned single Judge as well as the Division Bench
    of the High Court considered the grievance of HCL so far as the claim of
    BOL allowed by the Arbitrator and upheld it.

          In view of the finding recorded by the Arbitrator and non-interference        b
    by the High Court, we are of the view that no case has been made out by
    HCL as regards the claim allowed by the Arbitrator in favour of BOL to the
    extent of supply of oxygen gas to HCL. Hence, the appeal filed by HCL
    deserves to be dismissed.

          The grievance of the BOL is the learned single Judge and the Division         E
    Bench were not justified in setting aside the dismissal of counter claim of
    HCL by the Arbitrator and in remitting the matter to the Arbitrator for fresh
    consideration. It was submitted that the High Court was not hearing an appeal
    from the order passed by the Arbitrator. The jurisdiction of the Court in such
    matters is limited and an award can be set aside only on certain grounds            p
    specified in the Act. Since the case was not covered by any of the clauses of
    Section 30, the orders passed by the High Court are clearly without jurisdiction.

          Section 30 of the Act enumerates grounds for setting aside an award
    passed by the Arbitrator. It reads thus :
                                                                                        G
          "30. Grounds for setting aside award. -An award shall not be set aside
    except on one or more of the following grounds, namely :

            (a) that an arbitrator or umpire has misconducted himself or the
            proceedings ;
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A
     244                    SUPREME COURT REPORTS                       [2005] 3 S.C.R.

             (b) that an award has been made after the issue of an order by the
                                                                                           ·-
             Court superseding the arbitration or after arbitration proceedings have
             become invalid under Sec. 35;

             (c) that an award has been improperly procured or is otherwise invalid."

B          This Court hilS. considered the provisions of Section 30 of the Act in
     several cases and has held that the court while exercising the power under
     Section 30, cannot re-appreciate the evidence or examine correctness of the
     conclusions arrived at by the Arbitrator. The jurisdiction is not appellate in
     nature and an award passed by an Arbitrator cannot be set aside on the
     ground that it was erroneous. It is not open to the ~ourt to interfere with the
C    award merely because in the opinion of the court, other view is equally
     possible. It is only when the court is satisfied that the Arbitrator had
     misconducted himself or the proceedings or the award had been improperly
     procured or is 'otherwise' invalid that the court may set aside such award.

D          In the leading decision of Hodgkinson v. Fernie, (1857) 140 ER 712,
     Williams, J. stated;

             "The law.has for many years been settled, and remains so at this day,
             that, where a cause or matters in difference are referred to an arbitrator,
             whether a lawyer or a layman, he is constituted the sole and final
             judge of all questions both of law and of fact. Many cases have fully
·E
             established that position, where awards have been attempted to be set
             aside on the ground of the admission of an incompetent witness or
             the rejection of a competent one. The court has invariably met those
             applications by saying, 'You have constituted your own tribunal; you
            ·are bound by its decision." (emphasis supplied)
F
           In Union of India v. Rallia Ram, AIR (1963) SC 1685, this Court said;

            "An award being a decision of an arbitrator whether a lawyer or a
            layman chosen by the parties, and entrusted with power to decide a
            dispute submitted to him is ordinarily not liable to be challenged on
G           the ground that it is erroneous. In order to make arbitration effective
            and the awards enforce.able, machinery is devised for lending the
            assistance of the ordinary .courts. The Court is also entrusted with
            power to modify' or correct the award on the ground of imperfect
            form or clerical errors, or decision on questions not referred, which
            are severable from those referred. The Court has also power to remit
H
       BHAGAWA TI OXYGEN LTD. v. HINDUSTAN COPER LTD. [THAKKER, J.]         245
        the award when it has left some matters referred undetermined, or A
        when the award is indefinite, or where the objection to the legality of
        the award is apparent on the face of the award. The Court may also
        set aside an award on the ground of corruption or misconduct of the
        arbitrator, or that a party has been guilty of fraudulent concealment
        or willful deception. But the Court cannot interfere with the award if B
        otherwise proper on the ground that the decision appears to it to be
        erroneous. The award of the arbitrator is ordinarily final and
        conclusive, unless a contrary intention is disclosed by the agreement.
        The award is the decision of a domestic tribunal chosen by the parties,
        and the Civil Courts which are entrusted with the power to facilitate
        arbitration and to effectuate the awards, cannot exercise appellate C
        powers over the decision. Wrong or right the decision is binding if
        it be reached fairly after giving adequate opportunity to the parties
        to place their grievance in the manner provided by the arbitration
        agreement." (emphasis supplied)

