2007 (9) TMI 598 - SC - Companies Law

Whether the case of DIC for such liquidity damages was covered under Clause 18 or Clause 22 of the General terms and conditions of the contract? Held that - The claimant DIC is entitled to ₹ 2 crores for substituted material, ₹ 8.9 crores for liquidity damages, ₹ 0.2 crore as interest paid on the delayed funds i.e. ₹ 11.1 crore ( ₹ 2 crore ₹ 8.9 crore ₹ 02 crore) and finally interest at the rate of 12 per cent pendente lite from the date of the claim petition till realization. The payment should be made within a period of six months from today failing which it will carry interest at the rate of 15 per cent per annum. The appeal arising out of S.L.P.(c) No.20989 of 2006 is partly allowed. The order passed by the High Court is modified as indicated above. The claim of the DIC is decreed to the extent indicated above. However, the appeal arising out of S.L.P.(c) No.4409 of 2007 filed by the DIC is dismissed.

Issues Involved:
1. Transfer of US$ 6 million.
2. Turbotecnica's Contract price.
3. Countervailing Duty.
4. Excess Customs Duty due to Fluctuation of exchange rate.
5. Liquidated damages for delay in approval of Design and Engineering.
6. Interest for borrowed funds.
7. Interest on the awarded amount.

Issue-wise Detailed Analysis:

1. Transfer of US$ 6 million:
The issue was whether the claimant (DIC) was entitled to Rs. 9.6 crores under the heading "Transfer of US$ 6 million." DIC claimed that the indigenous procurement of materials, approved by NRL, cost them Rs. 25.3 crores. They limited their claim to Rs. 21.7 crores, of which Rs. 12 crores had been paid, leaving a claim of Rs. 9.6 crores. The majority of the arbitrators accepted the value of Rs. 17.68 crores assessed by EIL, added a 15% profit margin, and awarded Rs. 20.33 crores, less the Rs. 12.19 crores already paid, resulting in an award of Rs. 8.14 crores. The minority arbitrator disagreed, stating that DIC had not produced sufficient evidence. The District Court disapproved the arbitrators' approach, emphasizing the need for evidence. The High Court upheld the majority award, considering the letter from EIL. The Supreme Court, however, concluded that DIC was entitled to only Rs. 2 crores under this head, upholding the minority arbitrator's view on procurement services and other charges.

2. Turbotecnica's Contract price:
DIC claimed Rs. 1.65 crores for customs duty paid on the service portion of the contract price, arguing that NRL's failure to amend the contract led to this extra duty. The majority of the arbitrators allowed the claim, but the minority arbitrator and the District Judge disagreed, stating it was DIC's responsibility to frame the contract correctly. The High Court reversed the District Judge's decision. The Supreme Court found that DIC could not insist on amending the contract and that NRL could not be held responsible for the extra duty. Therefore, the claim of Rs. 1.65 crores was not allowed.

3. Countervailing Duty:
DIC claimed Rs. 8.78 crores for countervailing duty introduced after the contract was signed. Both the majority and minority arbitrators allowed the claim, but the High Court reversed this. The Supreme Court upheld the High Court's decision, stating that the contract clearly stipulated that DIC was responsible for all taxes and duties, including any new levies like the countervailing duty. Section 64-A of the Sale of Goods Act, 1930, and Section 69 of the Contract Act, 1872, did not apply here due to the clear terms of the contract.

4. Excess Customs Duty due to Fluctuation of exchange rate:
The majority of the arbitrators awarded Rs. 2.09 crores for excess customs duty due to exchange rate fluctuations, while the minority arbitrator rejected this claim, citing the fixed-price nature of the contract. The High Court affirmed the majority view. The Supreme Court, however, found that the contract's terms clearly indicated that prices were firm and fixed, leaving no room for adjustments due to exchange rate fluctuations. Thus, the claim of Rs. 2.9 crores was declined.

5. Liquidated damages for delay in approval of Design and Engineering:
The majority of the arbitrators awarded Rs. 8.9 crores for delays caused by NRL, using a 5% contract value as a measure. The minority arbitrator disagreed, stating that DIC had not demonstrated the loss. The High Court upheld the majority's decision. The Supreme Court agreed with the High Court, stating that the majority's assessment of delays and the resulting damages was based on a factual review and was reasonable.

6. Interest for borrowed funds:
DIC claimed Rs. 6.5 crores for interest on borrowed funds, and the majority of the arbitrators awarded Rs. 0.2 crores, which the High Court affirmed. The Supreme Court upheld this award, agreeing that the delay on NRL's part justified the interest on the delayed funds.

7. Interest on the awarded amount:
The majority of the arbitrators awarded 12% interest pendente lite and 18% post-award interest, while the minority arbitrator awarded a uniform 10% interest. The High Court affirmed the majority's decision. The Supreme Court agreed, stating that the grant of interest was discretionary and reasonable.

Conclusion:
The Supreme Court modified the High Court's order, awarding DIC Rs. 2 crores for substituted material, Rs. 8.9 crores for liquidated damages, and Rs. 0.2 crores for interest on delayed funds, totaling Rs. 11.1 crores. Interest was awarded at 12% pendente lite and 18% post-award. The appeal by DIC regarding countervailing duty was dismissed. No order as to costs.

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