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Friday, September 19, 2014

Arbitration - Tenders for supply of Nessie 4 streamers equipped with “Geopoint” Hydrophones of U.S. origin - USA not granted licence - conditions imposed for the replacement - the right to recover liquidated damages as per Clause 16 and for excess engagement of vessel as per Clause 14 of the subject contract. -deducted from its dues a sum of US $ 5,114,300.98 towards excess engagement charges in terms of Clause 14 of the contract. -further deducted a sum of US $ 410,641.20 based on a change in tax law applicable at 4.8% followed by a deduction of a sum of US $ 80,530.10 based on correction for price charges inclusive of income tax at 4.8%.- arbitration dispute - Single judge dismissed the claim - Division bench modified the award - Apex court held that In the result, we allow this appeal but only to the extent that out of the period of 4 months and 22 days which the arbitrators have attributed to the appellant-Corporation a period of 56 days comprising 42 days of the first interval and 14 days of the second referred to in the judgment shall be reduced. Resultantly, deductions made by the appellant-Corporation for the said period of 56 days shall stand affirmed and the award made by the arbitrators modified to that extent with a proportionate reduction in the amount payable to the respondent. No costs.= CIVIL APPEAL NO.3415 OF 2007 Oil & Natural Gas Corporation Ltd. …Appellant Versus Western Geco international Ltd. …Respondent = 2014 - Sept. Part - http://judis.nic.in/supremecourt/filename=41878

 Arbitration - Tenders for supply of Nessie  4  streamers equipped with “Geopoint” Hydrophones of U.S. origin - USA not granted licence - conditions  imposed  for  the  replacement  - the right to recover  liquidated  damages  as  per Clause 16 and for excess engagement of  vessel  as  per  Clause  14  of  the subject contract. -deducted from its dues a sum  of US $ 5,114,300.98 towards excess engagement charges in terms  of  Clause  14 of the contract.  -further deducted a sum of US $ 410,641.20 based on a  change  in tax law applicable at 4.8% followed  by  a  deduction  of  a  sum  of  US  $ 80,530.10 based on correction for price charges inclusive of income  tax  at 4.8%.- arbitration dispute - Single judge dismissed the claim - Division bench modified the award - Apex court held that  In the result, we allow this appeal but only to the  extent  that  out of the period of 4 months and 22 days which the arbitrators have  attributed to the appellant-Corporation a period of 56 days comprising 42 days  of  the first interval and 14 days of the second referred to in the  judgment  shall be reduced. Resultantly, deductions made by the  appellant-Corporation  for the said period of 56 days shall stand affirmed and the award  made  by  the arbitrators modified to that extent with a proportionate  reduction  in  the amount payable to the respondent.  No costs.=

whereby  OSA
No.24 of 2006 filed by the appellant-Corporation  has  been  partly  allowed
and the order passed by a single bench of  the  High  Court  in  Arbitration
Petition No.203 of  2005  affirmed  with  the  modification  that  award  of
pendente lite and future interest  by  the  Arbitral  Tribunal  shall  stand
deleted. =

 In  response  to  the  tender  notice  respondent-M/s  Western   Geco
International Ltd., submitted a bid offering to supply  Nessie  4  streamers
equipped with “Geopoint” Hydrophones of U.S. origin. =
A formal contract was in due course executed between  the  parties  on
18th June, 2001.=
Respondent’s further  case  is  that  its
source in US had informed it that the US  authorities  were  not  likely  to
grant a licence to sell hydrophones to India.=
 The respondent informed the appellant-Corporation  that  if
the  Corporation  accepted  the  replacement,  those  hydrophones  could  be
substituted for the US hydrophones within a short time.

6.    The appellant-Corporation  was,  however,  in  no  mood  to  accept  a
substitute for the contracted hydrophones.  It was on the contrary  keen  to
have US made hydrophones fitted on the vessel. 
 The Corporation,  therefore,
required the respondent to continue its efforts to  secure  a  licence  from
the US Government in which direction the appellant-Corporation  on  its  own
moved the concerned Ministry in Government of India  to  secure  a  licence.=

It was only on 23rd March,  2002  that  the  respondent  conditionally
agreed to the proposed replacement of the US made hydrophones by those  made
in Canada.
One  of  the  conditions  imposed  for  the  replacement  by  the
appellant-Corporation was the right to recover  liquidated  damages  as  per
Clause 16 and for excess engagement of  vessel  as  per  Clause  14  of  the
subject contract. 
The replacement accordingly  took  place  and  the  Vessel
eventually delivered back to the Corporation with  Canadian  hydrophones  on
6th May, 2002. On 24th May, 2002, a formal amendment  to  the  contract  was
also effected to record the substitution of  the  US  hydrophones  by  those
made in Canada.=

With the upgradation and  modernisation  work  completed  as  per  the
amended contract, the respondent raised invoices for payment due to  it  but
realised that the appellant-Corporation had deducted from its dues a sum  of
US $ 5,114,300.98 towards excess engagement charges in terms  of  Clause  14
of the contract.
By another letter dated 20th August, 2002, the  appellant-
Corporation further deducted a sum of US $ 410,641.20 based on a  change  in
tax law applicable at 4.8% followed  by  a  deduction  of  a  sum  of  US  $
80,530.10 based on correction for price charges inclusive of income  tax  at
4.8%.
These deductions  gave  rise  to  disputes  which  were  referred  for
adjudication to an arbitral tribunal comprising three former Chief  Justices
of India before whom the respondent claimed  a  sum  of  US  $  7,327,610.68
towards principal dues plus US $1,205,564.13 by  way  of  interest  for  the
period from 20th  August,  2003  to  15th  November,  2003  totalling  US  $
8,533,174,81 with interest pendent lite at 12% p.a. from  the  date  of  the
filing of the claim till the award at the same rate. =

