OIL AND NATURAL GAS CORPORATION LTD VS SAW PIPES LTD (2003 SC)

FACTS OF THE CASE

1. Oil and Natural Gas Corporation Limited advertised a tender for the supply of casing pipes. The reply to this tender was given by Saw Pipes Limited through a letter dated 27.12.1995.
2. The letter contains the terms and conditions under which SAW Pipes Limited supplies pipes of specified sizes to be delivered by 14.11.1996.

The contract deed provides that if there is any failure in the supply of pipes the same shall not be prejudiced to any right or remedy that the Appellant in the present case i.e. ONGC may have. It also provides that the Appellant shall be entitled to recover by way of liquidated damages as agreed with the Respondent and not by way of penalty

Both parties have already decided or agreed upon the estimate of loss. Both parties also agreed that the compensation would be paid from the bill for the cost of the material sent by the defendant.

It was in the year 1996 when there was a general strike by the mill workers which affected almost the entire Italy from where the respondents had supplied the requisite raw materials as they could not deliver the materials on time. The defendant takes an extension of 45 days to deliver the goods as agreed in the contract.

The Appellant granted extension but with the condition that an amount equal to the liquidated damages would be recovered from the Respondent. The goods were handed over to the Appellant, and the Appellant made the payment, but retained the amount of US$ 3,04,970.20 and Rs. 15,75,559. This amount of deduction was disputed according to the respondent. Hence the dispute was referred to the Arbitration Tribunal under Arbitration and Conciliation Act, 1996 to seek relief and resolve the dispute.

ISSUES 

1.  Whether ONGC has the right to retain liquidated damages?

ARGUMENTS

Council for the appellant argued that in this case there is a clear violation of Section 28 to 31 of the act or the terms of the contract between the parties. He required the said award to be set aside by the court in exercise of jurisdiction under Section 34 of the act.

Respondent argued that the Court’s jurisdiction under Section 34 is limited and it can set aside the award due to conflict with the ‘public policy of India’. According to this submission the phrase ‘public policy of India’ canno be construed to violate certain provisions of law. 

JUDGEMENT

The puzzle before court was whether the award was in violation of the substantive law and so wrong that it could be set aside within the scope of being against public policy as described in Section 34 of the act. In the present case, the scope of interpretation of public policy was winded by the court. The new ground of “patent illegality” was added by the court stating that an award which clearly violates statutory provisions cannot be said to be in the public interest. The court said that such an award would adversely affect the administration of justice.

On another point of issue, the court found the arbitral tribunal wrong to favour the respondent because the appellant was not able to prove the loss caused but the breach. The tribunal is believed to have ignored Section 73 and 74 of Indian Contract Act,1872. Further, they failed to consider the ratio given by the Supreme Court in Fateh Chand case. In this case the court observed that the amount stipulated in the contract is not conclusive but it is a good attempt to avoid litigation. The figure agreed to give an opening to overcome the difficulty to proof. Therefore, in view of the above ground, the court set aside the award given by the tribunal.  

REFERENCES

https://indiankanoon.org

https://lawplanet.in

https://traceyourcase.com

https://www.lawyersclubindia.com

This case analysis is written by Bhaavya Mishra of Vikramajit Singh Sanatan Dharma College, Intern at Legal Vidhiya.

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