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Issues: (i) whether the contractor was entitled to reimbursement for substituted indigenous materials under the contractual clause governing transfer from imported to indigenous supply, and whether profit and ancillary charges could be added; (ii) whether countervailing duty and customs duty arising from exchange-rate fluctuation were recoverable from the owner despite the contract placing taxes and duties on the contractor; (iii) whether liquidated damages for delay and interest on delayed funds, along with pendente lite interest, were payable.
Issue (i): whether the contractor was entitled to reimbursement for substituted indigenous materials under the contractual clause governing transfer from imported to indigenous supply, and whether profit and ancillary charges could be added.
Analysis: The contractual arrangement permitted substitution of imported items with indigenous supplies, but the Court treated the owner's own approval of the substituted items and the contemporaneous acceptance of value as reliable evidence of actual cost. At the same time, the Court held that procurement service charges, inspection and expediting charges, overheads and profit were not separately recoverable on the facts of the case. The earlier authority relied upon for adding profit was distinguished as turning on its own facts.
Conclusion: The contractor was entitled only to reimbursement on the basis of actual cost to the extent finally accepted, and not to separate profit or ancillary charges beyond that amount.
Issue (ii): whether countervailing duty and customs duty arising from exchange-rate fluctuation were recoverable from the owner despite the contract placing taxes and duties on the contractor.
Analysis: The Court read the contract as expressly making all taxes, duties and levies, including customs duty on the supply portion, the contractor's responsibility. It held that Section 64-A of the Sale of Goods Act, 1930 did not assist the contractor because the agreement showed a different intention. Section 69 of the Indian Contract Act, 1872 was held inapplicable for the same reason. On the exchange-rate claim, the contract stipulated a firm and fixed price and prohibited financial adjustment on that account, so no additional amount could be claimed merely because of currency fluctuation.
Conclusion: The claims for countervailing duty and for customs duty attributable to exchange-rate fluctuation were not recoverable from the owner.
Issue (iii): whether liquidated damages for delay and interest on delayed funds, along with pendente lite interest, were payable.
Analysis: The Court treated the delay dispute as one turning largely on factual assessment of the project delays attributable to the owner. It accepted the arbitral finding that delay had caused compensable loss and that the contractual scheme permitted compensation where the owner's omissions increased the contractor's cost. The Court also upheld the award of interest on delayed funds and the grant of pendente lite and post-award interest as a discretionary but permissible part of the relief.
Conclusion: Liquidated damages for delay and interest on delayed funds were upheld, together with pendente lite interest.
Final Conclusion: The award was modified by confining recovery to the substantiated contractual entitlements, disallowing the claims for countervailing duty and exchange-rate based customs duty, while sustaining compensation for delay and interest on delayed funds.
Ratio Decidendi: Where a commercial contract clearly allocates tax and duty liability to one party and stipulates a firm and fixed price, courts will enforce that allocation and will not permit reimbursement by invoking general statutory reimbursement provisions or currency-fluctuation claims inconsistent with the bargain.
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