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Judgment
S. Rajeswaran, J.—This Original petition has been filed u/s 34 of the Arbitration and Conciliation Act, 1996, hereinafter called ''the Act'', to
set aside the award dated 2.3.1999 insofar as Clause 1 alone of the award passed by the 2nd respondent is, concerned and pass an award as
prayed for by the petitioner in the claim petition.
The petitioner is aggrieved by the award of 2nd respondent dated 2.3.1999 insofar as clause I alone, by which 2nd respondent/arbitrator held
that 1st respondent is justified in invoking the bank guarantee.
The brief facts leading to the above petition are as under:
The petitioner entered into an agreement on 26.19.1994 with 1st respondent for the transportation of 1st respondent''s crude oil by required type
of tankers from various sites in cauvery basin to Narimanam GGS and also in between work stations as directed by 1st respondent. The duration
of the contract is for 12 calendar months from 13.8.1994 with an option to 1st respondent to extend the same contract for further 12 months time
in two instalments, i.e., up to 11.2.1996 and 11.8.96 respectively and the contractor shall comply with such extension made by 1st respondent.
The case of the petitioner is that the contract came to an end on 12.8.1995 as 1st respondent did not extend the contract. Therefore the
petitioner withdrew its tankers on 12.8.95. But 1st respondent claimed that they opted to extend the contract by another 6 months from 12.8.95
and they informed the same by letter dated 3.8.95 sent by RPAD. According to 1st respondent the petitioner committed breach of terms and
conditions of the contract as they failed to deploy the required number of tankers and hence they invoked bank guarantee on 26.10.95. The
petitioner filed a civil suit before this Court for restraining 1st respondent from invoking the performance guarantee and this Court by order dated
17.12.97 directed 1st respondent to appoint an arbitrator to resolve the dispute. Accordingly 2nd respondent was appointed as an arbitrator and
2nd respondent by award dated 2.3.99 held that 1st respondent is justified in invoking the bank guarantee and 1st respondent is not entitled for
any compensation for the losses shown by them. 2nd respondent further held that the petitioner is entitled to payment of the pending bills as per the
statement of the claim with bank interest till the date of release of payment. Aggrieved by the first finding, i.e., 1st respondent is justified in invoking
the bank guarantee, the above petition has been filed u/s 34 of the Act, 1996 against that portion alone.
The 1st respondent entered appearance through their counsel and filed a counter statement supporting the award under challenge.
Heard the learned Counsel for the petitioner and the learned Counsel for 1st respondent. I have also perused the documents filed and the
judgments referred to by them in support of their submissions.
The learned Counsel for the petitioner submitted that the invocation of bank guarantee is illegal as there was no actual loss caused to 1st
respondent. He further assailed the findings of 2nd respondent that an extension was granted even before the expiry of the contract by 1st
respondent by sending a letter which was refused by the petitioner. The learned Counsel further submitted that any correspondence should be sent
as per Clause 14.8 of the agreement alone and as per Clause 14.8, sending a letter by RPAD is not a correct mode of communication. The
learned Counsel for the petitioner relied on the decisions reported in 1963(1)SCR 515 (Fateh Chand v. Balakishan Das); State of Orissa and
Others Vs. Calcutta Company Limited, ; State of Kerala and Others Vs. United Shippers and Dredgers Ltd., ; Union of India (UOI) Vs. Rampur
Distillery and Chemical Co., Ltd., and Ennore Port Limited, (Successor of Chennai Port Trust with regard to the Ennore Port Project) Vs.
Hindustan Construction Company Limited and Others, (This decision was relied on by the learned Counsel for 1st respondent also) to submit that
in the absence of any proof of any damage arising from breach of contract, the bank guarantee should not be invoked to realise the amount as if it
was a penalty. The learned Counsel also relied on a decision of a Division Bench of this Court reported in Seth Dhanoomal Parsaram Vs. P.
Kuppuraj and Another, to submit that when the specific mode of communication as contemplated under a particular clause of the contract was not
resorted to, it would not amount to a valid service on the petitioner.
Per contra, the learned Counsel for 1st respondent submitted that 2nd respondent has passed a reasoned award and the same cannot be
assailed as if this O.P., is an appeal. The learned Counsel relied on the very same decision reported in Ennore Port Limited, (Successor of Chennai
Port Trust with regard to the Ennore Port Project) Vs. Hindustan Construction Company Limited and Others, to submit that the scope for
interference in award passed by the arbitrator is limited and the courts are not expected to reappraise the matter as if it is an appeal. The Division
Bench in this judgment referred to the decision of the Apex Court reported in Bharat Coking Coal Ltd. Vs. L.K. Ahuja,
I have considered the rival submissions carefully with regard to facts and citations.
A perusal of the award under challenge shows that 2nd respondent/arbitrator framed the following issues:
4.1. Whether the contract had been extended for a further period on the expiry of the existing contract dated 26.10.94 and such extension had
been intimated to the respondent as per Clause 14.8 of the contract.
4.2. Whether the claimant was put to the notice of the extension of the contract before the expiry of the original period i.e. 12.8.95
4.3. Whether the claimant is entitled for the relief sought for in their claim petition.
4.4. Whether the claimant is entitled to interest @ 24% p.a., on the principal outstanding?
4.5. Whether the claimant had committed a breach of the terms and conditions of the contract between them and the respondent?
