G H SOUTH EAST ASIA MARINE ENGINEERING AND CONSTRUCTIONS LTD. (SEAMEC LTD.)versusOIL INDIA LIMITED

254                      [2020]REPORTS
               SUPREME COURT    4 S.C.R. 254              [2020] 4 S.C.R.


A           SOUTH EAST ASIA MARINE ENGINEERING AND
               CONSTRUCTIONS LTD. (SEAMEC LTD.)
                                       v.
                             OIL INDIA LIMITED
B                        (Civil Appeal No. 673 of 2012)
                                 MAY 11, 2020
              [N. V. RAMANA, M. M. SHANTANAGOUDAR
                       AND AJAY RASTOGI, JJ.]
             Contract: Tender floated for well drilling and other auxillary
C
      operations – Work order awarded to appellant – During subsistence
      of contract, prices of High Speed Diesel (HSD) one of the essential
      materials for carrying out the drilling operations increased through
      a circular issued by Government – Appellant raised a claim that
      increase in the price of HSD triggered the ‘change in law’ clause
D     contained in clause 23 under the contract and the respondent
      became liable to reimburse them for the same – In terms of Clause
      23, if subsequent to the date of price of Bid Opening, there was a
      change in or enactment of any law or interpretation of existing law,
      which resulted in additional cost/reduction in cost to contractor on
      account of the operation under the contract, the contractor would
E
      be entitled to receive such additional/reduced cost actually incurred
      – Appellant invoked the arbitration clause – Arbitral Tribunal
      allowed the claim holding that Clause 23 must be liberally construed
      and any circular of the Government would amount to a change in
      law – On appeal, High Court set aside the award – Held: There are
F     price fluctuations which a prudent contractor would take into
      margin, while bidding in the tender – Such price fluctuations cannot
      be brought under ‘change in law’ clause unless specific language
      points to the inclusion – The contract in question was based on a
      fixed rate – The party, before entering the tender process, entered
      the contract after mitigating the risk of such an increase – The
G
      interpretation of Arbitral Tribunal to expand the meaning of Clause
      23 to include change in rate of HSD was not a possible interpretation
      of this contract as the appellant did not introduce any evidence to
      prove same – Arbitral award set aside – Contract Act – s.56 –
      Arbitration and Conciliation Act, 1996 – s.34 – Doctrine of Force
H     Majeure.
                                       254
SOUTH EAST ASIA MARINE ENGINEERING AND CONSTRUCTIONS LTD.               255
                (SEAMEC LTD.) v. OIL INDIA LTD.


      Arbitration and Conciliation Act, 1996: s.34 – Scope of court’s   A
jurisdiction under s.34, discussed.
      Dismissing the appeals, the Court
      HELD: 1. It is settled position that a Court can set aside
the award only on the grounds as provided in the Arbitration Act
as interpreted by the Courts. It is also settled law that where two     B
views are possible, the Court cannot interfere with the plausible
view taken by the arbitrator supported by reasoning. [Paras 12,
13][260-G-H; 261-D]
      2. The interpretation of the ‘change in law’ clause of the
contract by the Arbitral Tribunal, to provide a wide interpretation,    C
cannot be accepted, as the thumb rule of interpretation is that
the document forming a written contract should be read as a whole
and so far as possible as mutually explanatory. In the case at
hand, this basic rule was ignored by the Tribunal while interpreting
the clause. In this case, the contract was based on a fixed rate        D
basis. The party, before entering the tender process, entered
the contract after mitigating the risk of a price increase. If the
purpose of the tender was to limit the risks of price variations,
then the interpretation placed by the Arbitral Tribunal cannot be
said to be possible one, as it would completely defeat the explicit
wordings and purpose of the contract. The interpretation of the         E
Arbitral Tribunal to expand the meaning of the ‘change in law’
clause of the contract to include change in price of HSD is not a
possible interpretation of this contract, as the appellant did not
introduce any evidence which proves the same. [Paras 28, 30
and 31][267-A, D-F]                                                     F
      Sumitomo Heavy Industries Limited v. Oil and Natural
      Gas Corporation Limited (2010) 11 SCC 296 : [2010]
      9 SCR 176 – Held inapplicable.
      Satyabrata Ghose v. Mugneeram Bangur & Co. AIR
      1954 SC 44 : [1954] SCR 310; Mcdermott International              G
      Inc. v. Burn Standard Co. Ltd. (2006) 11 SCC 181 :
      [2006] 2 Suppl. SCR 409; Dyna Technologies Pvt. Ltd.
      v. Crompton Greaves Ltd. (2019) SCC Online SC 1656
      – referred to.
                                                                        H
256             SUPREME COURT REPORTS                            [2020] 4 S.C.R.


