Gas Authority Of India Ltd vs. Saw Pipes Ltd

IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 29.10.2024
+ FAO(OS) (COMM) 313/2019 and CM APPL. 34865/2024
GAS AUTHORITY OF INDIA LTD ..... Appellant
versus
SAW PIPES LTD ..... Respondent
Advocates who appeared in this case:

For the Appellant : Mr S V Raju, ASG, Ms Purnima
Maheshwari, SC, Mr D K Singh and Mr
Samrat Goswami, Advocates.

For the Respondent : Mr.Jayant K Mehta, Sr Advocate with Mr
Vijay K Singh and Ms Shruti Manchanda,
Advocates.
CORAM
HON’BLE MR JUSTICE VIBHU BAKHRU
HON’BLE MR JUSTICE SACHIN DATTA

JUDGMENT
VIBHU BAKHRU, J
1. The appellant (hereafter GAIL ), has filed the present intra court
appeal under Section 37(1)(c) of the Arbitration and Conciliation Act,
1996 (hereafter the A&C Act ) impugning a judgment dated 26.11.2010
(hereafter the impugned judgment ) passed by the learned Single Judge
of this Court in OMP (COMM) No.264/2003 captioned M/s GAS
Authority of India Ltd. v. M/s SAW Pipes Limited & Ors .
2. GAIL had filed the aforesaid application under Section 34 of the
A&C Act impugning an arbitral award dated 07.12.2002 as amended on
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21.03.2003 (hereafter the impugned award ), rendered by an arbitral
tribunal comprising of three members (hereafter the Arbitral Tribunal ).
3. The impugned award was rendered in the context of disputes that
had arisen between the parties in connection with an agreement for
supply of pipes ( the Contract ). SPL was awarded the contract pursuant
to being successful in a competitive bidding process initiated by GAIL
by floating a global tender. GAIL issued a Purchase Order dated
31.10.1994 (hereafter the PO ) for supply of pipes. Section III of the bid
document contains the General Conditions of the Contract (hereafter
GCC ). Article 1.2 of GCC defines the Contract to include the Purchase
Order and all attached exhibits and documents thereto.
4. In terms of the impugned award, the Arbitral Tribunal had
awarded a sum of USD 7,230,378.23 along with interest at the rate of
6% per annum with effect from 01.04.1997 till the date of the impugned
award as well as interest at the rate of 12% per annum on the
aforementioned amount converted into Indian Rupees from the date of
award till the date of payment. The Arbitral Tribunal further awarded a
sum of ₹ 18,00,000/- along with interest at the rate of 12% per annum
with effect from 01.04.1997 till its payment in favour of the claimant
(respondent in the present appeal hereafter referred to as SPL ). In
addition, the Arbitral Tribunal also awarded a sum of ₹ 50,00,000/- as
costs in favour of SPL.
5. The Arbitral Tribunal held that GAIL was responsible for the
delay by not taking the delivery of the goods even when large quantities
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of finished and coated pipes were available with SPL. Therefore, GAIL
was not entitled to reduce the price payable for the pipes, on account of
delay on the part of SPL. Accordingly, the Arbitral Tribunal allowed
SPL’s claim for the amount withheld by GAIL and awarded the said
amount along with the interest. Additionally, SPL also awarded costs in
favour of SPL.
6. The learned Single Judge rejected GAIL’s petition to set aside
the impugned award as the Court found that the Arbitral Tribunal’s
interpretation of the Contract was reasonable and its view was plausible
one. The learned Single Judge rejected the contention that the
impugned award is vitiated by patent illegality. The learned Single
Judge found that the findings of the Arbitral Tribunal were based on
appreciation of material and record and therefore, the GAIL’s
application was unsustainable. Accordingly, the learned Single Judge
also awarded the cost quantified at ₹ 50,000/- in favour of SPL.
7. In view of the above, the principal question that arises for
consideration before this Court is whether the impugned award is
vitiated by patent illegality on the face of the record or is in conflict with
the public policy of India.
ACTUAL ONTEXT
F C
8. GAIL is a Central Public Sector Undertaking (PSU) incorporated
in August, 1984 under the Ministry of Petroleum & Natural Gas. GAIL
is India’s leading natural gas company with diversified interests across
the natural gas value chain of trading, transmission, LPG production &
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transmission, LNG re-gasification, petrochemicals, city gas, E&P, etc.
GAIL owns and operates a network of around 16240 km of natural gas
pipelines spread across the length and breadth of country. It is also
working concurrently on execution of multiple pipeline projects to
further enhance the spread.
9. SPL (Saw Pipes Limited) is a leading global manufacturer and
supplier of Iron & Steel Pipe products and is also engaged in the supply
of equipment for offshore oil exploration and maintenance.
10. GAIL for its ‘Gas Rehabilitation & Expansion Project’ issued a
notice inviting tenders internationally for procurement of line pipes and
coating of pipes pertaining to upgradation of the pipeline system from
Hazira to Babrala and Jagdishpur. The bidders were required to submit
their bids under the two-bid system, that is, a technical bid and a price
bid. GAIL appointed Engineers India Limited (hereafter the
Consultant ) as the consultant for ascertaining the production and
financial capabilities of the bidders. The Consultant found SPL to be
fully capable and technically qualified with respect to the technical bid.
SPL’s price bid was found to be the lowest and most suitable. Pursuant
to the said evaluation, SPL was awarded the Contract on 31.10.1994 for
supply of Polyethylene (PE) Coated Line Pipe of 36-inch diameter for
the aforementioned project.
11. The procurement of pipes as required in the Contract were
bifurcated into three categories having wall thickness 12.5mm,
14.9mm, and 17.7mm. The total length of the pipes to be supplied was
for a length of 513.5 kms and the total value of the Contract was USD
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155,685,368.20. The Contract also consists of a delivery schedule
according to which the total pipes of length 513.5 kms (43,134 pipes)
were to be supplied to GAIL as under:
i. For months March and April, 1995 – 70kms of pipes (or
5,880 pipes) for each month;
ii. For months May and September, 1995 – 67kms (or 4628
pipes) for each month;
iii. For month October, 1995 – 38.5kms (or 3234 pipes).
12. The supplies were to be completed in the month of October,
1995. The pipes were to be manufactured and supplied via two major
routes, that is, ‘plate route’ and ‘mother pipe route’. A total of 339.51
kms of pipes were to be supplied through plate route, which entailed
SPL importing plates as raw material and manufacturing the pipes to be
supplied after being coated. A total of 173.988 kms of pipes were to be
supplied through mother pipe route, whereby SPL was to import
manufactured pipes, which after being coated were to be supplied to
GAIL. The Contract provided GAIL with the option to call upon SPL
to make good for any shortfall in the quantity as mentioned in the
delivery schedule for plate route through mother pipe route.
13. The payments under the Contract were to be made in tranches.
10% of the Order Value was to be paid to SPL against unconditional
acceptance of the purchase order dated 31.10.1994 ( the PO ); 80% of the
Order Value of the goods was to be paid against dispatch documents
including material release note/material acceptance certificate issued by
GAIL/Consultant; and the remaining 10% of the price was payable on
receipt and acceptance of goods at the site.
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14. GAIL was obligated under the Contract to lift the finished/coated
pipes from the stack yard of SPL and for this purpose GAIL engaged
the services of M/s Shiv Hare Roadlines (hereafter the transporter ). The
Contract provided the release of 80% of the amount payable in respect
of the goods lifted upon furnishing the lorry receipt issued by the
transporter.
15. The Contract was a Free on Trailer (FOT) contract which
obligated GAIL to take delivery of the pipes at the factory gate of SPL
after the required inspection/tests were conducted by GAIL/Consultant.
16. The disputes arose between the parties as GAIL withheld the
payment of amounts due to SPL under the Contract. It is the case of
GAIL that the amounts were withheld towards damages for delay in
delivery of the pipes attributable to SPL.
17. Article 28 of the GCC contained an arbitration clause, whereby
the disputes in relation to the Contract were agreed to be resolved by
arbitration under the rules of the Conciliation and Arbitration of
International Chamber of Commerce (ICC) by one or more arbitrators.
The venue of arbitration proceedings was agreed to be New Delhi.
18. SPL in regard to the applicability of rules of the ICC vide letter
dated 20.02.1997 requested GAIL to consider a modification in this
regard so that a domestic arbitration could take place under the Indian
Arbitration Act as both the parties were Indian and the Contract was
executed in India. However, upon receiving no response, SPL
approached the ICC for commencement of the arbitration proceedings
in regard to the disputes/claims of SPL arising out of the Contract.
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19. GAIL objected to the said reference. GAIL contended before the
ICC that the arbitration clause consisted of two parts. One being
applicable if the contract was to be international, that is, if the contract
was to be awarded to any party based outside India in which case the
arbitration will be governed by the ICC rules. However, second part of
the clause would be applicable if the contract was awarded to a domestic
bidder. GAIL contended that the ICC does not have the jurisdiction to
commence the arbitration proceedings as the contract was awarded to
SPL, which is an Indian concern.
20. However, the ICC rejected GAIL’s objection and proceeded
with the arbitration. An arbitral tribunal comprising of Mr. Justice C.L.
Chaudhary (Retd.) (Chairman); Mr. Justice T.D. Sugla (Retd.) and Mr.
Justice S.N. Sapra (Retd.) was constituted. The parties filed the
pleadings before the said arbitral tribunal. GAIL reiterated the
aforementioned jurisdictional objection. Whilst SPL deposited the cost
of arbitration with the ICC, GAIL declined to deposit its share of the
arbitral cost. The arbitral tribunal rejected GAIL’s objection to the
jurisdiction of the arbitral tribunal by a detailed order dated 11.02.1998.
21. SPL filed a civil suit before this Court for an injunction
restraining GAIL from encashing the performance bank guarantee
furnished by SPL in terms of the Contract. An order dated 24.05.1999
passed by a Division Bench of this Court in FAO(OS) 270/1998 records
parties’ agreement to amend Clause 28.3.2 of the GCC to exclude
applicability of the ICC rules. In the said proceedings the parties agreed
for the arbitration to be conducted under the A&C Act in place of the
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ICC Rules. Further, a new arbitral tribunal (hereafter the Arbitral
Tribunal ) consisting of Justice (Retd) H.L. Anand; Justice (Retd.) P.K.
Bahri and Justice (Retd.) Jaspal Singh was constituted for adjudication
of the disputes between the parties. This Court further directed that the
Arbitral Tribunal shall take up the matter from the stage already reached
and that the aforementioned bank guarantee would be kept alive.
22. The Arbitral Tribunal reserved matter for pronouncing the award
on 12.10.1999. However, at this stage, one of the arbitrators, Justice
(Retd.) H.L. Anand resigned on account of his ill health and Justice
(Retd.) S. Ranganathan was appointed as the Presiding Arbitrator.
SPL’ S C ASE
23. It is the case of SPL that it had made all necessary arrangements
and complied with all its obligations as per the Contract. However, the
delivery of coated pipes was not completed within the stipulated period,
that is, by October, 1995. SPL for reasons attributable to GAIL and on
account of force majeure events beyond control of the parties, including
unprecedented rains, floods, humidity, and onslaught of insects.
24. According to SPL, the total requirement of trailers for lifting the
pipes was 60 (sixty) trailers of 25-ton capacity each, per day for the
evacuation rate of the pipes to be in consonance with the delivery
schedule as per the Contract. However, GAIL did not comply with the
said condition. As a result, around 2000 (two thousand) pipes were lying
in the stack yard of SPL on account of failure of GAIL to lift the pipes
promptly in the months of March, April, and May, 1995.
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25. In order to rectify the aforementioned mismatch in taking up the
delivery of the pipes, on 03.06.1995, SPL suggested creation of a buffer
stack yard near the main mill of SPL. The entire expense of transporting
the ready pipes, creating approach road and other facilities to the buffer
stack yard was to be borne by SPL. The buffer stack yard could
accommodate 6000 to 8000 pipes, which would decongest the main
stack yard and facilitate increased production and resolve the financial
cash flow problem being faced by SPL.
26. On 29.06.1995, GAIL accepted the said proposal and agreed to
pay 80% of the value of the said pipes on being lifted from the main
stack yard for the purpose of stacking in the buffer stack yard. SPL
claims that the production/coating of the pipes improved significantly
after creation of the buffer stack yard and it had transferred 19,000
number of pipes to the buffer stack yard in a period of 4-8 months.
27. By a letter dated 08.09.1995, SPL brought certain facts to the
notice of GAIL claiming that the same constituted force majeure , and
along with that of force majeure conditions and requested GAIL to
change the delivery period from 35 weeks to 52 weeks, However, SPL
did not receive any response from GAIL.
28. GAIL continued taking delivery of the coated pipes even after
the stipulated period and making payments. The last delivery of finished
pipes from main coating yard was accepted by GAIL on 16.01.1996 and
the last delivery from the buffer stack yard, was accepted on
28.02.1997.
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29. SPL filed a Statement of Claims making 17 (seventeen) claims
before the Arbitral Tribunal, which are reproduced as under:
i. Claim No. 1 (USD 6265535.33) – Payment of 80%
invoice value withheld from various invoices raised
by SPL
ii. Claim No. 2 (USD 1640995.92) – Interest on the
amount withheld by GAIL, a subject matter of Claim
No. 1.
iii. Claim No. 3 (USD 246281.50) – Payment of 10%
invoice value withheld from various invoices raised
by SPL.
iv. Claim No. 4 (USD 674294.64) – Interest on the
amount withheld by GAIL, a subject matter of Claim
No. 3.
v. Claim No. 5 (USD 311238.00) – Interest on Delayed
Payment by GAIL against two Invoices.
vi. Claim No. 6 (USD 68746.54) – Cost of sample pipes
supplied to SPL.
vii. Claim No. 7 (USD 24512.00) – Interest on the
outstanding amount of price of sample pipes
supplied by SPL.
viii. Claim No. 8 (₹ 7612669.70 or USD 211463.94) –
Interest/Damages on funds blocked in the finished
pipe inventory due to slow lifting of the
finished/coated pipes by GAIL.
ix. Claim No. 9 (₹ 31293679.00 or USD 869268.86) –
Interest/Damages on funds blocked in the form of
Raw material inventory, due to low production
output consequential to slow lifting of the
finished/coated pipes by GAIL.
x. Claim No. 10 (₹ 8441000.00 or USD 2345583.33) –
Warehousing charges incurred by SPL for the
finished pipes during the forced extended period of
the contract.
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xi. Claim No. 11 (₹ 44963565.20 or USD 1248988.00)
– Warehousing charges of raw material and
consumable incurred by SPL during the forced
extended period of contract.

