TaxTMI 
TaxTMI 
2007 (8) TMI 826
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....f liquidated damages by the petitioner was not justified. 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....
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....etitioner from the last running account bill of the respondent. The total amount is Rs. 3,53,68,840/-. There is no dispute that the respondent had executed the entire work covered by the 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 withi....
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....n the execution of the principal Contract by the Claimant? 6. Whether extensions of time by the Respondent and/or Engineers India Ltd. constitute a waiver of the rights of the Respondent under the Contract? 7. Whether the Respondent suffered any 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 exec....
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.... Thus, based on the report of the EIL committee, the arbitral tribunal held that the time occupied in the execution of the project beyond 2.7.1994 was attributable to the petitioner insofar as the period of 5 months 13 days is concerned, while the respondent was responsible for delay in regard to the remaining period. 7. At this stage itself I may 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....
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....ioner to establish that it had suffered loss by reason of delay in completing the construction of the terminal under the principal contract and in completing the works covered by the two supplementary contracts. He found that the terminal could not be put to commercial use before August 1996 as the pipeline had not reached Jodhpur by that time. According to the learned arbitrator, the purpose 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 ....
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....h the scope and consequence of "suspension of work" as ordered for and on behalf of the petitioner. Clause 2.8.1.0 of GCC thereof provided that by notice in writing to the Contractor, work may be suspended at any time for such period as may be deemed fit and the contractor on receipt of such order shall forthwith suspend work or such part thereof until he has received notice/written order to proceed with the suspended work or part 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, order....
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....case that the very fact that the purchaser asked for an extension shows that time was of the essence. Where time is of the essence and is extended the extended date is also of the essence of the contract. 2) Rati Lal M. Parikh v. Dalmia Cement & Paper Marketing Co. Ltd. AIR1943Bom229 It was held that a party to a contract may, at the request of the other, forbear from insisting upon delivery at the contract time and may allow time to be extended, without binding himself to do so, or may expressly contract 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....
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....he contract was breached. 17. According to the petitioner, Therefore, the reason given by the learned arbitrator that taking of cognizance of KBPL pipeline not being ready in time was totally irrelevant. He relied upon the judgment of the Supreme Court in ONGC v. Saw Pipes [2003]3SCR691 and laid particular emphasis on the following observations therein: It is apparent from the reasoning recorded by the arbitral tribunal that it failed to consider Section 73 and 74 of the Indian Contract Act and the ratio laid down in Fateh Chand's case 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 ....
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....itioner and sought to justify the award on the basis of reasoning given by the learned arbitrator. He submitted that the award was passed by the learned arbitrator returning a finding on several key issues and not in ignorance of the contractual provisions or statutory provisions and the objections of the petitioner, Therefore, do not fall within the parameters of Section 34(2)(a)(iv) of the Act as it was not against public policy. He submitted that the learned arbitrator had dealt with the case on merits and closely scrutinized the evidence on record with respect 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 submiss....
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....apply to such like situations where the petitioner had options for terminating the contract. He submitted that the principle is best explained by reference to observations in the case of Hyanes v. Hirst A party cannot, except in a strict limited class of cases, protect himself against the legal consequences of his acts by stating that he does them without prejudice. No one, for instance, would suggest that a person could protect himself against the liability for a breach of promise of marriage by taking the precaution of making the offer without prejudice. Nor can a debtor, who gives notice that he is about to suspend 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 e....
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....pression "time and date of delivery shall be an essence of the contract". This expression does not find mention in Clause 4.4.0.0.; (ii) the purported clause for liquidated damages in ONGC's case is different in language, width and amplitude than Clause 4.4.0.0. found in the present case; (iii) the ONGC clause clearly states that it is a "genuine pre-estimate of damages duly agreed by the parties" - these words are missing in Clause 4.4.0.0.; (iv) the clause in ONGC permits recovery of liquidated damages in case of delayed supplies from the bills of the contractor. There is no such provision in Clause 4.4.0.0.; (v) the ONGC case was decided by the Arbitrator on the ground that ONGC 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 utmo....
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....fore, it was necessarily intended that the terminal should be set-up and ready to connect with the pipeline when the later reached the site of terminal. The period of 16 months fixed for setting up of the terminal at Jodhpur was on the premise that the pipeline would reach Jodhpur site by this time. Therefore, delay in setting up the terminal at Jodhpur could result in execution of the project being affected beyond Jodhpur. Therefore, setting up of the Jodhpur terminal was part of an integrated project. The learned arbitrator was, Therefore, of the opinion that following two aspects were to be kept in mind while determining this issue: (a) the provisions in the contract for extension of time had to be dealt with keeping in view the aforesaid nature of contract 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 9.5.1....
