MCDERMOTT INTERNTIONAL INC. v. BURN STANDARD CO. LTD. AND ORS

Citation: [2006] SUPP. 2 S.C.R. 409

Court: Supreme Court of India

Bench: B.P. SINGH, S.B. SINHA

Case summary

MCDERMOTT INTERNTIONAL INC. v. BURN STANDARD CO. LTD. AND ORS.pdf

Judgment text

MCDERMOTT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. AND ORS. MAY 12, 2006 [B. P. SINGH AND S. B. SINHA, JJ. ] Arbitration and conciliation Act, 1996: Sections 31, 33 and 34-Partial award made by deferring some claims-Nature and character of-Held: It is same as of interim award envisaged in the Act, even though expression "partial award" is not used therein-Ifit answered definition ofaward under Section 2(c), for all intent and purport, it would be a final award-It is not akin to a preliminary decree-It is final in all respects with regard to disputes referred to arbitrator which are subject matter of such award-By such an award no prejudice is caused as both partial and final awards are subject matter of challenge under Section 34-Additional award is not vitiated in law, especially keeping in view powers of arbitral tribunal under Section 33. Section 16-Plea that a claim was arbitrary or beyond its authority-- Held: It has to be raised before arbitrator.

Contract-Construction of-Held: It is within jurisdiction ofarbitrators even if it gives rise to determination of a question of law-In this regard conduct of parties and correspondences exchanged by them are relevant factors. Denial of claim-Held-Jn every case claim is not required to be followed_ by denial-If a matter is referred to any arbitrator within a reasonable time, the party invoking the arbitration clause may proceed on the basis that the other party to the contract has denied or disputed his claim or is not otherwise interested in referring the dispute to the arbitrator. Parties to arbitration-:-Reduction ofclaim ofparty to contract by one who was not party to it-Held: Latter was involved in the matter and had a direct nexus with claim offormer.

Contract Act, 1872: Section 55-Time being essence ofconstruction contract-Specific date for performance set by contract at time when it was entered into-Notice invoking arbitration agreement therein served much after expiry of those dates-Held: Service of notice would not mean that party repudiated the contract as soon as schedulefixed by contract expired-Delay and disruptions might have occurredfor various reasons-Parties did not intend time to be ofessence ofcontract as (i) contract itselfprovidedfor extension oftime and payment of damages in case of delay in execution of contract (ii) party claiming that time was ofessence did not raise that plea before the Arbitrator (iii) contract being a construction contract wherein generally time was not essence unless special features existed therefor, which in facts ofthe case were not brought to notice ofCourt.

Sections 55 and 73-Quantification of claim for damages-Held- Amount for damages is not required to be quantified as that is merely a matter of proof-Different formulas for quantification can be applied in different circumstances--Formulae evolved over the years and accepted internationally can be adopted as that is neither prohibited nor inconsistent with Indian law-However, court or arbitrator may insist on some proofof actual damages, and may not allow the parties to take recourse formula- One formula may be preferred as against ano! her--Jn facts of the case, choice of formula by arbitrator not interfered by Court-Section 16 of Arbitration and Conciliation Act, 1996.

Section 73-Claim for damages for breach ofcontract--Held: Invoice is not the only base where under such claim be made as it is drawn only in respect ofa claim made in terms ofcontract-Claim for breach ofcontract can be made through correspondence or in meetings-Jn facts ofthe case, held that the claim for overhead costs resulting in decrease in profit or additional management costs was a claim for damages, and it could be claimed in arbitration proceedings without invoice being drawn for it. Section 73---Consequential damages-}vfain contract providing that neither ofparties thereto were liable to otherfor such damages--Applicability to sub-contract with one ofthose parties with another party-Held: Main contract was a matter ofan agreement between parties thereto and in law it could not be extended to obligations assumed by another party to subcontract ft was nut subsumed in sub-contract irrespective oflatter providing for !

Is application---Party common to it and sub-contract was not absolved MCDERMOIT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. 411 ofits liabilityfor breach ofterms andconditions ofsub-contract with another party. Section 73-Consequential damages-Failure to perforl'l contractual time bound commitments leading to claim for Damages on account of increased overhead cost and decreased profit and additional management costs-Held-Claim was related for direct losses and they were not consequential damages.

Novation-Acceptance sub-Silentio-Contract providing that one party was to procure material which was to be reimbursed by other party-Extra amount incurred for procuring materials with extra thickness-Claim for- Held: Extra amount was not payable, and to that extent there was novation of contract-It was especially so as correspondences between parties indicated that party that procured materials with extra thickness had accepted that it would not be entitled to any extra amount in that behalf- Principle of acceptance sub-silentio found applicable. With a view to achieve exploration of production programme, ONGC appointed contractors to fulfill substantial portions of its offshore construction requirements. Respondents were awarded contracts for fabrication, transportation and installation of six platforms and associated pipelines.

