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CASE NO.:

Appeal (civil) 4492 of 1998

PETITIONER:

Mcdermott International Inc.

RESPONDENT:

Burn Standard Co. Ltd. & Ors.

DATE OF JUDGMENT: 12/05/2006

BENCH:

B.P. Singh & S.B. Sinha

JUDGMENT:

J U D G M E N T

I.A. NOS.2-3

IN

CIVIL APPEAL NO. 4492 OF 1998

S.B. SINHA, J :

INTRODUCTION

Oil was discovered in the Bombay High Region in 1974 whereupon a

plan of rapid development of off-shore oil and gas production was embarked

by the Government of India through Oil and Natural Gas Commission

(ONGC). With a view to achieve exploration of production programme,

ONGC appointed contractors to fulfill substantial portions of its off-shore

construction requirements. Burn Standard Company Limited (for short

"BSCL") was interested in the second stage of platform construction of

ONGC, i.e., structural and progress fabrication and material procurement.

Four contracts were thereafter awarded in favour of BSCL for fabrication,

transportation and installation of six platforms bearing No. ED, EE, WI-8,

WI-9, WI-10 and N3 and associated pipelines. They were to be installed in

ONGC's Bombay High Sea.

CONTRACT

The said contracts covered:

(i) Material procurement and fabrication of the ED and EE jackets, piles

and decks.

(ii) Transportation and installation of the ED and EE jackets, piles and

decks.

(iii) Material Procurement and fabrication of the WI-8, WI-9, WI-10 and

N-3 Jackets, piles, temporary decks and decks (the "Four Platform

Fabrication Main Contract") and

(iv) Transportation and installation of the WI-8, WI-9, WI-10 and N-3

jackets, piles, temporary decks and decks, and installation of four

pipelines and eight risers (the "Four Platform Installation Main

Contract").

The said contracts contained arbitration agreements.

BSCL and Mcdermott International Inc. (for short "MII") entered into

Technical Collaboration Agreement on 25th September, 1984 in terms

whereof the latter agreed to transfer technology to the former with regard to

design, construction and operation of a fabrication yard. The said agreement

contains a separate arbitration clause between the parties.

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However, with regard to the fabrication and installation of off-shore

platforms, BSCL decided to give a sub-contract of the work to MII on a

project by project basis. BSCL while retained the job of fabrication of the

ED and EE decks, six helidecks and procurement of materials for the overall

project other than pipeline materials and some process equipment which was

issued by ONGC sub-contracted the remaining work.

In terms of a letter of intent dated 14th September, 1984 a contract was

entered into by and between BSCL and ONGC for fabrication and

installation of offshore platforms ED, EE, WI-8, WI-9, WI-10 and N-3 and

laying of WI-8 to WI-9, WI-9 to WI-10, WI-9 to WIS and N-3 to NO

pipelines and 8 associated risers as well as WI-7 to WI-8, WI-9 to SD, WI-

10 to SV, EB to SC1, EC to SHP, ED to SHP, EE to SHP pipelines and 11

associated risers. A part of the said contract work was assigned to MII in

respect of fabrication, transporation and installation of structures, modules,

platforms and pipeline components on or about 1st January, 1986. The work

under the said agreement was to be completed within 24 months but in all

respects it was completed in early 1989.

TERMS OF THE CONTRACT

The relevant covenants between the parties contained in the said

agreement are as under:

"Article 2. MII shall unless inconsistent with the

provisions of this Sub-contract perform fulfill and

observe all the obligations, covenants and

agreements required on the part of BSCL to be

performed, fulfilled and observed in terms of the

Main Contracts to the extent these obligations,

covenants and agreements relate to the Sub-

contract Work including such obligations,

agreements and covenants as may in future be

added, modified or provided in the Main Contracts

between the Buyer and BSCL with concurrence of

MII to the extent thereof. These obligations,

covenants and agreements, as have been agreed to

be performed, fulfilled and observed by MII shall

include the performance of the Sub-contract work

in the manner and to the specifications as provided

in the respective Main Contracts.

Article 3

3.1 MII shall be bound to BSCL by the terms of

this Sub-contract Agreement and to the extent that

the provisions of the respective Main Contract

between Buyer and BSCL apply to the relevant

Sub-Contract work of MII as defined in this Sub-

contract Agreement, MII shall assume towards

BSCL all the obligations and responsibilities

which BSCL, by such Main Contract, assumes to

Buyer and shall have the benefit of all rights,

remedies and redresses against BSCL which

BSCL, by such Main Contract, has against Buyer,

insofar as applicable to this sub-contract

Agreement, provided that when any provision of

the respective Main Contract between Buyer and

BSCL is inconsistent with this Sub-contract

Agreement, this Sub-contract Agreement shall

govern and prevail over the Main Contract.

3.2 BSCL shall be bound to MII by the terms of

this Sub-Contract Agreement and to the extent that

the provisions of the respective Main Contracts

between Buyer and BSCL apply to the relevant

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Sub-contract work of MII as defined in this Sub-

contract Agreement, BSCL shall assume towards

MII all the obligations and responsibilities that

Buyer, by such Main Contracts, assumes towards

BSCL, and shall have the benefit of all rights,

remedies and redress against MII which Buyer, by

such Main Contracts, has against BSCL insofar as

applicable to this sub-contract Agreement provided

that when any provisions of the Main Contract

between Buyer and BSCL is inconsistent with any

provisions of this Sub-contract Agreement, this

Sub-contract Agreement shall govern and prevail

over the Main Contract.

Article \026 5

5.1 Except as otherwise provided herein, all claims

made by Buyer against BSCL shall be the

responsibility of MII when such claims arise or are

derived from MII's Sub-contract Scope of Work;

similarly, all claims made by Buyer that arise or

derive from BSCL's Scope of Work shall be the

responsibility of BSCL. To the extent that BSCL,

as Main Contractor vis-`-vis Buyer, would be

liable for any claims that arise or are derived from

MII's Sub-contract Scope of Work, MII shall hold

harmless and keep indemnified BSCL from any

such claims to the extent analogous with MII's

Sub-contract.

Article \026 6 - Arbitration

6.1 Should there by any dispute or difference

between BSCL and Buyer in regard to any matter

connected with BSCL relating to or arising out of

the Main Contract (s), which may involve MII's

performance or affect MII's interest under the

subcontract, BSCL shall keep MII informed and

shall act in consultation and coordination with MII

to ascertain the facts and agree on the appropriate

action to be taken. MII shall render all assistance

and cooperation that BSCL may require in this

regard. If it is determined that the dispute or

difference does not involve MII's performance or

affect MII's interests, MII shall render such

reasonable assistance and cooperation as BSCL

may require; provided, however, that MII shall be

entitled to reimbursement of costs, if any, incurred

therefor with the prior approval of BSCL.

6.2 If any dispute or difference arising between

BSCL and Buyer under or in respect of or relating

to the Main Contract insofar as it relates to the

work to be carried out by MII is referred to

arbitration and any award/ judgment/ decree/ order

is passed, or a settlement is otherwise reached with

MII's consent, MII shall be bound to accept the

same and bear all MII's liability resulting

therefrom. MII shall, however, be assisted at all

stages by BSCL with such arbitration proceedings

and MII shall bear all expenses of such arbitration/

litigation and/ or negotiated settlement, if any.

However, expenses incurred by BSCL in deputing

their officials to attend such arbitration/

proceeding/ litigation would be to BSCL/s

accounts.

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6.3 All disputes and differences in respect of any

matter relating to or arising out of or in connection

with the execution or construction of this

subcontract document, if the same cannot be and/

or is not the subject matter of dispute between

BSCL and the Buyer under the Main Contracts and

is not settled mutually by negotiation, shall be

referred to arbitration under the Indian Arbitration

Act, 1940, as amended from time to time, by

appointing some agency acceptable to both the

parties as Arbitrators and if no agency is found

acceptable to both the parties, then by constituting

a Board of Arbitration consisting of three

Arbitrators, one to be nominated/ appointed by

each party and the third to be appointed by the two

Arbitrators as Umpire. The arbitration proceeding

shall be held at New Delhi and the decision of the

Arbitrators or the Umpire as the case may be shall

be final and binding on both parties hereto. The

arbitrators or the umpire, as the case may be, shall

record their reasons for passing awards, copies of

which shall be sent to the parties.

Article -10

10.1 Any amendment and/ or modification of this

Sub-contract shall be valid only if it is in writing

and signed by both the parties.

All other terms and conditions not specified in this

sub-contract shall be as stipulated in the Main

Contracts.

10.2 This Sub-Contract Agreement shall be

governed by the Laws of the Republic of India."

DISPUTES

Disputes and differences having arisen between the parties, MII

invoked the arbitration clause by a legal notice dated 10th April, 1989.

Several proceedings as regards invocation of arbitration clause were

initiated by the parties before the Calcutta High Court. The said proceedings

ultimately ended in favour of MII leading to appointment of two arbitrators

for determination of the disputes and differences between the parties. The

arbitrators who were earlier appointed were removed and Mr. Justice A.N.

Sen, a retired Judge of this Court was appointed as a sole arbitrator. It is

stated that Mr. Justice A.N. Sen declined to act as an Arbitrator and by an

order dated 28th August, 1998, Mr. Justice R.S. Pathak was appointed by this

Court as a sole arbitrator. The Arbitrator was to continue with the

proceedings from the stage it had reached. The said order is in the following

terms:

"1. Mr. Justice R.S. Pathak, retired Chief Justice of

India is appointed as the sole Arbitrator. In the

case to resolve the disputes and differences which

had been raised by the parties and were the subject

matter of the arbitration proceedings before the

arbitrators earlier appointed;

2) That the Learned Arbitrator shall enter upon the

reference within three weeks from the date of

service of this order upon him.

3) That the arbitration proceedings shall be held at

New Delhi. However, in the event the learned

Arbitrator considers it necessary to hold any sitting

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at any other place, he may do so with the consent

of the parties;

4) The learned Arbitrator shall continue with the

proceedings from the stage where the proceedings

of the arbitration were on 8.5.1998, when the

impugned order came to be made by the Calcutta

High Court;

5) All the proceedings held till 8.5.1998 shall be

treated as the arbitration proceedings held before

the learned sole Arbitrator now appointed;

6) It shall be in the discretion of the learned

Arbitrator to take or not to take oral evidence or to

take oral evidence by way of affidavits. The

learned arbitrator would be at liberty to adopt

summary proceedings for concluding arbitration

proceedings.

7) That the learned Arbitrator shall publish his

Award, as far as possible, within a period of one

year from the date of entering upon the reference;

8) That the fees of the Arbitrator (which may be

fixed by him) and all expenses of arbitration

proceedings shall be shared equally by the parties;

9) The learned Arbitrator shall file the Award in

this Court.

10) Any application which may become necessary

to be filed during or after the conclusion of

arbitration proceedings, shall be filed only in this

Court."

CLAIM OF MII

Before the learned Arbitrator, MII raised the following claims:

1.

For Fabrication of jackets,

Temporary Decks and Main Decks

US$ 1,182,817.94

2.

For Transportation and Installation

of jackets and Decks

US$ 4,351,062.68

3.

For Installation of Pipelines and

Risers

US$ 840,064.23

4.

For Structural Material

Procurement

US$ 5,301,534.13

For Bulk Material Procurement

US$ 84,919.14

UKL 262,296.43

S$ 680,764.29

5.

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For Transportation of Pipe

US$ 1,231,415.00

6.

For Reimbursables

US$ 377,309.30

7.

For Change Orders and Extra Work

US$ 7,423,741.95

8.

For Delays & Disruptions

US$ 13,233,343.00

8A.

For exchange Entitlements

US$ 2,881,195.03

9.

For Interest upto 21 August, 1989

US$ 10,909,772.19

UKL 148,254.14

S$ 521,102.56

Total

US$47,817,174.59

UKL 410,550.57

S$ 1,201,866.85"

Before the Arbitrator, apart from the aforementioned amount, interest

on the outstanding amount was also claimed at the rate of 15% per annum on

all claims for which invoices were not paid until the award, as well as

interest from 21st August, 1989 and future interest at the rate of fifteen per

cent.

BSCL filed counter statements as also counter-claims before the

learned Arbitrator.

The learned arbitrator took up for his consideration the following

claims for his consideration:

1. Fabrication of Jackets, Temporary Decks and Main Decks

2. Transportation and Installation of Jackets, Decks (Permanent &

Temporary) and Helidecks

3. Pipelines and Risers Installation

4. Structural Material and Rolling

5. Bulk Material

6. Transportation of Pipes

7. Reimbursables

8. Change Orders and Extra Works

9. Delays and Disruptions

9A. Whether MII is entitled to an exchange loss as claimed in

paragraphs 4.74 to 4.78 of the Statement of Claims? If so, in what

amount?

10. Interest

11. Jurisdiction

12. Did MII commit breach of the contract?

13. Is the Claim of MII barred by limitation?

14. Counter Claim

15. General

It was agreed to by and between the learned counsel for the parties

that the 1996 Act in stead and in place of 1940 Act shall apply.

PARTIAL AWARD

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The learned arbitrator having heard the parties inter alia on

jurisdictional question initially passed a partial award on 9th June, 2003

determining the same in favour of MII. The decision on points Nos. 6, 8 and

9 were deferred for a period of four months by the learned Arbitrator so as to

enable BSCL to dispose of all claims raised by MII in the meanwhile which

had arisen before reference to the arbitration. The said claims were rejected.