xii. Claim No. 12 (₹ 10800000.00 or USD 300000.00) –
Interest/Damages on funds blocked for the raw
material inventory procured for another project due
to low production output, consequential to slow
lifting of the finished/coated pipes by GAIL.
xiii. Claim No. 13 (₹ 11289580.00 or USD 313599.44) –
Expenses/demurrage charges on account of
demurrage and continuation charges incurred by
SPL due to faults of GAIL.
xiv. Claim No. 14 (₹ 139000000.00 or USD 3861000.00)
– Loss of profit suffered by SPL due to extra time
consumed in production/coating for GAIL’s project.
xv. Claim No. 15 (₹ 60162800.00 or USD 1671188.89)
– Warehousing charges at the buffer stack yard
incurred by SPL for the finished pipes during the
period from 16.01.1996 to February, 1997.
xvi. Claim No. 7A (₹ 16298388.00 or USD 452733.00) –
Reimbursement of Excise Duty, levied on SPL. The
total amount claimed under Claim No. 1 to 15 comes
to USD 11273824.56 and the amount claimed under
Claim No. 7A to 15 in Indian currency comes down
to ₹ 405861681.90.
xvii. Claim No. 16 – Costs for Arbitration amounting to
USD 1,95,000 or at present ₹ 20,00,000/-.
xviii. Claim No. 17 – Pendente lite and future interest
which is to be ascertained at the appropriate stage.

GAIL’S C ASE

30. GAIL controverted the allegations raised by SPL. GAIL
contended that SPL was not able to meet the production targets on
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account of its own defaults. GAIL contended that there is no stipulated
schedule for lifting of pipes and it had no obligation to lift pipes to
match SPL’s production schedule.
31. GAIL denied SPL’s claims and raised the following four counter
claims against SPL:
i. GAIL suffered losses on account of variation in the
exchange rate due to late delivery of
finished/coated pipes by SPL. GAIL claimed a sum
of ₹ 20,52,88,582/- along with an interest at the rate
of 18% per annum for the extra payment incurred.
ii. A sum of USD 16,200 and ₹ 216,00,000 along with
an interest at the rate of 18% per annum is claimed
against the extra expenditure borne by GAIL on
account of over stay of the its representatives and
consultants in Italy due to delay in manufacturing
and supply of pipes which resultant in delayed
inspection.
iii. A sum of ₹ 1,26,00,000/- along with an interest at
the rate of 18% per annum is claimed against the
extra expenditure incurred by GAIL in monitoring
the project due to delay in supply of pipes by SPL.

iv. A sum of USD $10,00,000 along with an interest of
18% per annum on account of defective pipes being
supplied by SPL which was detrimental to the
estimated project deadline in laying down the
pipeline under the bed of Chambal river.

