ABSTRACT:
This case arose out of a challenge to an arbitral award rendered with regard to a dispute relating to supply of equipment for offshore oil exploration by the respondent. The case was heard by M.B Shah and Arun Kumar JJ. The judgment was written by Shah J. Facts Oil and Natural Gas Commission had placed an order on Saw Pipes for supply of equipment for offshore exploration, to be procured from approved European manufacturers. The delivery was delayed due to general strike of steel mill workers in Europe. Timely delivery was the essence of the contract. ONGC granted extension of time, but it invoked the clause for recovery of Liquidated Damages by withholding the amount from the payment to the supplier. ONGC deducted from the payment $3,04,970.20 and Rs 15,75,557 towards customs duty, sales tax and freight charges. Saw pipes disputed the deduction and matter was referred to arbitration. While the arbitral tribunal rejected Saw Pipe’s defense of force majure, it required ONGC to lead evidence to establish the loss suffered by breach and proceed to hold, in absence of evidence of financial losses, that the deduction of Liquidated damages was wrongful. The award was challenged by ONGC; inter alia as being opposed to public policy ONGC’s case was that the arbitral tribunal failed to decide the dispute by not applying the prevailing substantive law, ignoring the terms of the contract and customary practices of usage of trade in such transactions. ONGC challenged the award as being patently illegal. The single judge and division bench of Bombay High Court dismissed the challenge. The Supreme Court set aside an arbitration award directing ONGC to refund $3,04, 970.20 and Rs 15.76 Lakhs towards liquidated damages retained by it while making payment to the company.