A detailed reasoned statement by ONGC/BSCL referring to each individual

document relied upon were filed in the arbitral proceedings. However, by

reason of the said partial award, as regards points Nos. 1 to 5, 7 and 9A, MII

became entitled to payment from BSCL the following amounts:

"On Point No. 1

US$

1,182,817.69

On Point No. 2

US$

US$

3,133,612.40 &

28,400.00

On Point No. 3

US$

US$

665,039.41 &

54,000.00

On Point No. 4

US$

US$

2,809,100.54 &

2,300,200.00

On Point No. 5

US$

UK Pound

Singapore$

65,207.39

232,604.40 &

548,271.81

On Point No. 7

US$

322,351.87

US$

52,422.51

US$

1,573,466.00

US$

512,187.16

On Point No. 9A

US$

3,330,790.94"

PROCEEDINGS RE: ADDITIONAL AWARD

On point No. 10, MII was held to be entitled to interest on the amount

awarded at the rate of 10% per annum from the date on which the amount

fell due for payment till the date of the partial award and the awarded

amount together with interest was directed to bear interest at the same rate

from the date of the award to the date of payment.

The parties thereafter filed applications under Section 33 of the

Arbitration and Conciliation Act, 1996 alleging that certain claims made by

them had not been dealt with and/ or were omitted from consideration by the

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learned arbitrator in his partial award.

MII in its application contended:

"(i) While deciding Point No. 4 regarding

Structural Material and Rolling, MII's claim for

US$ 128,000.00 as contended in paragraph 4.29 of

the Statement of Claim has not been dealt with and

has been omitted from the Award.

(ii) While deciding Point No. 7 regarding

Corporate Income Tax, MII's claim that BSCL

should be liable to the tax authorities for all further

liabilities for Indian Corporate Income Tax as may

be assessed in respect of the income received by

MII under the Sub-contract as also for all tax

liabilities that may be assessed in respect of any

Award in favour of MII in the present arbitration

proceedings as contained in paragraph 4.84 of the

Statement of Claim has not been dealt with and has

been omitted from the Award.

(iii) In deciding Point No. 7 regarding Corporate

Income Tax, MII has claimed two amounts one of

US$ 804,789.36 being interest @15% per annum

up to 29 February, 1992 paid by MII in respect of

Corporate Income Tax liability to the Tax

authority, and the other on account of principal

amount of tax payment of US$ 1,623,048.00. In

paragraphs 18.17 and 18.18 of the Award, the

learned Arbitrator has in respect of the principal

claim allowed an amount of US$ 1,573,466.00 on

account of Corporate Income Tax and an amount

of US$ 512,187.16 by way of interest. MII has

also claimed interest on these two amounts from

29 February 1992 till payment. This claim for

interest has not been dealt with in the Award and

has been omitted from the Award.

(iv) While deciding Point No. 10 relating to

interest, MII's claim for interest on amounts paid

but paid late as contained in paragraphs 5.1 and 5.2

has not been dealt with and has been omitted from

the Award."

BSCL raised a preliminary objection in regard to the MII's claim

under Section 33 of the Act contending that there exists no provision for

making a partial award.

ADDITIONAL AWARD

By reason of the additional award dated 29th September, 2003, the

learned Arbitrator, however, held:

"1. MII's claim in respect of US$ 128,000.00 is

not accepted.

2. MII's claim for a declaration that BSCL is liable

to the tax authorities for all further liabilities for

Indian Corporate Income-tax as may be assessed in

future in respect of income received by MII under

the Sub-Contract is allowed only insofar as it

related to MII's liability, if any, to Corporate

Income-tax, on the amounts awarded to it by a

Partial Award, an Additional Award and a Final

Award.

3. MII is entitled to interest at 10% per annum for

the period from 1 March 1992 to the date of

payment in respect of the principal amount of US$

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1,573,466.00 on account of Corporate Income-tax

and the interest amount of US$ 512,187.16

calculated up to 29 February, 1992.

4. MII is entitled to interest at 10% per annum for

the period of delay in BSCL making payment of

MII's invoices, that if, for the period from due date

of payment to the date of actual payment. Such

amount will carry interest at 10% per annum from

the date of the Partial Award to the date of its

payment."

The learned Arbitrator rejected the BSCL's objection in regard to the

maintainability of the said proceeding stating that the same can be a subject

matter for determination of jurisdictional question in a proceeding under

Section 33 of the 1996 Act.

BSCL filed an application under Section 34 of the Act questioning the

said partial award dated 9th June, 2003 as also the additional award dated

29th September, 2003.

FINAL AWARD

The learned Arbitrator thereafter took up the left over matters for his

consideration, viz., points Nos. 6, 8 and 9 observing that ONGC in the

meantime had expressed no interest in participating in the decision making

process at the inter-party level and, thus, arrived at an inference that the

machinery set up under the sub-contract has broken down and it would be

for him to determine the same.

The final award was thereupon passed.

On point No. 6 which related to transportation of pipes, the learned

arbitrator held MII to be entitled to US$ 919,194.32 against BSCL in respect

of the nine barge pipes for transporting them from Mangalore to Bombay.

Point No. 8 related to Change Orders and Extra Work. The learned

Arbitrator awarded MII US$ 305,840.00 as regards Change Order No. 1. As

regards Change Order No. 6, MII was awarded US$72,000.00 against

BSCL. Furthermore, in respect of Change Order No. 9, MII was awarded

US$ 300,000.00 against BSCL. As regards Extra Work, MII was awarded

US$ 4,870,290.96 against BSCL pursuant to the invoices covered under the

said point whereas MII's claim for US $637,473.00 was rejected.

Point No. 9 related to delays and disruptions. MII was awarded US$

574,000.00 against BSCL in respect of Change Order No. 2. MII was

further awarded US$1,271,820.00 and US$355,000.00 against BSCL under

Change Order Nos. 3 and 7 respectively. As regards increased cost and

expenditure incurred by MII, it was awarded US$8,973,031.00.

So far as the claim of interest is concerned, the learned arbitrator

made the following order:

"MII is entitled to interest on the amounts awarded

under various heads by Final Award. In my

opinion, having regard to the circumstances of the

case, a rate of interest at 10 percent per annum will

be appropriate from the date on which the amount

fell due for payment to the date of this Final

Award. The awarded amount including interest

shall bear the interest at the same rate from the

date of this Final Award to the date of the payment

by BSCL."

The learned arbitrator also awarded US$750,000.00 as costs of the

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arbitration.

An application was filed by BSCL under Section 34 of the Act

praying for setting aside the final award.

SUBMISSIONS:

Mr. Jayanto Mitra, learned senior counsel and Mr. Pallav Sisodia,

learned counsel appearing on behalf of BSCL made the following

submissions:

(i) The arbitrator had no jurisdiction to make a partial award which is

not postulated under the 1996 Act as an award in piecemeal is

impermissible in law.

(ii) While making the partial award, the learned Arbitrator opined that

involvement of ONGC was imperative for determination of point

Nos. 6,8 and 9, i.e., claims relating to transportation of pipes,

Change Orders and Extra Work and delays and disruptions and,

thus, the final award must be held to be bad in law.

(iii) As the subcontract provided for a back to back contract,

determination of various claims depended upon determination of

interpretative application of the main contract by ONGC wherefor

directions of ONGC were binding on the parties.

(iv) Although US $ 8.8 million has been awarded as regard alleged

delay and disruption of work, no reason, far less any cogent or

sufficient reason, as was mandatorily required in terms of Section

31 of the Act having been assigned, the impugned award is vitiated

in law.

(v) In its award, the learned Arbitrator was bound to determine the

actual loss suffered by the parties and as the same was not

determined, the award cannot be enforced.

(vi) The award as regards loss of profit under various heads is based on

no evidence and, thus, wholly unreasonable.

(vii) The claims made by MII were not only contrary to the terms of

contract but also substantive law of India and were otherwise

opposed to public policy.

(viii) As the contract did not contain any agreed schedule or any

stipulation as to whether the work was required to be finished

within a stipulated period, in view of the fact that the contention of

the MII was that the time was of the essence of contract, the only

remedy available to it in terms of Section 55 of the Indian Contract

Act was to revoke the contract upon giving a notice therefor. In

absence of such a notice, damages could not be claimed. Reliance

in this behalf has been placed on Arosan Enterprises Ltd. Vs.

Union of India and Another [(1999) 9 SCC 449].

(ix) No amount towards extra work was payable to MII having regard

to the payment clauses contained in the contract and in particular

the minutes of the meeting held by the parties on 9th August, 1984.

(x) In view of the clear terms of the contract, ONGC was a necessary

party and the learned Arbitrator committed an error in refusing to

implead it in the proceeding.

(xi) The learned Arbitrator having rejected the claim of the MII in his

partial award dated 9th June, 2003 on the ground that increased

overhead decrease of profit and additional management cost had

not been raised before reference to arbitration and, thus, was

beyond the scope of arbitral reference, could not have determined

the self same question in his final award. The objection and the

award for US$ 8.8 million had not been taken into consideration

and, thus, the same is liable to be set aside.

(xii) The learned Arbitrator could not have awarded the said sum solely

on the basis of the opinion of one Mr. D.J. Parson who did not

have any personal knowledge of the facts of the case, particularly

in view of the fact that no evidence was adduced as regards

sufferance of actual loss by MII. Mechanical application of

Emden Formula was also wholly uncalled for and no award could

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be made relying on or on the basis thereof.

(xiii) So far as the claim of extra work is concerned, the learned

Arbitrator has wrongly allowed the claim of MII in respect of

invoice Nos. 2806470 to 2806475 although due date for payment

of the said amount fell after the commencement of reference to

arbitration and, thus, as no dues existed on that date, the Arbitrator

had no jurisdiction to make an award in relation thereto.

(xiv) As regards "exchange loss", MII's claim was allowed without any

amendment to the statement of claim. Claim of MII was wrongly

allowed by the learned Arbitrator for entire value of the invoices

without any deduction as delay in making payment by BSCL to

MII on account of delay in receiving payment from ONGC has no

relevance and in any event was contrary to the terms of the

contract.

The learned Arbitrator had also not taken into consideration that in

terms of the contract, foreign exchange rate was frozen at the rate

of Rs. 100 X 8.575 Dollars as was applicable on 9th August, 1984.

(xv) The claim for US$ 2.3 million was outside the scope of reference

to arbitration as no demand therefor was made. Such a claim was

made for the first time only in the statement of claim.

(xvi) In terms of Clause 37 of the contract entered into by and between

ONGC and BSCL, no award by way of damage was payable.

Similar provision was also contained in the subcontract entered

into by and between the parties.

(xvii) As MII was to compensate for the supply of materials by BSCL

subsequently, no award for a sum of US$ 2.3 million could be

made.

(xviii) As no invoice in respect of the claim of US$ 28,400 on account of

an additional barge trip to transport the ED Temporary Deck had

been raised, the learned Arbitrator had no jurisdiction to decide the

same.

(xix) The award under the said head for a sum of US$ 54,000 on account

of additional survey of WIS and WI9 pipeline was not an arbitrable

dispute being clearly outside the purview of the arbitration

proceedings.

(xx) Relying on or on the basis of American Institute of Steel

Construction (AISC) Code as a base for measurement being

contrary to the contract, the award is liable to be set aside..

(xxi) (a) Re: Buoyancy Tanks in respect of ED and EE Jackets

As BSCL had paid MII for fabrication of the same buoyancy tanks

and the buoyancy tanks were the same which were used for W18,

W19 and W110 and N3 Platform, claim on the said account once

over again was not maintainable ignoring the the evidence of Mr.

S.K. Mukherjee (RW-1).

(b) Tie Down and Sea Fastening

As Tie Down materials are required for safe transportation of

structures allotted on transportation barge, the learned Arbitrator

erred in allowing the claim of MII as they are not permanent part

of jacket decks of any platform.

(c ) Substitution of Materials

The learned Arbitrator committed a serious error in not taking into

account the material evidence adduced by BSCL to the effect that

MII was instructed to substitute the specified materials with

available material at no additional cost of fabrication.

In terms of the contract, it was for the MII to procure the materials

which were to be reimbursed by BSCL. The claim for US$

20832.108 was based on fabrication charges on account of

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increased tonnage for material substitution for W18, W19, W110

and N3 jackets and piles as well as ED and EE jackets and, thus, as

the learned Arbitrator had allowed claim only to the extent of

fabrication, the amount claimed by MII could not have been

allowed in toto.

Mr. Dipankar Gupta, learned senior counsel appearing on behalf of

MII, on the other hand, submitted that no case has been made out for setting

aside the award of the learned Arbitrator.

In reply to the submissions made on behalf of BSCL, it was urged:

Re. Increased Overhead Decrease of Profit and Additional Management

Cost

The amount has been awarded on the basis of statement of Mr. D.J.

Parsons. The contract clearly provided that W18, W19, W110 and N3

platforms were to be completed by 30th December, 1985 whereas ED and EE

platforms were to be commissioned in February, 1986. It is not the case of

MII that the time was of the essence of contract and, thus, in terms of

Section 55 of the Indian Contract Act, damages were payable. Even in terms

of the main contract between BSCL and ONGC, time was not of the essence

of the contract. The contract contained clauses for extension of time and

liquidated damages which is also indicative of the fact that time was not of

the essence of the contract and, thus, damages for delay is permissible in law

in view of the decision of this Court in Hind Construction v. State of

Maharashtra [(1979) 2 SCC 70]

Change Order Nos. 2, 3 and 7 covered compensation under various

heads as specified therein. The award of the learned Arbitrator clearly

shows that additional costs had been incurred by MII and, thus, the award

cannot be faulted. The partial award did not deal with the said claims. The

dispute was specifically referred to arbitration in terms of notice dated 10th

April, 1998. The quantification of damages being a matter of evidence and

proof, no case has been made out for interference with the award particularly

in view of the fact that BSCL had never raised any objection as regards the

jurisdiction of the Arbitrator.