32. GAIL claimed that its decision to apply the price reduction
formula under Article 24.1 of the GCC is not arbitrable. GAIL also
contended that SPL has waived its right to raise such claims as it had
not raised any claim during the currency of the Contract.
33. GAIL made a reference to the provisions of the Contract which
prescribed varied tests and inspections to be certified by the consultant
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before the pipes could be ready for the delivery. It claims that the
coating plant of SPL was ready only on 10.03.1995 and the Cathodic
Disbondment Test could not be commenced as it required a minimum
of 30 days to reach to its findings.
34. GAIL further referred to the letters dated 25.02.1995 and
02.03.1995 and fax dated 11.03.1995 of SPL pointing out that only five
pipes were coated till 11.03.1995 when the tests were commenced.
GAIL claims that it acceded to the request of SPL for dispatching the
pipes without carrying out a particular test as SPL agreed that it would
bear the risk and cost if the pipes were found detective after dispatch.
GAIL also referred to its fax dated 15.03.1995, wherein GAIL
specifically stated that the delay in delivery of coated pipes beyond the
contractual date, shall be viewed in terms of the Contract.
35. GAIL denied the existence of any force majeure circumstances,
which hindered the production of the pipes. It stated that the contract
does not envisage absolving SPL of its obligations on account of
conditions like rains, humidity and insect infestation. Thus, SPL could
not take the benefit of the force majeure clause. It claims that the terms
of the Contract made it obligatory for SPL to establish adequate
infrastructure to prevent any hindrance caused by such events.
36. GAIL asserted that it had rightly declined SPL’s request to grant
extension of contractual period from 35 weeks to 52 weeks, as SPL was
solely responsible for the delay in performing its contractual obligation.
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37. GAIL also claimed that some of the pipes, specifically pipes of
17.7 mm, were defective and SPL agreed to rectify the defects, which
continued much after 16.01.1996.
THE IMPUGNED AWARD

38. The Arbitral Tribunal reframed the issues based on the draft
agreed terms of reference, which were drawn by the previous arbitral
tribunal in accordance with the rules of the ICC. And, framed the
following thirty-three issues:
i. Whether the Rules of Conciliation, and Arbitration
of the International Chamber of Commerce (ICC),
Paris, has any applicability to the Arbitration
Agreement between the claimant and respondent and
if not, whether this Arbitral Tribunal has jurisdiction
to enter upon the reference of disputes between the
parties as alleged by the respondent in the
preliminary objections.
ii. In case ICC rules apply, whether the constitution of
this Arbitral Tribunal is not in accordance with the
ICC Rules?

iii. Whether the contract provides any specific rate of
lifting/picking up of coated pipes by the respondent?
iv. Whether the contract provides any specific rate of
production of bare/coated pipes by the claimant? If
so to what effect?
v. Whether the claims for alleged withholding of
payments as also other claims are not arbitrable for
the reasons stated by respondent in its reply?
vi. (deleted)
vii. Whether delay in the delivery schedule occurred on
account of omission and commission on the part of
the respondent or the claimant? If so to what effect?
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viii. Whether any conditions of alleged “force majeure”
as stated in the Statement of Claim, existed and if so
do they constitute “force majeure” under the contract
and if so did the claimant notify the condition in
accordance with the contract and if so, to what
effect?
ix. Whether the respondent waived the delivery
schedule period and acquiesced in the time extension
of the delivery schedule by their acts and conduct
particularly by taking delivery of the pipes and
making payments therefore even after the expiry of
the original period stipulated in the contract and slow
rate of lifting of the goods by the respondent's
transporter from the buffer stack yard till
28.02.1997?
x. Whether the respondent is liable for the payment of
a sum of US dollars 6265535.33 to the claimant as
per details given in Claim No.1 of the statement of
facts and claims filed by the claimant?
xi. Whether the respondent is liable for the payment of
a sum of US dollars 1640995.92 to the claimant as
per details given in Claim No. 2 of the statement of
facts and claims filed by the claimant?
xii. Whether the respondent is liable for the payment of
a sum of US dollars 246281.50 to the claimant as per
details given in Claim No. 3 of the statement of facts
and claims filed by the claimant?
xiii. Whether the respondent is liable for the payment of
a sum of US dollars 674294.64 to the claimant as per
details given in Claim No. 4 of the statement of facts
and claims filed by the claimant?
xiv. Whether the respondent is liable for the payment of
a sum of US dollars 311238.00 to the claimant as per
details given in Claim No. 5 of the statement of facts
and claims filed by the claimant?
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xv. Whether the respondent is liable for the payment of
a sum of US dollars 68746.54 to the claimant as per
details given in Claim No. 6 of the statement of facts
and claims filed by the claimant?

xvi. Whether the respondent is liable for the payment of
a sum of US dollars 24512.05 to the claimant as per
details given in Claim No. 7 of the statement of facts
and claims filed by the claimant?
xvii. Whether the respondent is liable for the payment, of
a sum of US dollars 211463.04 to the claimant as per
details given in Claim No. 8 of the statement of facts
and claims filed by the claimant?
xviii. Whether the respondent is liable for the payment of
a sum of US dollars 869268.86 to the claimant as per
details given in Claim No. 9 of the statement of facts
and claims filed by the claimant?
xix. Whether the respondent is liable for the payment of
a sum of ₹ 844,41,30/- to the claimant as per details
given in Claim No.10 of the statement of facts and
claims filed by the claimant?
xx. Whether the respondent is liable for the payment of
a sum of ₹ 449,63,565.20/- to the claimant as per
details given in Claim No.11 of the statement of facts
and claims filed by the claimant?
xxi. Whether the respondent is liable for the payment of
a sum of ₹ 1,08,00,000.00 to the claimant as per
details given in Claim No. 12 of the statement of
facts and claims filed by the claimant?
xxii. Whether the respondent is liable for the payment of
a sum of ₹ 1,12,89,580.00 to the claimant as per
details given in Claim No. 13 of the statement of
facts and claims filed by the claimant?
xxiii. Whether the respondent is liable for the payment of
a sum of ₹ 13.9 crores to the claimant as per details
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given in Claim No. 14 of the statement of facts and
claims filed by the claimant?
xxiv. Whether the respondent is liable for the payment of
a sum of ₹ 60162800.00 to the claimant as per details
given in Claim No. 15 of the statement of facts and
claims filed by the claimant?
xxv. Whether the respondent is liable for the payment of
the costs for the present arbitration as claimed by the
claimant?
xxvi. Whether the parties are liable for payment of
pendente lite and future interest of each other?
xxvii. Whether the respondent is entitled to raise or make
counter claims in the present proceedings under the
ICC Rules of Conciliation and Arbitration?
xxviii. Whether the claimant is liable for the payment of a
sum of ₹ 205,288,582.00 to the respondent as per
details given in Claim No. 1 of the statement of
counter claims filed by the respondent?
xxix. Whether the claimant is liable for the payment of a
sum of US dollars 54,26,767.70 to the respondent as
per details given in Claim No. 2 of the statement of
counter claims filed by the respondent?
xxx. Whether the claimant is liable for the payment of a
sum of US dollars 162000 and ₹ 21600000.00 to the
respondent as per details given in Claim No. 3 of the
statement of counter claims filed by the respondent?
xxxi. Whether the claimant is liable for the payment of a
sum of ₹ 126,00,00.00 to the respondent as per
details given in Claim No. 4 of the statement of
counter claims filed by the respondent?
xxxii. Whether the claimant is liable for the payment of a
sum of US dollars 10,00,000 to the respondent as per
details given in Claim No. 5 of the statement of
counter claims filed by the respondent?
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xxxiii. To what other reliefs, if any, is the claimant entitled
to against the respondent and to what other relief is
the respondent entitled to, if any, against the
claimant?

