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TMI Blog2021 (11) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... Uttarakhand at Nainital in Review Petition No. 1340 of 2008 in AO No. 472 of 2005. 3. The short question which arises for determination by this Court is whether the impugned judgment was correct in setting aside the arbitration award in favour of the ONGC. 4. Before we analyse the case at hand, it is necessary for us to have a brief understanding of the facts. A global tender was floated by the ONGC for purchase of aggregate quantity of 3,93,297 metres of seamless steel casing pipes. Remi Metals was a successful bidder. It claims that it had bid to supply pipes as a supplier on behalf of Volski Tube Mills, Russia. In furtherance of the same, 4 purchase orders (POs) No. 275, 276, 277 and 286 were issued in the following manner: 5. It was mentioned in the POs that the delivery period will commence within 16 weeks and will be completed in 40 weeks, or earlier, from the date of the PO. 6. Some of the important conditions mentioned in the POs, which were common to all the POs, are as under: 9. i) The time and date of delivery is the essence of the supply order and delivery must be completed not later than the date specified therein. ii) It must be noted that delayed supplies eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain delays in meeting the obligation as required under the contract. In this context, various extensions were given by the ONGC to fulfil their obligation. The extensions were granted as follows: Remi Metals accepted the aforesaid extensions and satisfied the contract. 9. In this context, it may be noted that the ONGC had deducted an aggregate amount of US $8,07,804.03 and Rs. 1,05,367/- as liquidated damages from various bills submitted by the Remi Metals. There were other claims which were disputed by the Remi Metals which were claimed before a panel of arbitrators. 10. In detail, the Remi Metals' claims were hereunder: CLAIM TITLE MOUNT Refund of Liquidated damages claimed by ONGC US $807,804.03 and Rs. 1,05,367/- Customs Duty Reimbursement Rs. 1,90,43,037/- Interest on Delayed Payments US $2,44,121.03 and Rs. 5,76,244.31 Amount Short Received under invoices Rs. 18,11,456.72 Failure to Furnish "C" forms US $2,44,649.39 Handling Charges Payable on ONGC Rs. 24,86,369.86 Wrongful reduction of price for balance 8.55% (16,174.78m) under PO No. 275 US $83,324.38 Award of the above amounts with 18% interest from the date on which it ought to have been paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quidated damages, the Arbitral Tribunal held that liquidated damages, which are pre-estimated damages, cannot be granted as there was no breach of contract due to the fact that time was not the essence. Accordingly, the Arbitral Tribunal proceeded to determine the actual damages based on the evidence furnished. 14. It was ONGC's estimation that there were four categories of tangible losses, namely: (i) revenue loss; (ii) loss due to the use of higher ppf/grade casing; (iii) loss due to intra/inter-regional transportation; and (iv) loss due to foreign exchange fluctuation. In total, such losses were estimated to be to the tune of Rs. 3,80,64,830/-. The estimation was as follows: CATEGORY MOUNT Revenue loss Rs. 95,72,332/- Loss due to the use of higher/ppf grade casing Rs. 10,97,883/- Loss due to intra/inter-regional transportation Rs. 90,09,950/- Loss due to foreign exchange fluctuation Rs. 1,83,84,668/- Total: Rs. 3,80,64,833/- 15. The said estimation was accepted by the Arbitral Tribunal. However, it was also held that ONGC would not be entitled to claim any damage for losses incurred during the extended period of delivery where liquidated damages were expressly wai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved by the aforesaid order, review petitions being Review Petition Nos.1340 of 2008 and 1339 of 2008 were filed which were disposed of with the following observation: "...The judgement and order passed by the District Judge, Dehradun, in Arbitration Case No.31 of 2004 dated 19th July, 2005, is modified to the extent that the appeal with regard to Claim Nos. 1 and 2 is allowed, while the judgement and order dated 19th July, 2005, passed by the District Judge, Dehradun, shall remain intact with regard to claim Nos. 3 to 7..." 20. Aggrieved by the order passed in the review petitions, both parties have filed these appeals before this Court. 21. Mr. Shyam Divan, learned senior counsel, appearing for Remi Metals (now Welspun), has submitted that: * The view taken by the Arbitral Tribunal was reasonable, plausible and can be sustained. * Time was not the essence of the contract, as the contract provided for extension of time as well as for liquidated damages. * Further, once ONGC waived the liquidated damages in the first two extensions, they could not have claimed liquidated damages for further extensions of delivery date. * This Court should not interfere or set aside awa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itral process. 