Arbitration Petition No. 470 of 2012. Case: Essar Procurement Services Ltd. Vs Paramount Constructions. High Court of Bombay (India)
| Case Number | Arbitration Petition No. 470 of 2012 |
| Counsel | For Appellant: Mr. Zal Andhyarujina a/w Mr. Nishant Sasidharan a/w Mr. Nivit Srivastava a/w Mr. Nakul Jain i/by M/s. Maniar Srivastava Associates and For Respondents: Mr. Soli Cooper, Senior Advocate a/w Mr. Hamed Kadiani a/w Ms. Krushi Barfiwala a/w Mr. Siddharth Ranade i/by M/s. ALMT Legal |
| Judges | R.D. Dhanuka, J. |
| Issue | Arbitration and Conciliation Act, 1996 - Section 34; Contract Act - Section 73; Limitation Act - Article 55 |
| Judgement Date | November 25, 2016 |
| Court | High Court of Bombay (India) |
Judgment:
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By this petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for short "the said Act"), the petitioner has impugned the arbitral award dated 9th August 2011 made by the arbitral tribunal allowing few claims made by the respondent and directing the petitioner to pay a total sum of Rs.16,55,733/- with interest @15% p.a. from the date of award till the date of payment to the respondent. Some of the relevant facts for the purpose of deciding this arbitration petition are under:-
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On 30th April 1998, the petitioner invited tender for erection, testing and commissioning of chemical soar water treatment facility for Issar Oil Limited at Vadinar. The respondent submitted their bid pursuant to the said offer issued by the petitioner on 11th May 1998. The petitioner accepted the final offer made by the respondent and issued a letter of intent on 29th May 1998. The parties, thereafter, entered into a Contract on 29th May 1998 for erection, testing and commissioning of chemical soar water treating facility for a total sum of Rs.35 lacs. The respondent was required to commence the said work from 29th May 1998 and was required to achieve mechanical completion as well as commissioning on or before 28th February 1999.
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The respondent deposited the security deposit amount @ 5% p.a. of the contract amount in the form of a bank guarantee dated 2nd June 1998 as per the terms of the contract with the petitioner. It was the case of the respondent that the petitioner, however, did not provide the work front within the contractual period though the respondent had finalized with different agencies or contractors for mechanical, electrical and instrument works as per the requirement of the subject work to achieve the mechanical completion within the contractual time period of 9 months. It was the case of the respondent that due to financial problem faced by the petitioner, work was required to be suspended.
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By the letters dated 26th March 1999 and 3rd April 1999, the petitioner intimated through their official communication that they were facing financial crunch and admitted the request of the respondent for time extension in order to facilitate the execution of the said work. The petitioner informed the respondent during the month of March/April, 1999 that the project of Essar Oil Refinery had been put under suspension and advised the respondent that they should not proceed with further work and all the activities related to the subject project be suspended.
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It was the case of the respondent that the respondent had no other option than to suspend all activities and the respondent had been following up with the petitioner from time to time for recommencement of the balance project activities and had informed that the delay in recommencement of the work was adding to their expenses besides huge amount remaining due from the petitioner. It was the case of the respondent that since there was no response or indication about recommencement of the activities from the petitioner, the respondent vide their letter dated 5th August 2002 informed the petitioner that the said contract could not be kept alive for an indefinite period and that the respondent was incurring heavy losses.
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The petitioner, thereafter, proposed a meeting through a letter dated 14th August 2002 and had held a meeting on 12th September 2002 in the premises of the respondent. In the said meeting, the respondent raised various points. It is the case of the respondent that the petitioner agreed in principle for revision but later on refused to revise the contract through their letter dated 10th October 2002. The respondent reiterated their contentions and made a demand vide their letter dated 28th October 2002 and called upon the petitioner for settlement of outstanding dues before recommencement of balance work. In the said letter, the respondent also demanded the compensation for the losses alleged to have been suffered by the respondent due to suspension of work and also the payment for the work done as per the market price.
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It is the case of the respondent that the petitioner called the respondent for a meeting at their corporate office at Mumbai on 5th March 2003 and discussed the subject of recommencement of work. The petitioner informed the respondent that financial institution had agreed to finance the project of the petitioner and desired that the respondent remobilize the resources. The petitioner also suggested the respondent to submit details of variations of present rates of all major components prevailing at that time when the work had commenced. It is the case of the respondent that the respondent accordingly collected the details as desired by the petitioner and furnished the same to the petitioner vide their letter dated 9th July 2004 for consideration of the petitioner. According to the respondent, the petitioner had called upon the respondent for discussion on 8th March 2005 at Essar Refinery site at Jamnagar.
