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TMI Blog2007 (8) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... stified. The present petition is filed by the petitioner challenging this award. The question, as is clear from the above, is about the competence of the petitioner to recover the liquidated damages and scope of this petition is to consider as to whether the impugned award deciding this question is liable to be interfered with in exercise of this Court's jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, the 'Act'). 2. To appreciate the controversy, we may note the facts in some more detail. The petitioner, Indian Oil Corporation, had awarded to the respondent the contract of designing, detailed engineering, procurement, supply, fabrication, erection, testing and commissioning of Petroleum Product Terminal Depots along the Kandla-Bhatinda Pipe Line (hereinafter referred to as 'KBPL') at Jodhpur. The respondent also participated in the tender process and was awarded the contract, being the successful tenderer. Three contracts were executed with the respondent namely: (i) Main contract for design, detailed engineering, procurement, supply, fabrication, erection, testing and commissioning of KBPL Depot of IOC at Jodhput. The key ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid contracts to the complete satisfaction of the petitioner herein. There were no defects in performance of the contract. The respondent had given performance bank guarantees after the award of the work. These bank guarantees were also discharged by the petitioner progressively. However, only on the allegation that there was a delay in execution of the work, liquidated damages were imposed and recovered. There is also no dispute that completion of the contract was delayed beyond the stipulated period. However, according to the respondent delay was attributed to the petitioner. Its case was that there was an admitted delay in KBPL reaching Jodhpur/Salawas. Consequently, there was delay in commissioning the marketing/storage terminal at Jodhpur/Salawas and the petitioner, during the course of execution of the contract, awarded two supplementary contracts - one pertaining to drinking water system and other relating to internal painting system of the tanks. These contracts were executed within 41/2 months and 2 months respectively from the respective date of Telex of intent. It was also the case of the respondent that in the course of execution of the main contract there were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... injury or wrong justifying the imposition of liquidated damages, and in any event whether the liquidated damages imposed by the Respondent were reasonable? 8. Whether the Claimant is entitled to interest by reason of the delay, if any, in clearing the running account bills, and if so, whether the claim to such interest is covered within the scope of this arbitration? 9. Whether the Respondent was entitled to retain monies after the completion of the Contract? 10. Whether the Respondent is obliged to refund the monies retained by it after completion of the Contract, and whether the Claimant is entitled to refund of those monies along with interest as claimed by it? 11. To what relief, if any, is the Claimant entitled? 12. Whether the Counter-claim filed by the Respondent is barred by limitation? 13. Whether the Respondent suffered any loss on account of the delay in execution of the Contract by reason of its own conduct vis-a-vis the Claimant? 14. If it is found that the delay in execution of the Contract is attributable to the Claimant, whether the losses claimed in the Counter-claim by the Respondent can be said to have had direct or immediate proximity with such delay in the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay point out that Issue Nos. 4 5 are decided against the respondent i.e. the finding recorded is that the respondent was not coerced by the petitioner to enter into two supplementary contracts and further that execution of these contracts was not responsible for delay as these contracts are to be treated independently to the principal contract and there was no material to indicate that progress in construction of terminal was impeded by the execution of two supplementary contracts. Therefore, we have to proceed on the basis of findings on Issue No. 2 as per which delay is attributable partly to the petitioner and partly to the respondent and further that the respondent is not entitled to plead delay because of the execution of the two supplementary contracts. 8. This issue as to whether time remained as essence of the contract or not was the real bone of contention before the learned arbitrator as well as before me. The arbitrator has held that at the time of entering into the contract, the intention of the parties was that time should be the essence of the contract, but it did not remain so in view of successive extensions given by the petitioner and, Therefore, the clause relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose for which the construction of terminal was intended under the principal contract was to implement the KBPL project and, Therefore, the date on which commercial use of the terminal is possible would be relevant. Since the terminal at Jodhpur, covered by the contract, had been constructed and commissioned by 31.3.1996 and it was put to commercial use much beyond that, i.e. in August 1996, it could not be said that by reason of delay the petitioner had suffered any loss. I may point out at this stage that while deciding Issue No. 6, the learned arbitrator, otherwise, held that since on each occasion when the time was extended, there was a clear stipulation that extension was subject to the petitioner's rights under the contract and the petitioner had not waived its right to impose damages under Clause 4.4.0.0. 