24. The first case, which expounded on the scope of 'public policy' was Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644, which inter alia provided that a foreign award may not be enforced under the said Act, if the court dealing with the case is satisfied that the enforcement of the award will be contrary to the public policy. After elaborate discussion, the Court arrived at the conclusion that public policy comprehended in Section 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961 is the "public policy of India" and does not cover the public policy of any other country. For giving meaning to the term "public policy", the Court observed thus: "66. Article V(2)(b) of the New York Convention of 1958 and Section 7(1)(b)(ii) of the Foreign Awards Act do not postulate refusal of recognition and enforcement of a foreign award on the ground that it is contrary to the law of the country of enforcement and the ground of challenge is confined to the recognition and enforcement being contrary to the public policy of the country in which the award is set to be enforced. There is nothing to indicate that the expression 'public pol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... morality, or (d) in addition, if it is patently illegal. Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged void. (...) 74. In the result, it is held that: (A)(1) The court can set aside the arbitral award under Section 34(2) of the Act if the party making the application furnishes proof that: (i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by an alternative forum as provided under the law. If the Courts were to interfere with the arbitral award in the usual course on factual aspects, then the commercial wisdom behind opting for alternate dispute resolution would stand frustrated. 25. Moreover, umpteen number of judgments of this Court have categorically held that the Courts should not interfere with an award merely because an alternative view on facts and interpretation of contract exists. The Courts need to be cautious and should defer to the view taken by the Arbitral Tribunal even if the reasoning provided in the award is implied unless such award portrays perversity unpardonable under Section 34 of the Arbitration Act." With these observations and limitations set out above, we need to examine whether the award can be sustained under Section 37 of the Arbitration Act. 26. The main challenge to the award is against the imposition of unliquidated damages, when the matter of fact stood that the contract between parties stipulated for pre-estimated damages (liquidated damages). The concerned contract contained provisions for liquidated damages for breach of contract, particularly breach of deadlines set in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sence in a contract', has to be culled out from the reading of the entire contract as well as the surrounding circumstances. Merely having an explicit clause may not be sufficient to make time the essence of the contract. As the contract was spread over a long tenure, the intention of the parties to provide for extensions surely reinforces the fact that timely performance was necessary. The fact that such extensions were granted indicates ONGC's effort to uphold the integrity of the contract instead of repudiating the same. 31. Clause 9(i) of the Purchase Order reproduced above makes it clear that time is the essence of the contract, subject to extension granted without prejudicing the right of ONGC to recover damages. These damages, by one reasonable interpretation, could be read as damages based on actual loss. Such conclusion was based on the Arbitral Tribunal's interpretation of 2nd para of Section 55 of the Contract Act, which reads as under: Effect of such failure when time is not essential.- If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties knew when they made the contract to be likely to result from the breach of it. This section is to be read with Section 74, which deals with penalty stipulated in the contract, inter alia (relevant for the present case) provides that when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, the party complaining of breach is entitled, whether or not actual loss is proved to have been caused, thereby to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named. Section 74 emphasizes that in case of breach of contract, the party complaining of the breach is entitled to receive reasonable compensation whether or not actual loss is proved to have been caused by such breach. Therefore, the emphasis is on reasonable compensation. ... But if the compensation named in the contract for such breach is genuine pre-estimate of loss which the parties knew when they made the contract to be likely to result from the breach of it, there is no question of proving such loss or such party is not required to lead evidence to prove actual loss suffered by him.. ... 66. In Maula Bux cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Court cannot interfere with this award, as the award is a plausible view for the following reasons: a. The Arbitral Tribunal's interpretation of contractual clauses having extension procedure and imposition of liquidated damages, are good indicators that 'time was not the essence of the contract'. b. The Arbitral Tribunal's view to impose damages accrued on actual loss basis could be sustained in view of the waiver of liquidated damages and absence of precise language which allows for reimposition of liquidated damages. Such imposition is in line with the 2nd para of Section 55 of the Indian Contract Act. c. The Arbitral Tribunal was correct in distinguishing the dictum of this Court in Saw Pipes (supra), which validated imposition of liquidated damages in a similar contract. d. The High Court and District Court strayed beyond the limitation under Section 34 and 37 of the Arbitration Act. e. Other aspects of the award also do not require interference of this Court, in view of the law laid down in the Project Director, National Highways No.45E and 220, National Highways Authority of India v. M. Hakeem. SLP (CIVIL) NO.13020 OF 2020. 36. Therefore, we set aside the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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