Was the national origin of hydrophones used in  the  Nessie-4  streamers,  a
material term of the contact between the parties?
=
Issue  No.  1  was
answered in the negative holding that since the choice  of  the  hydrophones
was left to the bidders subject to the equipment meeting the  specifications
prescribed for the purpose and since the stipulations did not  indicate  the
make or the country of origin of the hydrophones,  the  national  origin  of
such hydrophones was not  a  material  term  of  the  contract  between  the
parties.
Was the respondent justified  in  refusing  to  allow  substitution  of  the
Canadian M-2 hydrophones for the US Geopoint hydrophones?
=
Issue  No.  2  was,  however,  answered  by  the  Tribunal   in   the
affirmative, who took the view that once the respondent had made the  choice
and contracted to  supply  hydrophones  made  in  the  U.S.  the  appellant-
Corporation  was  entitled  to  insist  on  the  supply  of  the  contracted
equipment.
Was the claimant’s declaration of force majeure justified  under  the  terms
of the contract?
=
The arbitral  tribunal
decided Issue No.3 against the respondent holding that none  of  the  events
mentioned in the contract had taken place  and  since  the  parties  to  the
contract did not belong to U.S.,  the force majeure clause  could  not  have
been validly invoked by the respondent.
Whether there was any delay in the performance of the contact?

If the answer to point No.4 is in the affirmative, who  is  responsible  for
such delay?

If the answer to point No.4 is in the affirmative, whether the  Claimant  is
entitled to damages?

Whether the respondent was entitled to adjust the sum of US  $  491,000  out
of the sum payable, in whole or in part,  as  alleged  in  para  30  of  the
statement?

Is respondent entitled to both  Liquidated  Damages  and  Excess  Engagement
charges for the same periods of time under the provisions of the Contract? =

Before  the  Division
Bench, a three-fold  submission  was  urged  on  behalf  of  the  appellant-
Corporation.  
Firstly, it was contended that  the  Tribunal  had  fallen  in
error in holding that the delay between 14th September 2001 and  21st  March
2002 was not attributable to  the  respondent  company.   
Secondly,  it  was
contended that the Arbitral Tribunal was  not  right  in  holding  that  the
deductions made by the appellant towards taxes was not legally  permissible.
 Thirdly it was contended that the award by the Arbitral  Tribunal  for  the
pendente lite and future interest was not  justified.   
While  the  Division
Bench rejected the first two contentions  the  respondent  appears  to  have
made a statement before the High Court waiving pendente  lite  interest  and
agreeing to the modification of the award to that extent.  
 The  High  Court
held that the Arbitral Tribunal’s findings to  the  effect  that  the  delay
between 16th October  and  21st  March  2002  is  not  attributable  to  the
respondent, was based on the consideration of  the  material  placed  before
the Arbitral Tribunal which called for no interference. 
 So also  deductions
towards payment  of  taxes  were,  according  to  the  High  Court,  rightly
disallowed by the Arbitrators.=

  What is important in the context of the case at hand is that
 if
on facts proved before them the arbitrators fail to draw an inference  which
ought to have been drawn
or if they have drawn an inference which is on  the
face of it, untenable resulting in miscarriage of justice, the  adjudication
even when made by an arbitral tribunal  that  enjoys  considerable  latitude
and play at the joints in making awards will be open to  challenge  and  may
be cast away or modified depending upon whether the offending part is or  is
not severable from the rest.

31.   Inasmuch as the arbitrators clubbed the  entire  period  between  16th
October, 2001 and 21st March, 2002 for purposes of  holding  the  appellant-
Corporation responsible for the delay, they committed an error resulting  in
miscarriage of justice apart from the fact that they  failed  to  appreciate
and draw inferences that logically flow from such  proved  facts.
We  have,
therefore, no hesitation in rejecting the contention urged on behalf of  the
respondent that the  arbitral  award  should  not  despite  the  infirmities
pointed out by us be disturbed.

32.   That brings us to the last submission that  deduction  on  account  of
taxes  not  paid  should  have  been  allowed  by  the   respondent-arbitral
tribunal.
The Tribunal has, in our opinion, correctly held that no  part  of
the work was undertaken outside Singapore which was  to  be  executed  on  a
turnkey basis for a price that was pre-determined.
The arbitrators have,  in
our opinion, rightly held that  no  taxes  were  payable  under  the  Indian
Income tax Act so as to entitle the Corporation  to  deduct  any  amount  on
that account by reason of non-payment of such taxes.
The  challenge  to  the
award to that extent must fail and is, hereby, rejected.

33.   In the result, we allow this appeal
but only to the  extent  that  out
of the period of 4 months and 22 days which the arbitrators have  attributed
to the appellant-Corporation a period of 56 days comprising 42 days  of  the
first interval and 14 days of the second referred to in the  judgment  shall
be reduced.
Resultantly, deductions made by the  appellant-Corporation  for
the said period of 56 days shall stand affirmed and the award  made  by  the
arbitrators modified to that extent with a proportionate  reduction  in  the
amount payable to the respondent.  No costs.


     2014 - Sept. Part - http://judis.nic.in/supremecourt/filename=41878   
                                        REPORTABLE

                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                        CIVIL APPEAL NO.3415 OF 2007

Oil & Natural Gas Corporation Ltd.                 …Appellant

Versus

Western Geco international Ltd.              …Respondent

                               J U D G M E N T


T.S. THAKUR, J.

1.    This appeal arises out of an order dated 10th  February,  2006  passed
by a Division Bench of the High Court of Judicature at  Bombay  whereby  OSA
No.24 of 2006 filed by the appellant-Corporation  has  been  partly  allowed
and the order passed by a single bench of  the  High  Court  in  Arbitration
Petition No.203 of  2005  affirmed  with  the  modification  that  award  of
pendente lite and future interest  by  the  Arbitral  Tribunal  shall  stand
deleted.

