Gauhati High Court
Oil India Ltd vs M/S. Dewanchand Ramsaran Industries P ... on 20 March, 2019
Author: Prasanta Kumar Deka
Bench: Prasanta Kumar Deka
Page No.# 1/18
GAHC010184652014
THE GAUHATI HIGH COURT
(HIGH COURT OF ASSAM, NAGALAND, MIZORAM AND ARUNACHAL PRADESH)
Case No. : Arb.A. 6/2014
1:OIL INDIA LTD.
REGD. OFFICE AT DULIAJAN, PO/PS. DULIAJAN, DIST. DIBRUGARH,
ASSAM, REP. BY HEADA LEGAL
VERSUS
1:M/S. DEWANCHAND RAMSARAN INDUSTRIES P LTD.
7/8 B, TRADE WORLD, KAMALA CITY, SENAPATI BAPAT MARG, LOWER
PANEL W, MUMBAI-400013.
Advocate for the Petitioner : MR.A SARMA
Advocate for the Respondent : MD.ASLAM
:: BEFORE ::
HON'BLE MR. JUSTICE PRASANTA KUMAR DEKA
For the Appellant : Mr. D Mozumder
Sr. Advocate
Mr. A Sarma
Advocate
For the Respondents : Mr. GN Sahewalla
Sr. Advocate
Mr. D Senapati
Advocate
Date of Hearing : 31.07.2018
Date of delivery of
Judgment and Order : 20.03.2019
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J
:: UDGMENT & ORDE R ::
(CAV)
Heard Mr. D Mazumdar, learned Senior Counsel assisted by Mr. A Sarma, learned
counsel for the appellant. Also heard Mr. GN Sahewalla, learned Senior Counsel assisted by
Mr. D Senapati, learned counsel for the respondents.
2. This appeal is filed under Section 37 of the Arbitration and Conciliation Act, 1996
(hereinafter referred to as 'the Act') against the judgment and order dated 31.08.2013 passed
in Misc. (Arb) Case No. 3/2012 by the learned District Judge, Dibrugarh. The said Misc. (Arb)
Case was filed against the award dated 28.03.2012 passed by the arbitral tribunal. Vide the
said award the tribunal held that the appellant is entitled to compensation in terms of Clause
17 of General Conditions of Contract (for short, GCC) i.e. a maximum of 7½% of the contract
value and not in terms of Clause 18 of the GCC i.e. the entire performance security
amounting 10% of the contract value for the breach committed by the respondent. The main
contention before the learned District Judge by the present appellant that there was complete
failure on the part of the respondent in fulfilling its obligation under the contract by not
mobilising the Rig and illegally terminating the contract. But by the impugned judgment and
order, the learned District Judge did not advert to the submissions made by the appellant that
the award is against the specific terms of the contract and as such, warrants interference
under Section 34 of the Act.
3. The dispute arose in respect of contract No. OIL/ CCO/ DRLG/ GLOBAL/ 117/ 2005 for
Charter Hiring of one number of drilling Rig. The respondent invoked the arbitration clause
provided in the said contract. The respondent is a company incorporated under the
Companies act and the appellant is a Government of India Enterprise incorporated under the
Companies Act. The appellant floated a tender bearing No. OIL/ CCO/ DRLG/ GLOBAL/ 117/
2005 for Charter Hiring of one 1500 HP drilling Rig package. The respondent and others
participated in the tender and the Letter of Award (LoA) was issued by the appellant which
read as follows:-
"With reference to above, we have pleasure in awarding you our firm Contract No.
OIL/CCO/DRLG/GLOBAL/117/2005 for Charter Hiring of 1 (one) Number Drilling Rig
Model National 110UE AC/SCR 1500 HP for a period of 2 (two) years at an estimated
Page No.# 3/18
contract value of US $ 7,644,120.00 inclusive of all taxes but excluding service tax and
customs duty, if applicable, shall be to OIL's account. The salient terms and conditions
of the contract are given below:
(A) MOBILISATION : Within 6 (six) months from the date of this LoA.
(B) PERFORMANCE GURANTEE: Please arrange to submit performance
security in the form of Bank Guarantee for an amount of US $ 7,64,412.00 and the
same should be valid upto 30th June, 2009."
4. The respondent confirmed its acceptance of the LoA and vide letter dated 08.12.2006
it submitted a performance security in the form of bank guarantee dated 07.04.2006 for US $
7,64,412 issued by Oriental Bank of Commerce. The bank guarantee was valid till 30.06.2009
and a formal contract between the parties was thereafter signed on 30.05.2006 at Duliajan,
Assam. Relevant provisions of t he Contract are reproduced hereinbelow:
SECTION I
GENERAL CONDITIONS OF CONTRACT
1.1(c) "Work" means each and every activity required for the successful performance
of the services described in Section II, the Terms of Reference.