39. The Arbitral Tribunal examined the relevant Clauses of the
Contract. The Arbitral Tribunal observed that the scope of work under
the Contract comprised of three parts including import of material,
manufacturing of the pipes, and coating the pipes. The Contract was for
a fixed price of USD 155,685,368.20 as specifically stated in Annexure
II to the PO. It was agreed that the said price would remain fixed till
completion of the Contract. The delivery schedule was specified in
Annexure III to the PO.
40. The Arbitral Tribunal also noted that M/s Socotherm, Italy was a
collaborator for technical know-how for coating of pipes. The Arbitral
Tribunal, amongst other clauses, noted Clause 6.0 and Clause 24 of the
GCC, which provided for price reduction schedule for delayed delivery.
The Arbitral Tribunal also referred to Section 1 of the bid documents
that set out the project profile and the mode of dispatch of the goods for
domestic bidders, and Article 1.5 of the GCC, which stipulated that
delivery would be deemed to have been made in case of supplies within
India, on the date of railway receipt/loading receipt.
41. The Arbitral Tribunal found that the Issue nos.1, 2 and 27 – which
related to the question whether ICC Rules were applicable to the
arbitration between the parties – were no longer relevant as the parties
had agreed to an ad hoc arbitration under the provisions of the A&C
Act.
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42. The Arbitral Tribunal noted that the tender floated by GAIL was
a global tender and therefore, the monthly delivery schedule was
intended to facilitate supply of goods from abroad by a foreign
contractor through shipping vessels with the corresponding duty of
GAIL to take delivery of the said goods in one go. However, since the
Contract was awarded to a domestic manufacturer (SPL) and the
deliveries were to be accepted ex-factory, GAIL was required to lift the
supplies on much shorter intervals.
43. The Arbitral Tribunal accepted SPL’s contention that although
the Contract specified a monthly schedule for deliveries, the same did
not mean that specified quantities of pipes produced in a month were
required to be lifted in one go at monthly intervals. The Arbitral
Tribunal held that both the parties had mutual and reciprocal duties to
produce and lift the pipes in coordination.
44. The Arbitral Tribunal rejected GAIL’s contention that it was not
obliged to lift pipes commensurate with SPL’s production. The Arbitral
Tribunal held that the contractual provisions for supply and delivery of
pipes was required to be understood in the factual background of the
Contract and the same could only mean that SPL was required to
produce sufficient number of pipes so as to not fall behind GAIL’s
capacity to lift the finished/coated pipes.
45. The Arbitral Tribunal found in favour of SPL that it was entitled
to the value of the goods supplied. And, in the given facts, GAIL was
not entitled to withhold payments on account of delay in supply of
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pipes. The Arbitral Tribunal found that there was an initial delay on the
part of SPL during the months of March and April 1995. However,
GAIL had accepted lower delivery during this period without any
protest or reservation. Even during the said period, GAIL was
responsible for certain delays including delay attributable to its
consultant on account of applying an incorrect procedure for certain
tests. The Arbitral Tribunal held that the delay in delivery of pipes after
May 1995 was attributable to GAIL as the transporter engaged by GAIL
could not lift pipes equivalent to SPL’s daily production.
46. The Arbitral Tribunal accepted SPL’s contention that it was
constrained not to produce pipes to its full capacity per day as there was
delay on the part of GAIL’s transporter to lift pipes, which had created
a bottleneck on account of storage capacity at the coating yard being
full to its capacity.
47. In the aforesaid context, SPL had suggested creation of a buffer
stack yard to augment the storage facility and GAIL had accepted the
same. Accordingly, SPL had created a buffer stack yard at its own cost.
In the aforesaid context, the Arbitral Tribunal rejected GAIL’s
contention that it had agreed to creation of a buffer stack yard only on
the request of SPL and had no reciprocal obligation to lift pipes from
the said yard. The Arbitral Tribunal observed that the need for buffer
stack yard had arisen on account of GAIL’s inability to lift adequate
number of pipes from the coating yard in a timely manner.
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48. The Arbitral Tribunal rejected SPL’s claim that it was absolved
of any delay in supply of pipes on account of force majeure events as
contemplated under Article 27 of the GCC. According to SPL, there
were excessive rains and insect infestation among other events, which
constituted a force majeure condition under Article 27 of the GCC.
However, the Arbitral Tribunal rejected the said contention.
49. The Arbitral Tribunal noted that SPL had requested for extension
of the delivery period from 35 weeks to 52 weeks by a letter dated
08.09.1995 and had also sent a reminder dated 27.11.1995. Although
GAIL did not respond to the said letter, it continued accepting deliveries
of pipes even beyond the stipulated period without raising any protest.
The Arbitral Tribunal found that GAIL had not informed SPL that it
intended to reduce the price in terms of the price reduction formula
under Article 24 of GCC on account of delayed deliveries. SPL had
completed the production of coated pipes by January 1996. However,
GAIL continued to take deliveries from the main coating stack yard till
16.01.1996 and from the buffer stack yard till 28.02.1997. In the given
facts, the Arbitral Tribunal held that GAIL had waived the delivery
schedule and was, thus, not entitled to invoke the price reduction
formula.
50. The Arbitral Tribunal held that the provision for price reduction
was akin to a provision for liquidated damages. However, GAIL had
not suffered any loss on account of delay in delivery of pipes as GAIL
was also facing problems of stacking pipes at its site. Further, GAIL
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had also completed the works for which pipes were required, without
any cost overrun.
51. In the aforesaid view, the Arbitral Tribunal allowed SPL’s claim
for the amount withheld by GAIL. The Arbitral Tribunal also found that
SPL was entitled to interest on the amounts withheld.
52. GAIL had made certain adjustments against the amounts payable
to SPL on various counts. The Arbitral Tribunal found that GAIL was
not entitled to any adjustment as claimed except an amount of USD
99,294.60. In the aforesaid view, SPL’s Claim no.3 for an amount of
USD 246,281.50 was allowed to the extent of USD 146,986.90. That is,
after reducing the amount of USD 99,294.60 from the claimed amount,
which the Arbitral Tribunal held was due to GAIL.
53. As far as Claim No. 1 is concerned, SPL had claimed an amount
of USD 6,265,535.33 as the balance amount due in respect of the
balance price for the pipes supplied in the months of October and
November 1995. GAIL claimed that the said amount was adjusted
against its claim of reduction in price for the delayed delivery of the
pipes. The Arbitral Tribunal held GAIL liable to pay the aforesaid
amount to SPL and that reduction in price was not justified even for the
late deliveries of March and April 1995 for which SPL was solely
responsible.
54. SPL had claimed interest at the rate of 19.25% per annum on
amounts claimed under Claim No. 1 and Claim no.3. The Arbitral
Tribunal was of the view that it was unfair to apply the same rate of
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interest on the amounts in US dollar currency and amounts awarded in
Indian rupees. Thus, the Arbitral Tribunal held SPL to be entitled to
interest at the rate of 6% per annum on Claim Nos. 1 and 3 and
accordingly, restricted the Claim Nos. 2 & 4 to USD 5,115 and 2,10,169
respectively.
55. There is no dispute that the amount of USD 2,46,281.50 as
claimed under Claim No. 3 was payable to SPL. However, GAIL
claimed that certain amounts were to be adjusted against the Claim No.
3. The Arbitral Tribunal accepted that one of adjustments as claimed by
GAIL was justified. The Arbitral Tribunal held that SPL had benefitted
in supplying 4,585.99 tons of pipes through plate route in excess of the
quantity as agreed. This additional benefit was computed at
₹32,01,193/- or USD 99,294.60. Thus, the said amount was liable to be
adjusted by GAIL against Claim No. 3 of SPL. Accordingly, the
Arbitral Tribunal awarded an amount of USD 146,986.90 (USD
246,281.50 minus USD 99,294.60) in respect of claim no. 3

56. In respect of SPL’s claim for interest on amounts claimed under
Claim No. 3 being Claim No.4, the Arbitral Tribunal allowed interest at
the rate of 6% per annum on amounts awarded under Claim No. 3
computed at USD 210,169 up to 31.03.1997.
57. SPL had claimed interest of USD 311,238 at the rate of 19.25%
per annum on the amount of USD 1,51,09,850.13 in respect of the two
invoices dated 11.11.1995 and 18.11.1995 for which the payment was
released only on 20.12.1996. The Arbitral Tribunal awarded interest of
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an amount USD 242,584.32 at the rate of 6% per annum on USD
1,51,09,850.13, against the said claim (Claim No.5).
58. The issues under Claim No. 6 and 7 pertaining to price of sample
pipes supplied to GAIL by SPL were mutually resolved. By a letter
dated 01.01.2001, GAIL agreed to pay ₹18,00,000/- in regard to these
claims, which were accepted by SPL by its letter dated 23.01.2001.
59. The Arbitral Tribunal rejected SPL’s Claim No. 8 for an amount
of USD 211,463. SPL had claimed the said amount as interest/damages
on the funds amounting to USD 7,612,669 blocked in the finished pipes
inventory remaining in the coating stack yard without being lifted
promptly. The Arbitral Tribunal also rejected SPL’s Claim No. 9, which
was of similar nature as the amount claimed under Claim No. 8.
60. SPL claimed a sum of ₹ 8,44,41,000/- under Claim No. 10 as
additional expenses incurred for maintaining the buffer stack yard for
prolonged period of the Contract from October 1995 till April 1996.
The Arbitral Tribunal rejected the said claim as SPL had not put GAIL
to any notice that it would be charging any maintenance expenses at any
point of time during the performance of the Contract. For the same
reason, the Arbitral Tribunal rejected the amount claimed under Claim
No. 11.
61. SPL claimed an amount of ₹ 1,08,00,000/- under Claim No. 12,
which was rejected by the Arbitral Tribunal as such damages even if
incurred, did not flow naturally from any breach of the terms of the
Contract.
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62. SPL’s claim for recovery of ₹ 1,12,89,580/- (Claim No. 13) for
expenses incurred by SPL on account of GAIL not releasing the dues of
SPL in time, was also rejected by the Arbitral Tribunal.
63. SPL’s claim for loss of profits (Claim no.14) and claim of ₹
6,01,62,800/- for expenses incurred for maintaining the buffer stack
yard for the period 16.01.1996 to February 1997 (Claim no.15), were
also rejected by the Arbitral Tribunal.
64. The Arbitral Tribunal rejected GAIL’s counter claims, except
counter claim no. 5, which was partially allowed.
65. GAIL’s counter-claim no.5 was for recovery of USD
5,426,767.70 for not making up the shortfall in production of pipes
using the mother pipe route. The Arbitral Tribunal allowed the said
counter claim to the extent of USD 99,294.60. However, no separate
award was made in this regard as the same has been accounted for by
reducing the amount awarded against SPL’s Claim No. 2.
66. Insofar as costs is concerned, the Arbitral Tribunal held that the
total arbitration costs of ₹ 1,01,66,567/- were borne by the parties
during the proceedings. The Arbitral Tribunal thus awarded an amount
of ₹ 50,00,000/- as costs in favour of SPL and against GAIL considering
the partial success of SPL.
67. Lastly, in the context of the claim for pendente lite and future
interest, the Arbitral Tribunal referred to the decision of the Supreme
Court in Forsal v. ONGC: AIR 1984 SC 241, and noted that the date of
the decree/award would be the material date for determining the
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exchange rate for converting the amount of award in foreign currency
into Indian rupees. The Arbitral Tribunal thus awarded 6% per annum
pendente lite interest up to the date of the impugned award on the
amount awarded in US dollars. For the amount awarded in Indian
rupees, the Arbitral Tribunal awarded interest at the rate of 12% per
annum till the date of payment. The Arbitral Tribunal also held that the
amount in US dollars when converted into Indian rupees as per law,
would carry future interest at the rate of 12% per annum from the date
of decree/award till payment.
68. The Arbitral Tribunal rendered the impugned award on
17.12.2002. Thereafter , the parties filed applications under Section 33
of the A&C Act seeking amendment in the impugned award on the
ground of certain typographical and computation errors. The Arbitral
Tribunal formulated a revised tabular statement summarizing its
conclusion regarding various issues raised before it. The said tabular
statement is reproduced under:

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69. The Arbitral Tribunal’s conclusions as recorded in paragraph
181 of the impugned award, as amended on 21.03.2003, is reproduced
as under:
“In view of the findings arrived at above, the following
award is made:-
(i) That the respondent shall pay to the claimant a sum
of US Dollars 7,230,378.23 (Seven Mil1ion Two
hundred Thirty thousand Three hundred Seventy
Eight US Dollars and Twenty Three Cents.)
(ii) That the respondent shall pay the claimant a sum of
₹ 18,00,000/- (Rupees Eighteen Lakh).
(iii) That the respondent shall pay interest at the rate of
6% per annum on the amount awarded at S. No. (i)
from 01.04.1997 till date of decree.
(iv) That the respondent shall pay interest at the rate of
12% on the amount converted into Indian Rupees at
S. no. (i) and (iii) from the date of decree till
payment.
(v) That the respondent shall pay to the claimant interest
at the rate of 12% per annum on the amount awarded
at S. no. (ii) with effect from 01.04.1997 till
payment.
(vi) That the respondent shall pay ₹ 50,00,000/- (Rupees
Fifty Lakh) as costs to the claimant.
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(vii) That all other claims and counter claims stand
rejected.
(viii) That the Bank guarantee furnished by the claimant
shall stand discharged.”
MPUGNED UDGEMENT
I J
70. GAIL assailed the impugned award under Section 34 of the
A&C Act. GAIL contended that in terms of Article 13 of GCC, GAIL
and its Consultant were required to inspect and test the pipes before
taking the delivery of the pipes. SPL was required to give a thirty days
notice under Article 13.10 of the GCC for inspection specifying the
goods and quantities ready for testing. SPL was thus obligated to have
sufficient storage capacity at least to the extent of pipes manufactured
continuously for a period of thirty days. However, SPL’s capacity to
store pipes was limited to eight days’ production.
71. GAIL contended that merely because GAIL/transporter may
have delayed the receipt of the pipes did not vest SPL with a right to
slow down the production of pipes. According to GAIL, the Contract
vested sufficient flexibility to lift the pipes as and when they were
needed.
72. GAIL assailed the finding of the Arbitral Tribunal that the
number of pipes to be produced by SPL per month as stipulated in
Annexure 3 to the PO is not rigid figure of monthly production but only
a projection of its distribution over the entire period of the Contract.
GAIL also impugned the finding that GAIL had not suffered any
damages on account of the delay in production of pipes by SPL.
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73. Insofar as the award of costs to the tune of ₹ 50,00,000/- is
concerned, it was urged on behalf of GAIL that the same was excessive.
GAIL claims the grant of interest at the rate of 6% per annum and 12%
per annum on the dollar amount and the rupee amount respectively was
also excessive.
74. The learned Single Judge found no merit in GAIL’s application
under section 34 of the A&C Act for setting aside the impugned award.
The learned Single Judge referred to correspondence exchanged
between SPL and GAIL/transporter and noted that about 60 trailers per
day were required to be arranged for transporting the finished pipes.
The transportation of the pipes commenced on 30.03.1995 and only
twelve pipes were lifted on 31.03.1995.
75. Insofar as the award of cost of ₹ 50,00,000/- is concerned, the
learned Single Judge found the said decision of the Arbitral Tribunal to
be well founded. SPL had deposited around ₹ 40,76,313/- with the ICC
towards fee for invoking arbitration. Since the impugned award was in
favour of SPL, it was entitled to the refund of the costs. The learned
Single Judge observed that the awarded cost is less than 50% of the
costs claimed by SPL.
76. The learned Single Judge found no merit in GAIL’s submission
that the grant of interest by the Arbitral Tribunal, was excessive. The
learned Single Judge observed that the Arbitral Tribunal had considered
the variation in exchange rates, while awarding interest on the amount
awarded in US dollars and in the Indian rupees.
R EASONS & C ONCLUSIONS
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77. GAIL has assailed the impugned award principally on the
ground that it is contrary to the terms of the Contract. GAIL’s principal
grievance relates to the decision of the Arbitral Tribunal to reject its
claim of price reduction as per the formula as set out in Article 24 of
GCC.
78. As noted hereinbefore, SPL had raised several claims in the
nature of damages suffered on account of breach of the terms of the
Contract on the part of GAIL. These claims were rejected by the
Arbitral Tribunal. Essentially, the Arbitral Tribunal had allowed SPL’s
claims in regard to the balance consideration for the goods supplied,
interest thereon, and costs.
79. There is no dispute as to the amount payable by GAIL for the
pipes supplied by SPL. However, GAIL had withheld an amount of
USD 6,265,535.33, which it claimed was on account of reduction in
price of the supplies in terms of Article 24 of GCC. In addition, GAIL
also claimed that it is entitled to make adjustments on account of, (i)
benefit of USD 5,426,767.70 derived by SPL by making supplies
through mother pipe route instead of the plate route; (ii) USD
142,432.25 as expenses incurred for rectification of defects in pipes
supplied at the site; and (iii) excess supply of mother pipes. The claim
for adjustment of USD 5,42,767.70 was also raised as counter-claim
no.1.
80. The Arbitral Tribunal did not accept that GAIL was entitled to
make the adjustments as claimed except to the extent of USD 99,294.60.
The Arbitral Tribunal found that SPL had used 104,585.99 tons of
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material through the plate route. The Arbitral Tribunal referred to
Clause 3 of the PO, which specified that a benefit of ₹7 crores was
provided by SPL to GAIL based on consumption of 100,000 metric tons
and if the consumption was in excess of the said quantity, GAIL would
be entitled to additional benefit on proportionate basis. In view of the
said clause, the Arbitral Tribunal held that GAIL was entitled to ₹
32,01,193/- (or USD 99,294.60) on account of the excess use of
4,585.99 tons of material. Accordingly, the Arbitral Tribunal allowed
adjustment of the aforesaid amount from the amounts payable to the
SPL. However, the Arbitral Tribunal did not accept that any other
adjustment could be made.
81. It is material to note that GAIL’s claim for the adjustment of USD
54,26,767.70 for making good the shortfall in production of pipes
through plate route by mother pipe route, was also raised as a counter
claim (being Counter Claim No.1). Accordingly, the said counter claim
was allowed only to the extent of USD 99,294.60 but the same was not
awarded. This was because SPL’s claim in regard to the amount of USD
246,281.50, which was withheld by GAIL (Counter Claim No.3) was
allowed to the extent of USD 146,986.90 after deducting the amount of
USD 99,294.60, which was found due to GAIL.
82. As noted above, SPL had raised a claim of USD 6,265,535.33
(claim no.1) for the payment of 80% of the invoice value, which was
withheld by GAIL from various invoices raised by SPL and a claim of
USD 246,281.50 (claim no.3) being the amount of 10% of the invoice
value withheld from various invoices raised by SPL. The Arbitral
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Tribunal allowed claim no.1 for the entire amount, however, allowed
claim no.3 only to the extent of USD 146,986.90 after reducing USD
99,294.60 found payable to GAIL.
83. The Arbitral Tribunal rejected GAIL’s claim for adjustment on
account of expenses for rectifying the defects (adjustment of USD
142,432.25). The Arbitral Tribunal found that the documents and
material placed on record indicated that SPL had carried out the work
of removing the defects in respect of some of the pipes. And, GAIL had
made no claim on account of GAIL’s contractor (M/s Dodsal) rectifying
the defects, at the material time. No details of any such claim were
furnished to SPL at the material time and GAIL had not produced any
correspondence in this regard.
84. GAIL’s adjustment on account of excess use of mother pipes to
the extent of USD 4567.73 was also rejected on the ground that SPL
had denied that it had supplied excess quantity as claimed by the GAIL.
The Arbitral Tribunal did not find sufficient material that established
GAIL’s claim. Additionally, GAIL had not raised any such claim or
demanded any such amount from SPL prior to filing the pleadings in
the arbitral proceedings.
85. There is material on record indicating that there were certain
defects in the pipes supplied and SPL had agreed to rectify the same.
There is also material on record to establish that SPL had rectified
certain defects. However, there is little material on record to indicate
that SPL had defaulted in doing so. The Arbitral Tribunal’s finding that
there is no correspondence informing SPL about the rectification work
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being contracted to one M/s Dodsal and the details thereof, was not
effectively controverted. The Arbitral Tribunal’s decision in regard to
rejection of these adjustments is based on appreciation of evidence and
cannot be said to be vitiated by patent illegality on the face of the record.
Thus, no interference with the decision of the Arbitral Tribunal to reject
such adjustments is warranted, in these proceedings under Section 37
of the A&C Act.
86. The learned ASG appearing for the GAIL had focused his
submissions, essentially, on the decision of the Arbitral Tribunal to
reject GAIL’s claim for applying the price reduction formula. He
submitted that the impugned award was vitiated by patent illegality as
it was contrary to the express terms of the Contract. His submissions to
the said effect were founded on two grounds. First, that the delay in
supply of pipes was admitted. The Arbitral Tribunal had also concluded
that there was delay in supply of pipes and SPL’s production did not
match the delivery schedule under the PO. And second, that the terms
of the Contract expressly provided for a price reduction formula in case
of delay in supply of pipes. He also referred to the decision of a
Coordinate Bench of this Court in GAIL (India) Limited v. Punj Lloyd
1
Limited in support of his contention that it was not necessary for GAIL
to prove that it had suffered actual loss claiming reduction in price.
87. He submitted that SPL had applied for extension of time for
delivery of pipes on account of force majeure and had requested that
the delivery schedule be extended from 32 weeks to 52 weeks. This