A             Chandler v. Webster [1904] 1 KB 493; Fibrosa Spolka
              Akcyjna v. Fairbairn Lawson Combe Barbour Ltd;
              [1942] UKHL 4; Cantiare San Rocco SA (Shipbuilding
              Company) v. Clyde Shipbuilding and Engineering Co.
              Ltd., [1924] AC 226 – referred to.
B                              Case Law Reference
      [2006] 2 Suppl. SCR 409                referred              Para 8
      [1954] SCR 310                         relied on             Para 20
      [2010] 9 SCR 176                       relied on             Para 27
C             CIVIL APPELLATE JURISDICTION: Civil Appeal No. 673 of
      2012.
            From the Judgment and Order dated 13.12.2007 of the High Court
      of Gauhati in Arbitration Appeal No. 11 of 2006.
              With
D
              Civil Appeal No. 900 of 2012.
           Dr. Manish Singhvi, Sr. Adv., D.K. Devesh, Abhinav S.
      Raghuwanshi, Piyush Upadhyay, Hitesh Vats, Somiran Sharma, Biju P.
      Raman K.R. Sasiprabhu, Advs. for the appearing parties.
E             The Judgment of the Court was delivered by
              N. V. RAMANA, J.
              Civil Appeal No. 673 of 2012
             1. The present appeal arises out of impugned judgment and order
F     dated 13.12.2007 in Arbitration Appeal No. 11 of 2006 passed by the
      Gauhati High Court, wherein the High Court allowed the appeal preferred
      by the Respondent under Section 37 of the Arbitration and Conciliation
      Act, 1996 (hereinafter the “Arbitration Act”), and set aside the arbitral
      award dated 19.12.2003.
G            2. Brief facts necessary for the disposal of this case are as follows:
      appellant was awarded the work order dated 20.07.1995 pursuant to a
      tender floated by the Respondent in 1994. The contract agreement was
      for the purpose of well drilling and other auxiliary operations in Assam,
      and the same was effectuated from 05.06.1996.Although, the contract
      was initially only for a period of two years, the same was extended for
H
SOUTH EAST ASIA MARINE ENGINEERING AND CONSTRUCTIONS LTD.                        257
       (SEAMEC LTD.) v. OIL INDIA LTD. [N. V. RAMANA, J.]


two successive periods of one year each by mutual agreement, and                 A
finally the contract expired on 04.10.2000.
       3. During the subsistence of the contract, the prices of High-
Speed Diesel (“HSD”), one of the essential materials for carrying out
the drilling operations, increased. Appellant raised a claim that increase
in the price of HSD, an essential component for carrying out the contract        B
triggered the “change in law” clause under the contract (i.e., Clause 23)
and the Respondent became liable to reimburse them for the same. When
the Respondent kept on rejecting the claim, the Appellant eventually
invoked the arbitration clause vide letter dated 01.03.1999. The
disputewas referred to an Arbitral Tribunal comprising of three arbitrators.
                                                                                 C
        4. On 19.12.2003,the Arbitral Tribunal issued the award in A.P
No. 8 of 1999. The majority opinion allowed the claim of the Appellant
and awarded a sum of Rs. 98,89,564.33with interest @10% per annum
from the date of the award till the recovery of award money. The amount
was subsequently revised to Rs. 1,32,32,126.36 on 11.03.2005. The
Arbitral Tribunal held that while an increase in HSD price through a             D
circular issued under the authority of State or Union is not a “law” in the
literal sense, but has the “force of law” and thus falls within the ambit of
Clause 23.On the other hand, the minority held that the executive orders
do not come within the ambit of Clause 23 of the Contract.
       5. Aggrieved by the award, the Respondent challenged the same             E
under Section 34 of the Arbitration Act before the District Judge. On
04.07.2006, the learned District Judge, upheld the award and held that
the findings of the tribunal were not without basis or against the public
policy of India or patently illegal and did not warrant judicial interference.
       6. The Respondent challenged the order of the District Judge by           F
filing an appeal under Section 37 of the Arbitration Act, before the High
Court. By the impugned judgment,the High Court, allowed the appeal
and set aside the award passed by the Arbitral Tribunal.
       7. The High Court held that the interpretation of the terms of the
contract by the Arbitral Tribunal is erroneous and is against the public         G
policy of India. On the scope of judicial review under Section 37 of the
Arbitration Act, the High Court held that the Court had the power to set
aside the award as it was passed overlooking the terms and conditions

                                                                                 H
258             SUPREME COURT REPORTS                           [2020] 4 S.C.R.


