WELSPUN SPECIALTY SOLUTIONS LIMITED (FORMERLY KNOWN AS REMI METALS GUJARAT LTD. versus OIL AND NATURAL GAS CORPORATION LTD.
[2021] 11 S.C.R. 120, Supreme Court of India, 2021
Outcome: Appeal(s) allowed (Granted)
Segment: Facts
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WELSPUN SPECIALTY SOLUTIONS LIMITED
(FORMERLY KNOWN AS REMI METALS GUJARAT LTD.)
v.
OIL AND NATURAL GAS CORPORATION LTD.
(Civil Appeal Nos. 2826-2827 of 2016)
NOVEMBER 13, 2021
[N. V. RAMANA, CJI AND SURYA KANT, JJ.]
Arbitration and Conciliation Act, 1996: ss. 37 and 34 –
Appealable orders – Arbitral award – Sustainability of, under section
37 – On facts, execution of contract wherein appellant was to supply
pipes to the respondent-ONGC – During execution of contract,
certain delays in meeting the obligations as required under the
contract – Deduction of certain amount by respondent as liquidated
damages from various bills submitted by the supplier – Dispute
before the arbitral tribunal – Arbitral tribunal proceeded to determine
the actual damages, holding that the liquidated damages could not
be granted as there was no breach of contract since  time was not
essence of contract – Interference with – Held: It has to be culled
out from the reading of the entire contract as well as the surrounding
circumstances whether time is essence of the contract – Merely
having an explicit clause may not be sufficient to make time the
essence of the contract – As the contract was spread over a long
tenure, the intention of the parties to provide for extensions surely
reinforces the fact that timely performance was necessary – Fact
that such extensions were granted indicates respondent’s effort to
uphold the integrity of the
contract instead of repudiating the same
– Thus, award cannot be interfered since the arbitral tribunal’s
interpretation of contractual clauses having extension procedure
and imposition of liquidated damages, are good indicators that ‘time
was not the essence of the contract – Arbitral tribunal’s view to
impose damages accrued on actual loss basis could be sustained in
view of the waiver of liquidated damages and absence of precise
language which allows for reimposition of liquidated damages –
High Court and District Court strayed beyond the limitation u/s. 34
and 37 – Order of the High Court as well as the District Court is set
aside – Award of the arbitral tribunal is upheld – Contract Act,
1872 - ss. 55 and 74.
[2021] 11 S.C.R. 120
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Allowing CA Nos. 2826-2827 of 2016 and disposing of CA
Nos. 6834 of 2021, the Court
HELD: 1.1 The main challenge to the award is against the
imposition of unliquidated damages, when the matter of fact stood
that the contract between parties stipulated for pre-estimated
damages (liquidated damages). The concerned contract contained
provisions for liquidated damages for breach of contract,
particularly breach of deadlines set in the contract. Under
Contract law, such liquidated damages are recognized, subject to
the same being reasonable. [Para 26][136-B-D]
1.2 Time not being the essence of the contract’, as
determined by the Arbitral Tribunal, was beyond reproach.
Reliance on the contractual conditions and conduct of parties to
conclude that existence of extension clause dilutes time being
the essence of the contract, was in accordance with rules of
contractual interpretation. The award concludes that as time was
not the essence, liquidated damages could not be granted.
[Para 27, 28][136-F-G]
1.3 In order to consider the relevancy of time conditioned
obligations, some basic principles are that subject to the nature
of contract, general rule is that promisor is bound to complete
the obligation by the date for completion stated in the contract.
That is subject to the exception that the promisee is not entitled
to liquidated damages, if by his act or omissions he has prevented
the promisor from completing the work by the completion date.
These general
principles may be amended by the express terms
of the contract as stipulated in this case. [Para 29][137-A-D]
1.4 It is now settled that ‘whether time is of the essence in
a contract’, has to be culled out from the reading of the entire
contract as well as the surrounding circumstances. Merely having
an explicit clause may not be sufficient to make time the essence
of the contract. As the contract was spread over a long tenure,
the intention of the parties to provide for extensions surely
reinforces the fact that timely performance was necessary. The
fact that such extensions were granted indicates ONGC’s effort
WELSPUN SPECIALTY SOLUTIONS LTD. (FORMERLY KNOWN AS
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to uphold the integrity of the contract instead of repudiating the
same. [Para 30][137-D-F]
1.5 Clause 9(i) of the Purchase Order makes it clear that
time is the essence of the contract, subject to extension granted
without prejudicing the right of ONGC to recover damages. These
damages, by one reasonable interpretation, could be read as
damages based on actual loss. Such conclusion was based on the
Arbitral Tribunal’s interpretation of 2nd para of Section 55 of the
Contract Act. The Arbitral Tribunal construed the said provision
to interpret the term ‘loss’ to mean actual tangible loss provable
by evidence, instead of pre-estimated loss. Such interpretation,
in the facts and circumstances, could be held to be a reasonable
interpretation, as the other party was not able to impugn the same
by pointing to any documents or correspondence to the contrary.