1
Neutral Citation No.: 2017:DHC:2458-DB
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established that there was a delay in supply of pipes. The Arbitral
Tribunal had rejected SPL’s claim that it was absolved of supplying the
goods as per schedule on account of force majeure conditions. He
submitted that having rejected SPL’s contention that it could not be held
responsible for delay on account of force majeure, the Arbitral Tribunal
could not deny GAIL’s right to seek variation in price in terms of the
Contract. Second, he submitted that there could be no dispute that SPL
was liable for the delay as admittedly, its storage capacity was barely
equivalent to eight days’ production capacity, which was less than the
time required to complete the requisite pre-delivery tests. He contended
that Article 13.10 of the GCC expressly provided that all tests and trials
in general would be witnessed by an Inspector and SPL would confirm
to the consultant the exact date of inspection by a thirty days’ prior
notice. He submitted that it was obvious that SPL was required to make
arrangements for storage equivalent to production capacity of at least
thirty days. Since the storage facilities available with SPL were only
equivalent of eight days production, it was evident that the bottleneck
resulting in the delay in supplies was for reasons attributable to SPL.
He also submitted that certain tests would require to be conducted over
a period of time and SPL had requested for waiver of the requirement
of conducting those tests prior to delivery. This also established that the
delay was on the part of SPL.
88. Next, he contended that the Arbitral Tribunal had erred in
proceeding on the basis that GAIL had a corresponding obligation to
lift SPL’s production on a daily basis. He submitted that although there
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is no cavil that GAIL was required to take deliveries, however, the
Contract did not stipulate any time period within which GAIL was
obliged to take delivery. It also followed that SPL was required to
arrange for storage of pipes for a reasonable period till GAIL lifted the
stocks.
89. The question as to who was responsible for the delay in delivery
of pipes was one of the principal issues considered by the Arbitral
Tribunal. The Arbitral Tribunal held that the initial delay was
attributable to SPL. The Contract required SPL to take all requisite steps
for importing and erecting the coating plant, importing mother pipes,
plates and arrange for raw material. The Purchase Order dated
25.07.1994 expressly provided that the delivery would commence from
the fourth month from the date of the said Purchase Order and was
required to be completed within a period of nine months from the date
of the purchase order. Thus, the entire delivery was to be completed
within a period of five months commencing from the expiry of the
initial period of four months. The Arbitral Tribunal held that SPL was
required to make all preparatory arrangements for execution of the
Contract within the period of four months preceding commencement of
delivery of pipes. In terms of the Contract, SPL was also required to
submit a time schedule and bar charts reflecting the timelines for taking
various steps for performance of the Contract. The Arbitral Tribunal
noted that SPL was required to submit samples for testing and it started
coating the sample pipe on 10.03.1995. The pipes were subjected to
stagewise testing including Cathodic Disbondment Test, the result of
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which would be available after a minimum period of thirty days. This
test commenced on 20.03.1995. In terms of Clause 7.3.3 of the
‘Specification for 3-Layer Polyethylene Coating’, SPL could
commence production only after the written approval of GAIL’s
Consultant. Additionally, the Arbitral Tribunal noted that Annexure-II
to the ‘Specification for longitudinally welded saw line pipes (onshore)’
provided that the production test on two samples of the base pipes
selected at random would be subjected to production test on the first
day. The regular production could commence only thereafter. These
pipes were offered for tests on 24.03.1995 and the test report was
submitted by SPL on 17.04.1995. In view of the above, the Arbitral
Tribunal found that SPL was responsible for the initial delay for the
months of March and April 1995.
90. However, GAIL was faulted for the delays thereafter as the
transporter engaged by GAIL had failed to lift adequate number of
coated pipes, which were ready for delivery in the months of May and
June 1995. The Arbitral Tribunal found that GAIL was obligated to
make arrangement for lifting of 210 (two hundred and ten) pipes daily
but at no point of time, GAIL was in a position to do so. In addition, the
Arbitral Tribunal also found that the production in the month of March
1995 was hampered due to a wrong procedure suggested by GAIL’s
Consultant for conducting certain tests. The Arbitral Tribunal observed
that tensile test failed because the test was conducted on pipes with
adhesive layer including polyphone material. The Consultant was
demobilised from coating plant on 15.03.1995 and thereafter, Engineers
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India Limited (which was engaged by GAIL) had recognised its mistake
and carried out that tensile test after excluding the adhesive layer. The
test carried out was reported as successful on 20.03.1995 and the same
was accepted by Engineers India Limited on 22.03.1995. The Arbitral
Tribunal held that GAIL’s consultant was responsible for the said delay
of six/seven days.
91. Further, there was also a change in the specifications, which
required 750 (seven hundred and fifty) number of pipes to be re-worked.
This also resulted in a delay of eight days in normal production. The
relevant extract of the impugned award setting out the Arbitral
Tribunal’s reasons for attributing certain delays to GAIL, is set out
below:
“94. It is thus held that initially for months of March and
April, 1995 the claimant is responsible for delay in
producing the coated pipes in as much as the
claimant keeping in view the varied tests required to
be carried out was not ready to produce adequate
quantities of tested pipes ready for delivery for the
months of March and April, 1995. Thereafter, there
was delay imputable to the respondent as its
transporter failed to lift the adequate number of
coated pipes ready for delivery for the months of
May and June, 1995. Thus the targets of monthly
quantity for delivery for the months of May and June,
1995. Thus the targets of monthly quantity for
delivery of the coated pipes envisaged in the contract
were not achieved for the months of March to June,
1995.
95. The transporter engaged by the respondent was in
terms of its contract with the respondent was
obligated to make arrangement for lifting of 210
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pipes daily. At no point of time throughout the
execution of the contract did the transporter achieve
this target. Such lapses and delays being caused by
the transporter were regularly brought to the notice
of the respondent and its transporter (Ex. C-7 to 19
in Volume V, C-97, 99, 105, 107, 109, 113, 114, 116,
117, 119, 120, 121 in Volume VI).
96. The transporter was to lift the pipes from the stack
yard and buffer stack yard of the claimant and
transport hem to various earmarked dump yards near
the sites where the pipes were ultimately to be laid.
There was problem of not enough space available in
those places as well. There were available plenty of
ready pipes at the Buffer Stock Yard throughout the
period the contract was being executed after creation
of Buffer Stock Yard but they were being lifted in
slow motion and this lifting of pipes continued evert
long after all the pipes had been made ready by the
claimant
xxx xxx xxx
99. The production of pipes in the month of March, 1995
was somewhat hampered due to wrong procedure
suggested by M/s Engineers India Limited. The
Tensile test had failed as the test on pipes was carried
out on adhesive layer with polyphone material
included. The consultant on 15.03.1995 demobilized
from the coating plant. Later EIL recognized its
mistake and tensile test carried out after excluding
adhesive layer proved successful on 20.03.1995 (C-
180) and was accepted by EIL on 22.03.1995 (C- 59).
This delay of six or seven days is imputable to the
respondent’s consultant. There was some delay
attributable again to the respondent for low
production in the month of March, 1995 as a total
number of 750 pipes had to be reworked due to
change in specifications requiring a taper angle of 30
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degree at both ends of the pipes. As per clause 9.8 of
the contractual specification the coating of pipes was
to terminate at 280 + 15 mm from the pipe end with
smooth termination on both ends free from polythene
and adhesive. It resulted in eight days delay in
normal production (C-63 and C-64 vide letter dated
24.03.1995 (C-61) EIL had given instructions for
changes to be made in the final ultrasonic testing
procedure to be conducted on the pipes manufactured
from the plate routes by the claimant. The documents
C-58 to C-69 and C-129 and C-130 show that the
claimant had got carried out successfully at the
earliest the tests regarding elongation, cathodic
disbondment, indentation, coating thickness, holiday
and impact.”
92. It is apparent from the above that the Arbitral Tribunal’s decision
is based on the material placed on record. Clearly, the reasoning of the
Arbitral Tribunal is a plausible one and cannot be stated to be one that
no reasonable person could possibly accept.
93. At this stage, it is also necessary to bear in mind that in
proceedings under Section 34 of the A&C Act, the Court is not required
to re-adjudicate the disputes. If the view of the Arbitral Tribunal is a
plausible one, no interference with the same is permissible in
2
proceedings under Section 34 of the A&C Act .
94. The Arbitral Tribunal also held that GAIL had a matching
obligation to lift the stocks produced by SPL. The Arbitral Tribunal held
that GAIL was required to make arrangements for lifting the coated

