2006 (5) TMI 442 - SC - Companies Law

Whether the award is contrary to the terms of contract and, therefore, no arbitrable dispute arose between the parties? Whether the award is in any way violative of the public policy? Whether the award is contrary to the substantive law in India, viz., Sections 55 and 73 of the Indian Contract Act? Whether the reasons are vitiated by perversity in evidence in contract? Whether adjudication of a claim has been made in respect whereof there was no dispute or difference? Whether the award is vitiated by internal contradictions? Held that - The involvement of ONGC was necessary and if it is the accepted case of the parties that ONGC would not entertain any claim of BSCL in this behalf, a fortiori having regard to the tripartite agreement, the learned arbitrator could have no jurisdiction to determine the claim in favour of MII only because at one point of time BSCL had raised its own claim with ONGC. In other words, any reduction of the claim of the BSCL by ONGC had a direct nexus with the claim of MII. It was, therefore, not a case where ONGC was not involved in the matter. The exchange of letters categorically proves that MII had accepted that it would not be entitled to any extra amount in that behalf. MII by necessary implication accepted the said contention. The principle of acceptance sub-silentio shall also be attracted in the instant case. MII was, therefore, not entitled to raise a claim to the extent of fabrication on account of the increased charges for substitution of material used for WI-8, WI-9, WI-10 and N-3 Jackets and piles.To the aforementioned extent, the claim of MII was beyond the terms of the contract. The power of the arbitrator to award interest for pre-award period, interest pendent lite and interest post-award period is not in dispute. Section 31(7)(a) provides that the arbitral tribunal may award interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which award is made, i.e., pre-award period. This, however, is subject to the agreement as regard the rate of interest on unpaid sum between the parties. The question as to whether interest would be paid on the whole or part of the amount or whether it should be awarded in the pre- award period would depend upon the facts and circumstances of each case. The arbitral tribunal in this behalf will have to exercise its discretion as regards (i) at what rate interest should be awarded; (ii) whether interest should be awarded on whole or part of the award money; and (iii) whether interest should be awarded for whole or any part of the pre-award period. The 1996 Act provides for award of 18% interest. The arbitrator in his wisdom has granted 10% interest both for the principal amount as also for the interim. By reason of the award, interest was awarded on the principal amount. An interest thereon was upto the date of award as also the future interest at the rate of 18% per annum. In this case, given the long lapse of time, it will be in furtherance of justice to reduce the rate of interest to 7%.As regards certain other contentions, in view of the fact that the same relate to pure questions of fact and appreciation of evidence, we do not think it necessary to advert to the said contentions in the present case.

Issues Involved:
1. Jurisdiction of the Arbitrator
2. Validity of Partial Award
3. Delay and Disruption Claims
4. Uninvoiced Claims
5. Method for Computation of Damages
6. Clause 37 of the Main Contract
7. Method of Measurement
8. Buoyancy Tanks for ED and EE Jackets
9. Tie-Downs and Sea-Fastening
10. Foreign Exchange Loss
11. Substitution of Materials
12. Interest

Detailed Analysis:

1. Jurisdiction of the Arbitrator:
The arbitrator's jurisdiction was questioned under Section 34 of the Arbitration and Conciliation Act, 1996. The court noted that under the 1996 Act, the party questioning the jurisdiction must raise the issue before the arbitrator. This was not done by BSCL, and thus, the arbitrator's jurisdiction was upheld.

2. Validity of Partial Award:
The 1996 Act does not explicitly mention "partial awards," but includes "interim awards" under Section 2(c). The court found that the partial award issued by the arbitrator was final in all respects concerning the disputes referred to him and was thus valid. BSCL did not raise any objections regarding the arbitrator's jurisdiction during the proceedings, and the partial award was treated as a final award subject to challenge under Section 34.

3. Delay and Disruption Claims:
The arbitrator found that delays caused by BSCL entitled MII to compensation for increased overhead, decreased profit, and additional project management costs. The Emden Formula was applied to quantify these damages. The court upheld the arbitrator's decision, noting that the second part of Section 55 of the Indian Contract Act applied, allowing for compensation even if time was not of the essence of the contract.

4. Uninvoiced Claims:
The arbitrator initially rejected uninvoiced claims but later awarded MII compensation for structural material procurement, additional barge trips, and pipeline surveys based on evidence and correspondence. The court upheld this, stating that claims could be made through correspondence or meetings and did not necessarily require invoices.

5. Method for Computation of Damages:
The arbitrator used the Emden Formula to compute damages for increased overhead and loss of profit. The court found this method acceptable and widely recognized in construction contracts. The application of this formula was within the arbitrator's discretion and did not violate Indian law.

6. Clause 37 of the Main Contract:
Clause 37 excluded liability for consequential damages. The court found that MII's claims were for direct losses due to BSCL's breach of contract, not consequential damages. Therefore, Clause 37 did not apply to MII's claims.

7. Method of Measurement:
The arbitrator adopted the AISC Code for calculating the "as fabricated tonnage," which was accepted by both parties during the arbitration. The court upheld this method, noting that the contract did not specify a method of measurement, and the AISC Code was an industry standard.

8. Buoyancy Tanks for ED and EE Jackets:
The arbitrator found that substantial fabrication work was done by MII in refurbishing the buoyancy tanks, based on evidence and witness testimony. The court upheld this finding, stating it was a matter of fact and not perverse.

9. Tie-Downs and Sea-Fastening:
The arbitrator awarded MII compensation for fabrication work related to tie-downs and sea-fastening, which required substantial fabrication. The court upheld this, noting that the contract covered these items under the fabrication scope.

10. Foreign Exchange Loss:
The arbitrator awarded MII compensation for foreign exchange losses due to BSCL's breach of contract. However, the court found that the exchange rate clause, which was frozen at Rs. 100 = US$ 8.575, applied to all claims, including those for fabrication and installation. The award was modified to reflect this.

11. Substitution of Materials:
The arbitrator awarded MII compensation for the substitution of heavier materials. The court found that ONGC had not agreed to pay for the substituted materials, and MII had implicitly accepted this. The award was modified to exclude compensation for the increased tonnage due to substitution.

12. Interest:
The arbitrator awarded interest at 10% per annum on the principal amount and future interest at the same rate. The court reduced the interest rate to 7.5% per annum, considering the long lapse of time.

Conclusion:
The award of the arbitrator was upheld in part and modified in specific areas, such as the foreign exchange loss and substitution of materials. The interest rate was reduced to 7.5% per annum. The court emphasized that the arbitrator's findings on facts and the application of industry-standard methods were within his jurisdiction and discretion.

← Previous Next →