When a standard form of a contract is utilised, ONGC is assumed
in law to have the larger bargaining power to enter into a contract,
unless clear intention is shown to the contrary. In this case at
hand, a reasonable interpretation against ONGC may be utilised.
[Para 31][137-F-G; 138-B-C]
1.6 ONGC waived liquidated damages twice before giving
extension with pre- estimated damages. The approach of the
Arbitral Tribunal was to hold that once liquidated damages were
waived in the first extension, subsequent extension could not be
coupled with liquidated damages unless a
clear intention flowed
from the contract; while this Court recognizes the autonomy of
the party to engage in contractual obligation. Such obligation must
be contracted in clear terms. Thus, it is clear that the promisee
(ONGC) waived the liquidated damages initially and the same
cannot be imposed, unless such imposition was clearly accepted
by parties. In this case, the interpretation of the Arbitral Tribunal
could not be faulted as being perverse. [Para 33][140-B-C]
1.7 It was submitted that the view taken by the Arbitral
Tribunal was reasonable, as the loss sustained by ONGC is given
on the basis of actual loss. In this situation, the interpretation of
the law and the facts provided under the award is a reasonable
interpretation, which can be sustained as being a plausible view.
[Para 34][140-D-E]
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1.8 The award cannot be interfered since the Arbitral
Tribunal’s interpretation of contractual clauses having extension
procedure and imposition of liquidated damages, are good
indicators that ‘time was not the essence of the contract’. The
Arbitral Tribunal’s view to impose damages accrued on actual
loss basis could be sustained in view of the waiver of liquidated
damages and absence of precise language which allows for
reimposition of liquidated damages. Such imposition is in line
with the 2nd para of Section 55 of the Contract Act. The Arbitral
Tribunal was correct in distinguishing the dictum of this Court in
Saw Pipes’s case, which validated imposition of liquidated damages
in a similar contract. The High Court and District Court strayed
beyond the limitation under Section 34 and 37 of the Arbitration
Act. Other aspects of the award also do not require interference.
[Para 35][140-E-H; 141-A]
ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705 : [2003]
3 SCR 691 – distinguished.
Project Director, National Highways No.45E and 220,
National Highways Authority of India v. M. Hakeem.
SLP (Civil) No. 13020 of 2020 – referred to.
1.9 The order of the High Court as well as the District Court
is set aside. The award of the Arbitral Tribunal is upheld. [Para
36][141-B-C]
Associate Builders v. Delhi Development Authority
(2015) 3 SCC 49 : [2014] 13 SCR 895; Renusagar
Power Co. Ltd. v. General Electric Co. (1994) 1 Suppl.
SCC 644 : [1993] 3 Suppl. SCR 22; ONGC Ltd. v.
Western Geco International Limited (2014) 9 SCC 263
: [2014] 12 SCR 1; Dyna Technologies Pvt. Ltd. v.
Crompton Greaves Ltd. (2019) 20 SCC 1 – referred to.
Percy Bilton Ltd. v. Greater London Council [1982] 1
WLR 794; Holme v. Guppy (1838) 3 M & W 387 –
referred to.
Case Law Reference
[2014] 13 SCR 895
referred to
Para 21
[1993] 3 Suppl. SCR 22
referred to
Para 24
WELSPUN SPECIALTY SOLUTIONS LTD. (FORMERLY KNOWN AS
REMI METALS GUJARAT LTD.) v. ONGC
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[2014] 12 SCR 1
referred to
Para 24
(2019) 20 SCC 1
referred to
Para 25
[2003] 3 SCR 691
distinguished
Para 35
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2826-
2827 of 2016.
From the Judgment and Order dated 27.07.2010 of the High Court
of Uttarakhand at Nainital in Review Petition No.1340 of 2008 in A.O.
No. 472 of 2005.
With
Civil Appeal No. 6834 of 2021
Shyam Divan, Sr. Adv., Astad Randeria, Y. P. Dandiwala, R. K.
Satpalkar, Ms. Sugandha Yadav, Ms. Delnavaz Patel, Saswat Pattnaik,
Aditya Panda, Hasan Murtaza, Somiran Sharma, K. R. Sasiprabhu,
Vishnu Sharma, Tushar Bhardwaj, Advs. for the appearing parties.
The Judgment of the Court was delivered by
N. V. RAMANA, CJI.
1. Leave granted in SLP (C) No. 19203 of 2012.
2. Civil Appeal Nos. 2826-2827 of 2016, preferred by Welspun
Specialty Solutions Limited (formerly known as Remi Metals Gujarat
Ltd.) hereinafter referred to as ‘Remi Metals’ for the sake of brevity
and clarity, have been filed impugning the judgments and orders dated
14.10.2008 and 27.07.2010 of the High Court of Uttarakhand at Nainital
in AO Nos. 472 and 466 of 2005 and Review Petition No. 1340 of 2008
in AO No. 472 of 2005 respectively. Civil Appeal arising out of SLP(C)
No. 19203 of 2012, preferred by Oil and Natural Gas Corporation Ltd.
