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High Court of Delhi
THE HONOURABLE MR. JUSTICE S. MURALIDHAR
Oil India Limited.
Versus
Essar Oil Limited
O.M.P. No. 416 of 2004 & I.A. No. 10758 of 2012
Decided on : 17-08-2012
Essar Oil Limited (EOL) challenged the majority Award dated 6th August 2004 of the three-member Arbitral Tribunal (AT) that adjudicated the disputes between EOL and Oil India Limited (OIL) arising out of a contract dated 8th May 1995 entered into between the parties for drilling of offshore wells on turnkey basis offshore Saurashtra Coast, Gujarat and offshore North East Coast (NEC), Orissa for the purpose of exploration of oil and/or gas. The Court held that OIL was not justified in terminating the contract and that the majority Award was not vitiated in law.
Fact of the Case:
EOL submitted its offer on 6th December 1993 which was subsequently clarified / amended. EOL submitted its final priced bid dated 13th January 1995 offering to deploy one Turret Moored Self-Propelled Drillship “Essar Discoverer” on turnkey basis complete with drilling and other associated equipment, personnel and services for the purpose of drilling of exploratory oil and gas wells and performing the Auxilary Operations and services for OIL (referred to in the contract as ‘Operator’). After some exchange of correspondence, OIL accepted EOL’s offer and a Letter of Intent (‘LOI’) dated 20th February 1995 was issued. Consequent upon the acceptance of EOL’s offer, the parties entered into a contract dated 8th May 1995.
Finding of the Court:
The Court found that OIL was not justified in terminating the contract and that the majority Award was not vitiated in law. The Court noted that OIL had failed to prove that EOL was incompetent and incapable of performing the contract. The Court also found that OIL was responsible for obtaining the necessary clearances from the DRDO and the naval authorities for drilling at location L-1, and that EOL was not required to obtain such clearances. The Court further found that the majority Award had correctly interpreted the contractual provisions and that the dissenting Award had misread and misinterpreted them.
Issues: 1. Whether the Claimant or the Respondent was obliged to obtain any clearance for drilling at location L-1 from the Government including DRDO and Naval authorities? 2. Whether under the facts and circumstances of the case the Claimant was incompetent and incapable of performing the contract? 3. Whether under the facts and circumstances, the contract was rightfully terminated by the Respondent? 4. Whether the various claims and counter-claims made by the parties are maintainable under the contractual terms and conditions? 5. Whether under the facts and circumstances, the Claimant is entitled to relief on any or all of its claims? 6. Whether the Respondent is entitled to relief on its counter-claim? 7. To what other relief is the Respondent entitled?
Ratio Decidendi: The Court held that OIL was not justified in terminating the contract and that the majority Award was not vitiated in law. The Court noted that OIL had failed to prove that EOL was incompetent and incapable of performing the contract. The Court also found that OIL was responsible for obtaining the necessary clearances from the DRDO and the naval authorities for drilling at location L-1, and that EOL was not required to obtain such clearances. The Court further found that the majority Award had correctly interpreted the contractual provisions and that the dissenting Award had misread and misinterpreted them.
Final Decision: The Court dismissed the petition with costs of Rs.50,000 which will be paid by OIL to EOL within a period of four weeks from the date of the order. I.A. No. 10758 of 2012 was disposed of.
Introduction
1. Oil India Limited (‘OIL’) has in this petition under Section 34 of the Arbitration and Conciliation Act, 1996 (‘Act’) challenged the majority Award dated 6th August 2004 of the three member Arbitral Tribunal (‘AT’) that adjudicated the disputes between OIL and the Respondent Essar Oil Limited (‘EOL’) arising out of a contract dated 8th May 1995 entered into between the parties for drilling of offshore wells on turnkey basis offshore Saurashtra Coast, Gujarat and offshore North East Coast (‘NEC’), Orissa for the purpose of exploration of oil and/or gas.
Background Facts
2. OIL issued Notice Inviting Tender (‘NIT’) dated 19th July 1993 for setting of four Offshore Exploratory Oil/Gas Wells, three Wells at Saurashtra Offshore of the West Coast of Gujarat and one Well in NEC, Offshore of Orissa (drilled with self-propelled floater including all supporting services for the exploration of oil and/or gas on turnkey basis).
3. In response to the NIT, EOL submitted its offer on 6th December 1993 which was subsequently clarified / amended. EOL submitted its final priced bid dated 13th January 1995 offering to deploy one Turret Moored Self-Propelled Drillship “Essar Discoverer” on turnkey basis complete with drilling and other associated equipment, personnel and services for the purpose of drilling of exploratory oil and gas wells and performing the Auxilary Operations and services for OIL (referred to in the contract as ‘Operator’). After some exchange of correspondence, OIL accepted EOL’s offer and a Letter of Intent (‘LOI’) dated 20th February 1995 was issued. Consequent upon the acceptance of EOL’s offer, the parties entered into a contract dated 8th May 1995.
4. Certain relevant definitions contained in the contract read as under:
“1.1 “Drilling Unit” means the Turret Moored Drillship Essar
Discoverer with all equipment supplies and supporting services in good operating condition as detailed in Annexures 2 to 4.
1.3 “Commencement Date” means the date when the drilling unit arrives on first or standby location with all equipment, supplies as detailed in Annexure 2 to 4 and personnel as detailed in Annexure-5.
1.4 “Termination Date” means the date when the drilling unit is released by Operator, all equipment of Operator and other contractors of operator having been off-loaded, and the Drilling Unit is available to contractor after deanchoring for cruising from Demobilization site, i.e. the location drilled last.
1.13 “Operations Base”: Contractor shall establish an operations base at Rajkot, Gujarat for Saurashtra Offshore operations and at Bhubaneswar, Orissa for North East Coast Offshore operations, to keep close liaison with Operator and shall ensure that services of operations manager of contractor or his representative shall be available to operator for emergencies.
1.14 “Supply Base”: Contractor shall establish a Supply Base at Okha Port, Gujarat and/or any other port suitable to the contractor with prior permission of the Operator to feed drilling operation at Saurashtra Basin. In the event of establishment of base other than at Okha Port all expenses pertaining to shift of operators equipment and materials shall be at Contractor’s account. An offshore supply base will also be established by the Contractor at Paradip Port, Orissa for North East Coast Offshore Operations. Both the supply bases should be equipped with cranes, warehouse and storage facilities and shall also receive all the materials of operator for further transportation to the Drilling Unit at such bases.”
1. 5. Under Article 2.2, the four offshore wells were to be completed within a period of one year with a provision for extension to complete the Wells, if necessary. The Contractor (EOL) confirmed that the Operator (OIL) shall not have to pay EOL during the extension period required for completing the four wells, except for meal charges beyond 12 Operator’s personnel as per the contract and additional day rate operations, if carried
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