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....e would be the essence of the contract, the very factor which makes the time as essence of the contract, would also result in time ceasing to be the essence of the contract when that factor, namely, pre-condition is not fulfilled .Following observations of the arbitral tribunal in this behalf, in the impugned award, needs to be quoted: In my opinion, at the time when the parties entered into the contract it was intended that time should be of the essence of the contract and the work should be completed by 2 July 1994. However, the condition that time should be of the essence of the contract lost its validity from 9 May 1994 in view of the holdovers and the variations in the scope of work and the other factors affecting the timely completion of the works in terms of the original 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....
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....taken having regard to the facts and circumstances of each case. In the instant case, as already pointed out above, there is no specific provision in the contract that time would be the essence of the contract. It is inferred from the circumstances and those circumstances did not remain valid when the contract progressed. Further, there is no provision in the contract for grant of provisional extension. 33. No doubt, the arbitral tribunal is supposed to decide the case with reference to the contractual terms and legal position contained in the statutory provisions. However, I find that the conclusion arrived by the arbitral tribunal is not contrary to the terms of the contract or the law on the subject. As mentioned above, the view taken by the learned arbitral tribunal was a plausible one. Even if the ratio of ONGC v. Saw 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 ....
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.... as sole arbitrator was not bound to give a reasoned award and if in passing the award he makes a mistake of law or of fact, that is no ground for challenging the validity of the award. It is only when a proposition of law is stated in the award and which is the basis of the award, and that is erroneous, can the award be set aside or remitted on the ground of error of law apparent on the face of the record: Where an arbitrator makes a mistake either in law or in fact in determining the matters referred, but such mistake does not appear on the face of the award, the award is good notwithstanding the mistake, and will not be remitted or set aside. The general rule is that, as the parties choose their own arbitrator to be the Judge in the disputes between them, they cannot, when the award is good on its face, object to his decision, either upon the 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....
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....n, they were untenable. Shri Ranjit Kumar very strenuously contended that the relevant documents have been placed before the arbitrators and stated that except in regard to one station for some period, rest of the documents of the logbooks had been made available. However, as noticed by us, there were reasons set out in the logbooks or, as noticed earlier, those reasons, in the opinion of the arbitrators, were either not relevant or where they were relevant, they were untenable. Therefore, the view taken by the arbitrators cannot be characterised as not emanating from the agreement and falls squarely within the excepted part of the proviso to Clause 1 of the agreement. When the arbitrators have applied their mind to the pleadings, the evidence adduced before them and the terms of the contract, we do not think, it is within our scope to reappraise the matter as if this were an appeal, and it is clear 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 peti....
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....ned by the following two considerations because of which he held that the action of the petitioner in imposing the liquidated damages was illegal and unjustified: (a) even if at the time of entering into the contract period of 16 months for completion, as stipulated therein, was intended to be the essence of the contract. The period was fixed keeping in view that the terminal at Jodhpur is ready by the time pipeline reaches the said terminal. Therefore, while granting the extensions, the petitioner kept in mind that the pipeline had not reached Jodhpur and, thus, even if the terminal is ready, it could not be put to any use. Thus, due to delay in reaching the pipeline at Jodhpur, the period of 16 months stipulated in the contract lost its significance inasmuch as setting up of Jodhpur terminal was part of an integrated project; and (b) in any case, due to the delay on the part of the respondent in constructing and commissioning 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....
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....lty stipulated. 40. The Court also observed: The Court has to adjudge in every case reasonable compensation to which the plaintiff is entitled from the defendant on breach of the contract. Such compensation has to be ascertained having regard to the conditions existing on the date of breach. And later: The measure of damages in the case of breach of a stipulation by way of a penalty is by Section 74 reasonable compensation not exceeding the penalty stipulated for. In assessing damages the Court has, subject to the limit of the penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard to all the circumstances. Jurisdiction of the Court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated; but compensation has to be reasonable, and imposes upon the Court a duty to award compensation according to settled principles. 41. It is clear from the above that Section 74 does not confer 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 reason....
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....and also to emphasize that reasonable compensation can be granted even in a case where extent of actual loss or damage is incapable of proof or not proved. That is why Section 74 deliberately states that what is to be awarded is reasonable compensation. In a case when the party complaining of breach of the contract has not suffered legal injury in the sense of sustaining loss or damage, there is nothing to compensate him for; there is nothing to recompense, satisfy, or make amends. Therefore, he will not be entitled to compensation See State of Kerala v. United Shippers and Dredgers Ltd. AIR1982Ker281 . Even in Fateh Chand (supra) the Apex Court observed in no uncertain terms that when the section says that an aggrieved party is entitled to compensation whether actual damage is proved to have been caused by the breach or not, it merely dispenses with the proof of 'actual loss or damage'. It does not justify the award of compensation whether a legal injury has resulted in consequence 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 l....