HM Journal

Jurisdiction of Award by Arbitral Tribunal India

Judgment – Oil and natural gas corporation Ltd. vs. saw pipes Ltd.

Bench- M.B. Shah, Arun Kumar.

Court – Supreme court of India

Appellant- Oil and natural gas corporation Ltd.

Respondent- Saw pipes Ltd.

Judgment date- 17/04/2003

The Oil and natural gas Commission has directed Saw Pipes to provide off-shores exploration services available from licensed European manufacturers. Shipping was postponed due to a general strike by steelworkers in Europe. Timely delivery was the subject of contracts. ONGC provided an extension of time, but relied on the provision of a recovery by deducting the amount from the supplier’s payment.

Background

SAW Pipes Ltd.  Move to the Arbitration Tribunal to find a solution. The adjudication panel after hearing both parties has ruled that there is an error and the appellant has wrongfully disregarded the amount of the payment without any consideration or loss due to delays caused by the contract. The Arbitration Tribunal held that the rehabilitation of damages caused by the defendant must be based on the establishment of these losses due to the late delivery of the property.

The appellant failed to establish any evidence proving their loss due to the late delivery of the goods. The Arbitration Tribunal ruled in favor of the respondent and ordered the appellant to pay the amount withheld and interest on the amount stated in the award. The appellant was not happy with the decision of the Arbitration Tribunal to appeal to the High Court against the decision of the Arbitration Tribunal.

The appellant did not succeed in the Supreme Court as the High Court did not explain the decision of the Arbitration Tribunal.

Brief facts

Oil and Natural Gas Corporation Ltd. (ONGC), an Indian state-owned oil and gas company floated a tender for the supply of gas pipelines. SAW Pipes Ltd. a company responsible for the supply of off-shores oil testing and storage equipment, responded to the tender notification by sending a letter dated 27.12.1995. Letter sent by SAW Ltd. specify the specific terms and conditions that they will provide under the specified size schemes. It was decided that the goods would be delivered on or before 14.11.1996.

The agreement contained that in the event of a failure in the delivery of goods then ONGC,  without prejudice to any other right or remedy, is entitled to receive from the respondent as agreed damages closed method of payment, amounting to 1% of the total unit price per week or such delay part of that depends on the 10% roof from SAW Pipes Ltd., the defendant in the current case. This preliminary measure of damage was agreed upon by both parties. It was also agreed that compensation will be provided by the bill to cover the costs of the item sent by the respondent.

In September and October 1996 there was a general strike by mill workers. The strike was raging in all of Europe, which affected Italy from the moment the defendant provided the necessary supplies, which they were unable to deliver on time. This forced the respondent to ask the applicant for an extension of 45 days from the agreed date for the issuance of the said order in the contract. The defendant granted the extension but on the condition that the amount equal to the damages closed will be received from the defendant.

Goods were delivered to the appellant and the applicant made the payment but retained a total of US $ 3,04,970.20 and Rs.15,75,559 as liquidated damages. This deduction was contested according to the defendant. The dispute was referred to the Arbitration Tribunal under the Arbitration and Conciliation Act, 1996, for assistance and resolution of the dispute.

Issues

  • Whether the liquidated damages by ONGC is legal?
  • Can the patent infringement be used as an excuse to attack the award under section 34?

Appellant’s contention

  • The petitioner argued that in the event of a clear violation of sections (28 – 31) of the Judiciary once. The Conciliation Act, 1996 or the terms of the agreement between the parties, the prize may be set aside by the court while exercising a power under Section 34 of the Act.
  •  It was argued that since under the terms of the contract the appellant was entitled to recover agreed liquidated damages at the agreed rate, the award was contrary to Section 28(3) of the Act, the award was on the face of it illegal and erroneous as the Arbitral Tribunal had misinterpreted the law in holding that the appellant was required to prove the loss suffered by it before recovering the liquidated damages, the grant of interest by the Arbitral Tribunal on the liquidated damages deducted by the appellant was against the specific terms of the contract which provided that on a disputed claim no interest would be payable, and for the purpose of construction of contracts, the intention of the parties has to be gathered from the words they have used and not independently thereof.


Respondent’s contention

  • Respondents argued that the jurisdiction of the court was limited to section 34 and that a prize could be set aside only if it contradicts Indian public policy.

Judgment

The High Court granted the appeal, stating that the Arbitration Tribunal had not functioned in terms of Section 32 (2) (a) (v), which provides for the establishment of an Arbitration Tribunal in terms of an agreement. This section also states that the entire mediation process must be consistent. The Council must determine the dispute in accordance with the provisions of the Act. Therefore, if the prize is outside the stated limits it is invalid.

The Supreme Court ruled that the Arbitration Tribunal acted beyond its jurisdiction by violating various provisions of applicable law and the provisions of the Act. The Court held that since the Arbitral Tribunal did not follow the proper procedure prescribed under the Act and acted beyond its jurisdiction, the award would be illegal and set aside under Section 34 of the Arbitration and Conciliation Act.

Therefore, where the legal question is the point at hand, unless both parties specifically agree to transfer it and agree to be bound by the arbitrator’s decision, the power of the courts to set the right to arbitrate when the error is clear in the face of the award is not dismissed.

Just because both sides bring up arguments that arise about the point of law during the proceedings is not enough.

Reported by Srishti Saini

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