Reliance on the Emden Formula cannot be said to be against the law

prevailing in India as Sections 55 and 73 of the Indian Contract Act provided

only for entitlement to compensation and not the mode and manner in which

such compensation is to be quantified.

Clause 37 of the Main Contract between ONGC and BSCL has no

application as MII's claim is not for any consequential damage but for the

direct losses occasioned by BSCL's breach of contractual duty to honour its

time bound commitments. The said clause cannot be extended to the

obligations towards MII under the sub-contract as ONGC has no role to play

in respect of the breach of its obligations towards it by BSCL under the sub-

contract.

Re: Partial Award

A partial award is in effect and substance an interim award within the

meaning of Section 31(6) and 2(c) of the Act and, thus, the validity of the

partial award is not open to question.

Re: Exchange Loss

Clause 4.0 of contract only relates to payment for transportation and

installation and BSCL did not make any payment to MII despite receipt of

the whole amount from ONGC except an amount of Rs. 12,70,290/-. In any

event, Clause 4.0 has no relevance to the exchange loss dispute. BSCL

acted contrary to the agreed terms as it made payment upon applying the

fixed exchange rate of Rs. 100 = US$8.575. BSCL was to pay to MII the

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amount as per the current rate, only on reconciliation MII was to refund the

excess amount to BSCL which ensured that exchange loss would be shared

by both the parties.

Re: Uninvoiced Claims

BSCL never raised any objection before the Arbitrator that the claim

for US$ 2,300,200 for procurement of structural material could not be raised

in view of the provisions contained in Section 16 of the 1996 Act. Invoice

in any event, is merely a basis for claim and such a claim may be raised in

correspondences as also in the meetings. The claim for US$ 2,300,200 was

not strictly claim for damages, as in terms of the contract BSCL was

required to procure the steel and as it being not in a position to do so, MII

agreed to procure the same on its behalf if BSCL would agree to pay US$

2,300,200 to cover MII's cost for accelerated procurement and other costs.

This offer was the subject matter of correspondence between the parties. As

no dispute was raised to recover the same amount from BSCL, procurement

job was undertaken. The finding arrived at by the learned Arbitrator in this

behalf is entirely a finding of fact. Reference to Clause 5 of the Contract was

wholly irrelevant. This clause provides that BSCL shall procure suitable

steel for "jackets' on replacement basis for MII purchased steel. BSCL did

not procure the required amount of steel to replace the structural materials

that MII provided from its inventory as an accommodation to BSCL. MII did

so on the understanding that the structural material removed from MII's

inventory would be promptly replaced by BSCL. BSCL did not replace the

material.

Re: Method of Measurement

Clause 23.1.1 (a) & (c) of the Main Contract between BSCL and

ONGC has no application as the same covers payment for 'structural

material' which is an altogether different claim being Claim No. 4. The

claim was towards labour charges for fabrication of structures, labour

charges and not claim for cost of material. AISC Code applied in relation to

the fabrication job is as under:

"The scheme of the Contract provides in relation to

Fabrication and the application of AISC Code is

explained below:

(i) the sub-contract provides total estimated tonnage of

18, 178 ST with following break-up:

ED?EE Platforms 6078 ST (page 166 I.A. no.2 Vol.2)

WI8, WI9, WI10 and N3 platforms

12,100 ST/ 18, 178 ST (page 371 I.A. no.2 vol.2)"

Re: Buoyancy Tanks for ED and EE Jackets

MII's claim is for labour cost at the rate of US$ 1067 per ST involved

for fabrication work in the refurbishment of the Buoyancy Tanks. The

finding of the Arbitrator is a finding of fact inter alia based on the admission

of the witness, namely, Shri S.K. Mukherjee, who was examined on behalf

of BSCL

Re: Tie Down and Sea Fastening

In offshore construction, jackets and decks are fabricated onshore and

then they are transported on barges to the offshore location for installation.

Jobs pertaining to Tie Down and Sea Fastening required substantial

fabrication work and no claim has been made towards costs of welding the

Tie Downs and Sea Fasteners to the deck.

Clause 2 of the Contract would have no application to the instant case

as it provides only for a stage payment on milestone basis. But, clause

2.1(a)(i) which substantially covers sea fastening job as part of the

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fabrication contract would be applicable. BSCL had not been able to show

that the fabrication of Tie Down and Sea Fastening materials were included

within the scope of transportation and not as a separate item under the head

'fabrication'.

Re: Substitution

It was for BSCL in terms of the sub-contract to procure and supply all

materials but as it was not in a position to do so, MII on instructions of

BSCL used available materials which was having larger thickness and

weight vis-a-vis those specified in the ONGC's specifications. The same

having been approved both by the Engineer and ONGC, MII was entitled to

compensation towards the labour charges at the rate of US$ 1067 per ST.

Re: Extra Work Invoice Nos. 2806470 to 2806475

The invoices which were contained in Annexure 9 to MII's statement

of claims were substituted by new documents in terms whereof the due date

of invoice was corrected to 9th March, 1989 and, thus, fall due for payment

prior to the notice dated 10th April, 1989 invoking arbitration. The payment

of extra work became due when the work was performed and moreover, the

invoices in question did not specify any date for payment.

Re: Interest

The ground has been taken only in the supplementary affidavit filed

on behalf of BSCL on 21st September, 2004 beyond a period of three months

as specified in Section 34 of the Act. The Arbitrator has awarded the

principal amount and interest thereon upto the date of award and future

interest thereupon which do not amount to award on interest on interest as

interest awarded on the principal amount upto the date of award became the

principal amount which is permissible in law.

CHALLENGE TO AWARD: LEGAL SCOPE OF

Section 2(1)(b) of the 1996 Act reads as under:

"2(1)(b) "arbitration agreement" means an agreement

referred to in section 7"

In terms of the 1996 Act, a departure was made so far as the

jurisdiction of the court to set aside an arbitral award is concerned vis-`-vis

the earlier Act. Whereas under Sections 30 and 33 of the 1940 Act, the

power of the court was wide, Section 34 of the 1996 Act brings about certain

changes envisaged thereunder.

Section 30 of the 1940 Act reads, thus:

"Grounds for setting aside award \026 An award shall not be

set aside except on one or more of the following grounds,

namely:

(a) That an arbitrator or umpire has misconducted

himself or the proceedings;

(b) That an award has been made after the issue of an

order by the Court superseding the arbitration or after

arbitration proceedings have become invalid under Sec

35;

(c) That an award has been improperly procured or is

otherwise invalid."

The Section did not contain expression "error of law\005.". The same

was added by judicial interpretation. While interpreting Section 30 of the

1940 Act, a question has been raised before the courts as to whether the

principle of law applied by the arbitrator was (a) erroneous or otherwise or

(b) wrong principle was applied. If, however, no dispute existed as on the

date of invocation, the question could not have been gone into by the

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Arbitrator.

CHANGES UNDER THE NEW ACT

The 1996 Act makes a radical departure from the 1940 Act. It has

embodied the relevant rules of the modern law but does not contain all the

provisions thereof. The 1996 Act, however, is not as extensive as the

English Arbitration Act.

Different statutes operated in the field in respect of a domestic award

and a foreign award prior to coming into force of the 1996 Act, namely, the

1940 Act, the Arbitration (Protocol and Convention) Act, 1937 and the

Foreign Awards (Recognition and Enforcement) Act, 1961. All the

aforementioned statutes have been repealed by the 1996 Act and make

provisions in two different parts, namely, matters relating to domestic award

and foreign award respectively.

Vis-`-vis Grounds for setting aside the award:

After the 1996 Act came into force, under Section 16 of the Act the

party questioning the jurisdiction of the arbitrator has an obligation to raise

the said question before the arbitrator. Such a question of jurisdiction could

be raised if it is beyond the scope of his authority. It was required to be

raised during arbitration proceedings or soon after initiation thereof. The

jurisdictional question is required to be determined as a preliminary ground.

A decision taken thereupon by the Arbitrator would be subject matter of

challenge under Section 34 of the Act. In the event, the arbitrator opined

that he had no jurisdiction in relation thereto an appeal thereagainst was

provided for under Section 37 of the Act.

The 1996 Act makes provision for the supervisory role of courts, for

the review of the arbitral award only to ensure fairness. Intervention of the

court is envisaged in few circumstances only, like, in case of fraud or bias by

the arbitrators, violation of natural justice, etc. The court cannot correct

errors of the arbitrators. It can only quash the award leaving the parties free

to begin the arbitration again if it is desired. So, scheme of the provision

aims at keeping the supervisory role of the court at minimum level and this

can be justified as parties to the agreement make a conscious decision to

exclude the court's jurisdiction by opting for arbitration as they prefer the

expediency and finality offered by it.

However, this Court, as would be noticed hereinafter, has the occasion

to consider the matter in great detail in some of its decisions.

In Primetrade AG v. Ythan Ltd. [(2006) 1 All ER 367], jurisdictional

issue based on interpretation of documents executed by the parties fell for

consideration having regard to the provisions of the Carriage of Goods by

Sea Act, 1992. It was held that as the appellant therein did not become

holder of the bills of lading and alternatively as the conditions laid down in

Section 2(2) were not fulfilled, the arbitrator had no jurisdiction to arbitrate

in the disputes and differences between the parties.

Vis-`-vis the duty to assign reasons

Another important change which has been made by reason of the

provisions of the 1996 Act is that unlike the 1940 Act, the Arbitrator is

required to assign reasons in support of the award. A question may

invariably arise as to what would be meant by a reasoned award.

In Bachawat's Law of Arbitration and Conciliation, Fourth Edition,

pages 855-856, it is stated:

"\005'Reason' is a ground or motive for a belief or a course

of action, a statement in justification or explanation of

belief or action. It is in this sense that the award must

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state reasons for the amount awarded.

The rationale of the requirement of reasons is that

reasons assure that the arbitrator has not acted

capriciously. Reasons reveal the grounds on which the

arbitrator reached the conclusion which adversely affects

the interests of a party. The contractual stipulation of

reasons means, as held in Poyser and Mills' Arbitration

In Re, "proper, adequate reasons". Such reasons shall not

only be intelligible but shall be a reason connected with

the case which the court can see is proper. Contradictory

reasons are equal to lack of reasons.

The meaning of the word " reason" was

exaplained by the Kerala High Court in the contest of a

reasoned award\005

"Reasons are the links between the materials on

which certain conclusions are based and the actual

conclusions."\005

A mere statement of reasons does not satisfy the

requirements of s.31(3) . Reasons must be based upon

the materials submitted before the arbitral tribunal. The

tribunal has to give its reasons on consideration of the

relevant materials while the irrelevant material may be

ignored\005

Statement of reasons is mandatory requirement

unless dispensed with by the parties or by a statutory

provision."

In Konkan Railway Corporation Ltd. v. Mehul Construction Company

[(2000) 7 SCC 201], this Court emphasized the mandatoriness of giving

reasons unless the arbitration agreement provides otherwise.

Public Policy

In Renusagar Power Co. Ltd. v. General Electric Co. [(1994) Supp 1

SCC 644], this Court laid down that the arbitral award can be set aside if it is

contrary to (a) fundamental policy of Indian Law, (b) the interests of India;

or (c) justice or morality. A narrower meaning to the expression 'public

policy' was given therein by confining judicial review of the arbitral award

only on the aforementioned three grounds. An apparent shift can, however,

be noticed from the decision of this Court in Oil and Natural Gas

Corporation Ltd. v. Saw Pipes Ltd. (for short 'ONGC')[(2003) 5 SCC 705].

This Court therein referred to an earlier decision of this Court in Central

Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly [(1986) 3

SCC 156] wherein the applicability of the expression 'public policy' on the

touchstone of Section 23 of the Indian Contract Act and Article 14 of the

Constitution of India came to be considered. This Court therein was dealing

with unequal bargaining power of the workmen and the employer and came

to the conclusion that any term of the agreement which is patently arbitrary

and/ or otherwise arrived at because of the unequal bargaining power would

not only be ultra vires Article 14 of the Constitution of India but also hit by

Section 23 of the Indian Contract Act. In ONGC (supra), this Court, apart

from the three grounds stated in Renusagar (supra), added another ground

thereto for exercise of the court's jurisdiction in setting aside the award if it

is patently arbitrary.

Such patent illegality, however, must go to the root of the matter. The

public policy violation, indisputably, should be so unfair and unreasonable

as to shock the conscience of the court. Where the Arbitrator, however, has

gone contrary to or beyond the expressed law of the contract or granted

relief in the matter not in dispute would come within the purview of Section

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34 of the Act. However, we would consider the applicability of the

aforementioned principles while noticing the merit of the matter.

What would constitute public policy is a matter dependant upon the

nature of transaction and nature of statute. For the said purpose, the

pleadings of the parties and the materials brought on record would be

relevant to enable the court to judge what is in public good or public interest,

and what would otherwise be injurious to the public good at the relevant

point, as contradistinguished from the policy of a particular government.

[See State of Rajasthan v. Basant Nahata, (2005) 12 SCC 77].