2
National Highways Authority of India v. C.P. Rama Rao ; State of U.P. v. Allied Constructions
(2003) 7 SCC 396
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pipes, “ which ought to have been almost matching with the production
of the coated pipes ”.
95. It was earnestly contended on behalf of GAIL that there is no
clause in the Contract, which obligated GAIL to make arrangements for
lifting of pipes in a manner so as to match with SPL’s production. It was
also contended that the finding of the Arbitral Tribunal to the aforesaid
effect, was not supported by the contractual terms and was, thus,
patently illegal. However, we find no merit in this contention. The
agreement between the parties has to be read as a whole. It is well settled
principle of interpretation of commercial contracts that the same must
be interpreted in the manner as to give “ business efficacy” to the
transaction. In Nabha Power Limited (NPL) v. Punjab State Power
3
Corporation Limited (PSPCL) and Another , The Supreme Court had
taken note of number of decisions, where the courts had applied the test
of business efficacy for interpreting commercial transactions and had
observed as under:
“49. We now proceed to apply the aforesaid principles
which have evolved for interpreting the terms of a
commercial contract in question. Parties indulging in
commerce act in a commercial sense. It is this ground rule
which is the basis of The Moorcock [The Moorcock,
(1889) LR 14 PD 64 (CA)] test of giving “business
efficacy” to the transaction, as must have been intended at
all events by both business parties. The development of
law saw the “five condition test” for an implied condition
to be read into the contract including the “business
efficacy” test. It also sought to incorporate “the Officious

3
(2018) 11 SCC 508
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Bystander Test” [ Shirlaw v. Southern Foundries (1926)
Ltd., (1939) 2 KB 206 : (1939) 2 All ER 113 (CA) ] ]. This
test has been set out in B.P. Refinery (Westernport)
Proprietary Ltd. v. Shire of Hastings, 1977 UKPC 13 :
(1977) 180 CLR 266 (Aus) requiring the requisite
conditions to be satisfied: (1) reasonable and equitable;
(2) necessary to give business efficacy to the contract; (3)
it goes without saying i.e. the Officious Bystander Test;
(4) capable of clear expression; and (5) must not
contradict any express term of the contract. The same
penta-principles find reference also in Investors
Compensation Scheme Ltd. v. West Bromwich Building
Society, (1998) 1 WLR 896 : (1998) 1 All ER 98 (HL) and
Attorney General of Belize v. Belize Telecom Ltd., (2009)
1 WLR 1988 (PC) Needless to say that the application of
these principles would not be to substitute this Court's
own view of the presumed understanding of commercial
terms by the parties if the terms are explicit in their
expression. The explicit terms of a contract are always the
final word with regard to the intention of the parties. The
multi-clause contract inter se the parties has, thus, to be
understood and interpreted in a manner that any view, on
a particular clause of the contract, should not do violence
to another part of the contract.”
96. The Arbitral Tribunal reasoned that GAIL was fully aware of the
production as well as SPL’s storage capacity; therefore, it was not open
for GAIL to contend that it did not have any obligation to take deliveries
so as to match SPL’s production.
97. We find no infirmity with the reasoning of the Arbitral Tribunal.
A commercial transaction must be viewed in a reasonable manner and
with a perspective that makes commercial sense. The Contract provided
for SPL to make deliveries as scheduled, it must follow that GAIL also
had the obligation to take delivery of the material in a reasonable
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manner. What is reasonable must be viewed in the overall context of
the Contract including the production and storage capacity of SPL,
which was indisputably known to GAIL prior to issuance of the
Purchase Order (PO) in question. It is not disputed that GAIL had prior
to placing the PO, inspected SPL’s premises and was aware of the
storage facility at the coating plant.
98. We also consider it apposite to refer to the following extract of
the impugned award which reflects the Arbitral Tribunal’s reasoning in
this regard:
“101. The respondent has been responsible for not lifting
adequate number of finished pipes throughout the
period the contract was being executed. There is
no merit in the plea of the respondent that as the
respondent had agreed to the creation of a buffer
stack yard on the request of the claimant, the
respondent was free to lift the pipes from the
buffer stack yard at its convenience. It is urged on
behalf of the respondent that there was no time
limitation for the respondent to lift the pipes from
the buffer stack yard. The respondent forgets that
the buffer stack yard was created no doubt at the
request of the claimant and also at the cost of the
claimant but the need for the same arose on
account of the inability of the respondent to lift
adequate number of pipes from the coating yard.
The coating yard had limited storage capacity.
Once that storage capacity was reached, obviously
the crowding of pipes hampered the coating of
more pipes in the coating plant. Creation of the
buffer stack yard only solved this problem but the
respondent's obligation to lift the pipes within a
reasonable period from the buffer stack yard did
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not come to an end. There was nothing wrong on
part of the claimant to also insist on the respondent
to continue to lift coated pipes from the main
coating stack yard in terms of contract also. Even
the letters C-18 and C-21 exchanged between the
parties provided that only those pipes which
cannot be lifted from the coating stack yard would
be shifted to the Buffer Stack Yard.”
99. GAIL’s contention that SPL’s storage capacity was limited to
eight days production is also unpersuasive. The issue was regarding
SPL’s storage available at its coating yard. Since the same was creating
a bottleneck, SPL had suggested creation of a buffer stack yard where
pipes could be stacked and to free up the space in the coating yard.
GAIL had consented to the said arrangement. It is also material to note
that SPL had sent several communications calling upon GAIL to
continue lifting material from the coating yard and not confine the same
to buffer stack yard.
100. Clause 3 of Appendix – 1 to the Contract expressly provided that
“ finished pipes to be stored for a significant period of time at the mill
shall be stored in a manner to prevent corrosion. ” GAIL had argued
that this indicated that SPL was required to store coated pipes for a
“significant period” of time.
101. The Arbitral Tribunal did not accept the said contention. The
Arbitral Tribunal held that the expression “significant period of time”
was in the context of the manner in which pipes were to be stored, if
required. The Arbitral Tribunal also held that the said clause only
indicated that SPL could not insist on the pipes being taken delivery of
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as and when they were ready and GAIL had a margin of discretion in
lifting of the pipes. However, that does not mean that SPL’s production
of pipes was required to meet the monthly target, notwithstanding that
the GAIL’s transporters were neither ready nor had the capacity to take
delivery. The relevant extract of the impugned award is set out below:
“73.After considering the submissions on both sides and
the correspondence between the parties, we may
summarize the position thus. It is clearly indicated in
the contract that this contract was a FOT contract. The
respondent was to arrange transporter for lifting the
pipes from the stack yard of the claimant. The contract
has in-built mutual obligations to be performed. The
respondent was not merely to receive the supply.
From the stage of procurement of raw material, the
manufacture and production of coated pipes and
varied tests required to be carried out, the respondent
was actively involved at all stages. The contract did
specifically provide for monthly delivery schedules.
This monthly schedule of delivery could not possible
mean only that the claimant should produce the
requisite monthly quantity of pipes and keep them
stored and the respondent could use its discretion or
pleasure to lift those pipes. It could not mean that the
respondent was obliged to take the delivery of the
pipes as soon as the same were ready for delivery and
could defer it indefinitely. It is self evident that the
respondent could not have lifted the monthly quota of
pipes in a day or even in a week or two weeks. The
lifting of pipes had to synchronize with the production
of the pipes.
74. This is how the parties in fact tried to work out the
contract. The respondent had engaged the services of
a transporter who was to lift about 210 pipes per day
by providing around 60 trailers per day. The pipes so
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lifted were to be dumped at different sites of the
respondent for being used in the project. Mutual
obligations under the contract envisaged that the
claimant was to produce such quantity of coated pipes
so that the monthly quota mentioned in the contract
was achieved but the respondent was required to have
made adequate transport arrangements so that such
monthly quota of pipes could be lifted spread out on
daily basis.
75. It is only in this way the contract could have worked.
The parties also proceeded towards performance of
the contract on that basis. The contract had not
provided that the claimant shall have any particular
storage capacity for storing the coated pipes. The
stack yard at the coating plant of the claimant could
store about 1700 coated pipes. The capacity of the
plant of the claimant was to produce about 220 coated
pipes per day.
76. Clause 3.0 of Appendix I (pages 173 Vo.4) relate to
the manner in which the finished pipes were to be
kept. The words “significant period” do not mean that
storing capacity of a month’s production was
required. This expression has been used in connection
with the manner in which the pipes were to be stored,
if required, so that they did not get damaged or rusted.
They only indicated that the claimant could not insist
on all pipes being taken delivery of, as and when they
were ready thus giving the respondent a margin of
discretion in lifting and not that the production of
pipes should touch the monthly target irrespective of
the transporters readiness or capacity to take delivery.
77. It is also on the other hand not correct on the part of
the claimant to assert that till the respondent gave any
notice for taking delivery there was no obligation on
the part of the claimant to produce the pipes for
offering delivery. At any rate the respondent had
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engaged the transporter and the correspondence
referred to earlier shows that mutual arrangements
between the transporter and the claimant were worked
out for lifting of the pipes. The claimant had no doubt
started pressing the respondent for arranging the
transporter even before the claimant had been in a
position to supply the pipes as per terms of the
contract. It is quite clear however that the claimant
started its turnout of coated pipes only on 11-3-1995
and that, having regard to the nature and duration of
the tests prevalent then, the number of pipes it got
ready for the months of March and April 1995 was far
below the expected quantity and only the claimant
was responsible for this delay. The respondent could
not be blamed for not arranging adequate transport in
those months.”
102. We are unable to accept that the Arbitral Tribunal’s view is not a
plausible one. It is apparent that the Arbitral Tribunal has considered
and interpreted the terms of the Contract, in the overall context of the
transaction. The Arbitral Tribunal has interpreted the Contract in a
reasonable manner as men of commerce would have intended. It is well
settled that the jurisdiction to interpret a contract rests with the Arbitral
4
Tribunal . Thus, unless the court finds that the Arbitral Tribunal’s
interpretation is wholly perverse and not a possible view, no
interference with the exercise of jurisdiction would be called for in
proceedings under Section 34 of the A&C Act. We find that the Arbitral
Tribunal’s understanding of the Contract is neither contrary to the
express terms of the Contract nor can be termed as perverse or