2.0 EFFECTIVE DATE, MOBILISATION TIME, DATE OF COMMENCEMENT
OF THE CONTRACT AND DURATION OF CONTRACT:
2.1 The contract shall become effective from 21-Mar-2006 i.e. date on which
company notified contractor in writing that it has been awarded the contract. Such
date of notification of award of Contract shall be the Effective Date of Contract.
2.2 The mobilisation of the drilling unit and associated services shall commence on
the date Company notifies the Contractor in writing that the Contractor has been
awarded the Contract. The date on which Contractor's Rig Unit & accessories along
with the personnel, necessary tools equipment etc. are properly positioned at the first
drilling location, rig up/ operation completed and the well is actually spudded in will
be treated as completion of mobilisation. This will also be treated as the
Commencement Date of the Contract. The mobilisation shall be completed within 6
(months) from the date of LOA.
2.3 The contract shall be initially for a period of 2 (two) years from the
commencement date with an option to extend the contract period for another 1 (one)
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year at the discretion of Company at same rates, terms and conditions. The terms and
conditions shall continue until the completion/abandonment of the last well being
drilled at the time of the end of the Contract.
.......
12.0 TERMINATION 12.1 TERMINATION ON EXPIRY OF THE TERMS (DURATION): The contract shall be deemed to have been automatically terminated on the expiry of duration of the Contract or extension, if any.
12.2 TERMINATION ON ACCOUNT OF FORCE MAJEURE: Either party shall have the right to terminate the Contract on account of Force Majeure as set forth in para 11.0 above.
.......
12.8 CONSEQUENCES OF TERMINATION: In all cases of termination herein set forth, the obligation of the Company to pay for Services as per the Contract shall be limited to the period upto the date of termination. Notwithstanding the termination of the Contract, the parties shall continue to be bound by the provisions of the Contract that reasonably require some action or forbearance after such termination. ........
17.0 LIQUIDATED DAMAGES FOR DEFAULT IN TIMELY MOBILISATION: In the event of the Contractors default in timely mobilisation for commencement of operations within the stipulated period, the Contractor shall be liable to pay liquidated damages at the rate of 1/2 % of the total contract value per week or part thereof of delay subject to maximum of 7.5%. Liquidated Damages will be reckoned from the date after expiry of the scheduled mobilisation period till the date of commencement of contract as defined in Clause No. 2.0 of Section-I. The Company also reserves the right to cancel the Contract without any compensation whatsoever in case of failure to mobilise and commence operation within the stipulated period. 18.0 PERFORMANCE SECURITY: The Contractor has furnished Performance Security for US $ 7,64,412.00 (being 10% of the estimated Contract value) in the form of Bank guarantee vide Guarantee No. OBC. 107948 dated 07.04.2006 issued by Oriental Bank of Commerce, Santacru (West), Mumbai branch. The Performance Bank Guarantee is valid upto 30-JUNE-2009 to cover the duration of contract Page No.# 5/18 including warranty obligations indicated in para 6 of SECTION-I hereof. The performance security shall be payable to Company as compensation for any loss resulting from Contractor's failure to fulfil their obligations under the Contract. In the event of extension of the Contract period, the validity of the bank guarantee shall be suitably extended by the Contractor. The bank guarantee will be discharged by Company not later than 30 days following its expiry.
SECTION II TERMS OF REFERENCE / TECHNICAL SPECIFICATIONS 2.0 DEFINITION OF WORK: To drill onshore wells through hire of one (1) No. drilling rig with associated equipment/ tools & services for an initial period of 2 years with provision for extension by 1 more year at the same rates terms and conditions. The wells will be either straight vertical holes or planned deviated holes with formation pressure to be near or above hydrostatic. Well depths are expected to be in the range of 200 - 4500 meters. Depths of the wells may somewhat increase or decrease at the discretion of the company within the rated capacity of the rig. ............
