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Judgment
Kurian Joseph, C.J.—Appellants are the Respondents in the writ petition. The sole Respondent in this appeal is the writ Petitioner. The writ petition was filed challenging the various communications issued by the Appellants. The dispute pertains to the steps taken by the Appellants purporting to terminate the contract entered into between the Appellants and the Respondent. The contract is for exploration of hydro carbons. The following are the impugned communications:
(i) Annexure PT dated 13.1.2010.
(ii) Annexure PZ dated 19.3.2010.
(iii) Annexure PAG dated 9.4.2010.
(iv) Annexure PAH dated 13.4.2010.
(v) Annexure PAL dated 16.4.2010.
The whole background leading to the impugned conduct of the Appellants in allegedly terminating the contract is that there was no satisfactory progress in the work entrusted to the writ Petitioner. The contract was signed on 4th June, 2009 between the parties. The learned Single Judge repelling the contentions taken by the Appellants regarding jurisdiction, provision for arbitration in the agreement etc. allowed the writ petition mainly holding that the purported termination of contract is without considering the report submitted by the writ Petitioner regarding the complaints and progress in the work. Aggrieved, the Respondents have preferred this appeal.
Though several contentions are taken before us also with regard to the jurisdiction of this Court under Article 226 of the Constitution of India, propriety in interfering with contract matters, more so when the contract itself provides for arbitration etc., we do not think that those contentions need to be addressed at this stage. Crucial question is whether there is termination at all of the contract and if so whether it is as per the procedure for the same in the agreement.
The first communication Annexure PT dated 13.1.2010, in its operative portion cautioned the Petitioner as follows:
Since ONGC has permitted your rig to commence the operation with conditional undertaking on good faith and terms you are taking undue advantage till date regularly ONGC to provide material one after another. The last request dated 12.1.2010 received from your side to arrange the core bit as per your core barrel which we will not accept it since Deewan Chand has failed to provide the core barrel as per ONGC specification i.e. 6-3/4" x 4" x60'' against 6-1/4" x 4" x 60''.
In view of the above the Clause 22.5 of the contract which speaks termination for unsatisfactory performance this office is constrained to serve 30 days notice if the satisfactory improvement in regard to the equipments and short coming as per the TPI observation and your undertaking are finally complied within 12 days left of the balance period of 45 days from the date of issue of this letter.
You are hereby instructed to be more serious and prompt on the above issue and inform to this office immediately.
The next impugned communication Annexure PZ is issued after the joint meeting between the parties on 16.3.2010 reads as follows:
In reference to above and as agreed in the meeting, it is to inform that M/s DRIPL had already crossed the time limit of 45 days, for compliance of deficiencies as per the Undertaking, of dated 10.12.2009. As agreed in the meeting and the undertaking given by M/s DRIPL now on 17.3.2010, ONGC, hereby, gives you a final time limit, repeat final time limit of 15 days w.e.f. 17.3.2010 for compliance of all the remaining deficiencies (i.e. final date of Compliance: 1.4.2010); otherwise, ONGC will have no option but to take suitable action as deemed fit in the contract. Copy of minutes of meeting and Undertaking given by M/s DRIPL is enclosed herewith for ready reference.
The scheduled location of your rig is ready in all respect and due to deficiencies of your rig only, drilling at location R-BH-B could not be started resulting in underachievement of exploration drilling targets.
The third communication is Annexure PAG dated 9.4.2010, which reads as follows:
In reference to above, it is to intimate that a Committee of officers from Frontier Basins, ONGC, Dehradun had visited M/s DRIPL rig in Tehri village Jwalamukhi on 2.4.2010 and 3.4.2010 and inspected the status of pending TPI observations in presence of M/s DRIPL representative, in terms with Undertaking given by M/s DRIPL on 17.3.2010.
As per the report submitted by the committee on 3.4.2010, it is obvious that M/s DRIPL is not serious and has failed miserably in complying with pending TPI Observations, as well as failing in fulfillment of the commitment given in the meeting on 16.3.2010 at Frontier basins, Dehradu.
The Drill site R-BH-B is ready in all respect since long and only due to failure on M/s DRIPL part, Frontier Basins, Dehradun is repeatedly rescheduling its Drilling Program time and again, thereby having Underachievement / Non achievement of MWP / Reserve Accretion Targets.
Under the prevailing circumstances, it is felt that Frontier Basins, Dehradun has no other option but is constrained to invoke Termination of your Contract w.e.f. 9.4.2010 as per contractual clauses No. 3.5, 3.9 and 22.5 of the above referred Contract.
The forth impugned communication Annexure PAH dated 13.4.2010 reads as follows:
With reference to the above, it may be recalled that the last chance accorded to M/s DRIPL to meet TPI compliance deficiencies has already expired on 1.4.2010 and all related issues, thereby, become close at this stage.
Contract termination process has been intiated by Drilling Services, Frontier Basins, Dehradun in response to your failure as communicated to you on 9.4.2010.
Henceforth, any communication with reference to this contract may please be addressed to ONSG Vadodara.
