Overview
The instant case is a petition filed by ONGC under Section 34 of the Arbitration and Conciliation Act, 1996, for setting aside an arbitral award dated 02.05.2018. The dispute arose under a rate contract for the supply of baryte powder in which ONGC made substantial deductions on account of short supply and sub-standard supply, besides liquidated damages. The arbitrator partially allowed the supplier's claims, rejected ONGC's counterclaims, and held that ONGC was not entitled to invoke the performance bank guarantee. ONGC had sought to challenge the award principally on the grounds of misinterpretation of force majeure, erroneous rejection of liquidated damages, double counting, and improper grant of interest.
Facts
ONGC floated a tender dated 31.12.2010 for the large-scale supply of baryte powder. The Respondent, then under the name Oren Hydrocarbons Pvt. Ltd., emerged as the successful bidder and was granted a Letter of Award dated 23.02.2012 for the supply of 45,360 MT. A rate contract dated 16.04.2012 was executed; the validity was extended later to 30.09.2014. The Respondent supplied only 23,250 MT, attributing the short supply to the stoppage of baryte lumps by APMDC. The ONGC deducted ?76,11,323.74 towards short supply, liquidated damages, and sub-standard quality, apart from attempting to invoke the performance bank guarantee. The Respondent secured an interim injunction under Section 9 and later instituted the present arbitration, claiming amounts under invoices, C-forms, damages, and interest. ONGC filed counterclaims in excess of ?10 crores.
Thereafter, the respondent company underwent CIRP followed by its liquidation and was bought as a going concern by Idealis Mudchemie Pvt. Ltd. on a clean-slate basis, wiping off all prior liabilities.
Issues Before the Court
1. Whether the arbitral award on frustration of contract and force majeure was perverse or illegal.
2. Whether rejection of ONGC's liquidated damages was contrary to law and public policy.
3. Whether the arbitrator erred by double-counting amounts awarded.
4. Whether the pre-award interest grant violated Clause 33.6 of GCC.
5. Whether the counterclaims could survive in view of a clean-slate acquisition under IBC.
Findings of the Arbitrator
The contract was frustrated as the supply of baryte lumps by APMDC came to a standstill due to an event beyond the control of the respondent. ONGC failed to prove actual loss; hence, liquidated damages were rejected. Respondent is entitled to ?89.64 lakh (shortfall in payment of invoices) + ?14 lakh interest for delayed payments. The claim toward C-forms and damages was rejected. Invocation of the performance bank guarantee was invalid. ONGC’s ?10.47 crore counterclaim rejected. Interest at 9% p.a. granted on awarded amounts.
High Court's Analysis & Decision
The Court observed that Section 34 does not allow re-appreciation of facts or re-interpretation of contract clauses. Frustration, force majeure, and the assessment of loss were findings based on evidence and a possible view; thus, no interference was called for. ONGC's contention that liquidated damages were pre-determined also failed. The arbitrator was justified in demanding proof of loss, particularly when wide deduction powers were invoked. As to the complaint of double recovery, it related to the addition of ?14,01,553/- in the ?89 lakh item. The Court reviewed the award and did not find any patent illegality. Clause 33.6 did not exclude interest on late payment, and an interest of 9% awarded by the arbitrator was held to be reasonable. Due to the clean-slate transfer under IBC, the counterclaims by ONGC were no longer maintainable, which ONGC did not seriously dispute.
The High Court rejected the Section 34 petition and upheld the arbitral award in its entirety.
Case Reference:- In the High Court of Madras (BEFORE N. ANAND VENKATESH, J.) Oil & Natural Gas Corporation Ltd. Vs. Idealis Mudchemie Private Limited
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