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2016 Supreme(Del) 3648
IN THE HIGH COURT OF DELHI AT NEW DELHI
PRADEEP NANDRAJOG, PRATIBHA RANI, JJ.
OIL INDIA LIMITED - Appellant
Versus
ESSAR OIL LIMITED - Respondent
FAO (OS) 503 of 2012
Decided on : 29-09-2016
For the Appellant :Mr.Ciccu Mukhopadhyay, Sr.Advocate instructed by Mr.Navnit Kumar, Ms.Rashmi Gogoi and Mr.Shaan Mohan, Advocates
For the Respondent:Mr.Sandeep Sethi, Sr.Advocate instructed by Mr.Rishi Agrawala, Ms.Misha Rohtagi Mohta, Ms.Nadia Rafiq and Mr.Mayank Sapre, Advocates
Headnote:
OIL v ESSAR - CONTRACT - ARBITRATION - AWARD - VALIDITY - TERMINATION OF CONTRACT - INTERPRETATION OF CONTRACT - DELAY IN OBTAINING CLEARANCES - INCOMPETENCE AND INCAPABILITY OF CONTRACTOR - DAMAGES - INTEREST - ARBITRATION AND CONCILIATION ACT, 1996 - SECTIONS 34, 14(1), 14(2).
Fact of the Case:
OIL issued a Notice Inviting Tender for drilling and setting up four Offshore Oil/Gas Wells. ESSAR submitted its bid and was awarded the contract. The work had to be executed on turnkey basis i.e. drillship, associated equipment, personnel and services were to be provided by the bidder, called as operator under the NIT. ESSAR completed the work at location L-2, L-3 and L-4 and vide letter dated August 29, 1995, OIL extended the time for completion of the works till March 31, 1997. The dispute between the parties concerns what happened after August 29, 1995. OIL terminated the agreement on October 12, 1996 alleging that ESSAR was incompetent and incapable of performing the contract. ESSAR filed objections to the majority award under Section 34 of the Arbitration and Conciliation Act, 1996.
Finding of the Court:
The Court held that the termination of the agreement by OIL was not justified and ESSAR was entitled to damages arising out of invalid termination of agreement. The Court found that the majority arbitrators have looked into the competing clauses of the contract relied upon; the past conduct of the parties concerning drilling operations at locations L-2 to L-4 and the three letters having bearing on the issue to bring home the point that contemporaneous conduct of the parties was relevant as to how the parties understood and interpreted the contract. The Court also found that the view taken by the majority on issue No.1 is not perverse and needs to be set aside.
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: 1. Interpretation of a contract and giving meaning to various clauses of a contract is within the domain of the Arbitral Tribunal as also appreciation of evidence concerning contemporaneous conduct of the parties. 2. Effect of letters exchanged between the parties and inferences to be drawn is also within the domain of arbitration. 3. Unless conclusions arrived at are manifestly perverse, while considering challenge to an award, a Court is not to re-appreciate the evidence.
Final Decision: The Court dismissed the appeal and upheld the majority award. The Court also discharged the two bank guarantees furnished on behalf of the respondent in favour of the Registrar General of this Court.
PRADEEP NANDRAJOG, J.
1. OIL issued a Notice Inviting Tender on July 19, 1993 to drill and set up four Offshore Oil/Gas Wells, three at Saurashtra Offshore and one at Orissa Offshore. The work had to be executed on turnkey basis i.e. drillship, associated equipment, personnel and services were to be provided by the bidder, called as operator under the NIT. In response, ESSAR submitted its bid on December 06, 1993. There was an exchange of correspondence between the parties. Offer being accepted, OIL issued a letter of intent on February 20, 1995, which was followed by a formal agreement executed by the parties on May 08, 1995. As per the agreement the operations had to be completed within one year. Rates were fixed for payment. The three wells Offshore Saurashtra coast at locations L-2, L-3 and L-4 had to be completed first, followed by drilling at the location at L-1; Offshore Orissa. Depth to which the wells had to be drilled was specified. Number of days required for drilling and testing was recorded. Pertaining to location L-1, drilling days stipulated were 135. Testing days stipulated were 28. Meaning thereby, total days to complete the well and tested was 163 days. Inter-location movement time was 1 day from L-2 to L-3 and L-3 to L-4. From L-4 to L-1 inter-location movement time was 15 days. There was a delay in completing the works at location L-2, L-3 and L-4 and at the said three locations the work was completed on July 16, 1996. Vide letter dated August 29, 1995, OIL extended the time for completion of the works till March 31, 1997.
2. The dispute between the parties concerns what happened after August 29, 1995.
3. We propose to note the correspondence between the parties post July 16, 1996 when the work at location L-4 was completed till OIL terminated the agreement on October 12, 1996 while noting the submissions of the learned Senior Counsels for the parties with reference to the finding returned by the majority arbitrators against OIL, and at this stage simply note that there being an arbitration clause in the agreement between the parties, an Arbitral Tribunal was set up comprising : Justice R.S.Pathak (Former Chief Justice of India), Justice Rajinder Sachhar (Retired Chief Justice), Justice J.K.Mehra (Retd.), Justice R.S.Pathak was the Presiding Arbitrator. In view of the pleadings of the parties the Arbitral Tribunal settled the following seven issues for adjudication:-
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?
4. By a split verdict, the award was pronounced three years after the Arbitral Tribunal concluded hearing. The majority, comprising Justice R.S.Pathak and Justice J.K.Mehra awarded US$ 83,69,339 plus Rs.68,30,504/- to ESSAR. The minority awarded US$ 4,416,047 plus Rs.1,12,054/-. Put in a tabular form, the description of the claim and the amount awarded by the majority and the minority would be as under:-
TABLE RECORDING AMOUNT AWARDED BY MAJORITY AND MINORITY IN ARBITRATION
Claim No.
Description of Claim
Amount claimed by ESSAR Oil Ltd. (in US$/INR)
Amount awarded by Majority (in US$/INR)
Amount awarded by Minority (in US$/INR)
1.
Invoice No.Disc/10/96/017 dated 1 August 1996 in t