In ONGC (supra), this Court observed:

"31. Therefore, in our view, the phrase "public

policy of India" used in Section 34 in context is

required to be given a wider meaning. It can be

stated that the concept of public policy connotes

some matter which concerns public good and the

public interest. What is for public good or in public

interest or what would be injurious or harmful to

the public good or public interest has varied from

time to time. However, the award which is, on the

face of it, patently in violation of statutory

provisions cannot be said to be in public interest.

Such award/judgment/decision is likely to

adversely affect the administration of justice.

Hence, in our view in addition to narrower

meaning given to the term "public policy" in

Renusagar case10 it is required to be held that the

award could be set aside if it is patently illegal.

The result would be \027 award could be set aside if

it is contrary to:

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality, or

(d) in addition, if it is patently illegal.

Illegality must go to the root of the matter and if

the illegality is of trivial nature it cannot be held

that award is against the public policy. Award

could also be set aside if it is so unfair and

unreasonable that it shocks the conscience of the

court. Such award is opposed to public policy and

is required to be adjudged void."

We are not unmindful that the decision of this Court in ONGC (supra)

had invited considerable adverse comments but the correctness or otherwise

of the said decision is not in question before us. It is only for a larger Bench

to consider the correctness or otherwise of the said decision. The said

decision is binding on us. The said decision has been followed in a large

number of cases. [See The Law and Practice of Arbitration and Conciliation

by O.P. Malhotra, Second edition, page 1174.]

Before us, the correctness or otherwise of the aforesaid decision of

this Court is not in question. The learned counsel for both the parties

referred to the said decision in ex tenso.

We, therefore, would proceed on the basis that ONGC (supra) lays

down the correct principles of law.

SUPERVISORY JURISDICTION

We may consider the submissions of the learned counsel for the

parties on the basis of the broad principles which may be attracted in the

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instant case, i.e., (i) whether the award is contrary to the terms of contract

and, therefore, no arbitrable dispute arose between the parties; (ii) whether

the award is in any way violative of the public policy; (iii) whether the

award is contrary to the substantive law in India, viz., Sections 55 and 73 of

the Indian Contract Act; (iv) whether the reasons are vitiated by perversity in

evidence in contract ; (v) whether adjudication of a claim has been made in

respect whereof there was no dispute or difference; or (vi) whether the

award is vitiated by internal contradictions.

For the aforementioned purpose, it would be necessary to see as to

what law the arbitrator was required to apply.

We may, therefore, consider the legal submissions before adverting to

the merit of the matter.

VALIDITY OF THE 'PARTIAL AWARD'

The 1996 Act does not use the expression "partial award". It uses

interim award or final award. An award has been defined under Section 2(c)

to include an interim award. Sub-section (6) of Section 31 contemplates an

interim award. An interim award in terms of the said provision is not one in

respect of which a final award can be made, but it may be a final award on

the matters covered thereby, but made at an interim stage.

The learned arbitrator evolved the aforementioned procedure so as to

enable the parties to address themselves as regard certain disputes at the first

instance. As would appear from the partial award of the learned arbitrator,

he deferred some claims. He further expressed his hope and trust that in

relation to some claims, the parties would arrive at some sort of settlement

having regard to the fact that ONGC directly or indirectly was involved

therein. While in relation to some of the claims, a finality was attached to

the award, certain claims were deferred so as to enable the learned arbitrator

to advert thereto at a later stage. If the partial award answers the definition

of the award, as envisaged under Section 2(c) of the 1996 Act, for all intent

and purport, it would be a final award. In fact, the validity of the said award

had also been questioned by BSCL by filing an objection in relation thereto.

We cannot also lose sight of the fact that BSCL did not raise any

objection before the arbitrator in relation to the jurisdiction of the Arbitrator.

A ground to that effect has also not been taken in its application under

Section 34 of the Act. We, however, even otherwise do not agree with the

contention of Mr. Mitra that a partial award is akin to a preliminary decree.

On the other hand, we are of the opinion that it is final in all respects with

regard to disputes referred to the arbitrator which are subject matter of such

award. We may add that some arbitrators in stead and in place of using the

expression "interim award" use the expression "partial award". By reason

thereof the nature and character of an award is not changed. As, for

example, we may notice that in arbitral proceedings conducted under the

Rules of Arbitration of the International Chamber of Commerce, the

expression "partial award" is generally used by the arbitrators in place of

interim award. In any view of the matter, BSCL is not in any way

prejudiced. We may state that both the partial award and the final award are

subject matter of challenge under Section 34 of the Act.

Section 33 of the Act empowers the arbitral tribunal to make

correction of errors in arbitral award, to give interpretation of a specific

point or a part of the arbitral award, and to make an additional award as to

claims, though presented in the arbitral proceedings, but omitted from the

arbitral award. Subsection (4) empowers the arbitral tribunal to make

additional arbitral award in respect of claims already presented to the

tribunal in the arbitral proceedings but omitted by the arbitral tribunal

provided

1. There is no contrary agreement between the parties to

the reference;

2. A party to the reference ,with notice to the other party

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to the reference ,requests the arbitral tribunal to make

the additional award;

3. Such request is made within thirty days from the receipt

of the arbitral award;

4. The arbitral tribunal considers the request so made

justified; and

5. Additional arbitral award is made within sixty days

from the receipt of such request by the arbitral tribunal

The additional award, in our opinion, is not vitiated in law.

DELAY AND DISRUPTION

Operative facts

According to the applicants, the contract entered into by and between

MII and BSCL did not provide for any period of completion. MII, on the

other hand, states that at that time when the contract was entered into it was

supposed to be performed by 30th December, 1985 as would appear

hereinafter:

"For Jackets and Temporary Decks (for platforms WI-8,

WI-9, WI-10 and N-3), the completion period is 30 April

1985 and for Decks and Helidecks ( for platforms WI -8,

WI-9, WI-10 and N-3) the completion date is 30

December 1985. Clause (ii) in the 'Schedule of

Completion of Well Platforms' states: "\005the completion

dates\005.will be reckoned for purpose of L/d."

In terms of the provisions of the contract the jobs in respect of WI-8,

WI-9, WI-10 and N-3 were to be performed within the said period.

A stipulation for commissioning of ED and EE platforms within a

time frame has also been mentioned, i.e., February, 1986 as would appear

from the following:

"1. The agreed for commissioning of platforms ED & EE

is by end of February 1986, subject to the provisions of

this Contract."

MII served a notice on 10th April, 1998 invoking the arbitration

agreement. The same would not mean that it should have repudiated the

contract as soon as 20 months schedule fixed by the contract expired. Delay

and disruptions might have occurred for various reasons. In the instant case,

therefore, the matter would be covered by the second part of Section 55 of

the Indian Contract Act providing that where the parties did not intend time

to be of the essence of the contract, the contract was not voidable, but the

promisee was entitled to compensation for loss occasioned. For the

aforementioned purpose, no notice was required to be served. In any event,

the contract provided for extension of time, as would appear from clause

27(ii) and the relevant portions of clause 28 which read as under:

"27 (ii) Should be amount of extra work, if any, which

Contractor is required to perform under clause 24 to 26

ants, fairly entitled Contractor to extension of time

beyond the scheduled date for completion of either the

whole or part of the works or for such extra work as the

case may be, Company and Contractor shall mutually

discuss and decide extensions of time, to be granted to

Contractor and the revised schedule for completion of the

Works.

28 (i) Subject any requirements in the Contract

Specifications as to the completion of any portion of the

work before completion of the whole and subject to the

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other provisions contained in the Contract, the Works

shall be completed in accordance with the agreed

schedule as indicated in Appendix-II. Company may, if

the exigencies of the works or other projects so required

amend the completion schedule and/or phase out

completion.

28(iii)\005No extension in completion shall be permitted

unless authorized in writing by Company as a "Variation

in completion schedule" or as otherwise specified in the

Contract. In any case, no portion of the works shall

extend beyond the commencement of the 1986

monsoon."

The parties, furthermore, agreed for payment of liquidated damages,

as would appear from clause 28(v)(a) which reads as under:

"a) recovery is its sole and only remedy for

delayed completion of work by Contractor, as

ascertained and agreed liquidated damages, and not by

way of penalty, as sue equivalent to 2.5% of the

Contract Price for the item which is delayed, for each

month of delay (or prorate thereof for part of a month),

beyond the scheduled completion date, subject to a

maximum of 7.5 % of the said Contract price. Such

liquidated damages shall be loveable after allowing a

grace period of 15 days. The monsoon peril requiring

which no work can be carried out orders, shall be

excluded for the purpose of determining the quantum of

delay in completion of work.."

Moreover, the contract itself contains provisions for extension of its

terms and payment of damages in case of delay in execution of the contract.

The claim for increased overhead and decreased profit and additional

project management cost flows out of the same operative facts as the delay

and disruption change in respect of Change Order Nos. 2, 3, and 7.

We may at the outset point out that the question as regards the effect

of the said claims which were not considered in the first round of the arbitral

proceedings shall be dealt with a little later.

So far as the Change Order No. 2 is concerned, the learned arbitrator

has accepted the contention of the MII that it had to incur additional cost due

to delay in receipt of equipment and materials supplied. In his Final Award,

the learned arbitrator noticed:

"\005It appears that BSCL accepted and

acknowledged that MII had incurred additional

cost on account of this delay occasioned by

BSCL\005"

So far as, Change Order No. 3 is concerned, the learned arbitrator in

paragraph 67.2 of the Final award noticed as under:

"\005This was followed by a meeting on 7-8 October

1986 attended by the representatives of ONGC,

EIL, BSCL and MII, during which ONGC advised

BSCL that BSCL should absorb one half the

mobilization and demobilization costs of MII's

marine equipment, since the delay was occasioned

by BSCL in completing the helidecks\005"

So far as Change Order No. 7 is concerned, the learned Arbitrator has

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recorded in paragraph 68.1 of the Final Award as under:

"\005This Change Order was accepted by BSCL and

ONGC but MII has received no payment\005"

It was further recorded in paragraph 68.4 of the Final Award:

"\005Even after the work was completed, there was

a meeting on 16-17 June, 1987 at which ONGC

informed that the Change Order was agreed to in

principle\005"

So far as the claim of compensation in addition to the said Change

Order Nos. 2,3 and 7 is concerned, the statement of claim of MII is as under:

"4.65: The BSCL delays and disruptions required

McDermott to alter the fabrication and installation

sequence to match deliveries of equipment. This

precluded McDermott performing certain activities as

planned in the Subcontract. Change order No.2 relates to

additional cost incurred by McDermott due to delay in

receipt of equipment and material supplied by BSCL.

BSCL's delivery of the equipment was upto seventeen

months late. During this period, McDermott continued to

fabricate the decks installing material as it became

available. The delay resulted in additional costs to

McDermott due to change order with cost effect of

US$574,000.00. BSCL has failed and neglected to make

payment of the invoice for this change order.

4.66: Change order no.3 relates to mobilization and

demobilization of Derrick Barge 26 to complete BSCL

work in the 1986/1987 construction season. The

Subcontract price was based on mobilization and

demobilization of a single barge in the 1984/1985 and

1985/1986 construction seasons only and performance of

the offshore scope of work in a continuous sequence.

Due to BSCL delays, the WI-8, WI-9, WI-10 and N3

decks and helidecks were not completed for installation

during the 1985/1986 work season. Further, the WI-7 to

WI-8 pipeline and five risers could not be installed due to

unavailability of material and lack of access to the EB

and EC jackets, which were still under construction. In

the 1986/1987 construction season, Mcdermott used

Derrick Barge 27, which was already in the field, to

install the WI-8, WI-9, WI-10 and N3 decks.

Mcdermott also had to mobilize Derrick Barge 26 in the

same construction season for installation of the WI-7 to

WI-8 pipeline and associated risers. On the

instructions of BSCL, Mcdermott mobilized Derrick

Barge 26 in February 1987. Derrick Barge 26 installed

the pipelines and risers and was demobilized from the

field on 10 March 1987. For the

mobilization/demobilization of Derrick Barge 26 for the

1986/1987 construction season work, McDermott

submitted a change order to BSCL with cost effect of US

$ 1,271,820.00. BSCL has failed and neglected to make

payment of the invoices for this change order.

4.67 Change Order no.7 relates to offshore installation

or late-supplied equipment on the WI-8 , WI-9, WI-10

and N3 decks. As early as February,1986, the parties

contemplated that certain BSCL-supplied equipment

planned for installation by McDermott onshore would

have to be installed offshore due to the projected late

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delivery. The cost of installing equipment off shore is

much US $ 1,140,705.00. On 6 November 1986,

McDermott reviewed the list of outstanding equipment

and revised its change order to US $ 355,000.00. On the

instructions of BSCL, McDermott performed the change

order work and installed outstanding equipment offshore.

BSCL has failed and neglected to make payment of the

invoice for this change order."

In the Final Award also the learned arbitrator noticed:

"The discussion covering earlier issues establishes that

BSCL was guilty of delays and disruptions. Proceeding

from there, the question is whether MII is entitled to an

amount on account of increased overhead and loss of

profit and additional project management costs? MII

states that construction law recognizes that construction

contractor incurs two general jobs of costs in the course

of its operation; the operating costs that are attributable to

a particular project, and costs such as overhead that are

expended for the performance of the business as a

whole, including t`he particular project. Consequently,

construction law recognizes that owner caused delay

entitles the contractor to recover from the owner the

increased overhead and loss of profit as part of damages.

Reference has been made to Hudson's building and

Engineering Contracts. Article 8.176-91 pp. 1074-81

(11th edn.), Molly J.B., "A formula for Success". Three

formulae have been evolved for computation of a claim

for increased overhead and loss of profit due to

prolongation of the works : the Hudson Formula; The

Emden Formula and Eicheay Formula. Of these three, the

Emden Formula is the one widely applied and which has

received judicial support in a number of cases."

