13 November 2021 | Welspun Specialty Solutions Limited Ltd. v. Oil and Natural Gas Corporation Ltd. | Civil Appeal Nos. 2826-2827 of 2016 | NV Ramana CJ & Surya Kant J | Supreme Court of India | 2021 SCC OnLine SC 105
Welspun’s predecessor Remi had to supply casing steel pipes to ONGC (3, 93,297 meters length). A clause of their contract--purchase orders--stated that the time and date of delivery is of essence. However, ONGC could extend the timeline without prejudice to claim damages unless it clearly waived its right in writing to recover such damages (with approval of the competent authority). A clause in the GCC of the purchase order gave ONGC the right to levy liquidated damages for delay in supply.
Four purchase orders were issued for different lengths. For each order, ONGC extended the time seven times. In each case, liquidated damages was waived for the first two extensions, but they were levied for the remaining five extensions.
Welspun (Remi) executed the contract. Later it initiated arbitration for refund of liquidated damages deducted by ONGC and a few other claims. ONGC, the respondent in the arbitration, led evidence that it had suffered tangible losses
The tribunal concluded as follows:
A court rejected the set aside petition but in appeal the High Court set-aside the award. It relied on SAW Pipes as direct authority on the point.
In considering a challenge to the High Court’s order, the 3-judge bench of the Supreme Court has made the following observations on the public policy ground during the course of its examination of the award:
The court then examined the award’s reasoning and concluded that its conclusions were plausible views (reasons summarized at para 42 of the SCC Online report).
[Ed. It is difficult to critically read judgments like these where the arbitrator’s findings are not set out in full. To take one example, the court says at paragraph 14 (SCC) that “the Arbitral tribunal held that liquidated damages … cannot be granted as there was no breach of contract due to the fact that time was not the essence.” A closer reading of the judgment together with the High Court’s decision of 14 October 2008 (esp. para 19) suggests that Supreme Court’s paragraph 14 is an erroneous description. What the court presumably means to say is that as per the tribunal since the liquidated damages clause assumed that time is of essence, that clause could be not be applied because time was actually not of essence].
Read the judgment here.
Categories: Appealable Orders | Application for Setting Aside Arbitral Award | Arbitrators Interpretation of Contract | Erroneous Application of Law | Fundamental Policy of Indian Law | Liquidated Damages | Patent Illegality | Perverse Award | Public Policy of India | Saw Pipes | Scope of Appeal Under Section 37 (1) (c) ACA | Section 34 (2A) | Section 34 ACA | Section 37 ACA | Setting Aside Arbitral Award | Standard for Setting Aside Arbitral Award | Waiver