(hereinafter referred to as ‘ONGC’ for the sake of brevity and clarity),
has been filed impugning the judgment and order dated 27.07.2010 of
the High Court of
Uttarakhand at Nainital in Review Petition No. 1340
of 2008 in AO No. 472 of 2005.
3. The short question which arises for determination by this Court
is whether the impugned judgment was correct in setting aside the
arbitration awardin favour of the ONGC.
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4. Before we analyse the case at hand, it is necessary for us to
have a brief understanding of the facts. A global tender was floated by
the ONGC for purchase of aggregate quantity of 3,93,297 metres of
seamless steel casing pipes. Remi Metalswas a successful bidder. It
claims that it had bid to supply pipes as a supplier on behalf of Volski
Tube Mills, Russia. In furtherance of the same, 4 purchase orders (POs)
No. 275,276,277 and 286 were issued in the following manner:
5. It was mentioned in the POs that the delivery period will
commence within 16 weeks and will be completed in 40 weeks, or earlier,
from the date of the PO.
6. Some of the important conditions mentioned in the POs, which
were common to all the POs, are as under:
9. i) The time and date of delivery is the essence of the supply
order and delivery must be completed not later than the date
specified therein.
ii) It must be noted that delayed supplies even delivery and/or
accepted by the purchaser will be treated as supplied/effected
after schedule period without prejudice to Failure & Termination
Clause.
iii) Even when extension in delivery period is granted, such
acceptance of extension as the case may be will be without
prejudice to claim damages under Failure & Termination Clause
unless purchaser clearly waives his right in writing to recover
such damages with the approval of competent authority.
WELSPUN SPECIALTY SOLUTIONS LTD. (FORMERLY KNOWN AS
REMI METALS GUJARAT LTD.) v. ONGC [N. V.
RAMANA, CJI.]
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7. Further, relevant provisions of the General Terms and Conditions
appended with the POs are as follows:
10. 
FAILURE AND 
TERMINATION 
CLAUSE/
LIQUIDATED DAMAGES:
Time and date of delivery shall be essence of the contract. If the
contractor fails to deliver the stores, or any instalment thereof
within the period fixed for such delivery in the schedule or at any
time repudiates the contract before the expiry of such period, the
purchaser may, without prejudice to any right or remedy, available
to him to recover damages for breach of contract :-
(a) Recover from the contractor as agreed liquidated damages
and not by way of penalty, a sum equivalent to ½% (half percent)
of the contract price of the whole unit per week for such delay or
part thereof (this is an agreed, genuine pre-estimate of damage
duly agreed by the parties) which the contractors has failed to
deliver within the period fixed for delivery in the schedule, where
delivery thereof is accepted after expiry of the aforesaid period.
It may be noted that such recovery of liquidated damages may be
upto 5% of the contract price of whole unit of stores which the
contractor has failed to deliver within the period fixed for delivery;
or
(…)
(e) It may further be noted that the clause (a) above provides for
recovery of liquidated damages on the cost of contract price of
delayed supplies whole unit at the rate of ½% (half percent) of
the contract price of the whole
unit per week for such delay or
part thereof upto a ceiling of 5% of the contract price of delayed
supplies (whole unit). Liquidated damages for delay in supplies
thus accrued will be recovered by the paying authorities of the
purchaser specified in the supply order, from the bill for payment
of the cost of material submitted by the contactor or his foreign
principals in accordance with the term of supply order or otherwise.
8. During the execution of contract, there were certain delays in
meeting the obligation as required under the contract. In this context,
various extensions were given by the ONGC to fulfil their obligation.
The extensions were granted as follows:
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Remi Metals accepted the aforesaid extensions and satisfied the
contract.
9. In this context, it may be noted that the ONGC had deducted
an aggregate amount of US $8,07,804.03 and Rs.1,05,367/- as liquidated
damages from various bills submitted by the Remi Metals. There were
other claims which were disputed by the Remi Metals which were
claimed before a panel of arbitrators.
10. In detail, the Remi Metals’ claims were hereunder:
CLAIM TITLE
AMOUNT
Refund of Liquidated damages claimed by 
ONGC 
US $807,804.03 and  
Rs. 1,05,367/-
Customs Duty Reimbursement 
Rs. 1,90,43,037/- 
Interest on Delayed Payments
US $2,44,121.03 and 
Rs. 5,76,244.31
Amount Short Received under invoices 
Rs. 18,11,456.72
Failure to Furnish “C” forms
US $2,44,649.39
Handling Charges Payable on ONGC
Rs. 24,86,369.86
Wrongful reduction of price for balance 8.55% 
(16,174.78m) under PO No. 275 
US $83,324.38 
Award of the above amounts with 18% interest 
from the date on which it ought to have been 
paid by ONGC and further interest till date of 
payment 
- 
11. The Arbitral Tribunal, on hearing the parties, had framed 17
issues, of which we are concerned only with the following:
(i)
Was time the essence of the Agreement to make supplies
under the four Purchase Orders and was the delivery date
to be reckoned from the date of the supply order?