A     of the contract. Aggrieved by the same, the appellant has filed this present
      appeal by the way of special leave petition against the impugned judgment.
            8. Learned Counsel for the Appellant assailing the impugned
      ordercontends that
            a. The High Court has imparted its own personal view as to the
B              intent for inclusion of Clause 23 and has sat in appeal over the
               award of the Arbitral Tribunal. The construction of Clause 23,
               he submitted, is a matter of interpretation and has been correctly
               interpreted by the Arbitral Tribunal based on the authorities
               cited before it.
C           b. If two views are possible on a question of law, the High Court
               cannot substitute one view and deference should be given to
               the plausible view of the Arbitral Tribunal. Learned counsel
               has relied upon a judgment of this Court in McDermott
               International Inc. v. Burn Standard Co. Ltd. [(2006) 11
D              SCC 181] to support his contention.
            c. The question of law decided by the Arbitral Tribunalis beyond
               judicial review and thus theHigh Court could not have interfered
               with a reasoned award which was neither against public policy
               of India nor patently illegal.
E            9. In response, the learned counsel for the Respondent, supporting
      the findings of the High Court, submits that
            a. the award passed by the Arbitral Tribunal is contrary to the
               terms of the contract and essentially re-writes the contract.
               The Arbitral Tribunal has to adjudicate the dispute within the
F              four corners of the contract and thus awarding additional
               reimbursement not contemplated under Clause 23 is perverse
               and patently illegal.
            b. Overlooking the terms and conditions of a contract is violative
               of Section 28 of the Arbitration Act and thus the tribunal has
G              exceeded its jurisdiction.
            c. This is not a case where the Arbitral Tribunal accepted one
               interpretation of the terms of the contract where two
               interpretations were possible. Findings of the Tribunal are
               perverse and unreasonable as the Tribunal did not consider
H              the contract as a whole and failed to follow the cardinal
               principle of interpretation of contract.
  SOUTH EAST ASIA MARINE ENGINEERING ONSTRUCTIONS                             259
 LTD. (SEAMEC LTD.) v. OIL INDIA LIMITED [N. V. RAMANA, J.]

      d. The Arbitral Tribunal has re-written the contract in the guise       A
         of interpretation and such interpretation being in conflict with
         the terms of the contract, is in conflict with the public policy
         of India.
      10. We have heard the learned counsels for the parties and perused
the materials on record.                                                      B
      11. In order to answer the questions raised in this appeal we first
need to delve into the ambit and scope of the court’s jurisdiction under
Section 34 of the Arbitration Act. Section 34 of the Arbitration Act
provides as under –
      34. Application for setting aside arbitral award. — (1)                 C
      Recourse to a Court against an arbitral award may be made only
      by an application for setting aside such award in accordance with
      sub-section (2) and sub-section (3).
      (2) An arbitral award may be set aside by the Court only if—
                                                                              D
         (a) the party making the application furnishes proof that—
             (i) a party was under some incapacity, or
             (ii) the arbitration agreement is not valid under the law to
             which the parties have subjected it or, failing any indication
             thereon, under the law for the time being in force; or           E
             (iii) the party making the application was not given proper
             notice of the appointment of an arbitrator or of the arbitral
             proceedings or was otherwise unable to present his case;
             or
             (iv) the arbitral award deals with a dispute not contemplated    F
             by or not falling within the terms of the submission to
             arbitration, or it contains decisions on matters beyond the
             scope of the submission to arbitration:
             Provided that, if the decisions on matters submitted to
             arbitration can be separated from those not so submitted,        G
             only that part of the arbitral award which contains decisions
             on matters not submitted to arbitration may be set aside; or
             (v) the composition of the arbitral tribunal or the arbitral
             procedure was not in accordance with the agreement of
             the parties, unless such agreement was in conflict with a        H
260            SUPREME COURT REPORTS                            [2020] 4 S.C.R.


