The main legal point established in the judgment is the interpretation of contractual provisions regarding reimbursement for pipe failure under field hydrostatic test and the liability of the seller for providing equipment necessary for the functioning of the pipeline.

PRADEEP NANDRAJOG, J.

1. This is an appellate challenge to the award dated April 19, 2007 passed by the learned Sole Arbitrator insofar claim in sum of `61,72,728/-on account of the stated price difference between the costs of the pipe line actually laid and what was required to be laid has been declined.

2. The appellant, Gas Authority of India Ltd.(GAIL) had an agreement with National Thermal Power Corporation (NTPC) to supply natural gas at its power plant in village Mujheri, district Faridabad, Haryana, and for which, from the main pipeline already laid by GAIL from Bijapur to Dadri, a tap had to be provided at the said main line by GAIL at village Chainsa wherefrom the respondent/contractor, Surya Roshni Ltd. Had to lay down a 14 KM spur pipe-line of 14 inch diameter connecting the point of tap with the plant of NTPC in village Mujheri. This was as per a contract entered into between GAIL and Surya Roshni Ltd. The tender documents, gave in detail the chemical composition of the steel pipes, the tensile strength etc., and suffice would it be to highlight that the steel pipes were required to withstand a design pressure of 92 kg. per square centimeter and a hydrostatic pressure of 129 kg. per square centimeter. The thickness of the steel sheets of which pipes were to be fabricated was to be 6.4 mm. Surya Roshni Ltd. laid down the pipe-line and when subjected to field hydrostatic test, by removing three pipe segments and subjecting them to field hydrostatic test, all three pipes failed the test inasmuch as much before the stipulated pressure was reached the pipes burst at the seam. As informed to us during arguments of the appeal, the pipes burst due to poor quality of welding when steel sheets were rolled to form a cylinder and the edges welded. It was a case of loose welding, as informed to us, and this explaining the pipes notwithstanding the requisite pressure and bursting at the seam.

3. Since time was running out for GAIL to comply with its contractual obligations with NTPC, the long drawn out process of replacing the entire 14 KM pipe-line was opined to be a counter-productive rectification procedure and a viable alternative found out was to de-rate the entire spur line to design pressure of 58.27 kg. per square centimeter and this required works to be executed at the tap of terminal at village Chainsa for safe operation of the pipe-lines at low pressure. Of course, the three pipes which had burst while conducting the field tests had to be replaced.

4. GAIL took resort to the latter and claimed six amounts under six different heads from Surya Roshni Ltd. which disputed liability. Proceeding to encash the performance guarantee in sum of `15,84,357/-, GAIL filed a civil suit against Surya Roshni Ltd. and since the contract between the parties had an arbitration clause, being Article 30.4.1 of the General Conditions of Contract, the dispute was referred to the sole arbitration of Justice Anil Dev Singh (Retd.), before whom GAIL submitted a statement of claim having an element of principal sums claimed and pre-claim interest. The principal sums claimed were as under:-S.No. Particulars Amount (in `)

5. The stand taken by Surya Roshni Ltd. before the learned Arbitrator was that in view of Article 20.3.2 of General Conditions of Contract it is only liable to reimburse GAIL for the cost incurred by it for replacing the pipes which had burst during field hydraulic test to the extent of 10% of the value of contract but is not liable to pay any damages to GAIL on account of failure of pipes during field hydraulic test.

6. As evident from the aforesaid, the controversy involved in the present case necessitated the interpretation of Article 20.3.2 of the General Conditions of Contract,

S.No. Particulars Amount (in `)

1. Cost of replacement of three burst pipe(s). Cost of one quoted price of M/s Krupp Hoesch Stahlen Port, GmbH used for replacing one burst pipe. 40,222.59

2. Costs of 2 quoted price of Respondent us