2.    The appellant-Corporation is engaged in the business of  drilling  and
exploration of oil and natural gases.   In  November,  1999,  the  appellant
invited offers for technical upgradation  of  Seismic  Survey  Vessel,  M.V.
Sagar Sandhani (hereinafter referred to as the  “Vessel”)  with  a  view  to
modernising the same. According to the tender conditions, one  of  the  main
items of equipment required for upgradation of the  Vessel  was  “Streamers”
fitted with hydrophones. The specifications, however, did not stipulate  the
national origin of such hydrophones.



3.     In  response  to  the  tender  notice  respondent-M/s  Western   Geco
International Ltd., submitted a bid offering to supply  Nessie  4  streamers
equipped with “Geopoint” Hydrophones of U.S. origin.  The  appellant’s  case
is that the term relating to supply of such Geopoint  Hydrophones  formed  a
material part of the offer made by the respondent-company  in  whose  favour
the appellant-Corporation eventually awarded a  contract  in  terms  of  its
letter dated 10th October, 2000 duly accepted  by  the  respondent  on  25th
October, 2000.  The Vessel was resultantly handed over to the respondent  on
10th April, 2001 for carrying on the proposed modernisation and  upgradation
work. A formal contract was in due course executed between  the  parties  on
18th June, 2001.



4.    It is common ground that “Geopoint” Hydrophones of  U.S.  origin  were
in terms of the contract fitted in the vessel and test trials  of  the  same
conducted. Even so the vessel could not be delivered back to  the  appellant
on 9th July, 2001, the due date for that purpose, because  of  some  problem
which  the  respondent  encountered  in  obtaining  licence  from  the  U.S.
authorities for sale of such hydrophones. The appellant-Corporation  asserts
that the respondent had for the first time made an application to  the  U.S.
authorities for issuance of a licence as late as on 1st  August,  2001  i.e.
nearly a month after the due date for delivery of the  vessel  back  to  the
Corporation. No formal rejection of the request for a license was  according
to the Corporation communicated to it as the matter  appeared  to  be  under
some kind of negotiations between the  respondent  and  the  authorities  in
U.S.

5.    The respondent’s case per contra is that it continued its  efforts  to
obtain a licence only to be informed by its  sources  in  the  US  that  the
latter was likely to impose certain onerous conditions one  of  which  could
be that US made hydrophones can be used only on loan basis that  too  for  a
short duration of 24 months only.  Respondent’s further  case  is  that  its
source in US had informed it that the US  authorities  were  not  likely  to
grant a licence to sell hydrophones to India.  Be that as it may  while  the
matter was pending with the Defence Department, a massive  terrorist  attack
on 11th September, 2001 shook America. The respondent’s hope  of  getting  a
licence  for  sale  of  US  made  hydrophones  receded  further  with   this
unexpected development. The respondent accordingly informed  the  appellant-
Corporation about  the  new  development  and  pleading  force  majeure  the
respondent informed the appellant-Corporation of the former’s  inability  to
equip the vessel  with  U.S.  made  hydrophones.  The  appellant-Corporation
refuted  the  invocation  of  force  Majeure  by  its  letter   dated   20th
September, 2001 and informed the respondent that since the field season  was
starting shortly any further delay in  the  delivery  of  the  vessel  would
adversely affect its operation. The respondent on its part  started  looking
for and offering alternatives to the U.S. made hydrophones and  argued  with
the appellant-Corporation that since  origin  of  the  hydrophones  was  not
indicated in the bid documents it was testing  replacement  by  M-2  US  Geo
Spectrum Hydrophones made in Canada at its Norway facilities to check  their
suitability  which  exercise  the  respondent  hoped  to  complete  by  27th
September, 2001. The respondent informed the appellant-Corporation  that  if
the  Corporation  accepted  the  replacement,  those  hydrophones  could  be
substituted for the US hydrophones within a short time.



6.    The appellant-Corporation  was,  however,  in  no  mood  to  accept  a
substitute for the contracted hydrophones.  It was on the contrary  keen  to
have US made hydrophones fitted on the vessel.  The Corporation,  therefore,
required the respondent to continue its efforts to  secure  a  licence  from
the US Government in which direction the appellant-Corporation  on  its  own
moved the concerned Ministry in Government of India  to  secure  a  licence.
Further  information  and  details  in  respect  of  the  proposed  Canadian
hydrophones was all  the  same  called  for  by  the  Corporation  from  the
respondent. Since,  however,  the  efforts  to  secure  a  licence  from  US
Government were making no progress, the respondent sought  approval  of  the
appellant-Corporation to remove the  US  hydrophones  from  the  vessel  and
transfer  them  to  their  repair  facility  in  Singapore   to   facilitate
replacement by the Canadian made hydrophones. The respondent  also  wrote  a
detailed letter  dated  10th  October,  2001  to  the  appellant-Corporation
informing the latter that the US  government  was  not  likely  to  grant  a
licence and that it had withdrawn the application made for that  purpose  to
prevent a denial. What is important is that by letter  dated  16th  October,
2001 the respondent clearly stated that it was not in a position to  deliver
the vessel with streamers containing the Geopoint Hydrophones  of  US  make.
This letter was followed by letter dated 21st  October,  2001  addressed  to
the  appellant-Corporation  with  a  request  to  permit   removal   of   US
hydrophones  and  replacement  of  Canadian  hydrophones  which   had   been
extensively tested 1999 in connection with supply of Seismic  Survey  Vessel
delivered to NOIC for the Iran project.   Further  information  required  by
the appellant-Corporation was also supplied by the respondent by its  letter
dated 24th October, 2001 with a request to the Corporation  to  approve  the
proposed  replacement.  The  respondent  also  agreed  to  give   additional
warranty of one year for the replaced hydrophones. By another  letter  dated
13th November, 2001 the respondent assured  the  appellant-Corporation  that
if the  latter  agreed  to  the  replacement  proposal  there  would  be  no
financial implications and  the  additional  cost  involved  in  fixing  the
Canadian hydrophones would also be borne by the respondent.