       In U.P. Hotels v. U.P. State Electricity Board, [1989] l SCC 359, after      0
referring to Halsbury's Laws of England, 4th edition, Vol. 2, para 624,
Mukharji, J. (as his Lordship then was) stated that an award of an arbitrator
may be set aside for error of law appearing on the face of it, though that
jurisdiction is not lightly to be exercised. If a specific question of law is
submitted to the arbitrator for his decision and he decides it, the fact that the   E
decision is erroneous does not make the award bad on its face so as to permit
it being set aside; and where the question referred for arbitration is a question
of construction, which is, generally speaking, a question oflaw, the arbitrator's
decision cannot be set aside only because the court would itself have come
to a different conclusion; but if it appears on the face of the award that the
arbitrator has proceeded illegally, as, for instance, by deciding on evidence       F
which was not admissible, or on principles of construction which the law
does not countenance, there is error in law which may be ground for setting
aside the award.

       In Rajasthan State Mines & Minerals Ltd, v. Eastern Engineering
Enterprises and Anr., [1999] 9 SCC 283, this Court after considering several        G
decisions on the point, held that if an Arbitrator has acted arbitrarily,
irrationally, capriciously or beyond the terms of the agreement, an award
passed by him can be set aside. In such cases, the Arbitrator can be said to
have acted beyond the jurisdiction conferred on him.

                                                                                    H
    246                    SUPREME COURT REPORTS                    [2005] 3 S.C.R.

A         In U.P. State Electricity Board v. Searsole Chemcials Ltd., [2001] 3
    SCC 397, this Court held that where the Arbitrator had applied his mind to
    the pleadings, considered the evidence adduced before him and passed an
    award, the court could not interfere by reappraising the matter as if it were
    an appeal.

B         In Indu Engineering & Textiles Ltd v. Delhi Development Authority,
    [200 I] S SCC 691, it was observed that an Arbitrator is a Judge appointed
    by the parties and as such the award passed by him is not to be lightly
    interfered with.                          ·

           In Bharat Coking Coal Ltd. v. Mis. Annapurna Construction, [2003] 8
C   SCC 154, this' Court held that there is distinction between error within
    jurisdiction and error in excess of jurisdiction. The role of the Arbitrator is
    to arbitrate within the tenns of the contract and if he acts in accordance with
    the tenns of the agreement, his decision cannot be set aside. It is only when
    he travels beyond the contract that he acts in excess of jurisdiction in which
D   case, the award passed by him becomes vulnerable and can be questioned in
    an appropriate court.

          In the instant case, the Arbitrator has considered the relevant evidence
   on record. He has observed that oxygen was supplied by BOL which was
   accepted by HCL. Certain letters were, no doubt, written by HCL to BOL
E complaining about the quantity and quality of oxygen gas. The Arbitrator
 · also observed that the evidence disclosed that verbal complaints were made
   regarding purity of gas. He, however, recorded a finding that Clause 10.4
   which allowed HCL to purchase oxygen from other sources at the cost and
   consequence of BOL was never invoked. The said clause which was "risk
F purchase" from elsewhere was not resorted to by HCL. The Arbitrator noted
   that in some of the letters, HCL stated that it would have no option but to
   purchase liquid oxygen at the cost of BOL during non-availability of oxygen
   from BOL, but ultimately it was a letter dated October 11, 1993 that HCL
   infonned BOL that if BOL would not supply oxygen by October 26, 1993,
   it would be constrained to purchase oxygen from other sources. Thus, time
G was granted up to October 26, 1993 in view of letter dated October 11, 1993.
   In the light of such letter the Arbitrator concluded that HCL could not have
   purchased oxygen from other sources in August, 1993 and hence it was not
   entitled to put forward counter claim