4.0 SCOPE OF SERVICE: The Contractor shall provide the services of 1 (one) no. of rig package along with all necessary equipment wherein majority equipment are presently stacked at Mehsana, Gujarat and certain equipment for the rig package needs to be imported/ indigenously procured and personnel as listed and carryout drilling operations including but not limited to coring, round tripping, lowering & setting of casings, completion, abandonment, Production testing as and when required, and all other associated operations including rig up, rig down, interlocation movement etc. in accordance with the well drilling, and completion Programme to be furnished by the company before commencement of the operation which may be amended from time to time by reasonable modification as deemed fit by the company. Apart from this, the Contractor shall also provide spares for the entire rig package, tools and equipment, drilling engineering services required for vertical and deviation drilling operations, fuel (HSD) for running the operations, Lubricant and shall carry out drilling with tools & expert supplied by the contractor. The contractor shall keep adequate stock of spares at all time for uninterrupted progress Page No.# 6/18 of work and make available all items listed in this document ready for use. SECTION III SPECIAL CONDITIONS OF CONTRACT 1.2 "Associated services" means equipment and services, asked for, along with Drilling unit in this bid document. These include but not limited to mud engineering, deviation drilling tools, equipment & services; camp/ catering/ medical services, communication, safety & fire fighting services, well control services etc. .........
1.8 "Commencement Date" means the date on which the first well under this contract is spudded in.
.........
1.17 "Spudding in of the well" means the initiation of drilling of the well and the very first hit on well centre of the new location after alignment and after the rig preparation is complete in all respects subsequent to clearance from safety, audit and the Company representative.
1.18 "Drilling Operation": Means all operations as generally understood for drilling Oil/Gas wells, more particularly all the operations required to be carried out pursuant to this contract.
..........
2.0 MOBILIZATION 2.1 The mobilization of the Drilling Unit and associated services shall commence on the date of receipt of the letter of Intent awarding the Contract and continue until the complete drilling unit is properly positioned at the first drilling location, rig-up operations completed and the well is actually spudded in.
5. The case of the respondent who was the claimant in the arbitral proceeding is that pursuant to the contract it took all necessary steps to mobilise the Rig package which was lying at Mehsana, Gujarat which is referred in Clause 4 of Section 2 of the contract agreement dated 30.05.2006. The Rig package could not be mobilised within the stipulated period of 6 months from the date of LoA for the reasons beyond control of the respondent/company. A meeting was held on 20.03.2007 between the parties to this appeal and the respondent agreed that the Rig was expected to start operation at the designated site by 15.05.2007. It Page No.# 7/18 was further informed that 4 trailers loaded with the equipments left Gujarat on way to Assam. During the said process a letter of demand for ransom of Rs. 80,00,000/- by the United Liberation Front of Assam (ULFA) was issued and it was threatened that in case of non- compliance, dire consequence will follow. Though necessary complaints were lodged with the police the militant outfit planted bomb in one of respondent's Rig located at ONGC, Sivasagar on 29.03.2007. However, due to timely action by the Army personnel, the same was discovered and defused. The case of the respondent is that due to force majeure it was unable to perform the obligation, required to be performed under the contract and as there were no adequate steps to provide necessary safety and security of the respondent's men and machinery finally terminated the contract on 26.04.2007. The respondents prayed for the following reliefs:-
A) Release of the Performance security furnished by the claimant. B) Interest for withholding performance security.
C) Costs of incidental expenses for arbitrations.
6. The appellant OIL filed its statement of defence and admitted award of the contract for Charter Hiring of Rig along with the bank guarantee deposit dated 07.04.2006 by the respondent. It was further admitted that the contract was signed on 30.05.2006 and the respondent was to mobilise the Rig within 6 (six) months from the date of LoA. But it failed to move any Rig in spite of reminders and sent letter dated 31.03.2007 informing invocation of force majeure clause of the agreement. The appellant refuted that there was no situation for invoking force majeure clause and notice was not acceptable to it. A petition under Section 9 of the Act was filed by the respondent before the learned District Judge, Dibrugarh for injunction against encashment of bank guarantee and ex-parte ad-interim order was passed in favour the respondent. Subsequent thereto, on 24.04.2007 the respondent terminated the contract. A counter-claim was also made by the appellant thereby claiming Rs. 27,10,30,445.979 against loss of profit along with an interest @ 16% per annum on the said amount w.e.f. 25.05.2008 till the realisation from the claimant. Further it claimed the difference of rates for a period of 2 years between the rates of the respondent and the one of the replaced contractor, M/s JB Energy (P) Ltd. which amount comes to Rs. 22,72,66,806/-. A written objection against the said counter-claim of the appellant was also filed by the respondent. The tribunal framed the following issues:-
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1. Whether in the facts and circumstances of the case, the claimant company committed breach of the contract dated 30.5.2006 by not mobilizing the rig package in accordance with the terms and conditions of the contract?
