1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.104 OF 2007 Oil and Natural Gas Corporation Ltd. .. Petitioners V/s Neptune Exploration & Industries Ltd. .. Respondents Mr.Rajiv Kumar with Mr.S.P.Bharti for the Petitioners. Mr.V.K.Rambhadran with Ms.Shikha Goenka & Mr.Prathamesh Avhad for the Respondents. CORAM : S.C.DHARMADHIKARI J. DATE : 19TH DECEMBER, 2009 JUDGMENT: 1. By this petition u/s.34 of the Arbitration and Conciliation Act, 1996, the petitioners-ONGC Limited, a public sector undertaking challenges the award dated 7th July, 2006 passed by the Arbitral Tribunal. 2. The Respondent before me is a Company interalia engaged in the business of drilling operations for exploration and exploitation of oil and natural gas and other related activities. The award in question is rendered by the Tribunal of three Arbitrators. They have differed and the petitioners challenges the award of the majority in so for as it relates to the Issue Nos.1, 3, 5, 6, 7 and 8. The petitioners also challenge the dissenting award so far as it relates to the Issue Nos.1, 6 & 7. The net result of this is that there is a majority award on 2 Issue Nos.1, 6 & 7 whereas on Issue Nos.3, 5 & 8 the Respondents’ claims are accepted by the majority. To that extent the minority award is in favour of the petitioners. 3. In paragraph No.3 of this petition the petitioners state thus:- At the outset, the petitioners state that they are in full agreement “ with the views and findings of the learned Arbitrator Mr.Justice Jagannatha Shetty on Issue Nos.3 and 5 i.e.Issues of the deductions made by the petitioners herein for transportation of potable water as set out in the Award dated 7th July, 2006. More particularly, the petitioners state that the said learned Arbitrator in para 16.9 of the said Award has rightly held that Respondents herein have not stated the correct facts as the Respondents herein have not referred to the crucial letters dated 6th December, 1999 and letters dated 9th March, 2000 vide which the Respondents herein have requested the petitioners herein to supply potable water on chargeable basis. Further the petitioners herein are in full agreement with the findings of the learned Arbitrator Mr.Justice Jagannatha Shetty as appearing in the Award at paragraphs 17.18 to 17.27 wherein the said learned Arbitrator has stated that the reason given in the majority Award to deny to the petitioners herein the transportation costs for the water supplied to the Respondents herein (viz.that the transportation cost of water recovered from the Respondents is not in accordance with clause 5 of the contract) is entirely a new case made out for the Respondents herein which is neither pleaded nor proved. The petitioners further state that the said Ld.Arbitrator has rightly held that the petitioners are entitled to charge the said transportation charges as per the terms of the contract. Further, it is important to note the unanimous decision of the Arbitral Tribunal in paragraph No.15.12 on Issue No.2 that the Respondents herein have failed to prove that they were unable to make water from water makers due to the quality of water at the location NL-A and C-1-B. ” 4. From reading of this paragraph it is apparent that the petitioner is aggrieved by the fact that on some issues the majority has rejected their defence and that is how the award would bind them as far as these issues are concerned. To understand this typical challenge to 3 the award some facts will have to be referred to. 5. The petitioners in the year 1998 floated a tender for charter/hire of 300 IC Cantilever Type Jack up Rigs. In response thereto the ’ Respondents submitted their bid dated 6th September, 1998 vide which the Respondents offered their rig Noble Jimmy Puket (NJP) “ ” for the purpose of charter hire. Accordingly a letter of Intent dated 22nd October, 1998 was issued and pursuant thereto a contract dated 20th April, 1999 was executed between the Respondents and the Petitioners. A copy of this contract is annexed as Exhibit A to this “ ” petition. In paragraph No.7 of this petition, the petitioners state that the principal disputes under this contract, as alleged by the Respondent, are in respect of deduction of Rs.93,30,100/- towards the expenses incurred for supply of chargeable potable water by the petitioner and the ground rent. It is common ground that this contract had arbitration clause, pursuant to which the claims were referred to the arbitration. The Respondents in their Statement of Claim have urged that although the contract was entered into on 20th April, 1999, the terms & conditions of the agreement became effective from 22nd October, 1998, i.e. the date on which confirmed letter of Intent was placed on the Respondent. It is stated that the operations under the