2014 (10) TMI 589 - SC - Indian Laws

Validity of award passed by Arbitral Tribunal - delay in the return of the vessel to the Corporation after upgradation. - Who is responsible for this delay is the essence of the dispute between the parties. - Fundamental policy of Indian Law - Held that - The Arbitrators have after examining the material placed before them recorded a finding to the effect that the delay between 10th July 2001 and 31st March 2001 was entirely attributable to the respondent. From the findings of the fact recorded by the arbitrators with which we see no reason to interfere or disagree, it is evident, that the appellant-corporation was solely responsible for the delay in taking a decision in the matter between 24th October, 2001 and 26th November, 2001. The arbitrators have found and, in our opinion, rightly so that the respondent-claimant had by its letter dated 24th October, 2001 clearly informed the appellant that there was no use pursuing the matter with the U.S. Authorities any further. It is neither necessary nor proper for us to attempt an exhaustive enumeration of what would constitute the fundamental policy of Indian law nor is it possible to place the expression in the straitjacket of a definition. What is important in the context of the case at hand is that if on facts proved before them the arbitrators fail to draw an inference which ought to have been drawn or if they have drawn an inference which is on the face of it, untenable resulting in miscarriage of justice, the adjudication even when made by an arbitral tribunal that enjoys considerable latitude and play at the joints in making awards will be open to challenge and may be cast away or modified depending upon whether the offending part is or is not severable from the rest. Inasmuch as the arbitrators clubbed the entire period between 16th October, 2001 and 21st March, 2002 for purposes of holding the appellant-Corporation responsible for the delay, they committed an error resulting in miscarriage of justice apart from the fact that they failed to appreciate and draw inferences that logically flow from such proved facts. We have, therefore, no hesitation in rejecting the contention urged on behalf of the respondent that the arbitral award should not despite the infirmities pointed out by us be disturbed. Deduction on account of taxes not paid should have been allowed by the respondent-arbitral tribunal. The Tribunal has, in our opinion, correctly held that no part of the work was undertaken outside Singapore which was to be executed on a turnkey basis for a price that was pre-determined. The arbitrators have, in our opinion, rightly held that no taxes were payable under the Indian Income tax Act so as to entitle the Corporation to deduct any amount on that account by reason of non-payment of such taxes. The challenge to the award to that extent must fail and is, hereby, rejected. Out of the period of 4 months and 22 days which the arbitrators have attributed to the appellant-Corporation a period of 56 days comprising 42 days of the first interval and 14 days of the second referred to in the judgment shall be reduced. Resultantly, deductions made by the appellant- Corporation for the said period of 56 days shall stand affirmed and the award made by the arbitrators modified to that extent with a proportionate reduction in the amount payable to the respondent - Decided partly in favour of appellant.

Issues Involved:
1. Material term of the contract regarding the national origin of hydrophones.
2. Justification of refusal to allow substitution of Canadian hydrophones.
3. Validity of force majeure declaration.
4. Delay in performance of the contract.
5. Responsibility for the delay.
6. Entitlement to damages.
7. Entitlement to adjust sums payable.
8. Entitlement to both Liquidated Damages and Excess Engagement charges.

Issue-wise Detailed Analysis:

1. Material Term of the Contract Regarding National Origin of Hydrophones:
The Arbitral Tribunal held that the national origin of hydrophones was not a material term of the contract. The choice of hydrophones was left to the bidders as long as the equipment met the prescribed specifications, and there was no stipulation regarding the make or country of origin.

2. Justification of Refusal to Allow Substitution of Canadian Hydrophones:
The Tribunal found that once the respondent contracted to supply U.S. made hydrophones, the appellant-Corporation was entitled to insist on the contracted equipment. The Tribunal concluded that the appellant was not justified in insisting on pursuing the U.S. license further once the respondent informed them that the option was closed.

3. Validity of Force Majeure Declaration:
The Tribunal decided against the respondent, stating that none of the events mentioned in the contract had taken place to justify invoking the force majeure clause. Since the parties did not belong to the U.S., the force majeure clause could not be validly invoked.

4. Delay in Performance of the Contract:
The Tribunal acknowledged that there was a delay in delivering the vessel back to the appellant. The vessel should have been returned by 9th July 2001 but was instead returned on 6th May 2002. The Tribunal found that the delay from 10th July 2001 to 31st March 2001 was attributable to the respondent.

5. Responsibility for the Delay:
The Tribunal attributed the delay between 1st November 2001 and 22nd March 2002 to the appellant-Corporation. The delay in taking decisions and conveying information was primarily the appellant's responsibility.

6. Entitlement to Damages:
The Tribunal held that the appellant-Corporation was entitled to liquidated damages and excess engagement charges under the contract. However, the deductions for the period from 1st November 2001 to 22nd March 2002 were not justified and were to be released to the respondent.

7. Entitlement to Adjust Sums Payable:
The Tribunal ruled that deductions made by the appellant towards taxes were not permissible. Since the work was executed in Singapore, no Indian taxes were applicable, and the deductions were unjustified.

8. Entitlement to Both Liquidated Damages and Excess Engagement Charges:
The Tribunal decided that the appellant-Corporation was justified in making deductions for liquidated damages and excess engagement charges except for the period from 1st November 2001 to 22nd March 2002.

High Court and Supreme Court Judgments:
The High Court upheld the Tribunal's findings except for the award of pendente lite and future interest, which was waived by the respondent. The Supreme Court modified the award by reducing the period attributable to the appellant-Corporation by 56 days, thus affirming deductions for that period and reducing the amount payable to the respondent proportionately.

Conclusion:
The Supreme Court's final judgment allowed the appeal to the extent of modifying the period of delay attributable to the appellant-Corporation, resulting in a proportionate reduction in the amount payable to the respondent. The deductions for taxes were deemed unjustified, and the award was modified accordingly.

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