(ii)
Was ONGC justified in recovering liquidated damages of
US $8,07,804.03 and Rs.1,05,367/-?
(iii)
Was the Claimant entitled to extension of
delivery dates
without levy of liquidated damages on account of force
majeure condition as stated in paragraphs 12.D.3 and
12.D.4 of the Statement of Claim?
WELSPUN SPECIALTY SOLUTIONS LTD. (FORMERLY KNOWN AS
REMI METALS GUJARAT LTD.) v. ONGC [N. V. RAMANA, CJI.]
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(iv)
Was ONGC entitled to impose liquidated damages on the
basis of the entire value of the Purchase Orders?
(v)
Is the Claimant entitled to refund of any part of the amount
recovered by ONGC as liquidated damages?
(vi)
Is the Claimant entitled to US $2,44,121.03 and
Rs.5,76,244.21 as interest on delayed payment as in Exhibit
‘H’ to the Statement of Claim?
(vii)
Whether the Claimant is entitled to any interest? If so, at
what rate and for what period?
12. The Arbitral Tribunal, at the outset, held that merely having a
clause in the contract making time the essence of it would not be
determinative; rather, an overall view having regard to all the terms of
contract are to be taken into consideration. Further, they noted that
contracts containing provision for extension of time or payment of penalty
on default would dilute the obligation of timely performance and render
the clauses imbuing time as essence of the contract ineffective.
Additionally, the Arbitral Tribunal also noted that generally, under
construction contracts, time is not the essence. Ultimately, on this issue,
the Arbitral Tribunal noted as under:
“43.29. It may also be stated that the supply of material in the
instant case was not for any specific purpose or urgent
requirement. The tender was a global tender for general
requirement as stated by Mr. K. Bhattacharya (RW-1).
43.30. Besides, the contract provides for imposition of LD and/or
termination of
the contract. It may also be noticed that ONGC
could extend the time for delivery and in fact ONGC did extend
the delivery period without levying any LD. These and other
stipulations in the contract are a clear indication that the time was
not the essence of contract.”
13. On the aspect of liquidated damages, the Arbitral Tribunal
held that liquidated damages, which are pre-estimated damages, cannot
be granted as there was no breach of contract due to the fact that time
was not the essence. Accordingly, the Arbitral Tribunal proceeded to
determine the actual damages based on the evidence furnished.
14. It was ONGC’s estimation that there were four categories of
tangible losses, namely: (i) revenue loss; (ii) loss due to the use of higher
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ppf/grade casing; (iii) loss due to intra/inter-regional transportation; and
(iv) loss due to foreign exchange fluctuation. In total, such losses were
estimated to be to the tune of Rs.3,80,64,830/-. The estimation was as
follows:
CATEGORY
AMOUNT
Revenue loss 
Rs.95,72,332/- 
Loss due to the use of higher/ppf grade casing 
Rs.10,97,883/- 
Loss due to intra/inter-regional transportation 
Rs.90,09,950/- 
Loss due to foreign exchange fluctuation
Rs.1,83,84,668/-
Total: 
Rs.3,80,64,833/- 
15. The said estimation was accepted by the Arbitral Tribunal.
However, it was also held that ONGC would not be entitled to claim any
damage for losses incurred during the extended period of delivery where
liquidated damages were expressly waived. The losses claimed during
such period without imposition of liquidated damages are to the tune of
Rs.1,71,35,838, which were excluded from the total computation of loss
by the Arbitral Tribunal. Ultimately, it was held that ONGC would be
entitled to retention of Rs.2,09,28,995/- or its equivalent in US dollars at
the rate as on date of the award, i.e.US $440,610.42/-1, out of the total
liquidated damages (US $8,07,804.03 and Rs.1,05,367/-) recovered.
16. Aggrieved by the award of the Arbitral Tribunal, the ONGC
filed a Section 34 petition before the District Court claiming that the
award of the Arbitral Tribunal was not in tune with the contract, which is
a justifiable ground for interference. They sought to address the concern
on
delayed acceptance by stating that such acceptance was valid and
permissible under contract law and the liquidated damages imposed on
such acceptance was legally valid. Further, they pointed out that liquidated
damages could have been given as the same was a genuine and
reasonable pre-estimate of the possible damages negotiated between
the parties at the time of entering into contract.
17. The District Court, by order dated 19.07.2005, held that the
Tribunal was correct in holding that time was not the essence of the
contract and only the losses actually suffered could be granted. However,
the District Judge modified the costs of arbitration from Rs.25 lakhs to
Rs.9,40,000/-.
1 https://www.rbi.org.in/scripts/PublicationsView.aspx?id=15268  1 USD = 47.5 INR
end of year 2002-03
WELSPUN SPECIALTY SOLUTIONS LTD. (FORMERLY KNOWN AS
REMI METALS GUJARAT LTD.) v. ONGC [N. V. RAMANA, CJI.]
