2004 (9) TMI 634 - SC - Indian Laws

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; or (vi) whether the award is vitiated by internal contradictions?

Issues Involved:
1. Jurisdiction of the arbitrator to make a partial award.
2. Claims for increased overhead, decreased profit, and additional management costs.
3. Uninvoiced claims.
4. Method of computation of damages.
5. Actual loss determination.
6. Applicability of Clause 37 of the main contract.
7. Method of measurement.
8. Claims related to buoyancy tanks for ED and EE jackets.
9. Claims related to tie-downs and sea-fastening.
10. Claims related to foreign exchange loss.
11. Claims related to substitution of materials.
12. Award of interest.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Arbitrator to Make a Partial Award:
The 1996 Act does not explicitly use the term "partial award" but includes "interim award" under Section 2(c). The arbitrator's approach was to resolve certain disputes initially while deferring others, hoping for a settlement. The partial award, which was final concerning the disputes it addressed, was valid under the Act. BSCL did not raise objections about jurisdiction before the arbitrator or in its Section 34 application.

2. Claims for Increased Overhead, Decreased Profit, and Additional Management Costs:
The arbitrator found that BSCL's delays and disruptions caused MII to incur additional costs. The claims were covered under Change Orders Nos. 2, 3, and 7, which BSCL and ONGC had accepted in principle. The arbitrator applied the Emden Formula, widely accepted in construction contracts, to quantify the damages. The Court upheld this method, finding no error in the arbitrator's approach.

3. Uninvoiced Claims:
The arbitrator initially rejected claims not invoiced before arbitration but later allowed claims related to structural material procurement, additional barge trips, and pipeline surveys, recognizing them as claims for damages rather than contractual payments. The Court agreed that claims for damages could be raised through correspondence or meetings and did not require invoicing.

4. Method of Computation of Damages:
The arbitrator used the Emden Formula, which calculates increased overhead and loss of profit based on the contractor's actual overhead percentage. This method is widely accepted and received judicial support. The Court found no reason to interfere with the arbitrator's choice of formula.

5. Actual Loss Determination:
The arbitrator relied on evidence from Mr. D.J. Parson, who used the Emden Formula to calculate damages. The Court held that Sections 55 and 73 of the Indian Contract Act do not prescribe a specific method for computing damages, and the arbitrator's approach was consistent with accepted international practices.

6. Applicability of Clause 37 of the Main Contract:
Clause 37, which limits liability for consequential damages, applied only to the main contract between ONGC and BSCL. The Court held that MII's claims for direct losses due to BSCL's delays and disruptions were not consequential damages and were valid under the sub-contract.

7. Method of Measurement:
The arbitrator adopted the AISC Code for calculating "as fabricated tonnage," which was not explicitly mentioned in the contract but impliedly accepted by the parties. The Court upheld the arbitrator's decision, noting that BSCL had accepted the AISC Code in other contexts.

8. Claims Related to 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 admissions from BSCL's witness. The Court upheld the arbitrator's findings as they were based on factual evidence.

9. Claims Related to Tie-Downs and Sea-Fastening:
The arbitrator accepted MII's claim for fabrication of tie-downs and sea-fastening as part of the fabrication scope of work. The Court found that the arbitrator's findings were within his jurisdiction and based on the contract's terms.

10. Claims Related to Foreign Exchange Loss:
The arbitrator held that the exchange rate clause applied only to specific claims (Claims 1, 2, and 3) and not to others. The Court disagreed, holding that the exchange rate clause applied to all claims under the contract, and MII was not entitled to full payment without considering exchange rate variations.

11. Claims Related to Substitution of Materials:
The arbitrator awarded MII for the increased tonnage due to material substitution. The Court found that ONGC's refusal to pay for substituted materials, accepted by MII sub silentio, meant that MII was not entitled to the claim for increased charges.

12. Award of Interest:
The arbitrator awarded 10% interest on the principal amount and future interest at 18%. The Court reduced the interest rate to 7.5%, considering the long lapse of time and to do complete justice between the parties.

Conclusion:
The Court allowed the applications in part, modifying the arbitrator's award to reflect the correct application of the exchange rate clause and reducing the interest rate. The findings on other issues were upheld, and no costs were awarded.

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