11. In view of the aforesaid findings, the learned arbitrator opined that it was not permissible for the petitioner to retain the amount and instead the petitioner was obliged to refund the monies retained by it and, Therefore, the respondent was entitled to the amount along with interest @ 18% p.a. This finding was recorded while deciding Issue No. 10. 12. The counter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art thereof. Clause 2.8.2.0. of GCC mandated that for such suspension, the contractor shall not be entitled to claim any compensation. Clause 2.8.3.0. of GCC mandated that unless the suspension is by reason of default or failure on the part of the contractor himself, if in the opinion of the contractor such suspension shall necessitate any extension in the time of completion, the provisions of Clause 4.3.5.0. and related clauses in respect of the extension of time shall apply. Variations Clause 2.4.0.0. of the GCC vested with the Engineer-in-Charge and/or Site Engineer the power to by written notice at any time prior or in the course of the execution of the work alter or amend designs, plans, drawings, specifications, orders and instructions and made it obligatory on the contractor to carry out the work or related work in accordance with such altered specifications, alterations, instructions etc. Under Clause 2.5.0.0. of the GCC the petitioner could at any time before or after the commencement of the work:- (i) alter the scope of the work by increasing or reducing the jobs required to be done; (ii) add thereto or omit there from any specific job; or (iii) substitute existing job wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract for an extension of time and that he may claim damages for non-performance at the extended time. 3) Mahabir Prasad v. Durga Dutta [1961]3SCR639 The Supreme Court held that in commercial transactions time was ordinarily of the essence. 15. Learned Counsel for the petitioner referred to various correspondence and communications exchanged between the parties, as per which the respondent was put to notice time and again not to neglect the work and complete the same, but the respondent failed to heed to those requests. Learned Counsel further submitted that not only the aforesaid terms of the contract were ignored by the learned arbitrator, but also the relevant provisions of the Indian Contract Act, in particular Sections 55 74 of the said Act. He submitted that under Section 55 of the Contract Act where time is of the essence and that condition is breached, albeit the contract becomes 'voidable'. However, if performance of the contract is accepted at any time other than that agreed and the acceptance with notice of the right to claim compensation for such delayed performance, then all rights to claim damages, including liquidated damages, is fully saved. He further poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e wherein it is specifically held that jurisdiction of the Court to award compensation in case of breach of contract is unqualified except as to maximum stipulated; and compensation has to be reasonable. Under Section 73, when a contract has been broken the party who suffers by such breach is entitled to receive compensation for any loss caused to him which the parties 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 alias (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 the 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 reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to the aspect of delay, time being the essence, attributability and quantum of damages as well as with respect to interpretation of Clause 4.4.0.0. and, Therefore, the award cannot be set aside unless it is a case of complete perversity or a case of no evidence. Re-appreciation of evidence, as held by the Apex Court, is not permissible. In support, he referred to the judgment in Arosan Enterprises Ltd. v. Union of India ( AIR1999SC3804 . He insisted that time was not of the essence of the contract even in view of the terms thereof as the contract by itself does not speak of time being the essence. His alternate submission was that in any case during the execution of the contract it did not remain so in view of the following factors: (a) Hold on activities - The first hold between 19.5.1994 to 29.10.2004. The second hold between 29.11.1994 to 2.5.1995. (b) Addition and deletion of work without factoring in time for mobilization and demobilization. Work amounting to Rs. 1.29 crores was added by work amounting to Rs. 84 lacs was deleted. (c) Discharge of unconditional Bank Guarantees both during the execution of the contract as well as during the arbitration proceedings. (d) Award ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of his debts, protect himself against the consequence flowing from the commission of this act of bankruptcy, by giving such notice 'without prejudice'. Nor, in my view, could a person, having a right to sue either in tort or in contract in respect of a claim arising out of the one transaction, preserve his right to sue in tort after suing in contract, by prefacing his declaration by the averment that he sued in contract by reason of a defect in title, or of keeping it alive for the benefit of the other party as well as his own, cannot, while electing to treat the contract as subsisting and requiring the vendor to remove the objection and to alter his position to his detriment in attempting to do so, avoid the consequence flowing from this exercise of his election by language a man can only elect once, and when once he has elected he is bound by his election and cannot again avail himself of his former option, merely because he claimed in the first instance to exercise his election without prejudice. A man, having eaten his cake, does not still have it, even though he professed to eat it without prejudice. 