contract with Oil and Natural Gas Corporation Limited (ONGC Ltd.) commenced on 20th 4 April, 1999. The Respondents-claimants while working in the Gulf of Cambay at location NL-A and C-1-B informed the petitioners that the locations were having shallow water depth and strong currents causing water of the area to be very muddy and that the water makers despite being operational, when used, were getting clogged and had to be shut down. It was interalia recorded that the supply of potable water had to be taken from ONGC under the compelling circumstances and the rate at which the charges were deducted were very high. The claimants by their letter dated 3/7/2000, 9/11/2000, 24/4/2001, 11/7/2001 and 24/12/2001 reiterated their position and sought refund of the amount deducted by the Petitioner. However finding that there is no favourable response, Respondent vide letter dated 18th April, 2002 invoked the arbitration as per clause 28 of the contract. 6. The Respondents referred to the relevant clauses of the contract in Paragraph No.3 of the Statement of Claim and then contended that the dispute before the arbitration involves interpretation of clause (2) of Schedule of Responsibility Exhibit A(II) and clause (17) of Exhibit A(II). In terms of the agreement the petitioners herein had chartered Rig - Noble Jimmy Pucket for a period of two years from commencement date with permissible extension as provided in the agreement. The said rig has been operating at various ONGC 5 locations from time to time during the duration of the agreement. Operational details have been set out and once again it is reiterated that at the location in the Gulf Cambay the shallow water depth was noticed. There were strong currents causing water of the area to be very muddy. It is stated that in terms of the agreement and in terms of the bid, the rig was provided with 2 nos.of water destillation units and it had capacity to generate 25 tons of water per day. This equipment was inspected by the petitioner before commencement of contract and accepted by them. It is stated that during the period the said rig was in the location of NL-A, it was found that the water makers were unable to make potable water though the water makers were in excellent working condition. The Respondents themselves enquired with consultants/surveyors who opined that the level of sand and slit contained within the water is high in those areas and that is how the water makers were clogged. It was informed by the Respondents by their letter dated 2.12.1999 that the quality of water was poor and therefore water makers were unable to make potable water. It was sought to be clarified that the water makers were otherwise in excellent condition. It is the case of the Respondents-claimants that they requested the petitioners to supply the pot water regularly on non chargeable basis. They stated that the Respondent did make an attempt to obtain potable water 6 through their machine, but despite several attempts and replacing of several filters they were unable to do so. It is stated that without any objection and protest the ONGC supplied potable water to the rig during the period the rig was in the said location. The details of the average monthly usage of filters etc. were set out and thereafter the correspondence between the parties is referred to in the statement of claim. It is then urged that the supply of potable water had to be taken from ONGC under the compelling circumstances. The rate at which the charges were deducted were very high inasmuch as they were Rs.2850/- per metric tonne, out of which Rs.2700/- per metric tonne were towards the transportation. The ONGC had not sent any special boat for the purpose of carrying pot water, but the boats did carry other materials and therefore such deduction should not be effected, was the request made. It is then stated that the ONGC referred to clauses A-2 (a) & (b) of the Schedule of Responsibilities, Exhibit A(II). They contended that the responsibility of providing potable water rests with the Respondents claimants and in case the ONGC provides the water, it would be on chargeable basis which includes the costs of transportation and that is how the deduction of Rs.67,61,695/- from the claimant s invoices ’ has been made by the ONGC. 7. On the other hand the Respondents claimants by their letters 7 addressed in November-2000, April-2001, July-2001, December-2001 reiterated their position and sought refund of the amount wrongly deducted by the Petitioners ONGC. It is contended that the ONGC, – petitioners before me have deducted unlawfully a sum of Rs. 1,05,79,880/- without any valid reasons. The interpretation of the terms and conditions of the contract by the ONGC is erroneous. The clause relevant to the rateable capacity in regard to the potable water would apply only if the equipment is in a position to generate the potable water. The relevant clauses have been referred to in Paragraph No.12 of the Statement of Claim. In such circumstances, the Respondents claimants prayed for an award in their favour for a sum of Rs.1,47,26,718.83 alongwith interest @ 18% p.a.on the principal amount of Rs.1,05,79,880/-. 