A                  provision of this Part from which the parties cannot
                   derogate, or, failing such agreement, was not in accordance
                   with this Part; or
            (b) the Court finds that—
                   (i) the subject-matter of the dispute is not capable of
B                  settlement by arbitration under the law for the time being in
                   force, or
                   (ii) the arbitral award is in conflict with the public policy of
                   India.

C              Explanation. —Without prejudice to the generality of sub-clause
               (ii) it is hereby declared, for the avoidance of any doubt, that
               an award is in conflict with the public policy of India if the
               making of the award was induced or affected by fraud or
               corruption or was in violation of section 75 or section 81.

D           (3) An application for setting aside may not be made after three
            months have elapsed from the date on which the party making
            that application had received the arbitral award or, if a request
            had been made under section 33, from the date on which that
            request had been disposed of by the arbitral tribunal: Provided
            that if the Court is satisfied that the applicant was prevented by
E           sufficient cause from making the application within the said period
            of three months it may entertain the application within a further
            period of thirty days, but not thereafter.
            (4) On receipt of an application under sub-section (1), the Court
            may, where it is appropriate and it is so requested by a party,
F           adjourn the proceedings for a period of time determined by it in
            order to give the arbitral tribunal an opportunity to resume the
            arbitral proceedings or to take such other action as in the opinion
            of arbitral tribunal will eliminate the grounds for setting aside the
            arbitral award.
G           12. It is a settled position that a Court can set aside the award
      only on the grounds as provided in the Arbitration Act as interpreted by
      the Courts. Recently, this Court in Dyna Technologies Pvt. Ltd.
      v.Crompton Greaves Ltd. [2019 SCC Online SC 1656]laid down
      the scope of such interference. ThisCourt observed as follows-
H
  SOUTH EAST ASIA MARINE ENGINEERING ONSTRUCTIONS                            261
 LTD. (SEAMEC LTD.) v. OIL INDIA LIMITED [N. V. RAMANA, J.]

      “26. There is no dispute that Section 34 of the Arbitration Act        A
      limits a challenge to an award only on the grounds provided therein
      or as interpreted by various Courts. We need to be cognizant
      of the fact that arbitral awards should not be interfered with
      in a casual and cavalier manner, unless the Court comes to
      a conclusion that the perversity of the award goes to the
                                                                             B
      root of the matter without there being a possibility of
      alternative interpretation which may sustain the arbitral
      award. Section 34 is different in its approach and cannot be
      equated with a normal appellate jurisdiction. The mandate under
      Section 34 is to respect the finality of the arbitral award and the
      party autonomy to get their dispute adjudicated by an alternative      C
      forum as provided under the law. If the Courts were to interfere
      with the arbitral award in the usual course on factual aspects,
      then the commercial wisdom behind opting for alternate dispute
      resolution would stand frustrated.”
                                                  (emphasis supplied)        D
      13. It is also settled law that where two views are possible, the
Court cannot interfere in the plausible view taken by the arbitrator
supported by reasoning. This Court in Dyna Technologies (supra)
observed as under-
      “27. Moreover, umpteen number of judgments of this Court have          E
      categorically held that the Courts should not interfere with an
      award merely because an alternative view on facts and
      interpretation of contract exists. The Courts need to be cautious
      and should defer to the view taken by the Arbitral Tribunal
      even if the reasoning provided in the award is implied unless          F
      such award portrays perversity unpardonable under Section
      34 of the Arbitration Act.”
                                                  (emphasis supplied)
       14. However, the question in the present case is whether the
interpretation provided to the contract in the award of the Tribunal was     G
reasonable and fair, so that the same passes the muster under Section
34 of the Arbitration Act?
       15. In the present case, respondent has argued that the view taken
by the Arbitral Tribunal was not even a possible interpretation, therefore
                                                                             H
262             SUPREME COURT REPORTS                           [2020] 4 S.C.R.


