The main legal point established in the judgment is the interpretation and application of the force majeure clause, the award of interest, and the powers of the arbitrator.

S.S. Sudhalkar, J. - By this appeal, the appellant is challenging the order of the learned Additional Civil Judge (SD) in Arbitration case No. 7 of 1997 as also the award of the Arbitrator.

2. The appellant is the Electricity Board. Respondent company manufacturers transformers. On 24.4.1987 (Annexure C/2) the appellant placed an order for supply of 1500 transformers of 25 KVA. Respondent submitted to the appellant drawings pertaining to the general assembly and core coil assembly of transformer as per specification vide letter dated 14.5.1987 (Annexure C/5) which were approved by the appellant, subject to certain observations.

3. Clause No. 9 of the purchase order dated 24.4.1987 was sought to be amended by letter dated 15.5.1987 to the effect that the date of inspection of the transformers will be considered as the date of delivery. This letter is annexed as Annexure C/4.

4. The supply was to be completed @ 167 transformers per month by April 10, 1988 after it was commenced 45 days from the date of approval of the drawings. The time was the essence of the contract. However, the shortfall of a month was to be allowed to be completed during the next month without imposition of penalty.

5. The price of transformer i.e. Rs. 8,250/- ex-works was variable as per IEMA with base as 1.12.1986 and was exclusive of Excise Duty leviable on finished goods. Testing charges were to be paid extra. The appellant had a right to increase/decrease upto 40% of the ordered quantity on subsequent date on the same rate, terms and conditions, during the pendency of the contract. There was a bank guarantee of Rs. 1,27,500/-, which was valid upto 3 months after the completion of the contract period and it was agreed that if the respondent failed to deliver the material, within the stipulated period, the same was liable to be rejected and if accepted, respondent was liable to pay as penalty charges, a sum of 0.5% of the cost of undelivered supplies/incomplete equipment per fortnight of delay or part thereof not exceeding 5% of the total cost of undelivered material. No variation or modification or waiver of the terms and provisions of the Purchase order was deemed valid unless mutually agreed upon in writing by both the parties. However, there was a force majeure clause in Clause No. 13 which also included non-availability of Government controlled raw-material, according to which neither of the parties shall be liable for losses or damages due to delay or failure to perform the contract provided the happenings were notified in writing within 30 days from the date of occurrence.

6. Respondents case is that CRGO lamination which was an imported item and was canalised through MMTC, a Government of India Undertaking, and over which the Company had no control for its procurement, was in short supply for 2-3 months which fact was intimated to the appellant and therefore, covered by the force majeure clause. The supply was commenced only in Nov. 1987. However, due to paucity of funds with the appellant, the terms of payment were not adhered to by it. The date of inspection was to be considered as date of delivery and 100% payment pro rata was to be made on inspection. However, the payment of the supplies was delayed by two to three months. This, according to the respondent, amounted to breach of material conditions contained in Clauses No. 7 and 9 of the Purchase order. It is contended that this clause was aimed at prompt recycling of the funds in the form of price of Transformers back into manufacture of more transformers. The respondent contended that they highlighted this fact vide letters ranging from 8.12.1987 to 6.5.1988. It is, therefore, contended that the delay in payment led to retardation in the production of Transformers and paucity of funds was admitted by the appellant in their letter dated 7.1.1988. It is alleged that this perpetuated the delay. The appellant did not treat this as an automatic extension of time and went on deducting pen