8. The petitioners-ONGC after being served with the papers filed their Written Statement and urged that the interpretation of the terms and clauses of the contract by the Respondent-claimant is not correct. The petitioners in their Written Statement and more particularly in paragraph Nos.3 to 5 made reference to the correspondence on record and as far as subject claim is concerned, what they urged was that the transportation charges and the charges for potable water are not high. The petitioners were entitled to levy and collect transportation charges also from the Respondents 8 claimants. The petitioners have also denied that the water makers were unable to make potable water as alleged by the Respondents claimants. In paragraph No.19 of their Written Statement, the petitioners herein (ONGC) have made a reference to the fact that the Respondents claimants had not produced letter dated 6/12/1999 before the Tribunal. By this letter they made a specific request to supply potable water on chargeable basis. Therefore their statements now made are belied by the contents of this letter. The petitioners stated that the Respondents-claimants have wrongfully applied for refund of transportation charges and were not entitled to the same. It has been consistently stated by the petitioners that the contract contemplates that the Respondents claimants are liable to pay for the supply of potable water and transportation charges if there is a shortfall in the rated capacity. They relied upon the relevant clauses in the contract and placed their interpretation and denied whatever was stated by the Respondents claimants to the contrary. 9. As far as the present petition is concerned, it is not necessary to refer to the counter claim of the petitioners and the reply thereto. The arguments were restricted to the issue of refund of transportation charges claimed by the Respondents-claimants. As has been pointed out above, this claim was before the Arbitral Tribunal. 9 The learned Arbitrators had before them the written submission of the Respondents and also the affidavit of evidence of the witnesses examined by the parties. 10. There is a reference made to the evidence of one Sayyed Mustakuddin. He was the witness of the petitioner. In his affidavit he has stated that the concerned officers of the petitioners informed him that the Rig NJP has taken pot water on different dates from December 1999 to March 2000 and that the total pot water supplied to Rig NJP was 2207 tonnes on chargeable basis. The witness is a Manager (Finance & Accounts) of the petitioners. He states that he deals with the logistic accounts. He advised deductions on invoices. The deductions are advised after he received intimation of the chargeable services provided by the ONGC and that is how he refers to the intimation received in writing for the period for which pot water was supplied. This witness states that his job is to estimate charges, i.e.the cost of the pot water and cost of transportation and to convey the same to the authorities to make recoveries. He states that the cost of water was Rs.150/- per tonne and this was the rate which was charged by the ONGC to all users since prior to 1996. In this case he advised deduction of cost of pot water at this rate, whereas for transportation costs he states that he estimated the rate of Rs.2700/- per tonne. In paragraph 5 of the 10 affidavit he states that this transportation cost was approved by the competent authority and was applicable to all the contractors for 1999-2000. After approval, he issued Office Order dated 9/12/1999 which was circulated to all the section heads mentioned at the foot of the letter. He confirms signature on the Office Order and tenders the same in evidence. He states that on these approved rates and as per his instructions, the Finance & Accounts Officer advised recovery of pot water charges at the aforementioned rates amounting to Rs.62,89,950/-, and that is how the advice was given to the Finance & Accounts Officer. He states further that the intimation was received in July 2000 about supplies of the pot water and therefore calculations were made and this time he advised deduction of transportation cost @ Rs.2800/- per tonne. Based upon these rates, the recovery of pot water charges and transportation charges of 1204 tonnes of pot water has been made and the figure comes to Rs. 35,51,800/-. This witness was