A     the award being unreasonable and unfair suffers from perversity. Hence,
      the respondent has pleaded that the award ought to be set aside. In this
      context, we may state that usually the Court is not required to examine
      the merits of the interpretation provided in the award by the arbitrator, if
      it comes to a conclusion that such an interpretation was reasonably
      possible.
B
            16. We begin by looking at the clause, i.e Clause 23 which is
      extracted below:
            SUBSEQUENTLY ENACTED LAWS: -
            Subsequent to the date of price of Bid Opening if there is a change
C           in or enactment of any law or interpretation of existing law,
            which results in additional cost/reduction in cost to Contractor on
            account of the operation under the Contract, the Company/
            Contractor shall reimburse/pay Contractor/Company for such
            additional/reduced cost actually incurred.
D           17. The Arbitral Tribunal held that this clause must be liberally
      construed and any circular of the Government of India would amount to
      a change in law. The Arbitral Tribunal observed:
            “According to Rule of Construction of any document harmonious
            approach should be made reading or taking the document as a
E           whole and exclusion should not be readily inferred unless it is
            clearly stated in the particular clause of the document. This is
            according to Rule of Interpretation. A consistent interpretation
            should be given with a view to smooth working of the system,
            which the document purports to regulate. The word, which makes
F           it inconsistent or unworkable, should be avoided. This is known as
            beneficial construction and a construction should be made which
            suppress the mischief and advance the remedies. So, the increase
            in the operational cost due to enhanced price of the diesel is one
            of the subject matters of the contract as enshrined in Cl. 23. It
            may be said that Cl. 23 may be termed as ‘‘Habendum Clause”.
G           In the deed of the contract containing various granting clauses
            and the habendum signifying the intention of, the grantor.
            That Cl. 23 requires liberal interpretation for interpreting the
            expression ‘law’ or change in law etc. will also be evident from
            the facts that the respondents Oil India Ltd. through its witness
H
  SOUTH EAST ASIA MARINE ENGINEERING ONSTRUCTIONS                              263
 LTD. (SEAMEC LTD.) v. OIL INDIA LIMITED [N. V. RAMANA, J.]

      Mr. Pasrija has clearly stated that the change in diesel price or        A
      any other oil price was never done and by way of any statutory
      enactment either by Parliament or by State Legislature So, it is
      clear that at the time when the Cl. 23 was incorporated in the
      agreement the Oil India Ltd. was very much aware that change
      in oil price was never made by any Statutory Legislation but only
                                                                               B
      by virtue of Government Order, Resolution, Instruction, as the
      case may be, on accepting that a condition of the appropriate
      committee namely O.P.C. it is also clear to apply when there is
      change in oil price, here HSD, by the Government and its statutory
      authority as enacted in the above without resorting any statutory
      enactment. Therefore that the interpretation of expression ‘law’         C
      or change in law etc. requires this extended meaning to include
      the statutory law, or any order, instruction and resolution issued
      by the Central Government in its Ministry of Petroleum and Natural
      Gas.”
       The majority award utilizes ‘liberal interpretation rule’ to construe   D
the contract, so that the price escalation of HSD could be brought under
the Clause 23 of the contract. Further the Arbitral Tribunal identifies the
aforesaid clause to be a ‘Habendum Clause’, wherein the rights granted
to the appellant are required to be construed broadly.
       18. On the other hand, the High Court in the impugned order,            E
interpreted the same clause as follows:
      “27…I am of the firm view that clause 23 was inserted in the
      agreement to meet such uncertain and unforeseen eventualities
      and certainly not for revising a fixed rate of contract. I also find
      that both parties had agreed to keep “force majeure” clause in           F
      the agreement. Under this doctrine of commercial law, a contract
      agreement can be rescinded for acts of God, etc. Under clause
      44.3 of the agreement, ‘force majeure” has been clearly defined,
      which includes acts and regulations of the Government to rescind
      a contract.In this way, clause 23 is very close and akin to the
      “force majeure clause”. Besides this, I may also declare that clause     G
      23 is parimateria to the “doctrine of frustration and supervening
      impossibility”. In other words, under clause 23 rights and obligations
      of both the parties have been saved due to any change in the
      existing law or enactment of a new law or on the ground of new
      interpretation of the existing law. In my opinion, clause 23 must        H
264            SUPREME COURT REPORTS                           [2020] 4 S.C.R.


