Ashis Kumar Chakraborty, J. - (1.) In this application under Section 34 of the Arbitration and Conciliation Act, 1996 ( in short, "the Act of 1996") the petitioner has challenged the award dated September 30, 2008 made by the sole arbitrator in the arbitration proceeding, wherein the respondent herein was the claimant and thet petitioner was the respondent, respectively. By the impugned award, the arbitrator has directed the petitioner to pay to the respondent, the claimant in the arbitration Rs. 3,87,73,200/- on account of loss of profit and costs assessed at Rs. 4 lakh.
(2.) The brief facts relevant to be considered for deciding this application are that the petitioner carries on business as the manufacturer of steel and various steel products and has one of its plant at Bokaro namely, "Bokaro Steel Plant" (hereinafter referred to as "the said steel plant"). In 2004, the petitioner invited tenders for purchase of sponge iron on conversion of iron ore for manufacturing steel at the said steel plant in response whereof, the respondent company, a manufacturer of sponge iron submitted its tender and price bid for supplying sponge iron to the petitioner's said factory. By a facsimile transmission dated October 30, 2004 the petitioner intimated the respondent that the tender submitted by it was under consideration and requested the latter to confirm two things, namely, i) acceptance of the Memorandum of Understanding Terms (Section 2 of the tender) and ii) acceptance of 100% payment within 30 days of Goods Receipt Note subject to acceptability of the materials and that no interest for delay would be paid. By a communication dated November 03, 2004 the respondent informed the petitioner, inter alia, of its acceptance of the terms of Memorandum of Understanding of the tender and that the price bid quoted by it may be taken as valid for the tender. By a further communication dated January 22, 2005 the petitioner informed the respondent that the offer submitted by it against the subject tender was under consideration and offered the A-1 price of Rs. 7,950/- per MT (including freight but excluding excise duty) received by it for acceptance by the respondent. The respondent by its letter dated January 25, 2005 informed the petitioner of its acceptance of the offer made by the said communication dated January 22, 2005 and requested the petitioner to send the draft Memorandum of Understanding. Thereafter, on February 12, 2005 the parties entered into the Memorandum of Understanding (hereinafter referred to as "the said memorandum of understanding") wherein the petitioner and the respondent were described as "the purchaser" and " the seller", respectively. As per the said memorandum of understanding, which was valid for one year with effect from March 01, 2005, the petitioner was to place purchase orders on the respondent for conversion of iron ore to be supplied by it into sponge iron as per the specification detailed in Annexure-I thereto and the respondent had to supply sponge iron on conversion basis, as per the petitioner's requirement within the stipulated period mentioned in the purchase order, at the agreed basic price of Rs. 7950/- per M.T., plus excise duty and the terms and conditions already finalised thereunder and as against the petitioner's enquiry no. BSL/pur/OT/13/MOU/Sponge Iron as accepted by the respondent. Annexure-I to the said Memorandum of Understanding provided, inter alia, that the respondent would furnish to the petitioner security deposit in the form of bank guarantee/demand draft for iron ore to be supplied by the petitioner covering 15 days supply quantity and performance guarantee in the form of bank guarantee for 5% of monthly conversion value which was to be kept valid for 12 months. By a communication dated April 07, 2005 the respondent requested the petitioner to start placement of the purchase order and supply of iron ore but the petitioner did not respond to the said letter. However, by a letter dated May 09, 2005 the petitioner requested the respondent to supply its Permanent Account Number to refund the earnest money deposited by the respondent. The respondent did not agree to obtain refund of the earnest money by the petitioner and issued two communications dated May 13, 2005 and May 30, 2005 to the petitioner to know the provisions of the contract under which the petitioner was taking steps to refund the earnest money. The petitioner, however, did not respond to any of the said communications and by a letter dated June 17, 2005 it forwarded a cheque for Rs. 1.50 lakh to the respondent towards refund of the earnest money. The respondent alleged that the contract between the parties for supply of sponge iron was subsisting and the same could not be unilaterally terminated by the petitioner by refusing to issue the purchase orders. The respondent claimed that the petitioner committed breach of the contract and by invoking the arbitration clause contained in the Notice Inviting Tender it filed an application, A.P. No. 183 of 2005, under Section 9 of the Act of 1996, against the petitioner, this Court. By an order dated August 01, 2005 a learned Single Judge of this Court disposed of the said application by allowing the applicant, the respondent herein to accept the cheque of Rs. 1.50 lakh towards return of the earnest deposit without prejudice to its rights and contentions, if any in the arbitration proceeding. Thereafter, by a letter dated September 16, 2005 the Managing Director of the petitioner's said steel plant appointed Sri B.M.K. Singh, Ex-E.D. (MM) SAIL/ Durgapur Steel Plant as the sole arbitrator to adjudicate the disputes and differences between the parties herein. After the respondent, as the claimant filed its statement of claim before the arbitrator the petitioner filed an application, under Section 16 of the Act of 1996, alleging that there is no valid, binding or enforceable arbitration agreement between the parties for adjudication of the claims of the claimant. By an order dated April 10, 2006 the arbitrator rejected the said application. Thereafter, the petitioner filed its counter-statement before the arbitrator denying the material allegations made by the present respondent in its statement of claim.
(3.) In the statement of claim it was the case of the claimant, the respondent herein that the contract between the parties was concluded as soon as by the letter dated January 25, 2005 it communicated the acceptance of the offer contained in the letter dated January 22, 2005 written by the respondent (the petitioner herein) and such contract was confirmed by execution of the said memorandum of understanding containing the fuller terms. The claimant asserted that in terms of of the concluded contract between the parties it was the obligation of the respondent in the arbitration to issue purchase orders for supply of sponge iron on conversion basis, as per the specification stipulated by the said memorandum of understanding but the latter wrongfully repudiated the said contract by refusing to issue the relevant purchase orders. According to the claimant, in order to discharge its obligation under the contract it was compelled to make an investment of Rs. 10,69,06,683/- to enhance the production capacity of its factory and claimed an award against the respondent in the arbitration for the said sum of Rs. 10,69,06,683/-, together with interest thereon at the rate of 18% for one year of the contractual period. The claimant alleged that during the contractual period of one year, it was required to supply 36,000 MT of sponge iron to the respondent and on account of such supply it reasonably expected to earn a profit of Rs. 2454/-, per MT aggregating to Rs. 8,83,44,000/-. Accordingly, on the ground of wrongful repudiation of the contract, the claimant claimed an award of Rs. 88,344,000/- against the respondent for loss of profit. The claimant further claimed awards against the respondent, the petitioner herein, for administrative and selling overhead and loss on account of the legal expenses and damages for Rs. 34,83,648/- and Rs. 21,00,000/-, respectively.;