Section 55 of the Indian Contract Act

Section 55 of the Indian Contract Act reads as under:

"55. When a party to a contract promises to do a

certain thing at or before a specified time, or

certain things at or before specified time, and fails

to do any such thing at or before the specified

time, the contract, or so much of it as has not been

performed, becomes voidable at the option of the

promisee, if the intention of the parties was that

time should be of the essence of the contract.

If it was not the intention of the parties that time

should be of the essence of the contract, the

contract does not become voidable by the failure to

do such thing at or before the specified time; but

the promisee is entitled to compensation from the

promisor for any loss occasioned to him by such

failure.

If, in case of a contract voidable on account of the

promisor's failure to perform his promise at the

time agreed, the promisee accepts performance of

such promise at any time other than that agreed,

the promisee cannot claim compensation for any

loss occasioned by the non-performance of the

promise at the time agreed, unless, at the time of

such acceptance, he gives notice to the promisor of

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his intention to do so."

In Arosan Enterprises Ltd. (supra), the law was stated in the following

terms:

"13. These presumptions of the High Court in our

view are wholly unwarranted in the contextual

facts for the reasons detailed below but before so

doing it is to be noted that in the event the time is

the essence of the contract, question of there being

any presumption or presumed extension or

presumed acceptance of a renewed date would not

arise. The extension if there be any, should and

ought to be categorical in nature rather than being

vague or on the anvil of presumptions. In the event

the parties knowingly give a go-by to the

stipulation as regards the time- the same may have

two several effects: (a) parties name a future

specific date for delivery, any (b) parties may also

agree to the abandonment of the contract- as

regards (a) above, there must be a specific date

within which delivery has o be effected and in the

event there is no such specific date available in the

course of conduct of the parties, then and in that

event, the courts are not left with any other

conclusion but a finding that the parties themselves

by their conduct have given a go-by to the original

term of the contract as regards the time being the

essence of the contract. Be it recorded that in the

event the contract comes within the ambit of

Section 55, Contract Act, the remedy is also

provided therein\005"

It was further observed:

"19. Turning now on to the issue of duty to speak,

can it be said that silence on the part of the buyer

in not replying to the letters dated 15-11-1989, 20-

11-1989, 24-11-1989, 4-12-1989 and 20-12-1989

only shows that the buyer was not willing to

extend the delivery period after 15-11-1989 \027 the

answer cannot but be in the negative, more so by

reason of the fact that fixation of a second delivery

date by the Appellate Bench of the High Court as

noticed above, cannot be termed to be in

accordance with the law. There was, in fact, a duty

to speak and failure to speak would forfeit all the

rights of the buyer in terms of the agreement.

Failure to speak would not, as a matter of fact,

jeopardise the seller's interest neither would the

same authorise the buyer to cancel the contract

when there have been repeated requests for acting

in terms of the agreement between the parties by

the seller to that effect more so by reason of a

definite anxiety expressed by the buyer as

evidenced in the intimation dated 8-11-1989 and as

found by the arbitrator as also by the learned

Single Judge."

We, therefore, are of the opinion that in the instant case the second

part of Section 55 of the Indian Contract Act would be attracted and not the

first part.

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Whether time was the essence of contract

The question which, further, arises for consideration is as to whether

the Respondents having proceeded on the basis that time was of the essence

of the contract, it was bound to issue a notice of repudiating the contract

subject to reservation as regards its claim of damages. MII, however, states

that it had never raised a contention that the time was of the essence of the

contract, but the claim arises in view of the delay caused in completion of

the contract for a period of 34 months and consequent escalation of costs.

The price payable in terms of the sub-contract did not adequately cover

increased costs expended by MII. On a plain reading of the provisions of

Section 55 of the Indian Contract Act, it is evident that as the parties did not

intend that time was to be of the essence of the contract on the expiry

whereof the contract became voidable at the instance of one of the parties,

but by reason thereof the parties shall never be deprived of damages.

We may notice that the BSCL had never pleaded before the Arbitrator

that the time was of the essence of the contract. In Construction contracts

generally time is not of the essence of the contract unless special features

exist therefor. No such special features, in the instant case, has been brought

to our notice.

The learned arbitrator proceeded on the basis that the BSCL had

accepted and acknowledged that no additional cost on account of delay was

occasioned in completing the helidecks. MII is found to have incurred

additional cost for offshore installation. The learned arbitrator has also

found that MII had not received any payment on account of such increased

cost. The compensation under the said head of claim was only in addition to

Change Order Nos. 2,3 and 7 to which we shall advert to a little later.

This Court in Hind Construction v. State of Maharashtra [(1979) 2

SCC 70] stated:

"7. The question whether or not time was of the

essence of the contract would essentially be a question of

the intention of the parties to be gathered from the terms

of the contract. [See Halsbury's Laws of England, 4th ed.,

Vol.4, para 1179]."

"8. Even where the parties have expressly proided that

time is of the essence of the contract such a stipulation

will have to be read along with other provisions of the

contract and such other provisions may, on construction

of the contract, exclude the inference that the completion

of the work by a particular date was intended to be

fundamental. [See Lamprell v. Billericay Union (19849)

3 Exch 283, 308; Webbv. Hughes (1870) LR 10 Eq 281;

Charles Rickards Ltd. v. Oppenheim (1950) 1 KB 616]."

UNINVOICED CLAIMS:

The principal question which arises for consideration is whether

uninvoiced claims could be a subject matter of dispute. While dealing with

the claims falling within the purview of the partial award, the arbitrator

noticed:

"23. Interruption of WI-9 to WI-S Pipeline laying (US$

115,087.50)

The Statement of claim by MII mentions that an amount

of US $ 10,671,340.00 on account of delay and

disruption expenses and costs are claimed. Admittedly,

they had not yet been invoiced when the reference to

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arbitration was made. It is not clear what are the specific

claims included within that sum. If they had not been

invoiced, it cannot be said that they remained unpaid, and

that therefore, a difference or dispute had arisen between

the parties when the reference to arbitration was made."

It was further noticed:

"Reference has been made to the claim in respect of the

standby of the MII transportation spread, additional

compensation on account of the construction of

temporary emergency helidecks, the extended stay of MII

personnel and a claim in respect of Lay Barge 26. All

these claims will be considered after it has been

satisfactorily proved that invoices in respect of each of

these claims were issued and had become due for

payment before the reference to arbitration was made and

also meanwhile the arbitration record will have received

the statement of ONGC/BSCL in respect of Change

Order Proposals Nos. 2,3,7 and 8. Therefore, the

consideration of these claims is deferred."

No invoice was raised by MII for the following claims:

(i) Claim of US$ 2,300,200 for procurement of structural material on

BSCL's behalf.

(ii) US $28,400 for additional Barge trip.

(iii) US $54,000 for additional pipeline survey.

The said claims are the subject matter of the partial award. It was

dealt with by the learned arbitrator in the following terms:

"It was pointed out by BSCL that ONGC did not accept

the reconciliation attempted by MII in regard to the

pipelines. I have examined the documents pertinent to

this question, and I find that the variation is so marginal

that it can reasonably be ignored. It seems to me that to

take account of those variations is to attempt to make too

fine a point. I would accept the reconciliation statement

and proceed on that basis. BSCL contends that the claim

made by MII on account of the additional survey of the

WI-8, WI-9 pipelines is not acceptable because it is

covered within the lump sum price mentioned in the

Subcontract. I am not impressed by that submission

because had it been so covered ONGC would not have

undertaken to conduct the additional survey itself. It was

treated as some thing outside the subject matter covered

by the lump sum price and when ONGC requested BSCL

to conduct the additional survey, and at the behest of

BSCL the additional survey was conducted by MII, there

is good reason for MII to claim the payment of

US$54,000 for that survey."

While dealing with the claims for the standby of DB 26 and

interruption to WI-9 to WI S pipelines laying, the arbitrator in its partial

award held:

"22. Standby Derrick Barge 26 (US$1,396,800.00)

The claim for payment of standby charges in respect of

Derrick Barge 26 relates to a standby for 24 days of that

vessel. The MII Statement of Claim mentions that MII

has not sent any invoice to BSCL. Therefore it cannot be

said that any claim has been made by MII yet in the

matter. Consequently, the position is that no difference or

dispute concerning this had arisen between the parties

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when the reference to arbitration was made. Therefore, so

far as this arbitration is concerned, the claim cannot be

entertained. It falls outside this arbitration and cannot be

considered."

"23. Interruption of WI-9 to WI-S Pipeline Laying

(US$115,087.50)

The Statement of Claim by MII mentions that an amount

of US$10,671,340.00 on account of delay and disruption

expenses and costs are claimed. Admittedly, they had not

yet been invoiced when the reference to arbitration was

made. It is not clear what are the Specific claims included

within that sum. If they had not been invoiced, it cannot

be said that they remained unpaid, and that therefore a

difference or dispute had arisen between the parties when

the reference to arbitration was made."

The said claims were, thus, rejected only on the ground that no

invoice had been raised and consequently no difference or dispute had arisen

by and between the parties at the time when the reference to arbitration was

made.

Mr. Mitra contended that applying the same line of reasoning, the

learned arbitrator should have rejected the aforementioned claims.

However, we may notice that the said claim as regard procurement of

structural material related to damages. According to MII, the said claim

strictly did not relate to damages under the contract. The BSCL was

required to procure the steel and as it was not in a position to do so, the MII

had agreed to procure steel on its behalf provided it agreed to cover the

MII's cost for accelerated procurement, material priced premiums, order

fixing costs and other incidental charges. It is not in dispute that such a

claim was the subject matter of correspondence which passed between the

parties. Receipt of such letters from MII is not denied or disputed by BSCL.

It has also not been disputed that right reserved by MII to claim such

additional costs towards procurement of the materials on behalf of BSCL

was not denied or disputed. Only pursuant to or in furtherance of the said

correspondence, procurement on the said basis had been undertaken by MII

and acceptance of BSCL in this behalf was presumed. The learned

Arbitrator proceeded on such presumption. According to learned arbitrator,

despite such knowledge, BSCL failed to make payment. The learned

arbitrator in his award has gone into the said question in detail. Reference

had been made to the evidence of Shri A.R. Taylor, who was examined on

behalf of MII. The said witness was cross-examined by BSCL. Both the

parties had filed detailed written submissions before the learned arbitrator.

It is on the basis of such evidence brought on record and submissions made

before him, the learned arbitrator held:

"\005In my opinion, BSCL must be taken to have

accepted the proposal of MII and to have gone

along with MII's action flowing from that proposal

and to have benefited thereby."

With a view to consider the submission of Mr. Mitra that in terms of

the contract entered into by and between the parties, MII was not entitled to

the said claim, it would be proper to notice the relevant clause of the contract

which is in the following terms:

"5. Replacement Steel :

BSCL shall procure suitable steel for jackets (based on

MTO supplied by MII) on a replacement basis for MII

purchased steel. BSCL shall purchase steel as plate

suitable for rolling 24 in O.D. and above tubulars.

Replacement material shall be delivered by BSCL to

MII's yard at Dubai Emirate, United Arab Emirates or to

Singapore Port Authority for transshipment by MII (at

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BSCL's cost) to Batam Island, Indonesia. MII shall

indicate the destination when furnishing the replacement

steel request."

In terms of the aforementioned provision of the contract, BSCL was

required to procure suitable steel for jackets on replacement basis in regard

to quantum of steel purchased by MII. If BSCL had failed to procure the

said required amount of steel to replace the structural materials which MII

had provided from its inventory as an accommodation to BSCL, indisputably

the understanding between the parties was that either such materials should

be replaced or the cost therefor had to be paid. It has not been disputed

before the arbitrator that BSCL promptly replaced the material. It is in that

view of the matter, the learned arbitrator in his partial award held:

" 15.19 The procurement was effected by MII from

its inventory on the basis that it would be replaced by

BSCL promptly. It was not so replaced. To effect the

replacement MII would be compelled to pass through the

entire burdensome process of procuring the structural

material directly from outside sources. MII suffered loss

and damage which it has quantified at US$ 2.3 million in

the light of the considerations mentioned by it earlier."

The arbitrator has noticed that the claim of MII arose only after it has

been satisfactorily proved that the invoices in respect of each of these claims

were issued and had become due for payment before reference to arbitrator.

It furthermore appears that paragraph 23 of the partial award and the claim

for compensation on the aforementioned head are not identical. Para 23 of

the partial award dealt with the claim in respect of WI-9 to WI-S pipeline

laying. So far as paragraph 24 of the said award is concerned, the learned

arbitrator noticed the specific invoices issued against Change Order Nos. 2,

3 and 7 relating to delay and disruptions. It is, therefore, in our considered

opinion, not correct to contend that the invoice is the only base whereby and

where under a claim can be made. There is no legal warrant for the said

proposition. A claim can also be made through correspondence or in

meetings.

A claim for overhead costs resulting in decrease in profit or additional

management costs is a claim for damages.

An invoice is drawn only in respect of a claim made in terms of the

contract. For raising a claim based on breach of contract, no invoice is

required to be drawn.

It is furthermore not in dispute that the claim for damages had been

made prior to invocation of arbitration. Once such a claim was made prior

to invocation, it became a dispute within the meaning of the provisions of

the 1996 Act. It is not disputed that the same claim was specifically referred

to arbitration by MII in terms of its notice dated 10th April, 1989.