A           have been made a part of the agreement keeping in mind section
            56 of the Indian Contract Act, 1872 sans any other intention.”
             19. The High Court, in its reasoning, suggests that Clause 23 is
      akin to a force majeure clause.We need to understand the utility and
      implications of a force majeure clause. Under Indian contract law, the
B     consequences of a force majeure event areprovided for under Section
      56 of the Contract Act, which states thaton the occurrence of an event
      which renders the performance impossible, the contract becomes void
      thereafter. Section 56 of the Contract Act stands as follows:
            56. Agreement to do impossible act.—An agreement to do
C           an act impossible in itself is void.
            Contract to do act afterwards becoming impossible or
            unlawful—A contract to do an act which, after the contract is
            made, becomes impossible, or, by reason of some event which
            the promisor could not prevent, unlawful, becomes void when the
D           act becomes impossible or unlawful.
             20. When the parties have not provided for what would take place
      when an event which renders the performance of the contract impossible,
      then Section 56 of the Contract Act applies. When the act contracted
      for becomes impossible, then under Section 56, the parties are exempted
E     from further performance and the contract becomes void. As held by
      this Court in Satyabrata Ghose v. Mugneeram Bangur & Co., AIR
      1954 SC 44:
            “15. These differences in the way of formulating legal theories
            really do not concern us so long as we have a statutory provision
F           in the Indian Contract Act. In deciding cases in India the only
            doctrine that we have to go by is that of supervening impossibility
            or illegality as laid down in Section 56 of the Contract Act, taking
            the word “impossible” in its practical and not literal sense. It must
            be borne in mind, however, that Section 56 lays down a
            rule of positive law and does not leave the matter to be
G           determined according to the intention of the parties.”
                                                         (emphasis supplied)
             However, there is no doubt that the parties may instead choose
      the consequences that would flow on the happening of an uncertain
      future event, under Section 32 of the Contract Act.
H
  SOUTH EAST ASIA MARINE ENGINEERING ONSTRUCTIONS                            265
 LTD. (SEAMEC LTD.) v. OIL INDIA LIMITED [N. V. RAMANA, J.]

       21. On the other hand, the common law at one point interpreted        A
the consequence of such frustration to fall on the party who sustained
loss before the frustrating event.The best example of such an
interpretation can be seen in the line of cases which came to be known
as ‘coronation cases’. In Chandler v. Webster, [1904] 1 KB 493, Mr.
Chandler rented space from Mr. Webster for viewing the coronation
                                                                             B
procession of King Edward VII to be held on 26th June 1902. Mr. Chandler
had paid part consideration for the same. However, due to the King
falling ill, the coronation was postponed. As Mr. Webster insisted on
payment of his consideration, the case was brought to the Court. The
Court of Appeals rejected the claims of both Mr. Chandler as well as
Mr. Webster. The essence of the ruling was that once frustration of          C
contract happens, there cannot be any enforcement and the loss falls on
the person who sustained it before the force majeure took place.
        22. This formulation was over-ruled by the House of Lords in the
historic decision of Fibrosa Spolka Akcyjna v. Fairbairn Lawson
Combe Barbour Ltd., [1942] UKHL 4, wherein the harsh consequences            D
of frustration as per the old doctrine was moderated by the introduction
of the law of restitution. Interestingly, Lord Shaw in Cantiare San Rocco
SA (Shipbuilding Company) v. Clyde Shipbuilding and Engineering
Co. Ltd., [1924] AC 226, had observed that English law of leaving the
loss to where it fell unless the contract provided otherwise was, he said,
appropriate only ‘among tricksters, gamblers and thieves’. The UK            E
Parliament took notice of the aforesaid judgment and legislated Law
Reform (Frustrated Contracts) Act, 1943.
      23. In India, the Contract Act had already recognized the harsh
consequences of such frustration to some extent and had provided for a
limited mechanism to ameliorate the same under Section 65 of the             F
Contract Act. Section 65 provides as under:
      65.Obligation of person who has received advantage under
      void agreement, or contract that becomes void
      When an agreement is discovered to be void, or when a contract         G
      becomes void, any person who has received any advantage under
      such agreement or contract is bound to restore it, or to make
      compensation for it to the person from whom he received it.
       The aforesaid clause provides the basis of restitution for ‘failure
of basis’. We are cognizant that the aforesaid provision addresses limited
                                                                             H
266             SUPREME COURT REPORTS                             [2020] 4 S.C.R.