2. Whether the claimant company invoked the 'Force majeure' clause under 11 of the Agreement dated 30.5.2006 in accordance with the provision of law?
3. Whether the termination of the Contract immediately by the claimant unilaterally on account of continuance of "Force Majeure", if any is valid in law and in accordance with the terms of the Agreement?
4. Whether the claimant company failed to honor the contractual obligation as per terms of the contract and whether such failure, if any, amounted to repudiation of the contract?
5. Whether the respondents are liable or release and/ or encash the Performance Security in the form of Bank Guarantee bearing No. 0232000030106 dated 7/4/2006 along with interest, as may be permissible under the law?
6. Whether the parties are entitled to compensation as put forward in their statement of claim/ counter claim respectively with interest, cost of arbitration and other incidental expenses?
7. To what other relief(s), if any, the parties are entitled?
7. The tribunal decided the issue no. 1 to the extent that the claimant respondent failed to mobilise the Rig package during the time frame. Subsequent thereto, whether such failure amounts to breach of the terms and conditions of the contract was considered along with the issue nos. 2, 3 & 4. The said issue nos. 2, 3 & 4 were decided by the tribunal holding that the claimant respondent never intended to honour the contract with the present appellant. The plea of force majeure was also rejected. The issue nos. 6 & 7 were decided thereby holding that there was no commencement of the contract period and as such the present appellant was not entitled to any compensation under Clause 18 of the contract. However, for the failure to mobilise the Rig the appellant was held to be entitled to claim for the liquidated damages as compensation as per Clause 17. By way of the findings in issue nos. 6 & 7, the tribunal rejected the counter claim of the appellant on the ground that no documentary evidence could be placed before the tribunal in support of the counter claim and as such, the compensation claimed by way of the counter claim was rejected. The issue no. 5 was held to Page No.# 9/18 be redundant as the bank guarantee deposited by the respondent was encashed and as such it was modified as to whether the appellant was entitled to retain the said amount of the performance security in the form of bank guarantee or not which was also decided against the appellant.
8. Being aggrieved by the said award, the appellant preferred Misc. (Arb) Case No. 3/2012 in the court of learned District Judge at Dibrugarh by filing petition under Section 34 of the Act challenging the award of the tribunal. Vide judgment dated 31.08.2013 the said Misc. (Arb) Case No. 3/2012 was dismissed and the said court of learned District Judge held as follows:-
"53. In the instant case, the award passed by the Tribunal is in accordance with the law and in conformity with the statutory provisions of law and also in accordance with the terms of the contract. The award is also not proved to be contrary to the public policy of India, rather, the learned Tribunal has arrived at a conclusion having due regard to the terms of contract and the evidence on record. The arbitral award does not suffer from any infirmities and hence, does not deserve any interference by this Court and the petitioner is not entitled to any of the relief as prayed for."
The said judgment dated 31.08.2013 in Misc. (Arb) Case No. 3/2012 is challenged under Section 37 of the Act in the present arbitration appeal.
9. Mr. Mozumder, learned Senior Counsel for the appellant submits that the award is against the specific terms of the contract ignoring the definition under clauses 1.2 and 1.8 in Section III of the Special Conditions of Contract (SCC) defining the expressions/words/terms "associated service", "commencement of date", "scope of service" provided in Clause 4 of Section II Terms of reference/Technical specifications and Clause 2.1 of the Section I of the General Conditions of Contract (GCC). Further, the tribunal misconstrued Clauses 17 & 18 of the GCC by ignoring the aforesaid terms of the contract. The tribunal erred in finding the compensation amount to 7½% of the contract value on the face of the finding of the tribunal that there was complete failure on the part of the respondent in fulfilling its obligations under the contract by not mobilising the Rig and terminating the contract. The tribunal ought to have awarded the compensation in favour of the appellant under Clause 18 of the GCC.
10. Referring to Clause 2.0 of Section I of the GCC, Mr. Mozumder submits that the Page No.# 10/18 contract became effective from 21.03.2006 i.e. the date on which the appellant company notified the respondent in writing that the contract was awarded to it. Such date of notification is clearly stipulated under Clause 2.1. of Section I of the GCC to be the effective date of contract. Referring to Clause 2.2 of Section I GCC it is submitted that the mobilisation of the drilling unit and the associated services commenced on the date the appellant notified the contractor in writing that the respondent was awarded the contract. The said process of mobilisation as per Clause 2.2 of Section I GCC comes to an end on the date on which the respondent's Rig unit and accessories along with the personnel, necessary tools, equipments etc are properly positioned at the first drilling location and well actually spudded. The said date of completion of mobilisation is to be treated as the commencement date of the contract and the mobilisation shall be completed within 6 (six) months from the date of LoA. The associated services as defined in Clause 1.2 of Section 3 of the SCC includes equipments and services asked for along with drilling unit in the bid document and it includes but not limited to mud engineering, deviation, drilling tools, equipments and services etc.
