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TMI Blog2009 (10) TMI 956X X X X Extracts X X X X X X X X Extracts X X X X ..... objector for design, manufacture, supply of pumps with erection, testing and commissioning of circulating water pumps (CW pumps) for the project of the objector at Ramagundam in the State of Andhra Pradesh. The non-objector (hereafter Flowmore ) submitted its offer on 29.7.1979 and it was accepted by NTPC by issuing a Letter of Intent on 18.1.1980. Flowmore under the contract was to supply 7 CW pumps along with electric motors as also some spare parts. Flowmore was also to undertake installation of the pumps at site. The total value of the contract was ₹ 1,15,02,900/- for supply of the equipment, spares and erection. It may be noted that the contract was for supply of Stainless Steel Impellers (S.S. Impellers). The S.S. impellers were to be purchased by Flowmore from M/s. Peerless Pumps Inc. U.S.A. M/s. Peerless Pumps failed to supply the S.S. Impellers and NTPC therefore agreed to purchase indigenously manufactured S.S. Impellers. Flowmore started manufacturing pumps with indigenous technology approved by NTPC. The sum and substance of the matter is that Flowmore could not supply pumps with S.S. Impellers and it could only supply pumps with bronze impellers which was agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted its bills amounting to ₹ 24.23 lakhs on account of the balance price of 10% and other bills for supplies made and work done. Since Flowmore had a balance of ₹ 2,89,730/- in their hands out of the initial advance paid to them by the NTPC they adjusted this balance and asked for balance amount payment of ₹ 21,63,105/-. Since NTPC did not pay, Flowmore issued a legal notice dated 27.2.1990 demanding the said amount. Finally arbitration clause in the contract was invoked and whereas Flowmore appointed Justice Avadh Behari Rohatgi, a retired Judge of this Court, NTPC appointed Justice Rajender Sachar, Retd. Chief Justice of this Court as their Arbitrator. The third Arbitrator was appointed by the Institution of Engineers who was an Engineer by profession but who unfortunately died during the pendency of the arbitration proceedings and he came to be substituted by Sh. P.P. Dharwadkar, who was the former Chairman and Managing Director of National Building Construction Corporation. 5. The major disputes and differences which arose between the parties can be basically summarized under the following broad heads: (i) Claim of Flowmore for the balance price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been held that there is no reason why the contractor/ Flowmore should not be entitled to its claim of the balance price. In this regard the Arbitrators have dealt with this matter extensively from pages 31 to 37 of the Award and the important findings are that as per contractual clause 6.1.1, one of the pumps shall be selected for the prototype performance test at the manufacturer's works to determine the power consumption and its capacity on which a finding of fact is arrived at that the same was done. Clause 6.2.1 deals with the performance test. Such tests are required to indicate freedom from vibration and ensure satisfactory parallel operation. This test was to be done not by Flowmore but by the owner/NTPC and for which Flowmore only had to give assistance. There are findings of facts in the Award that no complaints have been at all shown with regard to either vibration or unsatisfactory parallel operation. In fact the Arbitrators note that there is a positive statement of NTPC's own witnesses which shows that the Flowmore pumps were giving satisfactory service since 1984, 1986 and 1987 when the five pumps were supplied. The witness also admits that tests were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,910 will stand adjusted and the amount of ₹ 21,63,105/- will stand reduced. 10. That takes us to the claims as made by the NTPC with respect to costs of certain spares as also the risk and purchase costs incurred by NTPC for the three pumps which were purchased from M/s. Johnston. 11. As regards the issue of claim of loss suffered on account of risk and purchase, the Arbitrators have noted that before risk and purchase costs can be granted to a person who is aggrieved and against a person in breach it is necessary that what is purchased should be the same item as what was contracted for and not otherwise. In this case, the admitted position is that the contract in question was for S.S. impellers and admittedly what was purchased from Johnston Pumps Ltd, were not S.S. Impellers but bronze impellers. That being the position the Arbitrators have held that this amounted to unilateral novation of the contract qua the impellers and thus the risk and purchase cost of a different item cannot be fastened upon Flowmore under Section 73 of the Contract Act, 1872. To this, I may add if there is a novation of the contract by purchase of substituted items then it was imperative for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preferred by Flowmore to them they cannot accept the bronze impellers from Johnston and make Flowmore liable. ix) The future goods which were to be manufactured by Flowmore had to conform to the condition laid down in the contract. The term of SSI is a condition and strict compliance was required, failing which the buyer was entitled to reject. The duty of the seller is very strict indeed. The liability is that in non-conformity with the contract description and of an express term of the contract there is a breach of contract. x) If the seller