          The learned single Judge virtually reappreciated the evidence by referring
H to several letters and observed that the Arbitrator had not considered those
       BHAGA WATI OXYGEN LTD. v. HINDUSTAN COPER LTD. [THAKKER, J .)           24 7
letters and there was misconduct on his part. According to the learned single          A
Judge, HCL informed BOL about the grievance and quantity and quality of
oxygen supplied by BOL, about the 'risk purchase agreement' and also about
its need, necessity and completion of purchase of oxygen gas from other
sources. The learned single Judge also has referred to some of those letters
in which the said fact was referred by HCL.
                                                                                       B
      In our opinion, however, the learned counsd fer BOL is justified in
submitting that really it was in realm of appreciation and re-appreciation of
evidence. At the most all those letters go to show that HCL had some complaint
against BOL and it had also disclosed its intention to purchase oxygen gas
from other sources but as observed by the Arbitra~or, it was not proved that           C
HCL had in fact purchased oxygen from· other sources under Clause 10.4. If
in the light of such evidence, the Arbitrator did not think it fit to allow
counter claim, it could not be said to a case of misconduct covered by
Section 30 of the Act. The learned single Judge as also the Division Bench
were, therefore, not justified in setting aside the award passed by the Arbitrator
dismissing the counter-claim and hence the order of the learned single Judge           D
as confirmed by the Division Bench deserves to be set aside by restoring
dismissal of counter-claim of HCL by the Arbitrator. ·

      The last question relates to payment of interest. The Arbitrator awarded
interest to BOL at the universal rate of eighteen per cent for all the three
stages, pre-reference period, pendente lite and post award period. It is not           E
disputed that in the arbitration agreement there is no provision for payment
of interest. The learned single Judge as well as the Division Bench were right
in observing that the Arbitrator, in the facts and circumstances, could have
awarded interest. The Arbitrator had granted interest at the rate of eighteen
per cent on the ground of loan so advanced by HCL to BOL at that rate.                 F
      Now Section 34 of the Code of Civil Procedure has no application to
arbitration proceedings since Arbitrator cannot be said to be a 'court' within
the meaning of the Code. But ari Arbitrator has power and jurisdiction to
grant interest for all the three stages provided the rate of interest is reasonable.
                                                                                       G
      So far as interest for pre-reference period is concerned, in view of the
conflicting decisions of this Court, the matter was referred to a larger Bench
in Executive Engineer, Dhenkanal Minor Irrigation Dvision and Ors. v. N.C.
Budhraj (Deceased) by Lrs and Ors., [2001) 2 SCC 721. The Court, by
majority, held that an arbitrator has power to grant interest for pre-reference
period provided there is no prohibition in the arbitration agreement excluding         H
    248                      SUPREME COURT REPORTS                       [2005] 3 S.C.R.

A   his jurisdiction to grant interest. The forum of arbitration is created by the
    consent of parties and is a substitute for conventional civil court. It is, therefore,
    of unavoidable necessity that the parties be deemed to have agreed by
    implication that the Arbitrator would have power to award interest in the
                                             ,,
    same way and same manner as a court.

B       · Regarding interest pendente lite also, there was cleavage of opinion.
    The question was, therefore, referred to a larger Bench in Secretary, Irrigation
    Department, Government of Orissa and Ors. v. G.C. Roy, [1992] I SCC 508.
    The Court considered several cases and laid down following principles;

                 "The question still remains whether arbitrator has the power to
c           award· interest pendente lite, and if so on what principle. We must
            reiterate that we are dealing with the situation where th.e agreement
            does not provide for grant of such interest nor doe.s it prohibit such
            grant. In other words, we are dealing with a case where the agreement
            is silent as to award of interest. On a conspectus of aforementioned
D           decisions, the following principles emerge :

            (i) A person deprived of the use of money to which he is legitimately
            entitled has a right to be compensated for the deprivation, call it by
            any name. It may be called interest, compensation or damages. This
            basic consideration is as valid for the period the dispute is pending
E           before the arbitrator as it is for the period prior to the arbitrator
            entering upon the reference. This is the principle of Section 34, Civil
            Procedure Code and there is no reason or principle to hold otherwise
            in the case of arbitrator.