11. The finding of the tribunal that Clause 17 of the GCC is applicable and not Clause 18 of GCC because the contract never commenced on failure of the respondent to mobilise the drilling unit is fallacious as there was complete non-performance of the contract which includes mobilisation of the drilling Rig, performance of associated services and performance of drilling operations. The contract includes the aforesaid services and the same cannot be understood detaching one another. The tribunal failed to consider the same in the light of the requirement of the appellant and the nature of the job which the contract covers and accordingly the award restricting the appellant to the liquidated damages is patently illegal and the learned court below failed to appreciate the same and came to a wrong conclusion. Mr. Mozumder relies on the case law of Delhi Development Authority v. R.S. Sharma & Company, New Delhi reported in (2008) 13 SCC 80 and submits that it is open to the court to consider whether the award is against the specific terms of the contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India. Further, relying on the case law of State of Rajasthan v. Nav Bharat Construction Co. reported in (2006) 1 SCC 86, Mr. Mozumder submits that an arbitrator cannot go beyond the terms of the contract between the parties and in the guise of doing justice he cannot award contrary to the terms of the contract. If he does so, the same would amount to Page No.# 11/18 misconduct on his part. The contract as hereinabove stated includes the three limbs, namely, mobilisation of the drilling Rig, performance of associated services and performance of drilling operation. The said inherent composition of the contract has apparently failed to be taken note of by the tribunal and apparently the tribunal went beyond the terms of the contract between the parties. Such act is clearly a misconduct and as such interference by this court is required holding the award to be patently illegal which the learned court below even failed to take note of.
12. Mr. Sahewalla, learned counsel for the respondent, on the other hand, submits that there is no misconduct nor any patent illegality in the award. He refers to Clause 3 of the schedule of rates of Section IV of the contract and further relying on Clause 3.1 of the said schedule of rates of Section IV, submits that the 'operating day rate' will become payable from the time the well is spudded until the Rig is released for the move to the next location. The first operation day is the commencement date of the contract and it extends for a period of 2 years from the date of commencement of the contract and the performance security also starts its effectiveness from the said commencement date of the contract and not prior to that. For any failure on the part of the respondent in mobilisation of the drilling Rig both the parties stipulated the liquidated damages @ 7½% of the total contract value as per Clause 17.0 of the GCC with an option thereby reserving the right of the appellant to cancel the contract without any compensation whatsoever in case of failure to mobilise and commence operation within the stipulated period. On the other hand, Clause 18 is specific that the performance security will be valid up to 30.06.2009 to cover duration of the contract and the respondent agreed that the performance security shall be payable to the appellant as compensation for loss resulting from the respondent's failure to fulfil their obligations under the contract. Accordingly, Mr. Sahewalla submits that the appellant anticipated a situation similar to the one in the present case and for such failure on the part of the respondent the damage was assessed @ 7½% of the total contract value and not beyond that. Under such circumstances, the tribunal has not gone beyond the terms of the contract and rightly passed the award thereby compensating the appellant to the extent of the liquidated damages so stipulated and agreed to by the parties.
13. Mr. Mozumder, on the other hand, countered the submission of Mr. Sahewalla by referring to Clause 18 of the GCC of Section I and submits that the said performance security Page No.# 12/18 is payable to the appellant as compensation for any loss resulting from the respondent's failure to fulfil its obligation under the contract. The said obligation starts from the effective date as stipulated under Clause 2 of the GCC of Section I till the completion of 2 years from the commencement date or any other period extended thereafter. Obligation starts from the date on which the LoA was accepted by the respondent inasmuch as upon such acceptance the act of performance, be it mobilisation or operation of the Rig, starts. Admittedly, the respondent failed to mobilise and as such, there is an apparent failure of obligation on the part of the respondent which the tribunal while deciding the issue nos. 2, 3 & 4 held that the respondent never intended to honour the contract with the appellant. That finding is sufficient authorising the appellant to encash the performance security and there is no error on the part of the appellant in encashing the said security on the failure of the respondent to mobilise its Rig.