Respondent and appellant entered into Technical Collaboration Agreement in terms whereof the latter agreed to transfer technology to the former with regard to design, construction and operation of a fabrication yard. The said agreement had an arbitration clause. Disputes and differences having arisen between the parties, appellant invoked the arbitration clause by a legal notice. A sole arbitrator was appointed by the Court. Before him, appellant raised their claims under several heads and respondent filed counter statements as also counter-claims. It was. agreed between the counsel for the parties that the Arbitration and Conciliation Act, 1996 instead and in place of Arbitration Act, 1940 shall apply. The arbitrator having heard the parties inter a/ia on jurisdictional question initially passed a partial award determining the same in favour of appellant.

The decision on some other points were deferred for a period of four months so as to enable respondent to dispose of all claims raised by appellant in the meanwhile which had arisen before reference to the arbitration. The said claims were rejected. A detailed reasoned statement by ONGC/respondent referring to each individual document relied upon were filed in the arbitral proceedings. However, by reason of the said partial award, as regards other points appellant became entitled to payment from respondent amounts as determined therein. The pitrties thereafter filed applications under Section 33 of the 1996 Act alleging that certain claims made by them had not been dealt with and/or were omitted from consideration by the arbitrator in his partial award. Respondent raised a preliminary objection that there was no provision for making a partial award in the 1996 Act.

Arbitrator passed an additional award and also rejected the respondent's objection in regard to the maintainability of the said proceeding stating that the same can be a subject matter for determination ofjurisdictional question in a proceeding under Section 33 of the 1996 Act. Respondent filed an application under Section 34 of the Act questioning the said partial award as also the additional award. The Arbitrator thereafter took up the left over matters for his consideration, observing that ONGC in the meantime had expressed no interest in participating in the decision making process at the inter- E' party level and, thus, arrived at an inference that the machinery set up under the sub-contract has broken down and it would be for him to determine the same. The final award was thereupon passed holding the appellants to be entitled to various amounts quantified therein.

Respondent filed an application under Section 34 of the Act praying for setting aside the final award contending that (i) the arbitrator had no jurisdiction to make a partial award (ii) the time was of the essence of contract and in terms of Section 55 of the Contract Act only remedy was to revoke the contract upon giving a notice therefor, and in absence of such a notice, damages could not be claimed (iii) as no invoice in respect of the claim on account of certain amounts, the Arbitrator had no jurisdiction to decide the same (iv) the Arbitrator was bound to determine the actual loss suffered by the parties and as the same was not determined, the award cannot be enforced (v) mechanical application of Emden Formula was wholly uncalled for and no award could be made relying on or on the basis thereof (vi) in terms of Clause MCDERMOTT INTERNATIONAL INC. v. BURN STANDARD CO. LTD.

413 37 of the contract entered into by and between ONGC and respondent, no award by way of damage was payable, and similar provision was also contained in the subcontract entered into by and between the parties /(vii) for relying on the basis of American Institute of Steel Construction (AISC) Code as a base for measurement being contrary to the contract, the award is liable to be set aside (viii) regarding Buoyancy Tanks in respect of ED and EE Jackets respondent had paid appellant for fabrication of them and they were the same which were used for WIS,,,/ ·· Wl9 and WllO and N3 Platform, claim on the said account once over again was not maintainable (ix) regarding Tie Down and S,ea Fastening as they are required for safe transportation of-strucfores allotted on transportation barge, the Ai:bitrator cried in allowing the claim of appellant-as tliey are not permanent part of jacket decks of any platform (x) regarding substitution of materials the Arbitrator committed a serious error in not taking into account the material evidence adduced by respondent to the effect that appellant was instructed to substitute the specified material with available material at no additional cost of fabrication; in terms of the contract, it was for the appellant to procure the materials which were to be reimbursed by respondent (xi) appellant's claim of "exchange loss" was wrongly allowed without any amendment to the statement of claim, for entire value of the invoices without any deduction as delay in making payment by respondent to appellant on acount of delay in receiving payment from ONGC has no relevance and , in any event was contrary to the terms of the contract.

Appellant contended (i) that no case has been made out for setting aside the award of the Arbitrator (ii) partial award is in effect and substance an interim award within the meaning of Section 31(6) and 2(c) of the Act and, thus, the validity of the partial award is not open to question (iii) time was not the essence of contract and in terms of Section SS of the Indian Contract Act, damages were payable (iv) invoice is merely a basis for claim and such a claim may be raised in correspondences as also in the meetings (v) the quantification of damages being a matter of evidence and proof, no case has been made out for interference with the award (v) reliance on the Emden Formula cannot be said to be against the law prevailing in India as Sections SS and and 73 of the Indian Contract Act provided only for entitlement to compensation and not the mode and manner in which'such compensation is to be quantified (vi) Clause 37 of the Main Contract between ONGC 1---··-----·-···- -~------~---- and respondent bas no application as appellant's claim is not for any consequential damage but for the direct losses occasioned by respondent's breach of contractual duty to honour its time bound commitments; the said clause cannot be extended to the obligations towards appellant under the sub-contract as ONGC has no role to play in respect of the breach of its obligations towards it by respondent under the subcontract (vii) regarding method of measurement, clause.

23. 1.