While claiming damages, the amount therefor was not required to be

quantified. Quantification of a claim is merely a matter of proof.

In fact BSCL never raised any plea before the arbitrator that the said

claim was arbitrary or beyond its authority. Such an objection was required

to be raised by BSCL before the arbitrator in terms of Section 16 of the 1996

Act. It may also be of some interest to note that this Court even prior to the

enactment of a provision like Section 16 of the 1996 Act in Waverly Jute

Mills Co. Ltd. v. Raymon & Co. [(1963) 3 SCR 209; Dharma

Prathishthanam v. Madhok Construction (2005) 9 SCC 686] clearly held that

it is open to the parties to enlarge the scope of reference by inclusion of fresh

dispute and they must be held to have done so when they filed their

statements putting forward claims not covered by the original reference.

METHOD FOR COMPUTATION OF DAMAGES

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What should, however, be the method of computation of damages is a

question which now arises for consideration. Before we advert to the rival

contentions of the parties in this behalf, we may notice that in M.N.

Gangappa v. Atmakur Nagabhushanam Setty & Co. and Another [(1973) 3

SCC 406], this Court held:

"In the assessment of damages, the court must

consider only strict legal obligations, and not 'the

expectations, however reasonable, of one

contractor that the other will do something that he

has assumed no legal obligation to do.

[See also Lavarack v. Woods of Colchester Ltd (1967) 1 QB 278]

The arbitrator quantified the claim by taking recourse to the Emden

formula. The learned arbitrator also referred to other formulae, but, as

noticed hereinbefore, opined that the Emden Formula is a widely accepted

one.

It is not in dispute that MII had examined one Mr. D.J. Parson to

prove the said claim. The said witness calculated the increased overhead

and loss of profit on the basis of the formula laid down in a manual

published by the Mechanical Contractors Association of America entitled

'Change Orders, Overtime, Productivity' commonly known as the Emden

Formula. The said formula is said to be widely accepted in construction

contracts for computing increased overhead and loss of profit. Mr. D.J.

Parson is said to have brought out the additional project management cost at

US$1,109,500. We may at this juncture notice the different formulas

applicable in this behalf.

(a) Hudson Formula: In Hudson's Building and Engineering Contracts,

Hudson formula is stated in the following terms:

"Contract head office overhead & x contract sum x period of delay"

Profit percentage contract period

In the Hudson formula, the head office overhead percentage is taken

from the contract. Although the Hudson formula has received judicial

support in many cases, it has been criticized principally because it adopts the

head office overhead percentage from the contract as the factor for

calculating the costs, and this may bear little or no relation to the actual head

office costs of the contractor.

(b) Emden Formula: In Emden's Building Contracts and Practice, the

Emden formula is stated in the following terms:

"Head office overhead & profit x Contract sum x period of delay"

100 contract period

Using the Emden formula, the head office overhead percentage is

arrived at by dividing the total overhead cost and profit of the contractor's

organization as a whole by the total turnover. This formula has the

advantage of using the contractors actual head office and profit percentage

rather than those contained in the contract. This formula has been widely

applied and has received judicial support in a number of cases including

Norwest Holst Construction Ltd. v. Cooperative Wholesale Society Ltd.,

decided on 17 February, 1998, Beechwood Development Company

(Scotland) Ltd. v. Mitchell, decided on 21 February, 2001 and Harvey

Shoplifters Ltd. v. Adi Ltd., decided on 6 March, 2003.

(c) Eichley Formula: The Eichleay formula was evolved in America

and derives its name from a case heard by Armed Services Board of

Contract Appeals, Eichleay Corp. It is applied in the following manner:

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Step 1

Contract Billings Total overhead for Overhead allocable

Total Billings for contract x contract period = to the contract

period

Step 2

Allocable overhead

Total days of contract = Daily Overhead rate

Step 3

Daily Contract Overhead Number of Days Amount of Unabsorbed

Rate x of delay = overhead"

This formula is used where it is not possible to prove loss of

opportunity and the claim is based on actual cost. It can be seen from the

formula that the total head office overheads during the contract period is first

determined by comparing the value of work carried out in the contract

period for the project with the value of work carried out by the contractor as

a whole for the contract period. A share of head office overheads for the

contractor is allocated in the same ratio and expressed as a lump sum to the

particular contract. The amount of head office overhead allocated to the

particular contract is then expressed as a weekly amount by dividing it by

the contract period. The period of delay is then multiplied by the weekly

amount to give the total sum claimed. The Eichleay formula is regarded by

the Federal Circuit Courts of America as the exclusive means for

compensating a contractor for overhead expenses.

Before us several American decisions have been referred to by Mr.

Dipankar Gupta in aid of his submission that the Emden formula has since

been widely accepted by the American courts being Nicon Inc.v. United

States, decided on 10 June, 2003 (USCA Fed. Cir.), Gladwynne

Construction Company v. Balmimore, decided on 25 September, 2002 and

Charles G. William Construction Inc. v. White, 271 F.3d 1055.

We do not intend to delve deep into the matter as it is an accepted

position that different formulas can be applied in different circumstances and

the question as to whether damages should be computed by taking recourse

to one or the other formula, having regard to the facts and circumstances of a

particular case, would eminently fall within the domain of the Arbitrator.

If the learned Arbitrator, therefore, applied the Emden Formula in

assessing the amount of damages, he cannot be said to have committed an

error warranting interference by this Court.

ACTUAL LOSS : DETERMINATION OF

A contention has been raised both before the learned Arbitrator as also

before us that MII could not prove the actual loss suffered by it as is required

under the Indian law, viz., Sections 55 and 73 of the Indian Contract Act as

Mr. D.J. Parson had no personal knowledge in regard to the quantum of

actual loss suffered by the MII. D.J. Parson indisputably at one point of time

or the other was associated with MII. He applied the Emden Formula while

calculating the amount of damages having regard to the books of account

and other documents maintained by MII. The learned Arbitrator did insist

that sufferance of actual damages must be proved by bringing on record

books of account and other relevant documents.

Sections 55 and 73 of the Indian Contract Act do not lay down the

mode and manner as to how and in what manner the computation of

damages or compensation has to be made. There is nothing in Indian law to

show that any of the formulae adopted in other countries is prohibited in law

or the same would be inconsistent with the law prevailing in India.

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As computation depends on circumstances and methods to compute

damage, how the quantum thereof should be determined is a matter which

would fall for the decision of the arbitrator. We, however, see no reason to

interfere with that part of the award in view of the fact that the

aforementioned formula evolved over the years, is accepted internationally

and, therefore, cannot be said to be wholly contrary to the provisions of the

Indian law.

In State of U.P. v. Allied Constructions [(2003) 7 SCC 396], this

Court held:

"4. Any award made by an arbitrator can be set

aside only if one or the other term specified in

Sections 30 and 33 of the Arbitration Act, 1940 is

attracted. It is not a case where it can be said that

the arbitrator has misconducted the proceedings. It

was within his jurisdiction to interpret clause 47 of

the agreement having regard to the fact-situation

obtaining therein. It is submitted that an award

made by an arbitrator may be wrong either on law

or on fact and error of law on the face of it could

not nullify an award. The award is a speaking one.

The arbitrator has assigned sufficient and cogent

reasons in support thereof. Interpretation of a

contract, it is trite, is a matter for the arbitrator to

determine (see Sudarsan Trading Co. v. Govt. of

Kerala). Section 30 of the Arbitration Act, 1940

providing for setting aside an award is restrictive

in its operation. Unless one or the other condition

contained in Section 30 is satisfied, an award

cannot be set aside. The arbitrator is a Judge

chosen by the parties and his decision is final. The

court is precluded from reappraising the evidence.

Even in a case where the award contains reasons,

the interference therewith would still be not

available within the jurisdiction of the court unless,

of course, the reasons are totally perverse or the

judgment is based on a wrong proposition of law.

An error apparent on the face of the records would

not imply closer scrutiny of the merits of

documents and materials on record. Once it is

found that the view of the arbitrator is a plausible

one, the court will refrain itself from interfering

(see U.P. SEB v. Searsole Chemicals Ltd. and

Ispat Engg. & Foundry Works v. Steel Authority

of India Ltd.)."

It is trite that the terms of the contract can be express or implied. The

conduct of the parties would also be a relevant factor in the matter of

construction of a contract. The construction of the contract agreement, is

within the jurisdiction of the arbitrators having regard to the wide nature,

scope and ambit of the arbitration agreement and they cannot, be said to

have misdirected themselves in passing the award by taking into

consideration the conduct of the parties. It is also trite that correspondences

exchanged by the parties are required to be taken into consideration for the

purpose of construction of a contract. Interpretation of a contract is a matter

for the arbitrator to determine, even if it gives rise to determination of a

question of law. [See Pure Helium India (P) Ltd. v. Oil & Natural Gas

Commission, (2003) 8 SCC 593 and D.D. Sharma v. Union of India (2004)

5 SCC 325].

Once, thus, it is held that the arbitrator had the jurisdiction, no further

question shall be raised and the court will not exercise its jurisdiction unless

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it is found that there exists any bar on the face of the award.

The above principles have been reiterated in Chairman and MD,

NTPC Ltd. v. Reshmi Constructions, Buildres & Contractors (2004) 2 SCC

663; Union of India v. Banwari Lal& Sons (P) Ltd. (2004) 5 SCC 304;

Continental Construction Ltd. v. State of U.P. (2003) 8 SCC 4; State of U.P.

v. Allied Constructions (2003) 7 SCC 396.

A court of law or an arbitrator may insist on some proof of actual

damages, and may not allow the parties to take recourse to one formula or

the other. In a given case, the court of law or an arbitrator may even prefer

one formula as against another. But, only because the learned arbitrator in

the facts and circumstances of the case has allowed MII to prove its claim

relying on or on the basis of Emden Formula, the same by itself, in our

opinion, would not lead to the conclusion that it was in breach of Sections 55

or Section 73 of the Indian Contract Act.

CLAUSE 37 \026 EFFECT OF

We may now look at clause 37 of the main contract entered into by

and between ONGC and BSCL which reads as under:

"37. INDIRECT AND CONSEQUENTIAL

DAMAGES:

Neither company nor contractor shall be liable to

the other for any consequential damages, which

shall include but not be limited to loss of revenue/

profits, loss or escape of product, etc."

In Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority

[(1988) 2 SCC 338], whereupon Mr. Mitra placed strong reliance, an award

made under the old Act was in issue. A dispute had arisen whether there

was a claim and denial or repudiation thereof. In that context, it was held:

"There should be dispute and there can only be a dispute

when a claim is asserted by one party and denied by the

other on whatever grounds. Mere failure or inaction to

pay does not lead to the inference of the existence of

dispute. Dispute entails a positive element and assertion

of denying, not merely inaction to accede to a claim or a

request. Whether in a particular case a dispute has arisen

or not has to be found out from the facts and

circumstances of the case."

There is no dispute about the aforementioned principle but the same

would not mean that in every case the claim must be followed by a denial. If

a matter is referred to any arbitrator within a reasonable time, the party

invoking the arbitration clause may proceed on the basis that the other party

to the contract has denied or disputed his claim or is not otherwise interested

in referring the dispute to the arbitrator.

In Bharat Coking Coal Ltd. v. L.K. Ahuja [(2004) 5 SCC 109], this

Court opined:

"24. Here when claim for escalation of wage bills

and price for materials compensation has been paid

and compensation for delay in the payment of the

amount payable under the contract or for other

extra works is to be paid with interest thereon, it is

rather difficult for us to accept the proposition that

in addition 15% of the total profit should be

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computed under the heading "Loss or Profit". It is

not unusual for the contractors to claim loss of

profit arising out of diminution in turnover on

account of delay in the matter of completion of the

work. What he should establish in such a situation

is that had he received the amount due under the

contract, he could have utilised the same for some

other business in which he could have earned

profit. Unless such a plea is raised and established,

claim for loss of profits could not have been

granted. In this case, no such material is available

on record. In the absence of any evidence, the

arbitrator could not have awarded the same. This

aspect was very well settled in Sunley (B) & Co.

Ltd. v. Cunard White Star Ltd by the Court of

Appeal in England. Therefore, we have no

hesitation in deleting a sum of Rs. 6,00,000

awarded to the claimant."

We are herein not concerned with such a case.

In terms of Clause 37 of the main contract, reference whereto has

been made hereinbefore, neither of the parties are liable to the other for any

consequential damages. The claim for damages raised by MII cannot be said

to be consequential damages. The claim relates to direct losses purported to

have been occasioned by the failure to perform the contractual duty on the

part of the BSCL and to honour the time bound commitments. Such a loss,

according to MII, occurred on account of increased overhead cost and

decreased profit and additional management costs by reason of BSCL's

delays and disruptions. It is only in that view of the matter, the Emden

formula was taken recourse to. Furthermore, clause 37 of the main contract

was a matter of an agreement by and between ONGC and BSCL. In law, it

could not have been extended to the obligations assumed by BSCL towards

MII in terms of the contract entered into by and between the said parties. So

far as ONGC is concerned, it cannot be said to have any role to play in the

event of breach of obligation on the part of the BSCL towards its sub-

contractor.