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In the said meeting, the petitioner agreed to reimburse the differential amount due to variation of prices or to issue the materials at a price prevailing in the year 1997-1998. The respondent agreed to complete the balance portion of the project work in 8 to 9 months.
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It is the case of the respondent that since the petitioner, however, did not communicate their action though agreed in the meeting held on 8th March 2005, even after 4 months from the date of the said meeting, the respondent vide their letter dated 7th July 2005 once again requested the petitioner to settle the outstanding issues. The petitioner, however, vide their letter dated 18th July 2005 proposed the short closure to short closer of the subject purchase order and made various false allegations against the respondent.
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On 3rd June 1998, the respondent vide their letter forwarded a bank guarantee for performance security dated 2nd June 1998 in the sum of Rs.1,75,000/- along with a bank guarantee for advance dated 2nd June 1998 in the sum of Rs.1,75,000/- and invoice dated 2nd June 1998 for Rs.1,75,000/- and requested the petitioner to release payments at the earliest to the engineer in charge. By another letter dated 30th June 1998, the respondent requested the petitioner to make payment in respect of the invoice dated 2nd June 1998 for the sum of Rs.1,75,000/- as and by way of mobilisation advance against bank guarantee. The respondent sent reminder to the petitioner to make payment vide their letter dated 14th July 1998.
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The petitioner vide their letter dated 17th October 1998 forwarded a cheque dated 30th October 1998 for the sum of Rs.18,69,225/- to M/s.Paramount Pollution Control Limited. It is the case of the petitioner that the said cheque was issued with a clear understanding that the same would be presented to the bankers only after confirmation in writing by the petitioner about availability of funds in the bank account of the petitioner. The respondent vide their letter dated 17th November 1998 requested M/s.Essar Oil Limited to make payment in respect of three other contracts.
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The petitioner vide their letter dated 25th January 1999 requested the respondent that the payment of Rs.18,69,225/- could not be made since funds as expected earlier could not be materialised and informed the respondent that the petitioner was expecting receipt of fund shortly.
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The respondent vide their letter dated 26th March 1999 requested the petitioner for extension of time. The petitioner agreed to provide suitable extension of time for completion of work without prejudice to the other terms and conditions of the contract.
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The petitioner vide their letter dated 3rd April 1999 reassured the respondent that the financial position of the petitioner was strong and clarified that the articles appearing in different sections in the media regarding the Essar Group were false and misleading. The petitioner informed the respondent that due to reasons beyond their control, there was delay in effective payment to its contractors and suppliers. The petitioner assured the respondent that this was a temporary phase. The petitioner expected the financial institutions/banks to sanction and disburse loans to the petitioner at the earliest. The petitioner assured the respondent that the Group will standby all commitments made by it.
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On 31st May 1999, the respondent informed the petitioner that pursuant to the financial crises faced by the petitioner, the project work including the work in question stood temporarily suspended. The respondent requested the petitioner not to insist extension of bank guarantees since dues of the respondent were not paid by the petitioner. The respondent also requested the petitioner to return the bank guarantee which had already expired. The respondent assured the petitioner that it shall resubmit the bank guarantees on commencement of the balance work.
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The respondent vide letter dated 22nd January 2001 claimed the increased rates from the petitioner and assured that the respondent would commence the work as soon as its alleged dues were released by the petitioner and the points raised by them in the letter were agreed upon by the petitioner. The respondent demanded a sum of Rs.2,589.04 as and by way of interest on the delayed payment made by the petitioner beyond 21 days.
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The respondent vide their letter dated 5th August 2002 to the petitioner alleged that the petitioner had suspended the work indefinitely in April 1999. The respondent also alleged various breaches on the part of the petitioner in the said letter and made it clear that it will resume the work only if the petitioner would inform the respondent about the exact date of recommencing the work within 15 days of the receipt of the letter by the petitioner and would agree with the mutually arrived terms in respect of the price appreciation etc.
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The respondent vide their letter dated 7th July 2005 alleged that delay in progress of the...
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