7.    It was only on 23rd March,  2002  that  the  respondent  conditionally
agreed to the proposed replacement of the US made hydrophones by those  made
in Canada. One  of  the  conditions  imposed  for  the  replacement  by  the
appellant-Corporation was the right to recover  liquidated  damages  as  per
Clause 16 and for excess engagement of  vessel  as  per  Clause  14  of  the
subject contract. The replacement accordingly  took  place  and  the  Vessel
eventually delivered back to the Corporation with  Canadian  hydrophones  on
6th May, 2002. On 24th May, 2002, a formal amendment  to  the  contract  was
also effected to record the substitution of  the  US  hydrophones  by  those
made in Canada.



8.    With the upgradation and  modernisation  work  completed  as  per  the
amended contract, the respondent raised invoices for payment due to  it  but
realised that the appellant-Corporation had deducted from its dues a sum  of
US $ 5,114,300.98 towards excess engagement charges in terms  of  Clause  14
of the contract.  By another letter dated 20th August, 2002, the  appellant-
Corporation further deducted a sum of US $ 410,641.20 based on a  change  in
tax law applicable at 4.8% followed  by  a  deduction  of  a  sum  of  US  $
80,530.10 based on correction for price charges inclusive of income  tax  at
4.8%. These deductions  gave  rise  to  disputes  which  were  referred  for
adjudication to an arbitral tribunal comprising three former Chief  Justices
of India before whom the respondent claimed  a  sum  of  US  $  7,327,610.68
towards principal dues plus US $1,205,564.13 by  way  of  interest  for  the
period from 20th  August,  2003  to  15th  November,  2003  totalling  US  $
8,533,174,81 with interest pendent lite at 12% p.a. from  the  date  of  the
filing of the claim till the award at the same rate.



9.    The appellant-Corporation stoutly contested the claim made against  it
and alleged that hydrophones being an important  component,  the  respondent
had not only offered to fit US made hydrophones in the streamer  section  of
the Vessel but actually fitted the same. The appellant’s case was  that  the
claimant having  contracted  to  supply  US  made  hydrophones  was  legally
obliged to handover the Vessel duly filled with such hydrophones within  the
stipulated  period  of  90  days  which  expired  on  9th  July,  2001.  The
appellant’s further case was that the requirement of  a  licence  was  first
mentioned by the respondent when letter dated July 9, 2001 was delivered  to
the appellant’s representative on  board  the  vessel  at  Singapore  in  an
attempt to explain the respondent’s failure to hand over the vessel  on  the
due date. The appellant-Corporation asserted that  the  respondent  had  not
even applied for a licence till then and had simply asked for  an  extension
of time. It was only when the appellant-Corporation asked the respondent  to
specify on a realistic basis, the  period  for  which  extension  was  being
demanded that the respondent had by letter  dated  26th  July,  2001  stated
that according to their understanding the licence  will  be  issued  towards
the first week of September,  2001.  Since  time  was  the  essence  of  the
contract between the parties, the respondent’s failure to return the  vessel
duly upgraded within 9 months from the date of Letter of  Acceptance  or  90
days from the delivery of the vessel i.e. on or before 9th July, 2001 was  a
clear breach of its contractual obligation rendering the  respondent  liable
to payment of liquidated damages and for excess engagement  of  the  vessel,
argued the appellant-Corporation.



10.   The Corporation also disputed the invocation of force  majeure  clause
in the fact situation of the case especially when securing of a licence  for
the equipment was not a part of the contract between the parties,  it  being
the sole responsibility of the respondent to determine the type and make  of
hydrophones. The terrorist attack on the twin towers was, according  to  the
appellant-Corporation a post-contractual period issue as  the  date  of  the
delivery of the vessel under the contract had  since  long  expired  by  the
time the attack took place. It was also contended  that  the  delay  in  the
completion of the contract was entirely attributable to the  respondent  who
when called upon by the  appellant-Corporation  to  submit  the  performance
report  of  the  M-2  hydrophones  used  in  Seismic  Survey  Vessel  PEJWAK
suggested that the appellant-Corporation should  obtain  the  same  directly
from NIOC forcing the appellant-Corporation  to  send  a  representative  to
Oslo to verify the parameters of the M-2 hydrophones at their  own  expense.
It was asserted that once the respondent informed the  appellant-Corporation
that the US department of Commerce had finally  rejected  the  licence,  the
appellant-Corporation was left with no alternative except to  agree  to  the
replacement  of  the  US  made  hydrophones  by  Canadian  M-2   hydrophones
resulting in the delivery of the vessel back to the Corporation on 6th  May,
2002 after considerable delay.



11.   On the pleadings of the  parties  the  Arbitral  Tribunal  framed  the
following issues for determination:

Was the national origin of hydrophones used in  the  Nessie-4  streamers,  a
material term of the contact between the parties?

Was the respondent justified  in  refusing  to  allow  substitution  of  the
Canadian M-2 hydrophones for the US Geopoint hydrophones?

Was the claimant’s declaration of force majeure justified  under  the  terms
of the contract?

Whether there was any delay in the performance of the contact?

If the answer to point No.4 is in the affirmative, who  is  responsible  for
such delay?

If the answer to point No.4 is in the affirmative, whether the  Claimant  is
entitled to damages?

Whether the respondent was entitled to adjust the sum of US  $  491,000  out
of the sum payable, in whole or in part,  as  alleged  in  para  30  of  the
statement?

Is respondent entitled to both  Liquidated  Damages  and  Excess  Engagement
charges for the same periods of time under the provisions of the Contract?



12.   In the award which the Tribunal made and published  Issue  No.  1  was
answered in the negative holding that since the choice  of  the  hydrophones
was left to the bidders subject to the equipment meeting the  specifications
prescribed for the purpose and since the stipulations did not  indicate  the
make or the country of origin of the hydrophones,  the  national  origin  of
such hydrophones was not  a  material  term  of  the  contract  between  the
parties.