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18. Both parties, aggrieved by the order of the District Judge,
appealed the same before the High Court of Uttarakhand in AO Nos.472
of 2005 and 466 of 2005 under Section 37 of the Arbitration and
Conciliation Act, 1996. The High Court, by impugned order dated
14.10.2008 held that both the arbitral award and order of the District
Judge erred in construction of the contract with respect to whether time
was the essence or not. Further, the High Court has reasoned that the
Arbitral Tribunal as well as District Judge committed gross error in arriving
at a conclusion that ONGC had to prove loss suffered before recovering
any damages. Moreover, the decree in respect of cost of arbitration was
upheld by the High Court. Accordingly, AO No.472 of 2005 filed by
ONGC was allowed and AO No.466 of 2005 filed by Remi Metals (now
Welspun) was dismissed.
19. Aggrieved by the aforesaid order, review petitions being Review
Petition Nos.1340 of 2008 and 1339 of 2008 were filed which were
disposed of with the following observation:
“…The judgement and order passed by the District Judge,
Dehradun, in Arbitration Case No.31 of 2004 dated 19th July, 2005,
is modified to the extent that the appeal with regard to Claim Nos.
1 and 2 is allowed, while the judgement and order dated 19th July,
2005, passed by the District Judge, Dehradun, shall remain intact
with regard to claim Nos. 3 to 7…”
20. Aggrieved by the order passed in the review
petitions, both
parties have filed these appeals before this Court.
21. Mr. Shyam Divan, learned senior counsel, appearing for Remi
Metals (now Welspun), has submitted that:
•
The view taken by the Arbitral Tribunal was reasonable,
plausible and can be sustained.
•
Time was not the essence of the contract, as the contract
provided for extension of time as well as for liquidated
damages.
•
Further, once ONGC waived the liquidated damages in
the first two extensions, they could not have claimed
liquidated damages for further extensions of delivery
date.
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•
This Court should not interfere or set aside awards in a
casual manner, while doing so this Court should come to
a clear understanding that the award was patently illegal.
[See Associate Builders v. Delhi Development
Authority (2015) 3 SCC 49 pg. 67]
22. Learned Counsel appearing for ONGC has submitted that:
•
That the imposition of liquidated damages has already
been upheld under similar circumstance by earlier
judgment in ONGC Ltd. v. Saw Pipes Ltd. (2003) 5
SCC 705.
•
The award cannot be sustained as in a contract having
provision for liquidated damages, unliquidated damages
cannot be given.
•
Reading of the contract makes it clear that the time was
of the essence, which was also signified in every
extension given.
•
The award interprets the contractual clauses in a manner
which is not reasonable and plausible.
23. Before we analyse the award, we need to first ascertain the
scope of Section 34 of Arbitration Act, before the 2015 amendment,
which provided for certain specific grounds for challenge. Section 34, as
it existed, reads as under:
34 Application for setting aside arbitral award. —
(1) Recourse to a Court against an arbitral award may be made
only by an application for setting aside such award in accordance
with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if—
…
(b) the Court finds that—
(i) the subject-matter of the dispute is not capable of settlement
by arbitration under the law for the time
being in force, or
(ii) the arbitral award is in conflict with the public policy of
India.
(Emphasis supplied)
WELSPUN SPECIALTY SOLUTIONS LTD. (FORMERLY KNOWN AS
REMI METALS GUJARAT LTD.) v. ONGC [N. V. RAMANA, CJI.]
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The limited grounds provided under Section 34 of the Act, has
been interpreted by this Court on numerous occasions. In this case at
hand, the challenge of award is based on the fact that the same is against
the public policy and patent illegality. Public policy as a ground of challenge
has always been met with certain scepticism. The phrase ‘public policy’
does not indicate ‘a catch-all provision’ to challenge awards before an
appellate forum on infinite grounds. However, the ambit of the same is
so diversly interpreted that in some cases, the purpose of limiting the
Section 34 jurisdiction is lost. This Court’s jurisprudence also shows that
Section 34(2)(b) has undergone a lot of churning and continue to evolve.
The purpose of Section 34 is to strike a balance between Court’s appellate
powers and integrity of the arbitral process.
24. The first case, which expounded on the scope of ‘public policy’
was Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp
(1) SCC 644, which inter alia provided that a foreign award may not be
enforced under the said Act, if the court dealing with the case is satisfied
that the enforcement of the award will be contrary to the public policy.
After elaborate discussion, the Court arrived at the conclusion that public
policy comprehended in Section 7(1)(b)(ii) of the Foreign Awards
(Recognition and Enforcement) Act, 1961 is the “public policy of India”
and does not cover the public
policy of any other country. For giving
meaning to the term “public policy”, the Court observed thus:
“66. Article V(2)(b) of the New York Convention of 1958
and Section 7(1)(b)(ii) of the Foreign Awards Act do not postulate
refusal of recognition and enforcement of a foreign award on the
ground that it is contrary to the law of the country of enforcement
and the ground of challenge is confined to the recognition and
enforcement being contrary to the public policy of the country in
which the award is set to be enforced. There is nothing to indicate
that the expression ‘public policy’ in Article V(2)(b) of the New
York Convention and Section 7(1)(b)(ii) of the Foreign Awards
Act is not used in the same sense in which it was used in Article
I(c) of the Geneva Convention of 1927 and Section 7(1) of the
Protocol and Convention Act of 1937. This would mean that
‘public policy’ in Section 7(1)(b)(ii) has been used in a narrower
sense and in order to attract the bar of public policy the
enforcement of the award must invoke something more than
the violation of the law of India. Since the Foreign Awards Act
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is concerned with recognition and enforcement of foreign awards
which are governed by the principles of private international law,
the expression ‘public policy’ in Section 7(1)(b)(ii) of the Foreign
Awards Act must necessarily be construed in the sense the
doctrine of public policy is applied in the field of private international
law. Applying the said criteria it must be held that the
enforcement of a foreign award would be refused on the
ground that it is contrary to public policy if such enforcement
would be contrary to (i) fundamental policy of Indian law; or
(ii) the interests of India; or (iii) justice or morality.”
In ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705, the scope
of Section 34 was expanded to include patent illegality as a ground for
challenging the award and held as under :
“31. Therefore, in our view, the phrase ‘public policy of
India’ used in Section 34 in context is required to be given a wider
meaning. It can be stated that the concept of public policy connotes
some matter which concerns public good and the public interest.
What is for public good or in public interest or what would be
injurious or harmful to the public good or public interest has varied
from time to time. However, the award which is, on the face of it,
patently in violation of statutory provisions cannot be said to be in
public interest. Such award/judgment/decision is likely to adversely
affect the administration of justice. Hence, in our view in addition
to
narrower meaning given to the term ‘public policy’
in Renusagar case [Renusagar Power Co. Ltd. v. General
Electric Co., 1994 Supp (1) SCC 644] it is required to be held
that the award could be set aside if it is patently illegal. The result
would be—award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of
trivial nature it cannot be held that award is against the public
policy. Award could also be set aside if it is so unfair and
unreasonable that it shocks the conscience of the court. Such
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award is opposed to public policy and is required to be adjudged
void.
(…)
74. In the result, it is held that:
(A)(1) The court can set aside the arbitral award under Section
34(2) of the Act if the party making the application furnishes proof
that:
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which
the parties have subjected it or, failing any indication thereon, under
the law for the time being in force; or
(iii) the party making the application was not given proper notice
of the appointment of an arbitrator or of the arbitral proceedings
or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by
or not falling within the terms of the submission to arbitration, or it
contains decisions on matters beyond the scope of the submission
to arbitration.
(2) The court may set aside the award:
(i)(a) if the composition of the Arbitral Tribunal was not in
accordance with the agreement of the parties,
(b) failing such agreement, the composition of the Arbitral Tribunal
was not in accordance with Part I of the Act,
(ii) if the arbitral procedure was not in accordance with:
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was not in
accordance with Part I of the Act.
However, exception for setting aside the award on the ground of
composition of Arbitral Tribunal or illegality of
arbitral procedure
is that the agreement should not be in conflict with the provisions
of Part I of the Act from which parties cannot derogate.
(c) If the award passed by the Arbitral Tribunal is in contravention
of the provisions of the Act or any other substantive law governing
the parties or is against the terms of the contract.
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(3) The award could be set aside if it is against the public
policy of India, that is to say, if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality; or
(d) if it is patently illegal.
(4) It could be challenged:
(a) as provided under Section 13(5); and
(b) Section 16(6) of the Act.
Eventually, a three-Judge Bench in ONGC Ltd. v. Western Geco
International Limited, (2014) 9 SCC 263, while upholding Saw Pipes
case (supra), noted that ‘illegality’ of the award must go to root of the
matter. Illegality of a trivial nature could not be held to violate the public
policy. 
25. In Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd.,
(2019) 20 SCC 1, this Court held:
“24. There is no dispute that Section 34 of the Arbitration Act
limits a challenge to an award only on the grounds provided therein
or as interpreted by various Courts. We need to be cognizant of
the fact that arbitral awards should not be interfered with in a
casual and cavalier manner, unless the Court comes to a conclusion
that the perversity of the award goes to the root of the matter
without there being a possibility of alternative interpretation which
may sustain the arbitral award. Section 34 is different in its
approach and cannot be equated with a normal appellate
jurisdiction. The mandate under Section 34 is to respect the finality
of the arbitral award and the party autonomy to get their dispute
adjudicated by an alternative
forum as provided under the law. If
the Courts were to interfere with the arbitral award in the usual
course on factual aspects, then the commercial wisdom behind
opting for alternate dispute resolution would stand frustrated.
