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The appellant  M/s. Bharat Petroleum Corporation Limited is a Government of India Undertaking, under the administrative control of the Ministry of Petroleum & Natural Gas and is engaged in refining, distributing and selling of petroleum products all over the country. The respondent  M/s. Great Eastern Shipping Company Limited is engaged in the business of shipping and allied activities and owns a fleet of tanker vessels for charter, including the vessel known as JAG PRAJA.

4. An agreement, called the Time Charter Party in legal parlance, was entered into between the appellant and the respondent on 6th May, 1997 for letting on hire vessels for a period of two years from 22nd September, 1996 to 30th June, 1997 and from 1st July, 1997 to 30th June, 1998, on the terms and conditions set out in the said agreement. However, before the Charter Party was to come to an end, on 29th June, 1998, the Indian Oil Corporation Limited (for short IOC), acting as agent of the appellant, issued a fax to various ship owners, including the respondent herein, requesting them to extend the validity of the Charter Party Agreement dated 6th May, 1997 beyond 30th June, 1998 for a period of one month from 1st July, 1998 with option for two further extensions of 15 days each. The respondent agreed to the said proposal. Accordingly, on 29th June, 1998 an addendum was signed between the parties whereby the validity period of Charter Party was extended for one month with an option for two further extensions for a period of 15 days each. The terms and conditions; exceptions and exemptions contained in the Charter Party dated 6th May, 1997 remained unaltered. The parties are ad idem that the Charter Party dated 6th May, 1997 was extended till 31st August, 1998.

6. Thereafter, in September, 1998, the IOC for and on behalf of the Oil Industry, floated a fresh tender for carriage of petroleum products along the Indian coast on time charter basis for a period of one year commencing from 1st September, 1998 to 31st August, 1999, on the terms and conditions set out in the tender document. In response to the said tender, the respondent and other vessel owners submitted their bids. It seems that being aggrieved of the decision of the IOC to invite revised price bids after opening of the sealed tenders, one of the bidders filed a writ petition in the Bombay High Court, questioning the said decision. The appellant intervened in the said matter. The writ petition was disposed of vide order dated 20th August, 1999. While disapproving in principle, the action of the IOC in inviting fresh price bids after opening the bids, but without recording final opinion on the merits of the issues raised in writ petition, the Court disposed of the petition, inter alia, directing that (i) the charter hire rates should be fixed by the Tender Evaluation Committee and (ii) as the tender was for the period ending 31st August, 1999 and the writ petition was being decided on 20th August, 1999, the IOC will not be required to enter into a contract for the period from 1st September, 1998 to 31st August, 1999. It is not in dispute that the vessel JAG PRAJA, with which we are concerned, continued to be chartered by the appellant till 31st August, 1999.

7. It appears that pending finalization of a new charter party for the period commencing 1st September, 1998, certain meetings took place between the Oil Companies and the Ship Owners, including the respondent herein. On 12th October, 1998, the respondent informed the IOC that if all its nine vessels, mentioned in the letter, are used at a fair and reasonable rate for one year, from 1st September, 1998 to 31st August, 1999 for which the tender had been floated, they were agreeable to apply the new agreed rates for use of the said nine vessels from 1st July, 1998. On 31st October, 1998 the IOC faxed to the respondent relevant portion of the message received by them from Oil Co- ordination Committee, extending the period of usage of the existing coastal tanker fleet for the month of October, 1998, at 80% charter hire rates, prevailing till 30th June, 1998, on provisional basis, subject to adjustment of provisional charter hire with retrospective date from 1st September, 1998 against the revised charter hire, to be finalised by the Oil Industry in response to the tender floated by IOC on 1st September, 1998. Respondents consent was asked for. The respondent responded immediately vide their letter dated 5th November, 1998, agreeing in principle that revised charter hire rates, as and when finalized in response to tender floated by the IOC on 1st September, 1998, would be applicable to the vessels which are selected under the tender, retrospectively from 1st September, 1998. It was pointed out that the vessels which are not chartered under the tender floated would be at a disadvantage. It was clearly stated that since the tender was not finalized, the owners will be guided by the existing terms and conditions. Some other objections, not relevant at this stage, were also indicated. As such, all said and done, Oil Co-ordination Committees proposal was not accepted. Nevertheless, some suggestions to resolve the controversy were given.

8. Thus, the proposal by the Oil Co-ordination Committee was not accepted by the respondent. In the alternative, it was suggested by the respondent that the charter period be extended by six months on the existing terms and conditions at a mutually discussed time charter rate. Admittedly, the vessels continued to be chartered by the appellant beyond the date of this letter.

9. Thereafter, for almost two months, there was no communication between the parties. It was only on 31st December, 1998 when the IOC issued a fax to the respondent, enclosing draft letter regarding charter party agreement to be signed between the charterers and owners (with minor modification, if necessary), requesting the respondent to sign as per proposal by the 4th January, 1999, on which date the respondent expressed its disinclination, stating in reply fax that as per usual practice, pending finalization of new charter, the existing terms and conditions of the charter party continue to apply. Finally, it was suggested that: