The main legal point established in the judgment is that the imposition of liquidated damages must be in line with the contractual terms, and the interpretation of contractual clauses and the waiver of liquidated damages are crucial in determining the sustainability of such damages.

JUDGMENT :

N. V. RAMANA, CJI.

1. Leave granted in SLP (C) No. 19203 of 2012.

2. Civil Appeal Nos. 2826-2827 of 2016, preferred by Welspun Specialty Solutions Limited (formerly known as Remi Metals Gujarat Ltd.) hereinafter referred to as ‘Remi Metals’ for the sake of brevity and clarity, have been filed impugning the judgments and orders dated 14.10.2008 and 27.07.2010 of the High Court of Uttarakhand at Nainital in AO Nos.472 and 466 of 2005 and Review Petition No. 1340 of 2008 in AO No. 472 of 2005 respectively. Civil Appeal arising out of SLP(C) No. 19203 of 2012, preferred by Oil and Natural Gas Corporation Ltd. (hereinafter referred to as ‘ONGC’ for the sake of brevity and clarity), has been filed impugning the judgment and order 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, purchase orders (POs) No. 275, 276, 277 and 286 were issued in the following manner:

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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 therein.

ii) It must be noted that delayed supplies even delivery and/or accepted by the purchaser will be treated as supplied/effected after schedule period without prejudice to Failure & Termination Clause.

iii) Even when extension in delivery period is granted, such acceptance of extension as the case may be will be without prejudice to claim damages under Failure & Termination Clause unless purchaser clearly waives his right in writing to recover such damages with the approval of competent authority.

7. Further, relevant provisions of the General Terms and Conditions appended with the POs are as follows:

10. FAILURE AND TERMINATION CLAUSE/LIQUIDATED DAMAGES:

Time and date of delivery shall be essence of the contract. If the contractor fails to deliver the stores, or any instalment thereof within the period fixed for such delivery in the schedule or at any time repudiates the contract before the expiry of such period, the purchaser may, without prejudice to any right or remedy, available to him to recover damages for breach of contract :-

(a) Recover from the contractor as agreed liquidated damages and not by way of penalty, a sum equivalent to ½% (half percent) of the contract price of the whole unit per week for such delay or part thereof (this is an agreed, genuine pre-estimate of damage duly agreed by the parties) which the contractors has failed to deliver within the period fixed for delivery in the schedule, where delivery thereof is accepted after expiry of the aforesaid period. It may be noted that such recovery of liquidated damages may be up to 5% of the contract price of whole unit of stores which the contractor has failed to deliver within the period fixed for delivery; or

(…)

(e) It may further be noted that the clause (a) above provides for recovery of liquidated damages on the cost of contract price of delayed supplies whole unit at the rate of ½% (half percent) of the contract price of the whole unit per week for such delay or part