2021 Supreme(SC) 683

SUPREME COURT OF INDIA
N.V. RAMANA, CJI., SURYA KANT, J.
WELSPUN SPECIALTY SOLUTIONS LIMITED (FORMERLY KNOWN AS REMI METALS GUJARAT LTD.) - APPELLANT
VERSUS
OIL AND NATURAL GAS CORPORATION LTD. - RESPONDENT
CIVIL APPEAL NOS. 2826-2827 OF 2016
WITH
OIL AND NATURAL GAS CORPORATION LTD. - APPELLANT
VERSUS
REMI METALS GUJARAT LTD. - RESPONDENT
CIVIL APPEAL NO. 6834 OF 2021 (ARISING OUT OF SLP (C) NO. 19203 OF 2012)
DECIDED ON : 13-11-2021

IMPORTANT POINTS
(1) Application against arbitral award – Phrase ‘public policy’ does not indicate ‘a catch-all provision’ to challenge awards before an appellate forum on infinite grounds.
(2) Whether time is of essence in a contract, has to be culled out from reading of entire contract as well as surrounding circumstances. Merely having an explicit clause may not be sufficient to make time essence of contract.

Headnote:

(A) Arbitration and Conciliation Act, 1996 – Section 34 – Application against arbitral award – Public policy as a ground of challenge has always been met with certain scepticism – Phrase ‘public policy’ does not indicate ‘a catch-all provision’ to challenge awards before an appellate forum on infinite grounds – However, ambit of same is so diversely interpreted that in some cases, purpose of limiting the Section 34 jurisdiction is lost – Purpose of Section 34 is to strike a balance between Court’s appellate powers and integrity of arbitral process. (Para 23)

(B) Arbitration and Conciliation Act, 1996 – Sections 34 and 37 – Indian Contract Act, 1872 – Section 74 – Arbitral award – Reversal – Challenge of award is based on the fact that same is against public policy and patent illegality – Main challenge to award is against imposition of unliquidated damages, when matter of fact stood that contract between parties stipulated for pre-estimated damages (liquidated damages) – Concerned contract contained provisions for liquidated damages for breach of contract, particularly breach of deadlines set in contract – Subject to nature of contract, general rule is that promisor is bound to complete obligation by date for completion stated in contract – That is subject to exception that promisee is not entitled to liquidated damages, if by his act or omissions he has prevented promisor from completing work by completion date – Whether time is of essence in a contract, has to be culled out from reading of entire contract as well as surrounding circumstances – Merely having an explicit clause may not be sufficient to make time essence of contract – As contract was spread over a long tenure, intention of parties to provide for extensions surely reinforces fact that timely performance was necessary – Fact that such extensions were granted indicates ONGC’s effort to uphold integrity of contract instead of repudiating the same. (Paras 23, 26, 29 and 30)

(C) Arbitration and Conciliation Act, 1996 – Sections 34 and 37 – Indian Contract Act, 1872 – Section 55 – Arbitral award – Reversal – When a standard form of a contract is utilised, ONGC is assumed in law to have the larger bargaining power to enter into a contract, unless clear intention is shown to the contrary – In case at hand, a reasonable interpretation against ONGC may be utilised – ONGC waived liquidated damages twice before giving extension with pre-estimated damages – Promisee (ONGC) waived liquidated damages initially and same cannot be imposed, unless such imposition was clearly accepted by parties – Interpretation of Arbitral Tribunal could not be faulted as being perverse – Arbitral Tribunal’s interpretation of contractual clauses having extension procedure and imposition of liquidated damages, are good indicators that time was not essence of contract – Arbitral Tribunal’s view to impose damages accrued on actual loss basis could be sustained in view of waiver of liquidated damages and absence of precise language which allows for reimposition of liquidated damages – Such imposition is in line with 2nd Para of Section 55 of Indian Contract Act – High Court and District Court strayed beyond limitation under Sections 34 and 37 of Arbitration Act – Order of High Court as well as District Court’s interference set aside and award of Arbitral Tribunal upheld. (Paras 31, 33, 35 and 36)

Facts of the case:

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.

Findings of Court:

Approach of Arbitral Tribunal was to hold that once liquidated damages were waived in the first extension, subsequent extension could not be coupled with liquidated damages unless a clear intention flowed from the contract; while this Court recognizes the autonomy of the party to engage in contractual obligation. Such obligation must be contracted in clear terms.

Result : Civil Appeals allowed.