13.    Issue  No.  2  was,  however,  answered  by  the  Tribunal   in   the
affirmative, who took the view that once the respondent had made the  choice
and contracted to  supply  hydrophones  made  in  the  U.S.  the  appellant-
Corporation  was  entitled  to  insist  on  the  supply  of  the  contracted
equipment.  The arbitrators  further  held  that  once  the  respondent  had
informed the appellant that the option of U.S. made hydrophones was  closed,
the later was not justified in insisting that  the  request  for  a  license
with the U.S. authorities should be pursued further.  The arbitral  tribunal
decided Issue No.3 against the respondent holding that none  of  the  events
mentioned in the contract had taken place  and  since  the  parties  to  the
contract did not belong to U.S.,  the force majeure clause  could  not  have
been validly invoked by the respondent.

14.   Dealing with the question of delay in the performance of the  contract
and its consequences covered by Issue Nos. 4  to  8,  the  Arbitrators  held
that  the  respondent-claimant  had  completed  the   performance   of   the
contractual obligations within the stipulated time frame and would have  but
for the U.S. licence requirement delivered the vessel to  the  appellant  on
July 9, 2001 in which event there would have been  no  necessity  to  invoke
the force majeure clause or to seek  extension  of  time  or  to  offer  the
Canadian hydrophones. Even so the fact remained that the respondent had  not
delivered the  vessel  back  to  the  appellant-Corporation  on  time.   The
Tribunal then examined  whether  the  respondent  was  responsible  for  the
entire delay between July 9, 2001 and 6th  May  2002  when  the  vessel  was
actually returned.  The Tribunal rejected the contention on  behalf  of  the
respondent that extension of time for completing the  contracted  works  had
the effect of waiving the rights vested in the  appellant  under  clause  14
and 16 of the contract.  The Tribunal held that waiver ought to  be  express
or the fact situation must be necessary implication  manifest  an  intention
to waive.  Mere extension of time did  not  signify  waiver  of  the  rights
flowing from clause 15  and  16  of  the  contract,  observed  the  Arbitral
Tribunal.  Having said so the Tribunal held that since  the  respondent  had
informally intimated to the appellant Corporation as  early  as  on  October
24, 2001 that it did not desire to pursue the request  for  a  licence  with
the U.S. authorities any further and since by a letter  dated  25th  October
2001 the final particulars in regard to the Canadian hydrophones  were  duly
supplied, allowing some time to the  respondent  to  take  a  decision,  the
delay post October 21, 2001 could  not  be  attributed  to  the  respondent.
That finding, observed the Tribunal, did not impact the amount  deducted  by
the respondent towards liquidated damages as the capping  provision  limited
to 10% was less than the sum payable for the delay upto  October  31,  2001.
As regards excess engagement charges the Arbitrators held  that  except  for
the period commencing November 1, 2001  to  March  22,  2002  the  appellant
Corporation was justified in making deductions for the rest  of  the  period
from the claim of the respondent.  The Arbitrators held that the  deductions
in relation to the period from November 1, 2001 to March 22, 2002  amounting
to US$ 2,445,246.54 were wrongly made  by  the  appellant-Corporation  which
amount the respondent was entitled to get from the appellant  together  with
interest at the rate indicated in the award.



15.   As regards deductions based on change of tax law  or  non  payment  of
taxes under the Indian Law,  the  Tribunal  held  that  the  same  were  not
permissible in the facts and circumstances of the case especially  when  the
contracted work was to be executed and completed at the ship repair unit  of
the respondent claimant in Singapore and so was  the  handing  over  of  the
completed vessel to the appellant-Corporation. No part of  the  work  having
been undertaken outside Singapore no deduction could be made on  account  of
non-payment of any tax.  The Arbitrators  held  that  since  no  taxes  were
attracted under the Indian Income Tax Act the price could  not  include  the
said tax component. The Arbitrators accordingly held  that  deductions  made
on two counts, being of US  $  410,641.20  and  US  $  80,530.10  were  also
unjustified and unwarranted by law or contract.

16.   Aggrieved by the award made by the Arbitral  Tribunal,  the  appellant
Corporation preferred a petition under Section 34  of  the  Arbitration  and
Conciliation Act, 1996 which failed and was dismissed by a Single  Judge  of
the High Court but was allowed in part in O.S.A  No.  241  of  2006  by  the
Division Bench of the High Court to the extent of deleting pendente lite  in
future interest from the award made by the Tribunal.   Before  the  Division
Bench, a three-fold  submission  was  urged  on  behalf  of  the  appellant-
Corporation.  Firstly, it was contended that  the  Tribunal  had  fallen  in
error in holding that the delay between 14th September 2001 and  21st  March
2002 was not attributable to  the  respondent  company.   Secondly,  it  was
contended that the Arbitral Tribunal was  not  right  in  holding  that  the
deductions made by the appellant towards taxes was not legally  permissible.
 Thirdly it was contended that the award by the Arbitral  Tribunal  for  the
pendente lite and future interest was not  justified.   While  the  Division
Bench rejected the first two contentions  the  respondent  appears  to  have
made a statement before the High Court waiving pendente  lite  interest  and
agreeing to the modification of the award to that extent.   The  High  Court
held that the Arbitral Tribunal’s findings to  the  effect  that  the  delay
between 16th October  and  21st  March  2002  is  not  attributable  to  the
respondent, was based on the consideration of  the  material  placed  before
the Arbitral Tribunal which called for no interference.  So also  deductions
towards payment  of  taxes  were,  according  to  the  High  Court,  rightly
disallowed by the Arbitrators.



17.   The present appeal  assails  the  correctness  of  the  Award  of  the
Arbitral Tribunal and the orders passed by the High Court as noticed in  the
beginning of this order.