Article 3.1 of the sub-contract reads as under:

"MII shall be bound to BSCL by the terms of this Sub-

contract Agreement and to the extent that the provisions

of the respective Main Contract between Buyer and

BSCL apply to the relevant sub-contract work of MII as

defined in this sub-contract agreement, MII shall assume

towards BSCL all the obligations and responsibilities

which BSCL, by such Main Contract, assumes to Buyer

and shall have the benefit of all rights, remedies and

redresses against BSCL which BSCL, by such Main

Contract, has against Buyer, insofar as applicable to this

sub-contract Agreement, provided that when any

provisions of the respective Main Contract between

Buyer and BSCL is inconsistent with this sub-contract

agreement, this sub-contract agreement shall govern and

prevail over the Main Contract."

By reason of the said provision, therefore, the Main Contract between

ONGC and BSCL would apply to the relevant sub-contract work and MII

was enjoined with a duty towards BSCL to fulfill its obligations and

responsibilities. But, thereby, BSCL cannot absolve itself from its liability

so far as breach of the terms and conditions of the sub-contract is concerned.

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In other words, by reason of Article 3.1, the contract by and between ONGC

and BSCL has not been subsumed in the sub-contract so as to absolve the

BSCL from its own contractual liability for breach of contract or otherwise.

METHOD OF MEASUREMENT

The main contention of BSCL in this behalf is that the learned

arbitrator acted illegally and without jurisdiction in adopting the AISC Code.

The question arose in the context of the provisions in the contract that MII

was required to undertake to fabricate the materials which were required to

be supplied and, therefore, was entitled to fabrication charges from BSCL.

It has not been denied or disputed before us that the parties did not agree to a

fixed method of measurement. They did not refer to the AISC Code in the

contract but only because AISC code was not referred to in the contract, the

same by itself may not be a ground for us to hold that the arbitrator had gone

beyond the terms of the contract. Clause 23.1.1(a) and (c) of the main

contract reads as under:

"a) Payment for structural material viz. steel and steel

tubulars, anodes, flooding and grouting stems,

rubberized rings and rubberized items for barge

hampare, rub-strips and boat landing shall be made on

the basis of actual landed cost at Contractor's yard.

Landed cost would include c.i.f. price, testing charges, if

any plus port charges clearing and handling charges at

Port, transportation to Contractor's fabrication yard plus

local taxes (like octroi ) if any, company shall pay to

Contractor an additional 7 = per cent of the landed cost

referred to above to cover the cost of procurement."

(c ) In computing the quantity of steel materials used on

each platform for the purpose of sub-clause (a) above, an

allowance of 4% shall be made for wastage. The payment

to Contractor shall be for weights including the wastage

element credit for steel scrap shall be given by Contractor

to Company at the rate of Rs. 500.00 per short ton for the

said wastage of 4%."

Clause 11 and Clause 5 read as under:

"11. Fabricated Tonnages:

"The quantities of materials used in the Works shall be

jointly ( i.e. by ONGC/Engineer, BSCL and MII )

determined on the basis of as-fabricated tonnage as per

the Main Contract between Buyer and BSCL and shall

be used for adjusting the Subcontract Price."

"5. The preceding fabrication rates are worked out taking

into consideration installation of all equipment,

fabrication and installation of process piping, electricals

and instrumentation work including pre-commissioning

and all yard test in addition to structural fabrication work

in accordance with the specifications. For computing the

tonnage for reimbursement of fabrication, installation,

pre-commissioning and testing work at the yard by MII

the tonnage of equipment and items for top side facilities

shall not be included and fabrication tonnage shall be

solely on the basis of as built tonnage as approval by

buyer."

Submission of Mr. Mitra is that a combined reading of the

aforementioned provisions would go to show that the method of

measurement was the subject matter of the contract. We do not agree.

Clause 23.1.1 has no application in the present case as it covers payment for

structural material which has no nexus with the Claim No. 4. The claim of

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MII was for labour charges due under the sub-contract for fabricating the

structures.

The learned arbitrator, in his partial award, while dealing with the said

claim held:

"15.7: As regards replacement steel, BSCL would

procure suitable steel for jackets (based on MTO

supplied by MII) on a replacement basis for MII

purchased steel. BSCL would purchase steel as plate

suitable for rolling 24 in OD and tubulars. Replacement

material would be delivered by BSCL to MII's yard at

Dubai, UAE or to Singapore Port Authority for

transshipment by MII , at BSCL's cost, to Batam

Island, Indonesia. In the matter of computing the

prices payable for structural fabrication of piles, Jackets

and decks Clause 23.1.1 of the main fabrication

contracts provided that the prices would be computed as

follows: The payment for structural material, namely,

steel and steel tubulars and anodes, flooding and

grouting system, rubberized rings and rubberized items

for barge bumpers, rub strips and boat landing would be

made on the basis of actual landed cost at the yard of

BSCL or MII. The landed cost would include CIF

price, testing charges, if any plus port charges, clearing

and handling charges at port , transportation to BSCL's

or MII's fabrication yard plus local taxes, and ONGC

would pay to BSCL in additional 7 = per cent of the

landed cost to cover the cost of procurement."

Wastage allowance was relevant only for the purpose of allowance

due to BSCL from MII in respect of scrap materials. The learned arbitrator

in his award had referred to evidence adduced in this behalf by Shri A.R.

Taylor. The provisions of the contract have no bearing on calculation of

gross fabricated weight of the structures for determining the fabrication

charges due.

The use of AISC Code relates to the claim for fabrication charges

being Claim No. 1. The said claim was for labour charges which was not a

claim for cost of material and, thus, nothing to do therewith. The scheme of

the contract provides that total estimated tonnage of 18,178 ST will have the

following break \026 ups:

ED/EE Platforms \026 6078 ST

WI-8, WI-9, WI-10 and N3 platforms \026 12100 ST

18178 ST

Since the total tonnage of 18,178 ST was only an estimated tonnage,

the sub-contract made provision for variation of the contract price on the

basis of 'as fabricated' tonnage. Further the quantities of the materials used

were to be jointly determined by ONGC /EIL, BSCL and MII on the basis of

fabricated tonnage which was to be used for adjusting the sub-contract price.

If the "as fabricated tonnage" was found to be less than the estimated

tonnage, the excess payment received by MII through monthly bills was to

be refunded. If the "as fabricated tonnage" was found to be more than the

estimated tonnage, MII was to be paid for the additional tonnage by applying

the rate of US $ 1067 per ST. The contract was silent with respect to the

method or code to be applied for determining the "as fabricated tonnage".

Clause 1.1.13 defined specifications to mean Industry Standard Codes

(ISC). In the absence of a contractually specified method of calculation, the

MII applied the AISC Manual of Steel Construction for calculating the as

fabricated tonnage. AISC is an industry standard. It has been applied by

ONGC in other contracts. Even the Arbitrator has noted that the BSCL has

also accepted the validity of the AISC Code. Now the BSCL cannot turn

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around and take a contrary position before this court in the proceedings

under Section 34 of the Act. Hence by adopting the AISC Code, the

Arbitrator has not acted contrary to the terms of contract.

The arbitrator in his award noticed that the parties impliedly accepted

the validity of the AISC method of calculation for calculating the final

fabricated weight in the following terms:

"\005Instances of those contracts have been provided by

MII during the arbitration proceeding showing that the

AISC Code has been employed for determining the final

"as fabricated tonnage" of structures\005It seems to me

that inasmuch as BSCL has applied the AISC Code in the

case of long to long point distance measurement it cannot

be denied that the AISC Code is regarded as a valid basis

for measurement it cannot be denied that the AISC Code

is regarded as a valid basis for measurement. There is no

reason why it should be applied in the case of one

category of fabrication and not in the case of another."

If before the arbitrator, the said mode of calculation was accepted, we

do not see any reason why the BSCL should be permitted to raise the said

question before us.

BUOYANCY TANKS FOR ED AND EE JACKETS

It involves a question of fact. It was a part of Claim No. 1 for

fabrication. The contention of the BSCL is that whereas Buoyancy tanks

which were used in WI-8 and N3 jackets were removed by MII after

installation thereof, the same had been used after refurbishment on the

ED/EE jackets and in that view of the matter, no fabrication was required to

be done. The claim of MII was that it had nothing to do with the cost of

material or the nature of the fabrication work involved. Its claim was purely

based on the labour cost at the rate of US $1067 per ST which was incurred

by it towards fabrication work in the refurbishment of the Buoyancy Tanks.

According to it, the tonnage of the Buoyancy Tanks had not been taken into

account by ONGC on the ground that no fabrication work was done after

removal of the Buoyancy Tanks from N3 and WI-8 Jackets. The learned

arbitrator, however, in his partial award found as of fact that substantial

fabrication work had been done by MII in the refurbishment of the said

Buoyancy Tanks in the following terms:

"12.22\005Accepting those instructions, MII made

substantial fabrication in refurbishing, handling, rigging

and welding the buoyancy tanks on the ED and EE

jackets. The oral evidences of RW S.K. Mukherjee shows

that the attachment of buoyancy tanks involves

substantial fabrication activity. There can be no doubt

that fabrication work had to be done and that involved a

measure of labour activity. MII has demonstrated that

there was difference in weight between the original

buoyancy tanks used on the N-3 and W-8 jackets and the

weight of those tanks when used on the ED and EE

jackets. It says that this clearly points to substantial

fabrication activity for refurbishment of those two tanks."

It has further been held by the learned Arbitrator that MII had also

been able to establish that there had been a difference in weight between the

original Buoyancy Tanks used on N-3 and WI-8 Jackets and the weight of

those tanks when used in ED and EE Jackets. In fact, the learned arbitrator

in arriving at the said conclusion had taken into consideration the admission

of Shri S.K. Mukherjee who was examined on behalf of BSCL itself that

attachment of Buoyancy Tanks involved substantial fabrication activity.

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The dispute raised is a matter of appreciation of evidence. The findings

arrived at by the learned arbitrator cannot, thus, be said to be perverse.

TIE-DOWNS AND SEA-FASTENING

This claim relates to the question whether MII was entitled to

payment for fabrication as the tie-downs and sea-fastening require

substantial fabrication job in regard whereof there did not exist any

provision in the contract. The learned arbitrator has accepted the claim of

MII holding that offshore construction contracts, jackets and decks are

fabricated onshore and then they are transported on barges to the offshore

location for installation wherefor the lugs, braces and other sea-fastening and

tie-down items are required to be created which the installation contractor is

to use to weld the jackets and decks to the transportation barges, thereby

securing the jackets for their journey to the offshore location. MII had

merely claimed payment for fabrication of tie-downs and sea-fastening as

part of the fabrication scope of work. Reference has been made to clause 2

of the contract which is as under:

"2.1 (i) (a) Load-out, seafastening, \005. 60% of the

transportation and installation lumpsum

price of jacket, piles & appurtenances

(b) Load-out, seafastening, \005.40% of the

transportation and installation lumpsum

price of Decks, Hook-up and resting

The said provision has no application in the instant case as it merely

provides for stage payment on milestone basis. In fact, the clause which

would be attracted in the present case is contained in clause 2.1(a)(i) is as

under:

"The scope of work to be executed by Contractor under

this Contract shall comprises\005

(i) Jackets

Including bergs bumbers, best landing, grouting an

flooding systems, launch trustees, riser clamps. Catholic

protection anodes, and mats and other accessories and

components indicated in the drawings and specifications

including lifting lugs, pulling lugs, retaining lugs etc.

for lead out and refastening and upending of the jacket."

It specifically covers sea-fastening as part of the scope of fabrication

contract work. WI-8, WI-9, WI-10 and N-3 fabrication contract also

contains a similar clause in Clause 2.1.

The learned arbitrator in para 12.24 of his award noticed that BSCL

itself has acknowledged to ONGC that the tie-down materials had been

fabricated as part of the fabrication scope and the weight could not be

disallowed in calculating the 'as fabricated tonnage'. It, therefore, evidently

cannot take a stand which is contrary thereto and inconsistent therewith.

Thus, by reason of the award, the learned arbitrator was of the opinion that

the sea-fastening and tie-down were part of the transportation and

installation scope and BSCL did not succeed in proving that the said item

should be included in the scope of transportation and is not a separate item

under the head of fabrication. Again, the findings of the learned arbitrator

were within his domain, being findings of fact.

FOREIGN EXCHANGE

Dispute in relation to the said claim would depend upon the

interpretation of clause 3 of Section 2 of the Consolidated Sub-Contract

Price Schedule which provides:

"While the sub-contract price for the work described in

the letter of intent is payable by BSCL to MII in U.S.

Dollars the Main Contract Price is payable by ONGC to

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BSCL in Indian Rupees. It has been agreed that Rupee-

U.S. Dollar Excahnge rate shall remain fixed at Rs.

100.00=U.S$8.575 and loss or gain due to any variation

in the Rupee-U.S. Dollar exchange rate at the time of

actual remittance of bills would be to MII's account.

The aforesaid rate was the prevailing rate as on 9

August 1984 as mentioned in the Letter of Intent dated

11 September 1984. Within 30 days of completion of

MII's scope of work under the Sub-contract, a

reconciliation will be made of all the payments made

from time to time.

If the cumulative value of all Rupess expended to

buy U.S. Dollar remittance for the Sub-contract work

described in the Letter of Intent is less than the Rupee

equivalent of the Sub-contract price as determined on the

basis of the aforesaid rate prevailing on 9 August 1984,

BSCL shall remit the balance amount of Indian Rupees,

if any, to MII in U.S. Dollars at the prevailing rate of

exchange on the date of such U.S. Dollar remittance; and

if after such reconciliation it is found that BSCL have

expended Rupees in excess of the Rupees equivalent of

the Sub-contract Price for the work described in the

Letter of Intent, MII shall arrange to refund any such

excess in Rupees to BSCL."

Clause 4.0 of the contract provides that the payment will be made by

BSCL to MII on receipt of payment by BSCL from ONGC.