14. Mr. Sahewalla, further submits that the contract itself specifies liquidated damages and also performance security. The liquidated damages is entitled by the appellant on the failure of mobilisation by the respondent. Similarly, the performance security is also entitled by the appellant as compensation on the failure of the respondent to perform the contract. From the submission of Mr. Mozumder it is clear and apparent that the appellant is entitled to the performance security for their failure to performance and on the other hand, the tribunal took the view that as the contract did not commence so, the appellant is entitled to the liquidated damages and not beyond that. Even if there are two views but the view taken by the tribunal is well within the contract and in such a situation it would be proper on the part of this court not to interfere with the award. In support of the said contention, Mr. Sahewalla relies on the case laws of M/s Sudarsan Trading Co. v. Government of Kerala & another reported in (1989) 2 SCC 38 and in the case of P.V. Subba Naidu and others v. Government of A.P. and others reported in (1998) 9 SCC 407. It is also submitted by Mr. Sahewalla that the award is patently illegal if such illegality must goes into root of the matter and the same must be unfair and unreasonable which shocks the conscience of the court and in support of the said contention Mr. Sahewalla relies on the case laws of Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. reported in (2003) 5 SCC 705. As the award and the compensation of the arbitral tribunal is well within the terms of the contract there is no violation of any law of the country accordingly, the submission of Mr. Mozumder that the Page No.# 13/18 award is patently illegal cannot be accepted. Accordingly, he submits that the appeal is liable to be dismissed.
15. I have considered the submissions of the learned counsel for the parties. The appellant is aggrieved as the tribunal limited the compensation which the appellant is entitled for non- performance of the contract by the respondent to 7.5% of the total work value i.e. the liquidated damages stipulated under Clause 17 of Section (i) GCC. It is the further contention that the contract as a whole includes the mobilisation stage along with the performance in order to render the services within the scope of Clause 4 of Section (ii) terms of reference. In the contract under Clause 17 of the GCC liquidated damages is stipulated for default in timely mobilisation and the same is stipulated at the maximum of 7.5% of the total work value. The performance security as stipulated under Clause 18 is also the compensation for any loss resulting from the contractors' failure to fulfil their obligation under the contract. The tribunal came to the conclusion that as there was no commencement of contract period the appellant was not entitled to any compensation under Clause 18 but as per Clause 17 the appellant is entitled to the maximum liquidated damages. Whether the appellant is entitled to the performance compensation under Clause 18 of the GCC. Before examining the entitlement of the appellant vis-a-vis the findings of the arbitral tribunal, it would be proper to take note as to the nature of an award made by an arbitrator by referring to the decision of Jivarajbhai Ujamshi Sheth and others v. Chintamanrao Balaji reported in AIR 1965 SC 214. It was held by a Three Judges Bench of the Hon'ble Apex Court that an award made by an arbitrator is conclusive as a judgment between the parties and the court is entitled to set aside an award if the arbitrator has mis-conducted himself in the proceedings or when the award has been made after the issue of an order by the court superseding the arbitration or arbitration proceeding has become invalid under Section 35 of the Arbitration Act, 1940. An award may be set aside by the court on the ground of error on the face of the award but an award is not invalid because by a process of inference and the agreement it may be demonstrated that the arbitrator has committed some mistake in arriving at his conclusion.
16. The Act of 1996 if compared to the provision of Arbitration Act, 1940 certain changes were made so far the interference by the court is concerned. In the case of Konkan Railway Corpn. Ltd. and others v. Mehul Construction Co. reported in (2000) 7 SCC 201, the Hon'ble Apex Court held that a bare comparison of different provisions of the Page No.# 14/18 Arbitration Act, 1940 with the provisions of the Act, 1996 indicates that the 1996 Act limits intervention of court with an arbitral process to the minimum and it is not the legislative intent that each and every order passed by an authority under the Act would be a subject matter of judicial scrutiny of a court of law. Under the new law, the grounds on which an award of an arbitrator could be challenged before the court have been severely cut down and such challenge is now permitted on the basis of the invalidity of the agreement, want of jurisdiction on the part of the arbitrator or want of proper notice to a party of the appointment of the arbitrator or of arbitral proceedings. The powers of the arbitrator have been amplified by insertion of specific provisions of several matters.