18.   We have heard learned counsel for  the  parties  at  length  who  have
taken us through the award made by the Arbitral Tribunal, provisions of  the
contract executed between the parties    and  the  correspondence  exchanged
between them.  There is no denying the fact that  there  was  delay  in  the
return of the vessel to the Corporation after upgradation.  In terms of  the
contractual  time  schedule  the  vessel  ought  to  have  returned  to  the
Corporation by 9th July 2001 which was instead returned to  the  Corporation
only on 6th May 2002 i.e. after a delay of 9 months and  28  days.   Who  is
responsible for this delay  is  the  essence  of  the  dispute  between  the
parties.  According to  the  appellant-Corporation  the  delay  is  entirely
attributable to the respondent while according to the respondent  the  delay
is attributable to the appellant.  The Arbitrators have after examining  the
material placed before them recorded a finding to the effect that the  delay
between 10th July 2001 and 31st March 2001 was entirely attributable to  the
respondent.  That finding was not challenged by the  respondent  before  the
High Court nor is it under challenge before us.   The  Arbitrators  have  on
the basis of  the  finding  recorded  by  them  allowed  to  the  appellant-
Corporation excess engagement charges under  clause  14  besides  liquidated
damages under clause 16 of the Contract executed between the  parties.   But
for the period between 1st November, 2001 and 22nd March, 2002  which  comes
to 4 months and  22  days  the  Arbitrators  have  found  the  delay  to  be
attributable  to  the   appellant-Corporation.   Deduction   made   by   the
Corporation in regard to this period has been  faulted  by  the  arbitrators
and the amount directed to be released in favour of the  respondent-Company.
The award deals with this period and the amount deducted  for  the  same  in
the following words:

“In the result we are of  the  opinion  that  except  for  the  period  from
November 1, 2001 to March 23, 2002 for which deduction has  been  made  from
the Claimant’s invoices, no exception can be  taken  for  the  rest  of  the
deduction made from the claim of the Claimant.  The  deduction  in  relation
to the period from November 1, 2001 to March 22, 2002 (4 months +  22  days)
works out to a sum  of  US  $  2,445,246.53  which  the  Claimant  would  be
entitled to from the Respondent  together  with  interest  at  the  rate  of
indicated hereafter”.



19.   The above period of 4 months and 22 days between  1st  November,  2001
and 22nd March, 2002, in our opinion,  comprises  four  separate  intervals.
The first of these four intervals is the period between 1st  November,  2001
and 26th November, 2001 which period was taken by the  appellant-Corporation
to take a final decision whether or not an application  should  be  made  to
the U.S authorities for  the  issue  of  a  licence.   The  second  interval
comprises time taken by  the  respondent-claimant  to  make  an  application
between 27th November, 2001 and 7th January, 2002, both days inclusive.  The
application for grant of a license was filed by the respondent only  on  8th
January,  2002.  The  third  interval  comprises  time  taken  by  the   U.S
Authorities between 8th January,  2002  and  7th  March,  2002  to  formally
decline the issue of a license for sale of US  made  hydrophones  to  India.
The fourth interval comprises  time  taken  by  the  respondent-claimant  to
convey the decision of the U.S Authorities between 8th March, 2002 and  21st
March, 2002. It  is  common  ground  that  while  the  U.S  Authorities  had
rejected the request for grant of a license on 8th  March,  2002,  the  said
rejection was conveyed to the  appellant-corporation  only  on  22nd  March,
2002.



20.   From the findings of the fact recorded by the arbitrators  with  which
we see no  reason  to  interfere  or  disagree,  it  is  evident,  that  the
appellant-corporation was solely responsible  for  the  delay  in  taking  a
decision in the matter between 24th October, 2001 and 26th  November,  2001.
The arbitrators have  found  and,  in  our  opinion,  rightly  so  that  the
respondent-claimant had by its  letter  dated  24th  October,  2001  clearly
informed the appellant that there was no use pursuing the  matter  with  the
U.S.  Authorities  any  further.   Even   particulars   regarding   Canadian
hydrophones were supplied to the appellant in terms of a letter  dated  25th
October, 2001. The arbitrators have held that delay  in  taking  a  decision
whether or not any formal application should be made and a formal  rejection
obtained  by  the  respondent  was  attributable  only  to  the   appellant-
Corporation.  There  is,  in  our  opinion,  no  legal  flaw,  infirmity  or
perversity in that finding which we hereby affirm.  Deduction  made  by  the
appellant-Corporation for the First interval that comprises  period  between
1st November, 2001 and 25th November, 2001,  both  days  inclusive,  cannot,
therefore, be sustained and the arbitral award  to  that  extent  cannot  be
faulted.



21.   That brings us to the second interval comprising period  between  26th
November, 2001-the date when the appellant-Corporation  issued  instructions
for making of a formal application for  the  grant  of  a  license  and  8th
January, 2002-when such an application was actually made by the  respondent-
company. This period reckoned from 27th November, 2001 to 7th January,  2002
works out to 42 (Forty two) days which must be attributed to the respondent-
claimant, who could and indeed ought  to  have  acted  diligently  and  with
reasonable despatch in the matter instead of taking the same  easy,  and  if
we may say so somewhat  reluctantly.  We  cannot  help  saying  with  utmost
respect at our command for the eminence and erudition of  the  distinguished
jurists comprising  the  Arbitral  Tribunal  that  the  tribunal  failed  to
appreciate  this  aspect  hence  fell  in  a  palpable  error   leading   to
miscarriage of justice. The test adopted by the  Tribunal  for  holding  the
appellant-Corporation responsible for delay ought to have  been  applied  to
the respondent as well for its failure to take action in the  right  earnest
instead of sitting over the matter leading to detention of the vessel for  a
period more than what was absolutely necessary.



22.   The period between 8th January, 2002 and 8th  March,  2002  comprising
the  third  interval  during  which  the  U.S.   authorities   decided   the
application for the grant of a license has been rightly counted against  the
appellant-Corporation as it was at the instance of the  Corporation  that  a
formal application was made. The time spent  by  the  U.S.  authorities  for
disposal of the  request  could  not  in  the  facts  and  circumstances  be
attributed to or counted against the  respondent-claimant  who  had  advised
the appellant against any  such  move.   The  arbitral  Tribunal,  therefore
rightly held that deduction for this period was not justified.