It is not in dispute that by reason of the contract entered into by and

between the parties the rate was frozen at Rs. 100 = US$ 8.575. One of the

questions which arise for consideration is as to whether the said provision

applied to all the claims or not. According to MII, having regard to the

provisions for milestone payments for transportation and installation, Clause

4.0 would apply only in relation thereto.

It is contended that BSCL had not correctly understood the merit and

purport of the said provision which has been sought to be explained. The

said provision according to MII would be as under:

If the contract is followed, MII gets US$100 and

pays back US$7.43, therefore the net receipt of

MII is US$ 92.57. However, BSCL had adjusted

the exchange rate at the time of payment only. The

rate as per contract 1 US$= 11.662. Thus, the rate

on the date of payment is Rs. 13. Therefore, the net

receipt of MII is only US$ 89.70. In reality, the

loss suffered by MII was much greater since in the

fifty-four month life of the project, the value of the

Indian rupee deteriorated drastically against the

U.S. dollar.

It is not in dispute that in terms of the contract, the payments made by

BSCL, which was to be in US dollars, was required to be reconciled at the

end of the contract. According to MII, if BSCL expended less than the

rupee amount stipulated in the sub-contract in dollar payments, BSCL would

convert the unused rupees to dollars to remit the dollars to MII. Whereas if

BSCL expended more than the agreed amount of rupees, MII would refund

the excess amount to BSCL so as to ensure sharing of exchange loss by both

the parties. According to MII, however, BSCL acted contrary to the said

provision insofar as instead of paying the full amount of invoice in US

dollars it paid at the fixed exchange rate relying on, or on the basis of, the

aforementioned provisions, resulting in loss suffered by MII.

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The learned arbitrator proceeded on the basis that loss of exchange

provisions had no application in respect of structural material (claim 4), bulk

material (claim 5), transportation of pipe (claim 6), reimbursables (claim 7),

change orders and extra work (claim 8) and delay and disruption (claim 9).

BSCL although has acted in breach of the contract in which variation

provision as regard the claims of the sub-contract, viz., scope of fabrication

work (Claim 1), transportation and installation of platforms (Claim 2) and

transportation and installation of pipelines and risers (Claim 3) while making

payments. It is, however, one thing to say that having regard to the nature of

breach on the part of BSCL, MII would be entitled to claim damages, but it

is another thing to say that by reason thereof it would be entitled to full

payment without deduction relating to the BSCL conversion of Indian

rupees to US dollars. It is not in dispute that the initial claim of MII was US

$ 2881195.03 which was later on revised to US $ 3330790.94.

In terms of the agreement, payments were to be made to MII if the

payments were certified by EIL and upon receipt of payments from ONGC

and upon receipt of foreign exchange clearance. For appreciating the

aforementioned disputes, it may be necessary to refer to the general terms of

payment clause:

"1. Fabrication

Claims for structural fabrication work is to be billed by

MII duly certified by EIL on monthly basis and the

payment of the same bills shall be released after 60 days

of receipt of the bill by BSCL.

4. Payments as stipulated above will be subject to the

following conditions:

(a) Receipt of foreign exchange clearance by BSCL.

(b) Payments on milestone basis will be made by

BSCL to MII only after payments have been received by

BSCL from ONGC."

The learned arbitrator held that MII would be entitled to receive the

entire amount as BSCL, despite receipt of payment from ONGC, did not pay

the amount to MII. For the purpose of applicability of the exchange rates,

the same, in our opinion, is irrelevant. The award was required to be made

in terms of the contract whereby and whereunder the foreign exchange rate

was frozen as was applicable on 9th August, 1994. The parties were bound

by the said terms of contract. It may be noticed that the sub-contract was

entered into on 1st January, 1986. The execution of the contract had started

much earlier, i.e., much before the date of entering into the contract. The

purpose for which the Rupee \026 US Dollar conversion rate has been frozen as

on 9th August, 1984 must be viewed from the angle that thereby the parties

thought that loss or gain towards the exchange rates would be on account of

MII. It is in the aforementioned situation that a letter of intent in the

following terms was served:

"M/s. McDermott International Inc.,

P.O. Box 3098

Dubai

United Arab Emerates.

Dear Sirs,

Sub: ED, EE, WI-8, 9, 10 & N3 Platforms

Ref: Minutes of Meeting dt. 9.8.84

Your offer P/M 547 dt. 9.8.84

8/3132 dt. 4.9.84

With reference to the above, we are pleased to issue this

Letter of Intent conveying acceptance of your offer for the

following:

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1.0 FABRICATION

1.1 Fabrication, load-out & sea-fastening of 6 Jackets with Piles

including all appurtenances such as boat landing, conductor,

riser clamps etc.

1.2 Fabrication, load-out & sea-fastening of 4 main decks, WI-

8, 9, 10 & N3 complete with installation of all equipment,

process piping, electricals and instrumentation work including

all yard test.

1.3 Refurbishing of 4 temporary decks to be supplied by

ONGC.

2.0 TRANSPORTATION

2.1 Transportation, installation, hook-up & commissioning of

all above i.e. 1.1, 1.2 & 1.3 and ED, EE Decks and 6 helidecks

fabricated by BSCL at Jellingham. Temporary deck will be

collected from ONGC and taken to MII yard. Additionally the

temporary decks will be removed prior to installation of this

deck and handed back to ONGC.

3.0 Transportation, installation, hook-up & commissioning of

Submarine Pipeines & Risers.

4.0 PRICES

The lump sum price is as follows:-

4.1 For 1.1, 1.2 & 1.3 of above US$ 19,400,000

4.2 For 2.0 of above US$ 23,025,000

TOTAL US$ 42,425,000

4.3 PIPELINES

For 3.0 above pipelines totaling 28 US$ 3,800,000 L.S. KM in

length and installation of 8 risers @ US$ 91 per metre of

pipeline and US$ 156,485 per Riser.

4.4 The above lump sum prices are based on estimated tonnages

and flowline length and number of risers. Any variation in the

above will alter the prices pro rata.

4.5 The above amounts are based on the exchange rate between

U.S. Dollars and Indian rupees (as ruling on 9.8.84). Any

variation in the above rate will be to MII's account.

5.0 TERMS & CONDITIONS

5.1 All terms and conditions other than the payment terms as

stipulated by ONGC in their contract with BSCL for the above

platforms will be applicable to MII.

5.2 The lumpsum price is inclusive of all engineering required

for total scope of BSCL's & MII's work for six platforms as

well as all technical service support by provision of expert

personnel to BSCL.

6.0 TERMS OF PAYMENT

Terms of payment are to be mutually discussed and agreed to.

It is however understood that payment on milestone basis will

be made by BSCL to MII only after payments have been

received by BSCL from ONGC.

7.0 DELIVERY

MII will ensure delivery in such a manner that the delivery

dates as stipulated by ONGC for the above platforms will be

met.

8.0 It may be noted that this Letter of Intent is subject to

clearance of Import List form DGTD and receipt of sanction

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from Government of India for release of requisite amount of

foreign exchange and import licenses etc. In case Govt's

clearance/ approval is not received, this Letter of Intent will be

withdrawn without any financial repercussions on either side.

We shall however inform you as soon as Govt's approval/

clearance is received by us.

Subject to this, we would request you to proceed with the work

to ensure completion within the agreed schedule."

There might be some delay on the part of BSCL to make payments.

We may not go into the aforementioned question, but to hold that the

exchange rate clause shall cease to have any application only because of the

breaches on the part of BSCL, cannot be accepted.

We are not in a position to accept that the exchange variation

provision does not relate to the payments in respect of Claim Nos. 1, 2 and

3. The objection raised by the claimant to the said extent is accepted.

SUBSTITUTION

It is not in dispute that MII had substituted heavier material, as

material conforming to ONGC specification was not available readily in the

market. The matter was referred to EIL. Use of material was found to be

technically acceptable to EIL to which ONGC agreed by a letter dated 3rd

May, 1985. ONGC, however, made it clear that it would not make payment

for the substituted material. BSCL immediately by a telex dated 13th May,

1985 informed the same to MII. ONGC also in its letter dated 6th December,

1984 categorically stated:

"The subject matter highlighted in your letter

mentioned above has been reviewed by us and we have

found that payment against increased tonnage on

account of material substitutions proposed by M/s.

BSCL/MII cannot be agreed to. Based on above we

reiterate our view that we will pay the material/

fabrication costs based on the materials shown in the

AFC drawings."

The claim of MII is based on the failure on the part of the BSCL to

fulfil its part of the obligation in procurement of the required material. It is

true that BSCL agreed to reimburse MII for the same. MII's claim is

partially based on the facts that EIL had recommended payments therefor as

stated in a letter to ONGC dated 10 February 1987 and 6 April 1987.

However, it is also not in dispute that ONGC did not accept the said

recommendations and refused to take into consideration the substituted

tonnage for payment of 'as fabricated tonnage'.

There may be a dispute in this behalf between BSCL and ONGC.

However, admittedly, ONGC refused payment to BSCL.

In his partial award, the learned arbitrator noticed that ONGC's

involvement was imperative. ONGC had all along maintained its stand that

it was not ready and willing to bear the extra costs. The correspondence

between the parties was brought on record.

Clause 5 of the contract categorically states that MII was to procure

the material which was to be reimbursed by BSCL. The extra amount

incurred by MII for procuring materials having extra thickness, therefore,

was not payable. To the aforementioned extent, there has been a novation of

contract. MII had never asserted, despite forwarding of the contention of

ONGC, that it would not comply therewith. It, thus, accepted in sub silentio.

It, thus, must be held to have accepted that no extra amount shall be payable.

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It is one thing to say that some more amount might have been spent towards

fabrication but the learned arbitrator has awarded the exact amount claimed

by MII in the following terms:

"I am satisfied that MII is entitled to a payment of US$

20, 832.108 for the disallowed tonnage of 19.584 ST at

the contractual rate of US$ 1067 per ST."

It is in the aforementioned context that the involvement of ONGC was

necessary and if it is the accepted case of the parties that ONGC would not

entertain any claim of BSCL in this behalf, a fortiori having regard to the

tripartite agreement, the learned arbitrator could have no jurisdiction to

determine the claim in favour of MII only because at one point of time

BSCL had raised its own claim with ONGC. In other words, any reduction

of the claim of the BSCL by ONGC had a direct nexus with the claim of

MII. It was, therefore, not a case where ONGC was not involved in the

matter. The exchange of letters categorically proves that MII had accepted

that it would not be entitled to any extra amount in that behalf. MII by

necessary implication accepted the said contention. The principle of

acceptance sub-silentio shall also be attracted in the instant case. MII was,

therefore, not entitled to raise a claim to the extent of fabrication on account

of the increased charges for substitution of material used for WI-8, WI-9,

WI-10 and N-3 Jackets and piles.

To the aforementioned extent, the claim of MII was beyond the terms

of the contract.

INTEREST

The power of the arbitrator to award interest for pre-award period,

interest pendent lite and interest post-award period is not in dispute. Section

31(7)(a) provides that the arbitral tribunal may award interest, at such rate as

it deems reasonable, on the whole or any part of the money, for the whole or

any part of the period between the date on which the cause of action arose

and the date on which award is made, i.e., pre-award period. This, however,

is subject to the agreement as regard the rate of interest on unpaid sum

between the parties. The question as to whether interest would be paid on

the whole or part of the amount or whether it should be awarded in the pre-

award period would depend upon the facts and circumstances of each case.

The arbitral tribunal in this behalf will have to exercise its discretion as

regards (i) at what rate interest should be awarded; (ii) whether interest

should be awarded on whole or part of the award money; and (iii) whether

interest should be awarded for whole or any part of the pre-award period.

The 1996 Act provides for award of 18% interest. The arbitrator in

his wisdom has granted 10% interest both for the principal amount as also

for the interim. By reason of the award, interest was awarded on the

principal amount. An interest thereon was upto the date of award as also the

future interest at the rate of 18% per annum.

However, in some cases, this Court was resorted to exercise its

jurisdiction under Article 142 in order to do complete justice between the

parties.

In Pure Helium India (P) Ltd. (supra) this Court upheld the Arbitration

award for payment of money with interest at the rate of 18% p.a. by the

respondent to appellant. However, having regard to long lapse of time, if

award is satisfied in entirety, respondent would have to any a huge amount

by way of interest. With a view to do complete justice to the parties, in

exercise of jurisdiction under Article 142 of the Constitution of India, it was

directed that award shall carry interest at the rate of 6% p.a. instead and in

place of 18% p.a.

Similarly in Mukand Ltd. v. Hindustan Petroleum Corpn., [2006 (4)

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 42 of 42

SCALE 453], while this court confirmed the decision of the division bench

upholding the modified award made by the learned single judge, the court

reduced the interest awarded by the learned single judge subsequent to the

decree from 11% per annum to 7 = % per annum observing that 7 = % per

annum would be the reasonable rate of interest that could be directed to e

paid by the appellant to the respondent for the period subsequent to the

decree.

In this case, given the long lapse of time, it will be in furtherance of

justice to reduce the rate of interest to 7 = %.

As regards certain other contentions, in view of the fact that the same

relate to pure questions of fact and appreciation of evidence, we do not think

it necessary to advert to the said contentions in the present case.

CONCLUSION

I.A. Nos. 2 and 3 are allowed in part and to the extent mentioned

hereinbefore. The award of the learned Arbitrator is modified to the

aforementioned extent. In the facts and circumstances of this case, there

shall be no order as to costs.