4.6. Whether the respondent was justified in invoking the Bank Guarantees given by the claimant?
4.7. Whether the respondent is entitled to the liquidated damages of Rs. 16,22,094.56 as detailed in Annexure-A and B to the counter filed by the
respondent?
4.8. Whether the counter claim made by respondent is barred by limitation.
4.9. Whether the counter claim made by the respondent is in accordance with the terms and conditions of the contract.
The main question before the arbitrator is whether the contract has been extended and such extension had been intimated to the petitioner. 2nd
respondent after going through 1st respondent''s letter dated 3.8.1995 and the endorsements made by the postal authorities on the cover of the
letter found that 1st respondent tried to convey their intention of extending the contract by registered letter dated 3.8.95, but the same was refused,
though it reached the address on 9.8.95 itself. Therefore 2nd respondent held that 1st respondent intimated petitioner about the extension of the
contract prior to the expiry of the original period and therefore as per Clause 6 of the agreement 1st respondent is justified in invoking the two
performance guarantees dated 19.7.1994 and 20.8.94.
This factual finding was sought to be assailed by the petitioner on the ground that the mode of communication adopted by 1st respondent is not
in compliance with Clause 14.8 of the agreement.
Clause 14.8 reads as under:
Each communication under this agreement shall be made by telex, cable, radiogram or telegram confirmed writing and shall be effective on the date
of receipt by the other party. Each communication to any party under this contract shall be sent to that party at the telex number/address and
marked for the attention or the person (if any) from time to time designated by the contractor to the corporation as the case may be, for the
purpose of this contract. The initial telex number, telegraphic, address and person (if any) so designated by each party are as follows:
1) In the case of the Corporation
The Joint Director(M)
Oil & Natural Gas Corporation Ltd.,
Cauvery Project
Neravy Stroes
Karaikal 609 604
Fax: 2126; Cable: Comong
Telex: 0463241
2) In case of the contractor
M/s. Dixit Roadlines,
23, Manish Vijay Commercial Complex
Vashi Naka, Mahul Road,
Chembur, Bombay 400 074.
Phone: 5569019/5568956/5568354
All communication shall be in the English language.
This point was also raised before 2nd respondent and 2nd respondent dealt with the same in the following terms:
5.4: The claimant argued that all the communications should be sent only by telex, cable, radiogram or telegram as per the Clause 14.8 of the
agreement. The respondent in their counter argument mentioned that the claimant himself never followed the same. All the communications sent by
the claimant were in letter form only. (3, 4, 7, 9, 10 & 11 of the respondent''s document). Thus, both the parties were not strictly following the
Clause 14.8.
This finding is also based on evidence and there is little scope to interfere with the same u/s 34 of the Act, 1996.
The learned Counsel for the petitioner next contended that in view of no proof of actual loss, the bank guarantee ought not to have been
invoked by 1st respondent.
I am unable to accept this submission also.
Clause 6 of the agreement deals with the performance bond and Clause 6 is extracted below for better appreciation:
6.0. PERFORMANCE BOND
The contractor shall furnish a performance Guarantee in the form of irrevocable bank guarantee from Nationalised Bank in the form prescribed
within 15 days from the date of issue of letter of intent for an amount equal to 5% of the estimated annual contract value to ONGC.
In case of quantity initially awarded is to be increased depending on ONGC requirement the contractor shall provide additional bank guarantee or
enhance the value of the existing performance bank guarantee by the amount calculated at the rate of 5% of the increased contract value. In the
event of the contractor failing to honour any of the documents entered into under this contract and/or in respect of any amount due from contractor
to the commission (including but not limited to liquidated damages) the Corporation shall have the unconditional option under the guarantee to
invoke the performance guarantee. The bank shall be obliged to make payment to the Corporation upon such demand.
ONGC will have unqualified option to invoke the same in the event of any breach of contract on the part of contractor in its opinion. This bank
guarantee is towards performance guarantee for satisfactory performance of contract. The bank guarantee should be valid and remain in force for
the duration of contract and 6 months thereafter. In case of extension of contract this bank guarantee will be suitably extended.
No interest will be paid on performance gurantee. Performance Guarantee will be released on expiry of 6 months after the expiry contractual
period, subject to other stipulations in the contract. In case the contractor cannot mobilise required nos., of tankers as per this contract to meet the
committed quantities at proposed sectors within 15 days of signing the contract, his performance bank guarantee shall be invoked.
From the above clause it is very clear that 1st respondent has unqualified option to invoke the bank guarantee in the event of any breach of
contract and the bank guarantee is towards performance guarantee for satisfactory performance of contract.
When the petitioner refused to receive the letter extending the period of contract and failed to deploy the required number of tankers the
performance guarantee was invoked by 1st respondent and the arbitrator has held that 1st respondent is justified in invoking the two performance
bank guarantees dated 19.7.1994 and 20.8.1994 as per the Clause 6 of the agreement.
Thus I find a reasoned award has been passed by 2nd respondent/arbitrator on the basis of evidence by interpreting the relevant clauses in the
agreement. As held by the Division Bench of this Court in Ennore Port Limited, (Successor of Chennai Port Trust with regard to the Ennore Port
Project) Vs. Hindustan Construction Company Limited and Others, , the scope for interference in awards passed by the arbitrator is limited and
the courts are not expected to reappraise the matter as if it is an appeal.
In view of the above matter, I do not find any scope to interfere with the award of the arbitrator as there is no error of law apparent on the
face of the record.
In the result, the O.P., is dismissed. No costs.