4
MSK Projects India (JV) Ltd. v. State of Rajashtan (2011) 10 SCC 573
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unreasonable. On the contrary, the Arbitral Tribunal has interpreted the
Contract in a reasonable manner.
103. The contention that SPL was liable for delay in execution of the
Contract was partly accepted by the Arbitral Tribunal. Undeniably, the
contention that SPL was responsible for the delay is evident from the
fact that that it had sought extension of the Contract on account of force
majeure , is undeniably persuasive. However, that does not mean that
GAIL was not responsible for any delay. As noted above, the Arbitral
Tribunal had accepted that SPL was partially responsible for the delay
in the initial period. However, it had also faulted GAIL in not lifting
the quantities in a reasonable timeframe.
104. It is also evident that even after the entire quantities had been
produced, GAIL had taken a considerable period of time to lift the same.
105. In addition to the above, the Arbitral Tribunal also faulted GAIL
for withholding substantial amounts due to SPL without informing SPL
any reason for the same. Accordingly, the Arbitral Tribunal concluded
the issue as to which party was responsible for delay as under:
“105. Thus it has to be held that even after creation of the
buffer stack yard the respondent has been
responsible for delay in completion of the contract
as it failed to lift the coated pipes in reasonable
period and as it withheld substantial amounts due to
the claimant without adducing any reasons
therefore. This issue is decided accordingly.”
106. As stated earlier, we find no grounds to interfere with the Arbitral
Tribunal’s finding that GAIL was responsible for the delay in lifting the
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stocks in a timely manner. Admittedly, GAIL had also withheld
amounts due to SPL without providing any reasons for the same at the
material time. Clearly, if GAIL was responsible for the delay, its claim
for reduction in the consideration payable to SPL on account of delay
in delivery of pipes, would be unsustainable.
107. In addition to the above, the Arbitral Tribunal also held that
GAIL had accepted the delivery beyond the stipulated period without
any demur or protest. Admittedly, GAIL had lifted the pipes from the
main coating yard for the last time on 16.01.1996. It had continued to
lift pipes from the buffer stack yard till 28.02.1997, which was after a
considerable time had expired after the said pipes had been
manufactured and stored. As noted above, the Arbitral Tribunal did not
accept that GAIL could delay taking delivery of the pipes at its will and
had no obligation to take delivery in a timely manner. As discussed
earlier, this view cannot be faulted as an unreasonable or a perverse
view.

108. Given the aforesaid view, it follows that the Arbitral Tribunal’s
decision that GAIL had waived the delivery schedule and had
acquiesced in extension of delivery schedule by its conduct, warrants
no interference in these proceedings. It is also material to note that the
Arbitral Tribunal had found that GAIL’s decision to apply the price
reduction formula was an afterthought.
109. The Arbitral Tribunal held that GAIL’s conduct demonstrated
that it had taken deliveries commensurate with its needs and had
prolonged the same for more than a year beyond February 1996.
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110. In view of the Arbitral Tribunal’s finding that GAIL was
responsible for the delay, the question of applying the price reduction
formula does not arise.
111. Insofar as the initial delay attributable to SPL is concerned, the
Arbitral Tribunal held that price reduction was not justified as both the
parties had, in fact, re-scheduled the deliveries. The relevant extract of
the impugned award, which sets out the aforesaid conclusion, is
reproduced below:
“123. The import of Art. 22 making time the essence of the
contract has been discussed earlier Art. 24 come in
from application only where there is a failure on the
part of the supplier in effecting deliveries in time. The
interpretation of the schedule to the contract has been
discussed at some length earlier and it has been
pointed out that no failure to adhere to the terms of
delivery can be attributed to the claimant expect
perhaps in respect of the deliveries which were to be
made in March and April, 1995 before the production-
delivery gap was sorted out between the parties. But
Art. 24 is only in the nature of a provision for
liquidated damages for certain defaults and, as
discussed earlier cannot be enforced unless the
respondent can be shown to have been prejudiced and
to have incurred some damage in consequence of the
delay. That is not the position in this case. Its conduct
all through demonstrates this beyond doubt. Indeed
the respondent took deliveries commensurate with its
needs and prolonged the process for more than a year
beyond Feb. 96. In view of this position in law, no
price reduction can be justified even for the late
deliveries of March and April, 1995 supplies for which
the claimant was to a considerable extent responsible
since all said and done both parties had knowingly and
willingly agreed to a rescheduling of the deliveries.
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Thus it is held that the respondent is liable to pay the
amount of this claim to the claimant. This issue is
therefore decided in favour of the claimant.”
112. The contention that GAIL was not required to establish the
quantum of actual loss to avail the benefits of the PRF, is merited. Thus,
in respect of any delay in deliveries during the initial period of March
and April 1995, GAIL may have been entitled to reduce the price of
material supplied without actually proving the quantum of loss suffered
by it. However, in this case, the Arbitral Tribunal has rejected GAIL’s
claim even in respect of deliveries made in March and April 1995 on,
essentially, three grounds. First, that GAIL had by its conduct agreed
to re-scheduling of delivery. Second, that whilst SPL was responsible
for delay during this period to a considerable extent, GAIL was also
responsible for the same. And third, the Arbitral Tribunal had faulted
GAIL for delays on account of wrong testing method applied by the
Consultant and for change in specifications during the said period.
113. The Arbitral Tribunal’s decision that GAIL had consented to re-
schedule the delivery without insisting on reduction of price cannot be
stated to be an implausible or an unreasonable view. It is not disputed
that after the issuance of the PO, GAIL was kept fully abreast of the
state of preparation of SPL, the steps taken by it in this regard, as well
as the proposed timelines for delivery of pipes. GAIL was also a
participant in some of the steps (through Consultant), particularly, in
relation to testing as well as for altering the specifications of the pipes.
Thus, GAIL was also aware of the delivery timelines during the initial
period. Admittedly, GAIL had not placed any condition or indicated its
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intention to pay reduced price for the pipes at the material time. At that
stage, GAIL had also not made necessary arrangement for taking of
delivery of the goods. Further, as noted above, the Arbitral Tribunal also
found that GAIL was responsible for part of the delay during the initial
period as well. In view of the said finding, the Arbitral Tribunal’s
conclusion that GAIL had willingly and knowingly accepted deliveries
as re-scheduled without demur or protest, cannot be stated to be a view,
that is, perverse or implausible.
114. In the aforesaid circumstances, the Arbitral Tribunal’s decision
that SPL is entitled to the agreed consideration for delivery of the goods
in question without any reduction in price or imposition of liquidated
damages, cannot be interfered with in these proceedings. We concur
with the decision of the learned Single Judge as articulated in the
impugned order.
115. The appeal is unmerited and, accordingly, dismissed. The
pending application is also disposed of.

116. The parties are left to bear their own costs.

VIBHU BAKHRU, J


SACHIN DATTA, J
OCTOBER 29, 2024

RK
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