TaxTMI 
TaxTMI 
2021 (11) TMI 593
X X X X Extracts X X X X
X X X X Extracts X X X X
....r dated 27.07.2010 of the High Court of 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in accordance with the term of supply order or otherwise. 8. During the execution of contract, there were 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% (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d in fact ONGC did extend the delivery period without levying any LD. These and other stipulations in the contract are a clear indication that the time was not the essence of contract." 13. On the aspect of liquidated 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....covering any damages. Moreover, the decree in respect of cost of arbitration was upheld by the High Court. Accordingly, AO No.472 of 2005 filed by ONGC was allowed and AO No.466 of 2005 filed by Remi Metals (now Welspun) was dismissed. 19. Aggrieved 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 ext....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nite grounds. However, the ambit of the same is so diversly interpreted that in some cases, the purpose of limiting the Section 34 jurisdiction is lost. This Court's jurisprudence also shows that Section 34(2)(b) has undergone a lot of churning and continue to evolve. The purpose of Section 34 is to strike a balance between Court's appellate powers and integrity of the arbitral 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 Award....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ddition to narrower meaning given to the term 'public policy' in Renusagar case [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] it is required to be held that the award could be set aside if it is patently illegal. The result would be-award could be set aside if it is contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or 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, fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....therein or as interpreted by various Courts. We need to be cognizant of the fact that arbitral awards should not be interfered with in a casual and cavalier manner, unless the Court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of alternative interpretation which may sustain the arbitral award. Section 34 is different in its approach and cannot be equated with a normal appellate jurisdiction. The mandate under Section 34 is to respect the finality of the arbitral award and the party autonomy to get their dispute adjudicated 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a. Subject to the nature of contract, general rule is that promisor is bound to complete the obligation by the date for completion stated in the contract. [Refer to Percy Bilton Ltd. v. Greater London Council, [1982] 1 WLR 794] b. That is subject to the exception that the promisee is not entitled to liquidated damages, if by his act or omissions he has prevented the promisor from completing the work by the completion date. [Refer Holme v. Guppy, (1838) 3 M & W 387] c. These general principles may be amended by the express terms of the contract as stipulated in this case. 30. It is now settled that 'whether time is of the essence 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t exceeding the amount so named in the contract on proof of damages. However, when the terms of the contract are clear and unambiguous then its meaning is to be gathered only from the words used therein. In a case where agreement is executed by experts in the field, it would be difficult to hold that the intention of the parties was different from the language used therein. In such a case, it is for the party who contends that stipulated amount is not reasonable compensation, to prove the same. ... 64. ... 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 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 ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he aforesaid discussion, it is clear that the promisee (ONGC) waived the liquidated damages initially and the same cannot be imposed, unless such imposition was clearly accepted by parties. In this case, the interpretation of the Arbitral Tribunal could not be faulted as being perverse, for the reasons stated above. 34. Mr. Shyam Diwan, learned senior counsel, appearing on behalf of the Remi Metals, submitted that the view taken by the Arbitral Tribunal was reasonable, as the loss sustained by ONGC is given on the basis of actual loss. In this situation, the interpretation of the law and the facts provided under the award is a reasonable interpretation, which can be sustained as being a plausible view. 35. This 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....