25. Moreover, umpteen number of judgments of this Court have
categorically held that the Courts should not interfere with an
award merely because an alternative view on facts and
interpretation of contract exists. The Courts need to be cautious
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and should defer to the view taken by the Arbitral Tribunal even if
the reasoning provided in the award is implied unless such award
portrays perversity unpardonable under Section 34 of the
Arbitration Act.”
With these observations and limitations set out above, we need to
examine whether the award can be sustained under Section 37 of
the Arbitration Act.
26. The main challenge to the award is against the imposition of
unliquidated damages, when the matter of fact stood that the contract
between parties stipulated for pre-estimated damages (liquidated
damages). The concerned contract contained provisions for liquidated
damages for breach of contract, particularly breach of deadlines set in
the contract. Under Indian Contract law, such liquidated damages are
recognized, subject to the same being reasonable. Section 74 of the Indian
Contract Act, provides that:
74. Compensation for breach of contract where penalty
stipulated for.—When a contract has been broken, if a sum is
named in the contract as the amount to be paid in case of such
breach, or if the contract contains any other stipulation by way of
penalty, the party complaining of the breach is entitled, whether
or not actual damage or loss is proved to have been caused thereby,
to receive from the party who has broken the contract reasonable
compensation not exceeding the amount so named or, as the case
may be, the penalty stipulated for.
27. In order to examine
whether the delayed execution of contract
by the Remi Metals was liable for compensation, the tribunal examined
whether time was of the essence in the contract. In our considered
opinion, ‘time not being the essence of the contract’, as determined by
the Arbitral Tribunal, was beyond reproach. Reliance on the contractual
conditions and conduct of parties to conclude that existence of extension
clause dilutes time being the essence of the contract, was in accordance
with rules of contractual interpretation.
28. In this context, the award concludes that as time was not the
essence, liquidated damages could not be granted, in the following manner:
“Since time was not the essence of the contract, the measure
of damages specified under Clause/ Liquidated damages,
which was the essence of the contract, cannot be regarded
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as appropriate for determining the loss sustained by
ONGC”
(Emphasis supplied)
29. In order to consider the relevancy of time conditioned
obligations, we may observe some basic principles:
a. Subject to the nature of contract, general rule is that promisor
is bound to complete the obligation by the date for completion
stated in the contract. [Refer to Percy Bilton Ltd. v. Greater
London Council, [1982] 1 WLR 794]
b. That is subject to the exception that the promisee is not entitled
to liquidated damages, if by his act or omissions he has
prevented the promisor from completing the work by the
completion date. [Refer Holme v. Guppy, (1838) 3 M & W
387]
c. These general principles may be amended by the express terms
of the contract as stipulated in this case.
30. It is now settled that ‘whether time is of the essence in a
contract’, has to be culled out from the reading of the entire contract as
well as the surrounding circumstances. Merely having an explicit clause
may not be sufficient to make time the essence of the contract. As the
contract was spread over a long tenure, the intention of the parties to
provide for extensions surely reinforces the fact that timely performance
was necessary. The fact that such extensions were granted indicates
ONGC’s effort to uphold the integrity of the contract instead of repudiating
the same.
31. Clause 9(i) of the Purchase Order reproduced above makes it
clear that time is the essence of the contract, subject to
extension granted
without prejudicing the right of ONGC to recover damages. These
damages, by one reasonable interpretation, could be read as damages
based on actual loss. Such conclusion was based on the Arbitral Tribunal’s
interpretation of 2nd para of Section 55 of the Contract Act, which reads
as under:
Effect of such failure when time is not essential.- If it was
not the intention of the parties that time should be of the essence
of the contract, the contract does not become voidable by the
failure to do such thing at or before the specified time; but the
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promisee is entitled to compensation from the promisor
for any loss occasioned to him by such failure.
(emphasis supplied)
The Arbitral Tribunal construed the aforesaid provision to interpret
the term ‘loss’ to mean actual tangible loss provable by evidence, instead
of pre-estimated loss. Such interpretation, in the facts and circumstances,
could be held to be a reasonable interpretation, as the other party was
not able to impugn the same by pointing to any documents or
correspondence to the contrary. When a standard form of a contract is
utilised, ONGC is assumed in law to have the larger bargaining power to
enter into a contract, unless clear intention is shown to the contrary.In
this case at hand, a reasonable interpretation against ONGC may be
utilised.
32. In Saw Pipes case (supra), impugned clause for liquidated
damages was considered and upheld by this Court in the following
manner:
46. From the aforesaid sections, it can be held that when a contract
has been broken, 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. These sections further
contemplate that if parties knew when they made the contract
that a particular loss is likely to result from such breach, they can
agree for payment of such compensation. In such a case, there
may not be any necessity of leading evidence for proving damages,
unless the
court arrives at the conclusion that no loss is likely to
occur because of such breach. Further, in case where the court
arrives at the conclusion that the term contemplating damages is
by way of penalty, the court may grant reasonable compensation
not exceeding the amount so named in the contract on proof of
damages. However, when the terms of the contract are clear and
unambiguous then its meaning is to be gathered only from the
words used therein. In a case where agreement is executed by
experts in the field, it would be difficult to hold that the intention of
the parties was different from the language used therein. In such
a case, it is for the party who contends that stipulated amount is
not reasonable compensation, to prove the same.