cross-examined by the Respondents and he states that as far as cost of water @ 150/- per tonne is concerned, he does not have in his possession any documents in respect of fixation of the rate. However, he produces approval of the competent authority as far as transportation cost of Rs.2700/- per tonne. He then states that it is correct that the water is purchased by the ONGC from MIDC and from the owners of the barges. He 11 was unable to give details of the purchase of water by ONGC for supply to the Respondents claimants. He states that he has invoices in respect of purchases of the water by ONGC. The witness was called upon to produce invoices, but he states that he has never seen the invoices. Thereafter he has given replies to certain general questions. He was also asked about the computation made and he confirms the figures. However, he states that neither he nor his department made any calculations in respect of the transportation of potable water to the Rig in question. 11. On this material, the Arbitrators were called upon to decide the claim and more particularly the Issues that they have framed. The majority referred to the draft award of the co-arbitrator and held that they are in agreement with the findings recorded on Issue Nos. 1, 2, 4, 6, 7 and 8. However, they did not agree with the findings of the co-arbitrator on Issue Nos.3 & 5. It is observed by them that the Issue No.3 is whether the Respondents i.e.ONGC (petitioner herein) have incurred and are entitled to deduct transportation charges for the supply of potable water and Issue No.5 is consequential one and it is as to whether the claimants (Respondents herein) are entitled to the costs deducted towards the transportation charges. After referring to clause 5 of the contract which deals with the subject of materials, supplies, equipments, 12 services and personnel to be furnished by the ONGC, clause 5.1 (iii) of the contract has been reproduced by the Arbitral Tribunal, which reads thus:- For all services rendered or material supplied to contractor “ by Company at contractor s request, which services or ’ materials are the obligations of the contractor, the Company shall charge the contractor for actual cost, as supported by the vendors invoice plus 7.5% fee on FOB value for each ’ procurement costing up to US Dollars 60,000 thereon to cover costs on account of such procurement and actual costs for services. In addition customs duty and transportation costs paid and/or incurred would be reimbursed at actuals against documentary evidence.” The Majority held that the plain reading of this clause shows that the ONGC would be entitled to be reimbursed in respect of the transportation costs at actuals against the documentary evidence. It is, therefore, obvious that though schedule to the contract refers to the entitlement, it is the terms of the contract which provides how the ONGC can charge transportation costs. The finding with which the ONGC quarrels before me is that the admitted position according to the majority is that the ONGC produced no material whatsoever to establish the actual transportation costs, much less the documentary evidence. Therefore, they were in error in deducting the amounts of Rs.59,58,900/- and Rs.33,71,200/- towards the transportation costs. The majority refers to the evidence of Sayyed Mustaqueuddin in paragraph No.5 of the award. It also refers to 13 Exhibit R4 and holds that the costs were determined in respect of various items and the rate for transportation was determined by taking into consideration the expenses incurred for transportation of all materials and not just the transportation of potable water. They have also referred to the cross-examination of the witness and then concluded that the ONGC cannot rely upon the decision of the competent authority and unilaterally deduct the transportation costs ignoring the specific provision of the contract. According to the majority the contract demands that the ONGC is entitled to reimbursement of transportation costs at actuals and against the documentary evidence. In these circumstances, it will not be possible for the ONGC to rely upon the decision of the competent authority and which decision in any event nowhere reflects as to what were the actual costs for transportation of potable water to the Rig NJP. The majority holds that it is not disputed that the barges were used by the ONGC (Petitioner herein) not only for transportation of potable water but for all other commodities. In paragraph No.6 it is further observed that it surpasses imagination as to how for transportation of potable water of the value of Rs.3,31,050/- and Rs. 1,80,600/-, the ONGC can charge transportation charges of Rs. 59,58,900/- and Rs.33,71,200/-. The transportation charges are more than 17 times of the value of water in the first case and more than 14 30 times in the second case. Levy of such transportation charges without establishing what were the actual and which can only be established by production of documentary evidence as per the terms of the contract, is unsustainable. The transportation charges deducted by the ONGC are entirely unreasonable, arbitrary and in breach of the terms of the contract. 