A     circumstances wherein an agreement is void ab initio or the contract
      becomes subsequently void.
            24. Coming back to the case, the contract has explicitly recognized
      force majeure events in Clause 44.3 in the following manner:
             For purpose of this clause “Force Majeure” means an act of God,
B            war, revolt, riots, strikes, bandh, fire, flood, sabotage, failure or
             destruction of roads, systems and acts and regulations of the
             Government of India and other clauses (but not due to
             employment problem of the contractor) beyond the reasonable
             control of the parties.
C            Further, under Clause 22.23, the parties had agreed for a payment
      of force majeure rate to tide over any force majeure event, which is
      temporary in nature.
             25. Having regards to the law discussed herein, we do not subscribe
      to either the reasons provided by the Arbitral Tribunalor the High Court.
D     Although, the Arbitral Tribunal correctly held that a contract needs to be
      interpreted taking into consideration all the clauses of the contract,it failed
      to apply the same standard while interpreting Clause 23 of the Contract.
             26. We also do not completely subscribe to the reasoning of the
      High Court holding that Clause 23 was inserted in furtherance of the
E     doctrine of frustration. Rather, under Indian contract law, the effect of
      the doctrine of frustration is that it discharges all the parties from future
      obligations. In order to mitigate the harsh consequences of frustration
      and to uphold the sanctity of the contract, the parties with their commercial
      wisdom, chose to mitigate the risk under Clause 23 of the contract.
F            27. Our attention was drawn to Sumitomo Heavy Industries
      Limited v. Oil and Natural Gas Corporation Limited, (2010) 11 SCC
      296, where this Court interpreted an indemnity clause and found that an
      additional tax burden could be recovered under such clause. Based on
      an appreciation of the evidence, the Court ruled that additional tax burden
      could be recovered under the clause as such an interpretation was a
G
      plausible view that a reasonable person could take and accordingly
      sustained the award. However, we are of the opinion that the aforesaid
      case and ratio may not be applicable herein as the evidence on record
      does not suggest that the parties had agreed to a broad interpretation to
      the clause in question.
H
  SOUTH EAST ASIA MARINE ENGINEERING ONSTRUCTIONS                               267
 LTD. (SEAMEC LTD.) v. OIL INDIA LIMITED [N. V. RAMANA, J.]

       28. In this context, the interpretation of Clause 23 of the Contract     A
by the Arbitral Tribunal, to provide a wide interpretation cannot be
accepted, as the thumb rule of interpretation is that the document forming
a written contract should be read as a whole and so far as possible as
mutually explanatory. In the case at hand, this basic rule was ignored by
the Tribunal while interpreting the clause.
                                                                                B
        29. The contract was entered into between the parties in
furtherance of a tender issued by the Respondent herein. After considering
the tender bids, the Appellant issued a Letter of Intent. In furtherance of
the Letter of Intent, the contract (Contract No. CCO/FC/0040/95) was
for drilling oil wells and auxiliary operations. It is important to note that
the contract price was payable to the ‘contractor’ for full and proper          C
performance of its contractual obligations. Further, Clauses 14.7 and
14.11 of the Contract states that the rates, terms and conditions were to
be in force until the completion or abandonment of the last well being
drilled.
        30. From the aforesaid discussion, it can be said that the contract     D
was based on a fixed rate. The party, before entering the tender process,
entered the contract after mitigating the risk of such an increase. If the
purpose of the tender was to limit the risks of price variations, then the
interpretation placed by the Arbitral Tribunal cannot be said to be possible
one, as it would completely defeat the explicit wordings and purpose of         E
the contract.There is no gainsaying that there will be price fluctuations
which a prudent contractor would have taken into margin, while bidding
in the tender. Such price fluctuations cannot be brought under Clause 23
unless specific language points to the inclusion.
       31. The interpretation of the Arbitral Tribunal to expand the meaning    F
of Clause 23 to include change in rate of HSD is not a possible
interpretation of this contract, as the appellant did not introduce any
evidence which proves the same.
       32. The other contractual terms also suggest that the interpretation
of the clause, as suggested by the Arbitral Tribunal, is perverse. For          G
instance, Item 1 of List II (Consumables) of Exhibit C (Consolidated
Statement of Equipment and Services Furnished by Contractor or
Operator for the Onshore Rig Operation), indicates that fuel would be
supplied by the contactor, at his expense. The existence of such a clause
shows that the interpretation of the contract by the Arbitral Tribunal is
not a possible interpretation of the contract.                                  H
268              SUPREME COURT REPORTS                      [2020] 4 S.C.R.


A            33. For the aforesaid reasons, we are not inclined to interfere
      with the impugned judgment and order of the High Court setting aside
      the award. The appeal is accordingly dismissed. There shall be no order
      as to costs.
             CIVIL APPEAL NO. 900 OF 2012
B            34. In view of the judgment pronounced in C.A. No. 673 of 2012,
      the aforesaid matter is disposed of in the aforesaid terms.


      Devika Gujral                                         Appeals disposed of.

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