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SUPREME COURT OF INDIA
T.S. THAKUR, C. NAGAPPAN, ADARSH KUMAR GOEL, JJ.
Oil & Natural Gas Corporation Ltd. – Appellant
Versus
Western Geco International Ltd. – Respondent
CIVIL APPEAL NO.3415 OF 2007
Decided On : 04-09-2014
Arbitration and Conciliation Act, 1996 – Section 34(2)(b)(ii) – Arbitrators clubbing the entire period of 4 months 22 days between 16th October, 2001 and 21st March, 2002 and holding appellant-Corporation responsible for the delay – Erroneous, resulting in miscarriage of justice – Arbitrators failing to appreciate and draw inferences logically flowing from proven facts – The period severable in four parts and appellant-corporation only responsible for two parts totalling 56 days – The infirmities in the arbitral award have to be set right. (Para 31)
(2003) 5 SCC 705; AIR 1965 SC 1595 – Relied upon
1963 2 All ER 66 – Referred
Arbitration and Conciliation Act, 1996 – Section 34(2)(b)(ii) – Work done completely in Singapore – Work executed on turnkey basis for pre-determined price – No tax was payable in India under the Indian Income tax Act – Appellant-corporation not entitled to deduct any amount on this ground – Rightly disallowed by Tribunal. (Para 32)
Facts of the case:
The respondent was awarded work of fitting the exploratory vessel of the appellant with steamers containing hydrophones. Respondents had offered US made hydrophones. However, the US authorities refused licence necessitating replacement with Canadian made equipment. In the process delivery of the vessel was delayed. The contract was amended.
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 pendente lite at 12% p.a. from the date of the filing of the claim till the award at the same rate.
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. 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.
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 appeal 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.
Finding of the Court:
Appellant corporation was entitled to make deductions on account of delay of 56 days only as against total delay of 4 months 22 days; and no deduction on account of tax payable as claimed.
JUDGMENT
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 25th 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 hydrophon
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