OIL & NATURAL GAS CORPORATION LTD. versus SAW PIPES LTD.

Citation: [2003] 3 S.C.R. 691 · Decided: 17-04-2003 · Supreme Court of India · Bench: M.B. SHAH · Disposal: Appeal(s) allowed

Cited by 18 judgment(s) · cites 3 · see the full citation network in Lexace

Judgment (excerpt)

OIL & NATURAL GAS CORPORATION LTD. 
v. 
SAW PIPES LTD. 
APRIL I 7, 2003 
[M.B. SHAH AND ARUN KUMAR, JJ.] 
Arbitration and Conciliation Act, 1966; Sections 23, 24, 25, 28, 31 and 
34: Contract for supply of goods-Time is the essence of the contract-Delay 
A 
B 
in supply of goods-Contractor's liability to purchaser-Award-Denial of C 
compensation-Held: when liability to pay compensation in lieu of damages 
for breach of any term of the contract by the other party is stipulated clearly 
and unambiguously, and in the absence of evidence proving the compensation 
claimed as unreasonable, arbitral tribunal could not ignore clear terms of the 
agreement to determine liability of the defaulting party-It is not necessary 
for the claimant to produce evidence proving damages/loss suffered by him- D 
Burden is on the contending party to prove that claim is unreasonable-Since 
contending party agrPed to pay damages, he cannot deny the same-Loss 
actually suffered by the purchaser need not be proved-Indian Contract Act,-
Sections 73 and 74. 
Claim-Deduction of compensation/claim by the purchaser from the bill 
of the contractor in lieu of damages for breach of agreeme/1/-Nature of-
Held: such claim would be treated as disputed claim-Arbitrator to decide 
it-Under the facts and circumstances of the case, Arbitrator holding the 
claim as undisputed on the ground that goods were received and bill was no/ 
E 
disputed-Such finding of the Arbitrator unjust and unreasonable. · 
F 
Award by the arbitral tribzmal-lnterference with-Jurisdiction of the 
Court-Ambit and scope of-Held: arbitral tribunal is empowered lo decide 
the dispute referred to ii in accordance with the provisions of the Ac/-
Procedural law provides relief against the right-Award passed in 
contravention of the provisions of substantive law/Act would be patently illegal G 
and contrary to the basic concept of justice-Hence could be interfered with 
by the Court. 
Award in conflict with Public Policy of India-Power of the Court lo 
inteifere with-Held: since the phrase 'Public Policy of India' is not defined H 
591 
692 
SUPREME COURT REPORTS 
(2003] 3 S.C.R. 
A · under the Act, 1he Court requires to give contextual meaning in the light of 
the principles underlying the Arbitralion Act/Contract Act/Constitutional 
provisions-It could either be construed in a narrower or broader sense-
When award attains finality, jurisdiction of the Court to interfere with is 
limited on the ground of public policy-It could be given wider meaning by 
B !he Court in exercise of its appellatelrevisiona/jurisdiction-Award, in violation 
of statutory provisions, can not be termed to be in public interest-Hence 
against Public Policy of India and void-Interpretation of Statutes. 
c 
Domestic award and foreign award-Dist incl ion between-Discussed. 
Words & Phrases: 
'Arbitral Procedure', 'Substantive Law', 'Public Policy of India', 'Force 
Majeure ', 'liquidated damages', 'wrtent illegality' and 'disputed claim'-
Meaning of in the context of Arbitration and Conciliation Act, 1996. 
Respondent-foreign company, a contractor, had entered into an 
D agreement with the appellant-company, a purchaser for supply of certain 
goods on agreed terms. Timely delivery of the goods was the essence of 
the agreement. As per terms of the agreement, any delay in supply of the 
goods would entail liability on the contractor to liquidate damages for delay 
in supply of goods. The respondent could not supply the goods in time due 
E to strike of workers in that country and sought for extension of time. While 
conveying extension, the appellant specifically mentioned that the liquidated 
damages would be recovered from them. Accordingly it recovered the same 
by making deductions from the payment due to the respondent. Since the 
respondent considered the deduction as wrongful, it referred the dispute 
F to the arbitral tribunal. The tribunal held the deduction made by the 
appellant wrongful since it could not establish the actual monetary loss 
suffered by it due to delay in supply of goods under the contract and the 
tribunal passed an award accordingly. Appeal against the award was 
dismissed by the High Court. Hence the present appeal. 
G 
It was contended for the appellant that since the Award passed by 
the arbitral tribunal was in violation of Sections 28 to 31 of the Arbitration 
and Conciliation Act, it could be set aside by the Court as per provisions 
under Section 34 of the Act; that since the impu

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