23.   That leaves us with the fourth and the last  interval  comprising  the
period between 8th March, 2002 and 22nd March, 2002 when  the  rejection  of
the application was conveyed to the appellant-Corporation. There is, in  our
opinion, no valid reason why this period should not be counted  against  the
respondent, who could and indeed should have conveyed the rejection  to  the
appellant-Corporation forthwith, instead of taking nearly two  weeks  to  do
so. To sum up; the period of 4 months and  22  days  which  the  arbitrators
have attributed to the appellant-Corporation shall have to be reduced by  42
days comprising the first interval and 14 days comprising the fourth  making
a  total  of  56  days.  Resultantly,  deduction  made  by  the   appellant-
Corporation for 56 days referred to above deserve to be  affirmed,  and  the
award made by the arbitrators modified to that extent. It follows  that  the
amount awarded to the respondent-Company shall  on  a  proportionate  basis,
stand reduced.


24.   We may at this stage deal with the contention urged on behalf  of  the
respondent that the jurisdiction of the  Court  to  set  aside  an  arbitral
award being limited to grounds set out in Section 34 of the Arbitration  and
Conciliation Act, 1996, this Court ought not to  interfere  with  the  same.
It was contended that none of the grounds on which a Court is authorised  to
interfere  with  an  arbitral  award  are  present  in  the  case  at  hand.
Alternatively, it was contended that even if a contrary view is possible  on
the facts proved before the Arbitral Tribunal,  the  Court  cannot,  in  the
absence of any compelling reason, interfere  with  the  view  taken  by  the
Arbitrators as if it was sitting in  appeal  over  the  award  made  by  the
Tribunal. Section 34 of the Arbitration and Conciliation Act, 1996 reads :

“34. Application for setting aside arbitral award.—(1) Recourse to  a  court
against an arbitral award may be made only by  an  application  for  setting
aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the court only if—
(a) 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 arbitration:
Provided that, if the decisions on matters submitted to arbitration  can  be
separated from those not so submitted, only that part of the arbitral  award
which contains decisions on matters not submitted to arbitration may be  set
aside; or
(v) the composition of the Arbitral Tribunal or the arbitral  procedure  was
not in accordance with the agreement of the parties, unless  such  agreement
was in conflict with a provision of this Part from which the parties  cannot
derogate, or, failing such agreement, was not in accordance with this  Part;
or
(b) the court finds that—
(i) the subject-matter of the  dispute  is  not  capable  of  settlement  by
arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation.—Without prejudice to the generality of sub-clause (ii),  it  is
hereby declared, for the avoidance  of  any  doubt,  that  an  award  is  in
conflict with the public policy of India if the  making  of  the  award  was
induced or affected by fraud or corruption or was in  violation  of  Section
75 or Section 81.”


25.   It is true that none of the grounds enumerated under Section  34(2)(a)
were set up before the High Court to assail the arbitral  award.   What  was
all the same urged before the High Court and so also before us was that  the
award made by the arbitrators was in conflict with  the  “public  policy  of
India”  a  ground  recognised  under  Section  34(2)(b)(ii)   (supra).   The
expression “Public Policy of India”  fell  for  interpretation  before  this
Court in ONGC Ltd. v. Saw Pipes Ltd. (2003) 5  SCC  705  and  was,  after  a
comprehensive review of the case law on the subject, explained  in  para  31
of the decision in the following words:

“31. Therefore, in our view, the phrase “public policy  of  India”  used  in
Section 34 in context is required to be given a wider  meaning.  It  can  be
stated that  the  concept  of  public  policy  connotes  some  matter  which
concerns public good and the public interest. What is for public good or  in
public interest or what would be injurious or harmful to the public good  or
public interest has varied from time to time. However, the award  which  is,
on the face of it, patently in violation of statutory provisions  cannot  be
said to be in public interest. Such  award/judgment/decision  is  likely  to
adversely affect the administration  of  justice.  Hence,  in  our  view  in
addition to narrower meaning given to the term “public policy” in  Renusagar
case10 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
[pic](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.”

26.   What then would constitute the ‘Fundamental policy of Indian  Law’  is
the question.  The decision in Saw Pipes Ltd.  (supra)  does  not  elaborate
that aspect. Even so, the expression must, in our opinion, include all  such
fundamental principles as providing a basis for  administration  of  justice
and enforcement of law in this country.   Without  meaning  to  exhaustively
enumerate the purport of the expression “Fundamental Policy of Indian  Law”,
we may refer to three distinct  and  fundamental  juristic  principles  that
must necessarily be understood as a  part  and  parcel  of  the  Fundamental
Policy of Indian law.  The first and  foremost  is  the  principle  that  in
every determination whether by a Court or other authority that  affects  the
rights of a citizen or  leads  to  any  civil  consequences,  the  Court  or
authority concerned is bound to adopt what is in  legal  parlance  called  a
‘judicial approach’ in the matter. The duty to  adopt  a  judicial  approach
arises from the very nature of the power  exercised  by  the  Court  or  the
authority does not have to be separately or additionally enjoined  upon  the
fora concerned.  What must be remembered is that the importance of  Judicial
approach in judicial and quasi judicial determination lies in  the  fact  so
long as the Court, Tribunal or the authority exercising powers  that  affect
the rights or obligations of the  parties  before  them  shows  fidelity  to
judicial approach, they cannot act in an arbitrary, capricious or  whimsical
manner. Judicial approach ensures  that  the  authority  acts  bonafide  and
deals with the subject in a fair, reasonable and objective manner  and  that
its decision is not actuated  by  any  extraneous  consideration.   Judicial
approach in that sense acts as a check against flaws  and  faults  that  can
render the  decision  of  a  Court,  Tribunal  or  Authority  vulnerable  to
challenge.  In Ridge v. Baldwin [1963 2 All ER 66], the House of  Lords  was
considering the  question  whether  a  Watch  Committee  in  exercising  its
authority under Section 191 of the  Municipal  Corporations  Act,  1882  was
required to act judicially. The majority decision was that  it  had  to  act
judicially and since the order of dismissal was  passed  without  furnishing
to the appellant a specific charge, it  was  a  nullity.  Dealing  with  the
appellant’s contention that the Watch Committee had to act judicially,  Lord
Reid relied upon the following observations made by Atkin L.J. in  [1924]  1
KB at pp. 206,207:

“Wherever any body of persons having legal authority to determine  questions
affecting the rights of subjects, and having the  duty  to  act  judicially,
act in excess of their legal authority, they are subject to the  controlling
jurisdiction of the King’s Bench Division exercised in these writs.”

27.   The view taken by Lord Reid was relied upon by  a  Constitution  Bench
of this Court in A.C. Companies Ltd vs. P.N. Sharma and Anr.  (AIR  1965  SC
1595) where Gajendragadkar, C.J. speaking for the Court observed :

“In other words, according to Lord Reid’s judgment, the necessity to  follow
judicial procedure and observe the  principles  of  natural  justice,  flows
from the  nature  of  the  decision  which  the  watch  committee  had  been
authorised to reach under S.191(4). It would thus  be  seen  that  the  area
where the principles of natural justice have to  be  followed  and  judicial
approach has to be adopted, has become wider and consequently,  the  horizon
of writ jurisdiction has  been  extended  in  a  corresponding  measure.  In
dealing with questions as to whether any impugned orders  could  be  revised
under A. 226 of our Constitution, the test prescribed by Lord Reid  in  this
judgment may afford considerable assistance.”



28.   Equally important and indeed fundamental to the policy of  Indian  law
is the principle that a Court and so also a quasi-judicial  authority  must,
while determining the rights and obligations of parties before it, do so  in
accordance with the principles of natural justice.  Besides  the  celebrated
‘audi alteram partem’ rule one of the facets of the  principles  of  natural
justice is that the Court/authority deciding the matter must apply its  mind
to the attendant facts and circumstances while taking a view one way or  the
other.  Non-application  of  mind  is  a  defect  that  is  fatal   to   any
adjudication.  Application of mind is best  demonstrated  by  disclosure  of
the mind and disclosure of  mind  is  best  done  by  recording  reasons  in
support of the  decision  which  the  Court  or  authority  is  taking.  The
requirement that an adjudicatory authority must apply its mind is,  in  that
view, so deeply embedded in our jurisprudence that it can be described as  a
fundamental policy of Indian Law.



29.   No less important is  the  principle  now  recognised  as  a  salutary
juristic  fundamental  in  administrative  law  that  a  decision  which  is
perverse or so irrational that no reasonable person would  have  arrived  at
the  same  will  not  be  sustained  in  a  Court  of  law.  Perversity   or
irrationality of decisions is  tested  on  the  touchstone  of  Wednesbury’s
principle of reasonableness. Decisions that fall short of the  standards  of
reasonableness are open to challenge  in  a  Court  of  law  often  in  writ
jurisdiction of the Superior courts  but  no  less  in  statutory  processes
where ever the same are available.

30.   It is neither necessary nor proper for us  to  attempt  an  exhaustive
enumeration of what would constitute the fundamental policy  of  Indian  law
nor is it possible  to  place  the  expression  in  the  straitjacket  of  a
definition. What is important in the context of the case at hand is that  if
on facts proved before them the arbitrators fail to draw an inference  which
ought to have been drawn or if they have drawn an inference which is on  the
face of it, untenable resulting in miscarriage of justice, the  adjudication
even when made by an arbitral tribunal  that  enjoys  considerable  latitude
and play at the joints in making awards will be open to  challenge  and  may
be cast away or modified depending upon whether the offending part is or  is
not severable from the rest.

31.   Inasmuch as the arbitrators clubbed the  entire  period  between  16th
October, 2001 and 21st March, 2002 for purposes of  holding  the  appellant-
Corporation responsible for the delay, they committed an error resulting  in
miscarriage of justice apart from the fact that they  failed  to  appreciate
and draw inferences that logically flow from such  proved  facts.  We  have,
therefore, no hesitation in rejecting the contention urged on behalf of  the
respondent that the  arbitral  award  should  not  despite  the  infirmities
pointed out by us be disturbed.

32.   That brings us to the last submission that  deduction  on  account  of
taxes  not  paid  should  have  been  allowed  by  the   respondent-arbitral
tribunal. The Tribunal has, in our opinion, correctly held that no  part  of
the work was undertaken outside Singapore which was  to  be  executed  on  a
turnkey basis for a price that was pre-determined. The arbitrators have,  in
our opinion, rightly held that  no  taxes  were  payable  under  the  Indian
Income tax Act so as to entitle the Corporation  to  deduct  any  amount  on
that account by reason of non-payment of such taxes. The  challenge  to  the
award to that extent must fail and is, hereby, rejected.

33.   In the result, we allow this appeal but only to the  extent  that  out
of the period of 4 months and 22 days which the arbitrators have  attributed
to the appellant-Corporation a period of 56 days comprising 42 days  of  the
first interval and 14 days of the second referred to in the  judgment  shall
be reduced.  Resultantly, deductions made by the  appellant-Corporation  for
the said period of 56 days shall stand affirmed and the award  made  by  the
arbitrators modified to that extent with a proportionate  reduction  in  the
amount payable to the respondent.  No costs.

                                                    …......………………………….…..…J.
                                  (T.S. THAKUR)

                                                      .…………………………..……………..J.
                                  (C. NAGAPPAN)

                                                      ..…………………………..…………….J.
(ADARSH KUMAR GOEL)
New Delhi
September 4, 2014

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