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1993 Supreme(Del) 140
High Court Of Delhi
INDIAN OIL CORPORATION LIMITED - Appellant
Versus
CALCUTTA METALLISING COMPANY - Respondent
Suit 2395A of 1987
Decided On : 03/02/1993
A.BHATTACHARYA, S.V.BAHADUR, V.N.KAURA
A party may terminate a contract under an independent contractual provision and right, even if time is not of the essence of the contract.
Headnote:
{'KEYWORD': 'Contract Termination', 'SUBJECT': 'Arbitration Award', 'ACT SECTION LIST': ['Arbitration and Conciliation Act, 1996'], 'SUMMARY': 'The court set aside an arbitration award that held the termination of a contract to be illegal, finding that the contractor had committed a breach of contract and that time was not of the essence of the contract.'}
Fact of the Case:
A contract for the installation of a Cathodic Protection System (CPS) was awarded to the respondent by the petitioner. The respondent failed to commence and complete the work within the stipulated period and suspended the work without notice to the petitioner. The petitioner terminated the contract and claimed additional costs incurred, including supervision charges and interest. The respondent made a counterclaim for damages for illegal termination and other sums due and payable by the petitioner.
Finding of the Court:
The court found that the contractor had committed a breach of contract and that time was not of the essence of the contract. However, the court held that the termination of the contract was valid because it was exercised under an independent contractual provision and right.
Issues: Whether the termination of the contract was legal.
Ratio Decidendi: The court distinguished the facts of this case from those in Hind Construction Company v. State of Maharashtra, where the Supreme Court held that time was not of the essence of the contract. The court found that in this case, the contractor had suspended the work without notice to the petitioner, which left the petitioner with no option but to terminate the contract.
Final Decision: The court set aside the arbitration award and remitted the entire award to the arbitrator for deciding the same in accordance with the law.
( 1 ) THE disputes between the parties were referred to the arbitrator by this court. The award and proceedings were filed in the court. The objections to the award were filed by the petitioner Indian Oil Corporation.
( 2 ) BEFORE deciding the controversy involved in this case, it would be desirable to recapitulate the basic facts. By virtue of a written contract dated 7th December, 1976 between the petitioner and the respondent, the work of installation of temporary and permanent Cathodic Protection System, (for short, C. P. S.) for the Salaya Viramgam, (for short, S. V.) Section and Viramgam Koyali (for short V. K.) Section, was awarded to the respondent. The said contract contained an arbitration clause for reference to arbitration of all the disputes arising and falling within the ambit of the contract.
( 3 ) THE petitioner alleged that the respondent failed to commence and complete the work within the stipulated period according to the design and specification given by the petitioner. The respondent against the wishes of the petitioner suspended the work and did not resume the same despite a number of the warnings and letters from the petitioner. In these circumstances, the petitioner was left with no choice but to terminate the contract vide letter dated 28th March, 1978 in pursuance of the provisions of paragraphs (b), (c), (d) and (i) of sub-clause 7. 0. 1. 0 of the General Conditions of the Contract.
( 4 ) THE petitioner had to get the balance work completed from another contractor and thereafter made a claim against the respondent for the additional costs incurred, including the supervision charges and interest.
( 5 ) THE respondent in turn made a counter claim on the petitioner challenging the termination and for the damages for illegal termination and for certain other sums that the respondent claimed, were due and payable by the petitioner.
( 6 ) THE respective claims of the parties were referred to the arbitrator for adjudication. The arbitrator gave the award on 28th July, 1987. The arbitrator in para 12 of the award has mentioned :
"i have considered the whole matter and find that, there has been breach of the contract mainly by the contractor and most of the above defences by and large do not hold good. "the arbitrator in the concluding portion of para 12 of the award has held that the main plea in defence of natural holds ups due to early monsoon, soil being rocky, no electric supply, non provision of import licence or non-availability of cement or other material or that his suggestion for alternative material was of no avail to the contract as per stipulations in the contract.
( 7 ) THE arbitrator in para 13 has held that correspondence between 14. 4. 1977 to 20. 11. 1977 on the record by the petitioner/owners shows that:
" (I) the work of V. K. Section had not commenced as per schedule (correspondence at pages 67, 68, 69, 74, 75), so also on S. V. Section (pages 54, 52, 53 ). (ii) the contractor s progress of work on both the sections was much lagging behind the approved progress schedule (page 66-68-69, 87. 89, 83-85, 79-82) and (iii) the contractors had stopped the work with effect from 26. 6 1977 as indicated in the owners letter dated 23. 8. 1977 (page 60-61)".
( 8 ) THE arbitrator has also been mentioned that the performance was poor on V. K. Section. The contractor lagged behind and failed to supply man-power and material, and the work was held up on that account, is writ large in the correspondence. It is further mentioned that apart from the correspondence, the contractor s assurance to catch up the work and to provide a separate crew of S. V. Section is indicated in minutes of the joint meeting dated 5. 10. 1977. It is further mentioned that the contractor failed to arrange man-power and material to catch up the work is clear from the owner s letter dated20. 10. 1977. The correspondence on record indicates that right from 4. 12. 1976 to 20. 2. 1977 the owner s were complaining agains