17. An award may be remitted or set aside on the ground that the arbitrator in making it had exceeded his jurisdiction and evidence of matters not bearing on the face of it can be admitted for scrutiny in order to establish whether the jurisdiction have been exceeded or not because the nature of dispute is something which has to be determined outside the award irrespective of whatever might be said about it in the award or by the arbitrator. An arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award. In the case of M/s Sudarsan Trading Co. v. Government of Kerala & another (supra), the Hon'ble Apex Court in a case before it wherein the court examined the different claims not to find out whether the said claims were within the disputes referable to the arbitrator but to find out whether in arriving at the decision the arbitrator had acted correctly or incorrectly it was held that the court had no jurisdiction to do namely substitution of its own evaluation of the conclusion of law or fact to come to the conclusion that the arbitrator had acted contrary to the bargain of the parties. Whether a particular amount was liable to be paid or damages are liable to be sustained was a decision within the competency of the arbitrator in the said case. By construing the contract the court could not take upon itself the burden of saying that the same was contrary to the contract and as such beyond jurisdiction. However, there may be a conflict as to the power of the arbitrator to grant a particular remedy.
18. Clause 2 of the GCC defines the effective date, mobilisation time, date of commencement of the contract and the duration of the contract. The contract became effective from 21.03.2006 the date on which the appellant company notified the respondent regarding award of the contract and the said date 21.03.2006 is the effective date of contract. Clause 2.2 of the GCC stipulates that mobilisation of the drilling unit and associated Page No.# 15/18 services would commence on the date the appellant notifies the contractor in writing about the award of the contract. The date on which the contractor's/ respondent's Rig unit and accessories along with the men and materials are properly positioned at the first drilling location, the Rig up operation completed and the well is actually spudded in would be the date of completion of mobilisation and the said period of completion of mobilisation must be completed within 6 months from the date of LoA. The date on which the mobilisation is completed will be treated as the commencement date of the contract. Clause 2.3 of the GCC further states that the contract shall be for a period of 2 years from the commencement date with an option to extend for another one year at the discretion of the appellant.
19. Clause 18 of the GCC mentions about the performance bank guarantee which shall remain valid up to 30.06.2009 to cover duration of contract and the performance security shall be payable to the appellant as compensation for any loss resulting from the respondent/contractor's failure to fulfil their obligation under the contract. As per Clause 12.1 of the GCC, the contract shall automatically be deemed to be terminated on the expiry of the duration of the contract or extension, if any. From the aforesaid stipulations in the contract, the respondent undertook to carry out the work as defined in Clause 2 of Section II of the terms of reference along with scope of service as per Clause 4 of the said Section II. As per scope of the work the respondent was required to mobilise its Rig. The commencement date of the contract as per Section 3 of the SCC means the date on which the first well under the contract is spudded in. On the other hand, Clause 2.2 of the GCC stipulates that the date on which well is actually spudded in, will be the date of completion of mobilisation. Thus, it is seen that as per the scope of the work at first there must be mobilisation by the Rig and immediately on operation or the well is actually spudded in, the commencement date of the contract starts and the same spans for a period of 2 years from the commencement date. The contract so commenced with the defined commencement date as per Clause 2.2 of the GCC gets terminated automatically initially for a period of 2 years with an option to extend by another one year. The performance security as per Clause 18 of the GCC must be valid to cover the duration of the contract which is 2 years as per Clause 2.3 of the GCC. From the said discussion it can be arrived at that after mobilisation the performance security become effective for the duration of the contract which is initially for a period of 2 years as per Clause 2.3 of the GCC.
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20. Clause 17 of the GCC stipulates that in the event the respondent/ contractor defaults in timely mobilisation for commencement of operation within the stipulated period which is 6 months from the date of LoA i.e. the effective date of contract which is 21.03.2006, the respondent/contractor is liable to pay liquidated damages to a maximum of 7½% of the total contract value and the said liquidated damages will be reckoned from the date after expiry of the scheduled mobilisation period till the date of commencement of contract as defined in Clause 2.4 of Section (i) GCC. Further, the appellant company reserves the right to cancel the contract without any compensation whatsoever in case of failure to mobilise and commence operation within the stipulated period. Thus, the liquidated damages starts after failure of 6 months from the effective date of the contract i.e. 21.03.2006 to mobilise and the same will be reckoned till the date of commencement of the contract. In the present case in hand, the date of commencement of contract could not be achieved by the respondent contractor and as such, the maximum 7½% of the total work value of the liquidated damages is entitled by the appellant which was the finding of the tribunal. But it is the contention as hereinabove stated that the appellant company is entitled for 10% performance security of the total work value. The performance security has its commencement as hereinabove stated during the duration of the contract i.e. after the completion of the mobilisation stage and as apparent from the said clause the performance security is payable to the appellant company as compensation for any loss resulting due to failure of the respondent any obligation under the contract. Mr. Mozumder submits that the obligation under the contract starts from 26.03.2006 which is the effective date of the contract. The said effective date starts prior to the completion stage of mobilisation and the act of mobilisation itself is an obligation under the contract in order to render the scope of service as defined under Clause 4 of Section (ii) terms of reference. The Tribunal held that the respondent failed to honour the contractual commitment as such it is a clear finding that the respondent contractor failed to fulfil its obligation under the contract. The said finding of the tribunal as per Mr. Mozumder itself vitiates the whole award which is impregnated by patent illegality.