The fifth and the last impugned communication Annexure PAL dated 16th April, 2010 reads as follows:
Please refer to your FAX message referred above with reference to our letter No. FB/DS/CH-2/2010 dated 9.4.2010 and FB/BM/G-7/2009-10 dated 13.4.2010 and your letters dated 9.4.2010 and 10.4.2010.
In this context, it is to reiterate that ONGC has invoked the termination of the contract as conveyed to you vide letter No. FB/DS/CH-2/2010 dated 9.4.2010, in pursuance to our earlier notice dated 13.1.2010 and letter dated 19.3.2010, and as such, all the issues raised in letter dated 14.4.2010 regarding request for essentiality certificates or transportation of other material under transit are untenable at this stage.
We strongly refute your claim that "almost all the points earmarked in the TPI report have been complied with" as duly documented in the Inspection Report by ONGC Committee and corroborated by your own report dated 8.4.2010.
This is without prejudice of any right and privilege of ONGC in terms of any provisions of contract and correspondence thereto.
(All emphasis supplied)
It is also necessary to refer to the provisions in the contract regarding termination, which are sought to be invoked by the Appellants in the impugned Annexure PAG communication, namely, Clauses 3.5, 3.9 and 22.5. Clause 3.5 of the contract dealing with the Deficiencies reads as follows:
3.5 DEFICIENCIES
3.5.1 Contractor''s equipment shall be maintained by Contractor in sound and efficient operating condition at time. Should the performance of Contractor''s drilling equipment and other services becomes unsatisfactory or the general standard of performance of work hereunder be materially reduced because of defective drill pipe, drill collars, or other Contractor''s furnished equipment or by reason of contractor''s incompetence or negligence, Operator shall give contractor written notice specifying the causes of its dis-satisfaction to correct the specified deficiency within 15 days failing which Operator shall have the right to terminate this Agreement by giving thirty (30) days advance written notice to the Contractor, unless the specified deficiency is corrected within such thirty (30) days period. In this event no de-mob fees will be payable by the Operator notwithstanding the provision contained in the Contract, Operator shall recover the mobilization charges, if any, paid in terms of Clause 3.2, in case the deficiency occurs during pendency of the contract, on pro-rata basis for the period of performance, in addition to invoking of performance bond due to failure of the contractor in not executing the contract faithfully.
3.5.2 Should contractor be denied access to the location of drilling operations due to lack of compliance of any permits or licenses required by the Operator pursuant to Article 13.1 hereof, time lost as a result thereof shall be compensated at the nonoperating Day Rate.
Clause 3.9 dealing with the Performance reads as follows:
3.9 PERFORMANCE
The Contractor undertakes to perform all the services under the Agreement with all reasonable skill, diligence and care in accordance with sound industry practice to the satisfaction of the operator and accepts full responsibility for the satisfactory quality of such services.
Operator shall give Contractor written notice specifying the causes of its dis-satisfaction to correct the specified deficiency, within 15 days failing which Operator shall have the right to terminate this Agreement by giving thirty (30) days advance written notice to the Contractor, unless the specified deficiency is corrected within such thirty (30) days period.
In this event, no de-mob fees will be payable by the Operator and notwithstanding provisions contained in the contract, Operator shall recover the mobilization charges, if paid in terms of Clause 3.2 on pro-rata basis for the period of performance, in addition to invoking of performance bond due to failure of the contractor in not executing the contract faithfully. If at any time during the term of this Contract, breakdown of Contractor''s equipment results in Contractor being unable to perform its obligations hereunder for a period of 15 successive days (not including Force Majeure delay or break down of Contractor''s equipment caused by a Well blow-out or all the consequences thereof), Operator, at its option, may terminate this contract, in its entirety without further right or obligation on the part of Operator except for the payment of money then due. No notice shall be served by the Operator under the condition stated above.
Clause 22.5 dealing with the Termination for Unsatisfactory Performance reads as follows:
22.5 TERMINATION FOR UNSATISFACTORY PERFORMANCE
If the Operator considers that the performance of the Contractor is unsatisfactory or not upto the expected standard, the Operator shall notify the Contractor in writing and specify in detail the cause of such dissatisfaction. The Operator shall have the option to terminate this Agreement by giving 30 days notice in writing to the Contractor, if, Contractor fails to comply with the requisitions contained in the said written notice issued by the Operator, in accordance with Articles 3.6 and 3.10.
(All emphasis supplied)
The provisions in the Agreement regarding the termination of the contract, as extracted above and which are sought to be invoked by the Appellants would show that the same provides for a proper procedure. The procedure is also distinctly provided in three different contingencies. Clause 3.5 speaks of deficiencies in the equipment and other services and in that contingency Operator, namely, the Appellants should give the Contractor written notice specifying the causes of its dissatisfaction so as to correct the specified deficiency within 15 days failing which the Operator would have the right to terminate the Agreement by giving 30 days advance written notice and that too unless the specified deficiency is corrected within such 30 days. Clause 3.9 deals with the Performance. Should there be any deficiency in the skill, diligence and care, the same should be notified specifying the causes and requesting the Contractor to correct the deficiency within 15 days failing which the Operator would have the right to terminate the Agreement by giving 30 days notice in writing and that too again unless the specified deficiency is corrected within the said period of 30 days. It is also provided in the Clause that in the event of break down of the equipment of the Contractor resulting in inability to perform the obligation for 15 days successively, the Operator has option to terminate the contract in its entirety, in which event without notice. It may be specifically noted that there is no such case of break down of the equipment of the Contractor resulting in delay in the execution of the work. The third contingency provides for unsatisfactory performance, at Clause 22.5. In that eventuality, it is provided in the contract that the Contractor should be notified in writing specifying the details of unsatisfactory performance. In that case also, a notice in writing should be given to the Contractor giving him 30 days'' time and only if the Contractor fails to comply with the requisitions in the notice, action for termination can be invoked.