22. Learned Counsel for the respondent further submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NGC had failed to discharge its onus with regard to sufferance of injury and loss on account of delay. See ONGC v. Saw Pipe [2003]3SCR691 , para 34, page 729. In the present case, the Hon'ble Arbitrator has returned a finding of fact that no injury has been suffered by IOCL and has not in contrast come to the said conclusion based on the failure to discharge onus with respect to injury as was the case in the ONGC decision. CONCLUSION: 24. I have given my utmost consideration to the submission of both the parties in the light of the documents and material, which was referred to at the time of arguments. My conclusion is that no case is made out by the petitioner to interfere with the impugned award on merits except the award of interest, which is granted at the rate of 18% per annum. My reasons for arriving at this conclusion are the following: REASONS: 25. As already taken note of above, the learned arbitrator has arrived at the findings that the delay in execution of the project is attributable to both the parties. The petitioner is held responsible for 5 months 13 days delay and for remaining period of delay, blame has come on the respondent. This aspect of the findings was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract in question, namely, Jodhpur terminal was part of an integrated project; and (b) though contract contains a provision for payment of damages in the event of delay, Clause 4.4.2.0. provided right of the owner to terminate the contract. 28. The learned arbitrator found that before the expiry of the stipulated period of contract, EIL had directed the respondent to put certain activities on hold between 9.5.1994 to 29.10.1994 and from 29.11.1994 to 5.1.1995. He was of the view that these 'holding over' resulted in affecting the time for completion of the entire works under the contract even though the petitioner had pleaded that the 'hold-over' were of a minor nature. There were certain variations ordered by the petitioner as well, by way of additions and deletions, in the original scope of work. Admittedly, when the respondent had applied for extension, the petitioner had granted successive extensions of time and the last extension was up to 31.3.1994, before which date the contract was executed. According to the learned arbitrator, in view of these extensions the condition that time should be the essence of the contract lost its validity. 29. I do not agree wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l intention. Apparently, there was significant delay in the laying of the pipeline in its progress towards Jodhpur, and the urgency felt at the time of entering into the contract and stipulating that it should be completed within sixteen months lost its importance. It seems to me that what remained within the contemplation of IOC when directing the holdovers and variations in the scope of the works as well as in granting successive extensions was that the terminal should be ready in time to receive the pipeline when it reached Jodhpur, whenever that might be. I have no doubt that IOC kept in mind the progress of the laying of the pipeline towards Jodhpur when it considered the several proceedings affecting the enlargement of time taken either by itself or at the instance of LSI. 30. It is clear from the above that the arbitral tribunal was influenced by the following factors in reaching this conclusion: (a) with the direction to keep certain activities on hold and variations in the scope of work and other factors affecting the timely completion of works, the original intention that time should remain the essence no longer remained; (b) the purpose of fixing the time limit of 16 mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pipes (supra) case is stretched to its maximum limits, it was not the intention of the Apex Court to hold that Court should sit as appellate authorities over the view taken by the arbitral tribunal in the award; re-appreciate the entire evidence and exercise the powers of the appellate court. If the contention of the petitioner is accepted, it would amount to converting this Court into appellate court and exercising the powers which are exercised by the appellate court under Section 107 read with Order 41 CPC while scrutinizing the judgment of the trial court. There was no such intention of the legislature to give such powers to the courts while exercising its jurisdiction under Section 34 of the Arbitration and Conciliation Act, nor the Supreme Court in ONGC v. Saw Pipes (supra) stretched the legal position to those limits. In Arosan Enterprises. v. UOI (supra), this aspect is succinctly dealt with by the Supreme Court in the following words: 38. It is on the basis of this well-settled proposition that the learned Single Judge came to a conclusion that the findings of the arbitrators in regard to the extension of delivery period and failure to fix the fresh date has resulted in br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e law or the facts. (See Russell on Arbitration, 17th Edn., p.322). 