21. Clause 17 of the GCC stipulates liquidated damages for default in timely mobilisation. As stated hereinabove, the liquidated damages will be reckoned from the date after expiry of the scheduled mobilisation period till the date of commencement of contract as defined in Clause 2 of Section I of the GCC. The said stipulation envisages a situation wherein the Page No.# 17/18 mobilisation by the contractor is completed but not within the stipulated period of 6 months but beyond the said period of 6 months and subsequent thereto the contractor reached the stage of the commencement date of the contract. The said liquidated damages as hereinabove stated and the period of reckoning the same targets the date of commencement date of the contract. In that case also the appellant company is entitled to the liquidated damages subject to maximum of 7½% of the total contract value. There is an option once the commencement date is arrived at by the contractor, the appellant may or may not accept the subsequent performance to commence operation for a period of 2 years. If it is accepted, then the two years period starting from commencement date till the termination of the contract on expiry of duration of the contract is covered by the performance security as stipulated under Clause 18 of the GCC. Clause 17 as referred hereinabove also provides an option to the appellant company with the right to cancel the contract without any compensation whatsoever in case of failure to mobilise and commence operation within the stipulated period. From the said stipulation in Clause 17 along with the option to cancel the contract without any compensation to the contractor indicates that the parties to the contract knew that a particular loss is likely to result from breach and the party who suffers by such breach is entitled to receive compensation for any loss which naturally arises in the usual course of things from such breach. There is no doubt that the terms of the contract are stipulated and agreed to by the parties therein who are experts in the said field. In the present case in hand, the maximum amount of liquidated damages for default in timely mobilisation is 7½% of the total contract value. On the other hand, Clause 18 stipulates performance security as 10% of the total contract value in order to cover the duration of contract which is 2 years from the commencement date. The said duration of contract is clearly from the commencement date of contract. Under such circumstances, the award by the tribunal is well within the terms of the contract and does not carry any absurd meaning beyond the scope of the terms of the contract.
22. In the case of State of Rajasthan v. Nav Bharat Construction Co. reported in (2006) 1 SCC 86 which is reproduced hereinbelow:-
"27. There can be no dispute to the well-established principle set out in these cases. However, these cases do not detract from the law laid down in Bharat Coking Coal Ltd. case or Continental Construction Co. Ltd. case. An arbitrator cannot go beyond the Page No.# 18/18 terms of the contract between the parties. In the guise of doing justice he cannot award contrary to the terms of the contract. If he does so, he will have misconducted himself. Of course if an interpretation of a term of the contract is involved then the interpretation of the arbitrator must be accepted unless it is one which could not be reasonably possible. However, where the term of the contract is clear and unambiguous the arbitrator cannot ignore it."
23. As hereinabove observed that the award passed by the tribunal does not contravene the provision under Clause 17 and 2.2 of Section I of the GCC, the same is a possible view of the matter which the arbitrator considered within the terms of the contract. In the case of Steel Authority of India Limited v. Gupta Brother Steel Tubes Limited reported in (2009) 10 SCC 63 it was held by the Hon'ble Apex Court that if the conclusion of the arbitrator is based on a possible view of the matter the court should not interfere with the award and it is not permissible to a court to examine the correctness of the findings of the arbitrator as if the court was sitting in an appeal over its finding. The submission of Mr. Mozumder may be a possible view but as it does not amount the award to be patently illegal and opposed to the public policy of India the same requires no interference as held in the case of Delhi Development Authority v. R.S. Sharma & Company, New Delhi (supra).
24. From the discussions hereinabove I am unable to accept the submission of Mr. Mozumder that there is patent illegality in the award passed by the tribunal on the face of the finding of the tribunal that the respondent failed to honour the terms of the contract resulting clear breach of the obligation of the contractor/ respondent and as such, the appellant is entitled to the performance security of 10% of the total contract value. I do not find any ground for interference in the judgment and order passed in Misc. (Arb) Case No. 3/2012 by the learned District Judge, Dibrugarh. Accordingly, the appeal stands dismissed.
25. Send back the LCRs. No costs.
JUDGE Comparing Assistant