The main legal point established in the judgment is that acceptance of conditional extensions of time for completing supplies without protest precludes later claims of arbitrariness or economic coercion. The court emphasized the importance of upholding the terms of the contract and rejected the application of principles of reasonableness and non-arbitrariness in the context of contract enforcement.

1. The Petitioner Bharat Sanchar Nigam Limited (‘BSNL’) has in this petition under Section 34 of the Arbitration and Conciliation Act, 1996 (‘Act’) challenged an Award dated 1st June 2006 passed by the learned sole Arbitrator in the dispute between it and the Respondent Himachal Futuristic Communications Limited (‘HFCL’), formerly known as Himachal Telematics Limited (‘HTL’), arising out of a Purchase Order (‘PO’) dated 22nd February 1996 for supply of 148 numbers of 4/36 MARR systems in UHF range along with accessories. By the impugned Award the sole Arbitrator held that HFCL was entitled to be paid the differential amount subject to deduction of 5% Liquidated Damages (‘LD’) for supplies made during the extended delivery period as claimed by HFCL together with simple interest at 6% per annum from the date when payment became due till the actual date of payment. HFCL was also held entitled to the return of the Performance Bank Guarantee (‘PBG’) dated 11th December 1995 for a sum of Rs.42 lakhs.

Background Facts

2. A tender was invited for procurement of 1125 systems each of 2/15 and 4/36 analog MARR system of UHF band along with accessories by the BSNL. The tender was opened on 20th June 1995 and HTL was found to be a technically and commercially eligible bidder. An Advance Purchase Order (‘APO’) dated 24th November 1995 was placed on HTL for the supply of 136 numbers package of 2/15 Shared Radio System and 148 numbers of package of 4/36 MARR system at a package price of Rs.3,20,897 and Rs.10,11,360 respectively. The APO was amended by a letter dated 27th November 1995 only in respect of PBG. By its letter dated 12th December 1995 HTL accepted the APO unconditionally only for 4/36 MARR systems and submitted a PBG for Rs.42 lakhs at 5% of the total value of 148 numbers of 4/36 MARR systems.

3. On the basis of acceptance of the APO, a PO was placed on HTL on 22nd February 1996 for supply of 148 numbers of 4/36 MARR systems in UHF range. The delivery schedule was up to three months from the date of issue of PO or two months from the date of issue of frequencies.

4. In accordance with the terms and conditions applicable to the PO, HTL had to obtain type approval from the Department of Telecommunications (‘DOT’) (QA) prior to the start of supplies to the consignees. The consignee details were also furnished along with the PO. The delivery period was said to be firmed and was not subject to any change. Clause 13.1 of Section III of the General Conditions of Contract (‘GCC’) provides as under:

“The purchaser may, at any time, by a written order given to the supplier, make changes within the general scope of the contract in any one or more the following:

(a) Drawing, designs or specifications, where goods to be furnished under the contract are to be specifically manufactured for purchaser;

(b) The method of transportation or packing;

(c) The place of delivery; or

(d) The service to be supplied by the supplier.”

5. On 4th June 1996, BSNL furnished frequency details and revised consignee details to HTL in respect of 146 numbers of 4/36 MARR systems i.e. (98.6% of the ordered quantity). The frequency and consignee details in respect of balance two numbers were furnished on 28th August 1996. By a letter dated 17th June 1996, BSNL enquired about the probable timeframe by which the systems would be supplied to the Circles.

6. By a letter dated 9th August 1996, HFCL informed BSNL that the frequency and consignee details have been received by it in respect of 146 numbers of 4/36 MARR systems only on 26th June 1996. Accordingly, it is requested that the delivery period of the above referred order be extended “up to two months from the issue of letter”. BSNL was also informed that HTL has been amalgamated with HFCL and issuance of suitable amendment to the PO to the above effect was requested.

7. On 9th October 1996, DOT wrote to HFCL extending the delivery period by two months “with levy of liquidated damage charges”. Further