13. An error of law on the face of the award means that you can find in the award or a document actually incorporated thereto, as, for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can they say is erroneous see Lord Dunedin in Champsey Bhara Co. v. Jivraj Baloo Spg. Wvg. Co. Ltd. 7. In Union of India v. Bungo Steel Furniture (P) Ltd. 8 this Court adopted the proposition laid down by the Privy Council and applied it. The Court has no jurisdiction to investigate into the merits of the case and to examine the documentary and oral evidence on the record for the purpose of finding out, whether or not the arbitrator has committed an error of law. 39. In any event, the issues raised in the matter on merits relate to default, time being the essence, quantum of damages these are all issues of fact, and the arbitrators are within their jurisdiction to decide the issue as they deem it fit the courts have no right or authority to interdict an award on a factual issue and it is on this score the appellate court has gone tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that where two views are possible - in this case there is no such scope - the view taken by the arbitrators would prevail. 35. In so far as imposition of liquidated damages is concerned, the discussion is predicated on the issue as to whether any loss is suffered by the petitioner or not. Learned Counsel for the petitioner does not dispute that the construction of terminal at Jodhpur was to be treated as integral part of the entire project, i.e. pipeline project for transferring petroleum products from Kandla to Bhatinda. He also could not dispute that the pipeline had not reached Jodhpur by the original date stipulated for completion of terminal at Jodhpur or extended date. It also could not be disputed that terminal at Jodhpur had been constructed and commissioned by the respondent much before the pipeline reached Jodhpur. In fact, because of delay in the pipeline reaching Jodhpur terminal, this terminal was put to commercial use in August, 1996, whereas the terminal at Jodhpur was commissioned by 31.3.1996. Therefore, because of delay on the part of the respondent the petitioner had not suffered any loss. 36. The niceties of this aspect are pointed out by the learned arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the terminal, no loss had been suffered by the petitioner as the terminal could not be put to commercial use before August 1996 and much before that the respondent had successfully commissioned the terminal. 38. Notwithstanding the above, the petitioner still wants damages to be recovered from the respondent on the spacious plea that liquidated damages mentioned in the contract are pre-determined damages and, Therefore, in view of provisions of Section 74 of the Indian Contract Act, the petitioner was entitled to these damages and it was necessary for the petitioner to prove these damages. The legal position, as explained by the Supreme Court in ONGC v. Saw Pipes (supra), which has already explained above, is not in doubt. However, it is only when there is a loss suffered and once that is proved, it is not for the arbitrator or the Court to examine the actual extent of the loss suffered once there is a pre-estimation thereof. Moreover, the compensation, as stipulated in the contract, has to be reasonable. In a particular case where the defaulting party is able to demonstrate that delay/default has not resulted in any loss being suffered by the other party, then that party cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfer a special benefit upon any party, like the petitioner in this case. In a particular case where there is a clause of liquidated damages the Court will award to the party aggrieved only reasonable compensation which would not exceed an amount of liquidated damages stipulated in the contract. It would not, however, follow there from that even when no loss is suffered, the amount stipulated as liquidated damages is to be awarded. Such a clause would operate when loss is suffered but it may normally be difficult to estimate the damages and, Therefore, the genesis of providing such a clause is that the damages are pre-estimated. Thus, discretion of the Court in the matter of reducing the amount of damages agreed upon is left unqualified by any specific limitation. The guiding principle is 'reasonable compensation'. In order to see what would be the reasonable compensation in a given case, the Court can adjudge the said compensation in that case. For this purpose, as held in Fateh Chand (supra) it is the duty of the Court to award compensation according to settled principles. Settled principles warrant not to award a compensation where no loss is suffered, as one cannot compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the breach, because compensation is awarded to make good the loss or damage which naturally arose in the usual course of things, or which the parties knew when they made the contract, to be likely to result from the breach. If liquidated damages are awarded to the petitioner even when the petitioner has not suffered any loss, it would amount to 'unjust enrichment', which cannot be countenanced and has to be eschewed. 42. It is too preposterous on the part of the petitioner to submit that it should get the liquidated damages stipulated in the contract even when no loss is suffered. RE.: COUNTER CLAIM OF THE PETITIONER 43. The petitioner has preferred counter claim on account of alleged losses on following counts: a) loss of interest due to blockage of funds; b) loss of interest on investment due to delay in completion of project of KBPL Top, Salawas (Jodhpur). c) loss of expenditure incurred in encroachment of man power during delay of 21 months. d) loss of payment made to Rajasthan State Electricity Board for electricity consumption. 44. When it is found that the learned arbitrator was right in holding that the purported delay has not resulted in any loss to the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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