…
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64. … Under Section 73, when a contract has been broken, the
party who suffers by such breach is entitled to receive
compensation for any loss caused to him which the parties knew
when they made the contract to be likely to result from the breach
of it. This section is to be read with Section 74, which deals with
penalty stipulated in the contract, inter alia (relevant for the
present case) provides that when a contract has been broken, if a
sum is named in the contract as the amount to be paid in case of
such breach, the party complaining of breach is entitled, whether
or not actual loss is proved to have been caused, thereby to receive
from the party who has broken the contract reasonable
compensation not exceeding the amount so named. Section 74
emphasizes that in case of breach of contract, the party complaining
of the breach is entitled to receive reasonable compensation
whether or not actual loss is proved to have been caused by such
breach. Therefore, the emphasis is on reasonable compensation.
… But if the compensation named in the contract for such breach
is genuine pre-estimate of loss which the parties knew when they
made the contract to be likely to result from the breach of it, there
is no question of proving such loss or such party is not required to
lead evidence to prove actual loss suffered by him..
…
66. In Maula Bux case [(1969) 2 SCC 554] the Court has
specifically held that it is true that in every case of breach of
contract the
person aggrieved by the breach is not required to
prove actual loss or damage suffered by him before he can claim
a decree and the court is competent to award reasonable
compensation in a case of breach even if no actual damage is
proved to have been suffered in consequence of the breach of
contract. The Court has also specifically held that in case of breach
of some contracts it may be impossible for the court to assess
compensation arising from breach.
Although the aforesaid case was cited by the Arbitral Tribunal, it
distinguished the same by observing that the aforesaid case was silent
on the aspect.We need to accept the aforesaid distinction based on the
different set of circumstances this case emanates from. In Saw Pipes
(supra), the purchaser therein had extended the time for supply of goods
subject to the specific condition that purchaser would recover the agreed
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stipulated damages from the contractor. Thus, the aspect of waiver is an
important distinguishing factor, which was not dealt with in the earlier
judgment.
33. This brings us to the waiver.It may be noted that ONGC waived
liquidated damages twice before giving extension with pre-estimated
damages. The approach of the Arbitral Tribunal was to hold that once
liquidated damages were waived in the first extension, subsequent
extension could not be coupled with liquidated damages unless a clear
intention flowed from the contract;while this Court recognizes the
autonomy of the party to engage in contractual obligation. Such obligation
must be contracted in clear terms. From the aforesaid discussion, it is
clear that the promisee (ONGC) waived the liquidated damages initially
and the same cannot be imposed, unless such imposition was clearly
accepted by parties. In this case, the interpretation of the Arbitral Tribunal
could not be faulted as being perverse, for the reasons stated above.
34. Mr. Shyam Diwan, learned senior counsel, appearing on behalf
of the Remi Metals, submitted that the view taken by the Arbitral Tribunal
was reasonable, as the loss sustained by ONGC is given on the basis of
actual loss. In this situation, the interpretation of the law and the facts
provided under the award is a reasonable interpretation, which can be
sustained as being a plausible view.
35. This Court cannot interfere with this award,
as the award is a
plausible view for the following reasons:
a. The Arbitral Tribunal’s interpretation of contractual clauses
having extension procedure and imposition of liquidated
damages, are good indicators that ‘time was not the essence
of the contract’.
b. The Arbitral Tribunal’s view to impose damages accrued on
actual loss basis could be sustained in view of the waiver of
liquidated damages and absence of precise language which
allows for reimposition of liquidated damages. Such imposition
is in line with the 2nd para of Section 55 of the Indian Contract
Act.
c. The Arbitral Tribunal was correct in distinguishing the dictum
of this Court in Saw Pipes(supra), which validated imposition
of liquidated damages in a similar contract.
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d. The High Court and District Court strayed beyond the limitation
under Section 34 and 37 of the Arbitration Act.
e. Other aspects of the award also do not require interference of
this Court, in view of the law laid down in the Project Director,
National Highways No.45E and 220, National Highways
Authority of India v. M. Hakeem.2
36. Therefore, we set aside the order of the High Court as well as
the District Court’s interference, and uphold the award of the Arbitral
Tribunal. Accordingly, Civil Appeal Nos. 2826-2827 of 2016 are allowed
and Civil Appeal arising out of SLP (C) 19203 of 2012 is disposed of
accordingly.
37. Parties are to bear their own costs.
Nidhi Jain
Appeals disposed of.
2 SLP (CIVIL) NO.13020 OF 2020
WELSPUN SPECIALTY SOLUTIONS LTD. (FORMERLY KNOWN AS
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