Unilateral Contractual Price Reduction During Delivery Extension Without Express Consent or Novation is Impermissible

The Department of Telecommunications (later BSNL) entered into contracts with M/s BWL Ltd. in 1996 and 1997 for the supply of optical fiber cables.

BWL failed to meet original delivery schedules and sought extensions.

BSNL granted these extensions subject to liquidated damages and "price reduction" based on prevailing market rates, which were lower than the contract price.

BWL supplied the goods but issued multiple letters of protest, claiming the contract only allowed price adjustments for statutory tax/levy changes.

In 2008, the Sole Arbitrator ruled that while BSNL could claim liquidated damages, it had no contractual right to unilaterally reduce prices based on market rates and ordered refunds with interest.

BSNL challenged these awards under Section 34 of the Arbitration and Conciliation Act, 1996.

1. Whether the Section 34 petitions were barred by limitation.

2. Whether the original contract stood "novated" under Section 62 of the Contract Act by the supplier's conduct in accepting conditional extensions.

3. Whether Section 9 of the Sale of Goods Act permitted BSNL to pay a "reasonable" market price for supplies made after the expiry of the original delivery period.

The court applied the limited scope of judicial interference under Section 34 of the Arbitration and Conciliation Act, 1996, which prohibits reappreciating evidence or substituting the court's view for a plausible arbitral view.

It relied on Section 62 of the Indian Contract Act, 1872, requiring mutual agreement for novation.

Section 8 regarding acceptance by conduct, as interpreted in Bhagwati Prasad Pawan Kumar v. Union of India, which requires such conduct to be unequivocal and without reservation.

Section 9 of the Sale of Goods Act, 1930, was considered regarding the determination of price in sales contracts.

The Court found the petitions were filed within three months of receipt of the signed awards, thus satisfying limitation requirements.

On merits, the Court held that the Arbitrator’s interpretation of Clause 12 of the GCC was plausible; the clause specifically allowed price reductions only for "revision of statutory levies/taxes" and not for fluctuations in market price.

Regarding "novation" and "acceptance by conduct," the Court noted that the Arbitrator had marshalled evidence (protest letters) showing BWL supplied goods "under protest" and "without prejudice".

Consequently, there was no consensus ad idem for a new contract under Section 62, and the conduct was not "unequivocal" as required by Section 8.

The Court rejected the application of Section 9 of the Sale of Goods Act, agreeing with the Arbitrator that the contract was a "fixed price" contract which left no room for determination of a "reasonable price".

Finally, the Court noted BSNL's reliance on Himachal Futuristic was misplaced as the cited Single Judge decision had been set aside by the Division Bench.

The Court dismissed the petitions, upholding both Arbitral Awards and directing BSNL to refund the price reduction amounts of Rs. 19,30,568 and Rs. 44,94,651 with 9% p.a. interest and costs.