             (ii) An arbitrator is an alternative forum for resolution of disputes
F            arising between the parties. If so, he must have the power to decide
             all the disputes or differences arising between the parties. If the
           · arbitrator has no power to award interest pendente lite, the party
             claiming it would have to approach the court for that purpose, even
             though he may have obtained satisfaction in respect of other claims
             from the arbitrator. This would lead to multiplicity of proceedings.
G
            (iii) An arbitrator is the creature of an agreement. It is open to the
            parties to confer upon him such powers and prescribe such procedure
            for him to follow, as they think fit, so long as they are not opposed
            to law. {The proviso to section 41 and Section 3 of Arbitration Act
            illustrate this point). The arbitrator must also act and make his award
H
        BHAGAWA Tl OXYGEN LTD. v. HINDUSTAN COPER LTD. [THAKKER, J.]       249

        in accordance with the general law of the land and the agreement.          A
        (iv) Over the years, the English and Indian courts have acted on the
        assumption that where the agreement does not prohibit and a party to
        the reference makes a claim for interest, the arbitrator must have the
        power to award interest pendente lite, Thawardas has not been
        followed in the later decisions of this court. It has been explained and   B
        distinguished on the basis that in that case there was no claim for
        interest but only a claim for unliquidated damages. It has been said
        repeatedly that observations in the said judgment were not intended
        to lay down any such absolute or universal rule as they appear to, on
        first impression. Until Jena case almost all the courts in the country     C
        had upheld the power of the arbitrator to award interest pendente lite.
        Continuity and certainty is a high desirable feature of law.

        (v) Interest pendente lite is not a matter of substantive law, like
        interest for the period anterior to reference (pre-reference period).
        For doing complete justice between the parties, such power has always      D
        been inferred.''

      As to post-award interest, the point is covered by the decision of this
Court in Hindustan Construction Co. Ltd v. State of Jammu & Kashmir,
[ 1992) 4 SCC 217. It was held there that an arbitrator is competent to award
interest for the period from the date of the award to the date of decree or date   E
of realization, whichever is earlier.

       In view of the aforesaid decisions, we hold that it was within the power
of Arbitrator to award interest. As to the rate of interest, the contention of
HCL is that it ought to have been at the rate of six per cent only. The learned
counsel for HCL has strongly relied upon the decision of this Court in Nav         F
Bharat Construction Co. In that case, interest was awarded by the Arbitrator
at the rate of fifteen per cent. The said action was challenged by the State
Government as well as the Contractor. The contention of the State Government
was that the Arbitrator could not have awarded interest at the rate of fifteen
per cent and it was exorbitant. The Contractor, on the other hand, urged that
interest ought to have awarded at the rate of eighteen per cent. This Court        G
held that it would be appropriate if interest at the rate of six per cent is
awarded.

      In our view, however, a relevant and germane factor weiahed with the
Arbitrator in awarding eighteen per cent interest that at that r:te HCL had
                                                                                   H
                                                                                    \I




    250                   SUPREME COURT REPORTS                   [2005] 3 S.C.R.

A   given advance to BOL. In view of the said circumstance, in our opinion, even
    that part of the award passed by the Arbitrator did not deserve interference
    and learned single Judge and the Division Bench were not right in reducing
    the rate of interest.

         For the foregoing reasons, the appeals filed by BOL deserve to be
B  allowed and are accordingly allowed by setting aside the order passed by the
   learned single Judge and confirmed by the Division Bench and by restoring
 . the award passed by the Arbitrator. Jn view of the order passed in the appeals
   of BOL, the appeal filed by HCL deserves to be dismissed and is accordingly
   dismissed. However, in the facts and circumstances of the case, there shall be
C no order as to costs.
    S.K.S.                                   C.A. Nos. 2412-13/05 allowed and
                                                   C.A. No. 2414/05 dismissed.