The question is whether any such procedure has been invoked and there is termination in terms of the Agreement. In the first impugned notice dated 13th January, 2010, the Contractor has only been cautioned that Clause 22.5 would be invoked by serving 30 days'' notice in case there is no satisfactory progress within 12 days. Thus, there is no notice under Clause 22.5 in Annexure PT. In Annexure PZ communication dated 19th March, 2010, the Appellants gave 15 days'' time w.e.f. 17.3.2010 for making up all the deficiencies again cautioning the Contractor that "otherwise ONGC will have no option but to take suitable action as deemed fit in the contract." Thus, there is no notice in terms of the contract for termination. Annexure PAG communication dated 9th April, 2010 is the one which is treated by the Appellants as the termination. A bare reading of the said communication Annexure PAG dated 9th April, 2010 would show that the stand is not correct. According to the Appellants the Contractor has miserably failed in complying with the commitment given in the meeting held on 16.3.2010 and hence "it is felt that Frontier Basins, Dehradun has no other option but is constrained to invoke termination of your Contract w.e.f. 9.4.2010 as per contractual Clauses No. 3.5, 3.9 and 22.5 of the above referred contract." That letter only informs the Contractor that the Clauses in the contract for termination are being invoked. Necessarily that would mean that the procedure, as referred to above, in terms of the Clauses 3.5, 3.9 and 22.5 would follow from the competent quarters. It is to be specifically noted that the communication is from the Frontier Basins, who is not a signatory to the Contract. The signatories on behalf of the Appellants are only the Onshore Service Group of the ONGC. No doubt, there is a provision in the Contract that ONGC would mean its successors and assignees. It is not quite clear as to whether the Frontier Basins is duly authorized by the ONGC to take the extreme action of termination of the contract between the parties. Be that as it may. Annexure PAH communication dated 13.4.2010 from the Frontier Basins would clearly show that they themselves have understood the matter only as we have explained above. It is stated in that communication that:
Contract termination process has been initiated by Drilling Services, Frontier Basins, Dehradun in response to your failure as communicated to you on 9.4.2010.
Henceforth, any communication with reference to this contract may please be addressed to ONSG Vadodara.
(emphasis supplied)
The view as above is again fortified by Annexure PAL communication dated 16.4.2010 from the Frontier Basins, wherein it is stated that ONGC has invoked the termination of the contract meaning thereby and as understood by themselves that the termination process has been initiated.
Onshore Service Group of the ONGC is the second Respondent. Even according to the Frontier Basins, contract termination process has only been initiated by them meaning thereby, the same has to be duly proceeded with and logically concluded as per the contract, apparently by Onshore Service Group of the ONGC. That contract has not been terminated so far, is also clear from Annexure PAG communication dated 9.4.2010, wherein it is stated that the Frontier Basins was constrained only to invoke the termination of the contract. In no communication, it is stated that the contract is terminated. Thus in the eye of law, the contract between the parties still subsists since the same has not been duly and validly terminated in terms of the Agreement between the parties.
That being the factual and legal position, it is not necessary for us to go into the various other contentions raised by the parties regarding jurisdiction, arbitration etc. It is for the ONGC, in case there is any deficiency in equipments or other services or in case there is any deficiency in the performance or in case the performance is unsatisfactory, to invoke their power and take such steps as is provided in the respective Clauses of 3.5, 3.9 and 22.5 of the Agreement. Any conduct on the part of the Public Sector Undertaking like the Appellants otherwise than in accordance with law would be unjust, unreasonable and arbitrary. Being a party to the contract, the Appellants are bound by the terms thereof; it is law for them. We make it clear that the judgment of the learned Single Judge and any of the observations contained in this judgment shall not stand in the way of the Appellants taking appropriate action in accordance with law.
So long as the contract subsists, the Appellants cannot decline the request of the writ Petitioner for recommendatory letter to the Director General of Hydro Carbons, Noida for issuance of Essentiality Certificate so as to facilitate the release of the material imported by the writ Petitioner. In that view of the matter, we do not find any reason to interfere with the view taken by the learned Single Judge, though for different reasons also. The Letters Parent Appeal is hence dismissed. The directions in the judgment of the learned Single Judge will be complied with within a period of one month. We also make it clear that except to the extent indicated hereinabove, all other contentions taken by both the sides are left open to be considered at the appropriate stage, if required.
The appeal is dismissed, so also the pending applications, if any.