fails to supply goods of the contractual description he will be guilty of breach of contract. In the present case the goods purchased from Johnston did not accord with their description as given in the contract of Flowmore and the purchase from Johnston did not conform with the express term of the contract. The purchase from Johnston does not bind Flowmore as the purchase did not conform with the description. It was a case of non conformity. The pumps purchased are non-compliant pumps. Contract with Flowmore was of seven pumps. They supplied 5 pumps. NTPC claims extra cost of 3 pumps. Flowmore is not liable even for two pump ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the contract. This is quite clear as I have already set out the chart in the earlier portion of this judgment and in which chart the dates of completion as per the contract and the actual later dates of completion are mentioned. Accordingly, there is no doubt that liquidated damages in a case like this are payable without proof of actual loss. I am supported in this regard by the judgment of the Supreme Court in the case of ONGC Vs. Saw Pipes Limited 2003(5)SCC705. The relevant paras of the judgment in ONGC's case are as under: 46. From the aforesaid sections, it can be held that when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss which naturally arises in the usual course of things from such breach. These sections further contemplate that if parties knew when they made the contract that a particular loss is likely to result from such breach, they can agree for payment of such compensation. In such a case, there may not be any necessity of leading evidence for proving damages, unless the court arrives at the conclusion that no loss is likely to occur because of such breach. Further, in case where the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act is not liable to pay compensation. It would be against the specific provisions of Sections 73 and 74 of the Indian Contract Act. There was nothing on record that compensation contemplated by the parties was in any way unreasonable. It has been specifically mentioned that it was an agreed genuine pre-estimate of damages duly agreed by the parties. It was also mentioned that the liquidated damages are not by way of penalty. It was also provided in the contract that such damages are to be recovered by the purchaser from the bills for payment of the cost of material submitted by the contractor. No evidence is led by the claimant to establish that the stipulated condition was by way of penalty or the compensation contemplated was, in any way, unreasonable. There was no reason for the Tribunal not to rely upon the clear and unambiguous terms of agreement stipulating pre- estimate damages because of delay in supply of goods. Further, while extending the time for delivery of the goods, the respondent was informed that it would be required to pay stipulated damages. 15. A reference to these paras clearly show that in certain contracts it is impossible to prove the damages/losses whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown to me. Accordingly, there is no substance with respect to this objection which is rejected. 17. One other argument which has been pressed on behalf of the objector was that the Arbitrators have wrongly reduced the claim of NTPC from a figure of ₹ 76,27,631/- to ₹ 34,85,572/-. This aspect has been dealt with by the Arbitrators in the award at page Nos. 18 and 19 of the Award. The Arbitrators have referred to the correspondence and the letters emanating from NTPC which shows that no such claim was made at any time before the arbitration proceedings commenced and therefore the Arbitrator have held NTPC disentitled to such an additional claim. Assuming for the sake of arguments, that the Arbitrators are wrong in not allowing expansion of the claims because the claim may have escaped the attention when the letter dated 15.3.1990 was written, even then I find that this difference of claim basically pertains to the claim towards entitlement for risk and purchase cost and cost of spares and so on and since I have already disallowed the basic and broad head of the risk and purchase cost and the cost of spares, therefore, once the NTPC is held disentitled to whatever amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one to another, and which in this case will be from NTPC to Flowmore and therefore in the final analysis there is reduction of the total net claims which have been awarded in the award in favour of the Flowmore and against NTPC. I am doing the latter in that by the total of the two amounts under the heads of namely of liquidated damages of ₹ 5,39,100/- and the figure of ₹ 2,30,910/-, I am reducing from the total amount which is awarded to Flowmore and against the NTPC. Net effect thus is that Flowmore is thus entitled to ₹ 13,93,095/- from NTPC besides also the amount of bank guarantees of ₹ 19,35,826/-. The issue however is what should be the rate of interest which should be awarded . I find from the recent catena of judgments of the Supreme Court that it has directed the courts to keep in view the changed economic scenario and the consistent fall in the rates of interests, whereby the courts should be alive to the fact that the higher interest regime which was earlier permissible should no longer be adhered to. In this behalf, I must refer to the following judgments of the Supreme Court namely Rajendra Construction Co. Vs. Maharashtra Housing Area De ..... X X X X Extracts X X X X X X X X Extracts X X X X
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