12. Thereafter in paragraph No.7 it is stated that the mere fact that the Respondents had sought potable water on chargeable basis does not give licence to the ONGC to demand exorbitant charges for transportation of potable water. The contention of the ONGC that the decision of the Competent Authority was communicated to all the contractors cannot lead to the conclusion that the decision is binding even though in breach of the specific terms of the contract. The decision of the Competent Authority does not have legislative or statutory sanction and cannot bind the Respondents unless it shows that the decision was taken in accordance with the terms of the contract. The ONGC could not demand transportation charges more than the actuals and what are the actuals can only be established by production of documentary evidence. It is in such circumstances it directs payment of Rs.93,30,100/- by ONGC to the Respondents- claimants with interest at 9% p.a.from the date of deduction till payment or realisation. 15 13. As far as dissenting/minority award is concerned, the findings on Issue No.3 are to be found in Paragraph No.16.1. The dissenting award observes that the contract for charter hiring of rig provides provisions to pay charges for transportation in regard to the potable water supply by ONGC. The entire schedule of responsibility is referred to and thereafter the dissenting award holds that if the ONGC supplies fresh water on their own they have to bear the costs thereof. If the water makers produce water upto the rated capacity, and if any excess water is required by the contractor and it is supplied by the ONGC, the ONGC must bear the costs of the water alongwith the transportation charges. However, if there is shortfall of the rated capacity of production of the potable water by water makers and if the shortfall is made good by supplying of water by ONGC, the contractor has to pay for the same. Hence if the water makers fail to produce potable water and if the water is required by the contractor and supplied by the ONGC, the contractor has to pay for the same. According to the dissenting award these are the contractual stipulations. In paragraph 16.8 and 16.9 the dissenting award faults the Respondent s claim for not stating the correct facts. ’ The dissenting award refers to the letters dated 6/12/1999 and 9/3/2000 and holds that these letters are not referred to in the claim petition. It is stated that the claim proceeds on the basis that 16 the Respondent claimants requested the ONGC to supply the potable water regularly on non-chargeable basis. Later on the reference to the charges for supply of water and transportation is referred. The evidence of the witness Sayyed Mustaqueuddin is also referred to and the dissenting award concludes that the Respondent claimants have not adduced any evidence to show that it was practicable and economical to send a separate vessel only to deliver supplies to the claimants. In the absence of any such evidence the claimants cannot be heard to say that the uniform transportation charges determined for all contractors by the competent authority, is excessive. The minority/ dissenting award upholds the computation made by the ONGC and that is how it disposes of issue Nos.3 & 4. It faults majority award for making out new case which was neither pleaded or proved by the Respondent claimant. That is how it deals with Issue Nos.3 & 5. 14. Mr.Rajiv Kumar, learned counsel appearing for the petitioner, while impugning this award, contended that the learned Arbitrators who have delivered the majority award clearly overlooked the contractual stipulations. He submits that the Tribunal ought to have given specific finding that the machine was unable to supply water. There is absolutely no discussion on this issue in the majority award. Mr.Kumar submits that until such finding is recorded, the ONGC 17 cannot be asked to pay for the water arranged. Referring to the evidence of Sayyed Mustaqueuddin, Mr.Rajiv Kumar submits that the interpretation of clause 5 is wholely perverse. Mr.Rajiv Kumar submits that clause 5 has been referred to by the majority but there are inconsistent findings recorded in the majority award. Alternatively and without prejudice, he submits that the Arbitral Tribunal had no jurisdiction to go into the quantum. This is the point taken in the written statement. That