1 (a) & (c) ofthe Main ContraCt between respondent and ONGC has no application as the same covers payment for 'structural material' which is an altogether different claim; the claim was towards labour charges for fabrication of structures and not claim for cost of material; AISC Code applied in relation to the fabrication job (viii) regarding Buoyancy Tanks for ED and EE Jackets, appellant's claim is for labour cost for fabrication work in the refurbishment of the Buoyancy Tanks; the finding of the Arbitrator is a finding of fact inter alia based on the admission of the witness examined on behalfof respondent (ix) regarding Ti~ Down and Sea Fastening, in offshore construction, jackets and decks arf fabricated onshore and then they are transported on barges to the offshore location for installation; jobs pertaining to Tie Down and Sea Fastening required substantial fabrication work and no claim has been made towards costs of welding the Tie Downs and Sea Fasteners to the deck; clause 2 of the Contract would have no application to the instant case as it provides only for a stage payment on milestone basis; but clause 2.

1(a)(i) which substantially covers sea fastening job as part of the fabrication contract would be applicable; respondent had not been able to show that the fabrication of Tie Down and Sea Fastening materials were included within the scope of transportation and not as a separate item under the head 'fabrication' (x) regarding substitution, it was for respondent in terms of the sub-contract to procure and supply all materials but as it was not in a position to do· so, appellant on instructions of respondent used available materials which was having larger thickness and weight vis-a-vis those specified in the ONGC's specifications; the same having been approved both by the Engineer and ONGC, appellant was entitled to compensation towards the labour charges (xi) regarding Exchange Loss, clause 4. 0 ofcontract only relates to payment for transportation and installation and respondent did not make_.

any payment to appellant despite receipt of the whole amount from ONGC except a small amount; Clause 4. 0 had no relevance to the exchange loss dispute; respondent acted contrary to the agreed terms MCDERMOIT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. 415 " as it made payment upon applying the fixed exchange rate of Rs. 100=US$8. 575; respon. dent was to pay to ap. pellant the amount as per the current rate, only on reconciliation appellant. was to refund the excess amount to respondent which ensured that exchange loss would be shared by both the parties. HELD : 1. The 1996 Act does not use the expression "partial award". It uses interim award or final award. An award has been defined under Section 2(c) to include an interim award. Sub-section (6) ofsection 31 contemplates an interim award. An interim award in terms of the said provision is not one in respect of which afinal award can be made, but it may be a final award on the matters covered thereby, but made at an interim stage.

The arbitrator evolved the aforementioned procedure so as to enable the parties to address themselves as regard certain disputes at the first instance. As would appear from the partial award of the arbitrator, he deferred some claims. He further expressed· ... ;.. his hope and trust that in relation to some claims, the parties would arrive at some sort of settlement having regard to the fact that ONGC directly or indirectly was involved therein. While in relation to some of ' the claims, a finality was attached to the award, certain claims were deferred so as to enable the arbitrator to advert thereto at a later stage. If the partial award answers the definition of the award, as envisaged under Section 2(c) of the 1996 Act, for all intent and purport, it would be a final award. In fact, the validity of the said award had also been ,, questioned by resp. ondent by filing an objection in. relation thereto. A partial award is not akin to a preliminary decree.

It is, final in all respects . with regard to disputes referred to the arbitrator which are· subject matter of such award. Some arbitrators instead and in place of using the expression "interim award" use the expression "Partial award". , By reason thereof the nature and character of an award is not changed. In any view of the matter, respondent is not in any way prejudiced. Both the partial award and the final award are subject matter of challenge under Section 34 of the Act. The additional award is not vitiated in lalv, especially keeping in view powers of arbitral. tribunal under section 33 of the Act. (450-B-H, 451-B, C, FJ 2. 1. At that time when the contract was entered into it was supposed to be performed by 30th December, 1985. In terms of the provisions of the contract the jobs in respect ofWI-8, WI-9, WI-10, and •' N-3 were to be performed within the said period. A stipulation for commissioning of ED and EE platforms within a time frame has also been mentioned, i. e.

, February, 1986. [451-H, 452-A-D) 2. 2. Appellant served a notice on 10th April, 1998 invoking the arbitration agreement. The same would not mean that it should have repudiated the contract as soon as 20 months schedule fixed by the contract expired. Delay and disruptions might have occurred for various reasons. In the instant case, therefore, the matter would be covered by the second part of section 55 of the Indian contract Act providing that where the parties did not intend time to be the essence of the contract, the contract was not voidable, but the promisee was entitled to compensation for loss occasioned. For the aforementioned purpose, no notice was required to be served. In any event, the contract provided for extension of time, as would appear from clause 27(ii) and the relevant portions of clause 28. The parties, furthermore, agreed for payment of liquidated damages, as would appear from clause 28(v)(a).

Moreover, the contract itself contains provisions for extension of its terms and payment of damages in case of delay in execution of the contract. Therefore the second part of Section 55 of the Indian Contract Act would be attracted and not the first part. [452-E-F, 453-D, F, 458-D) Arosan Enterprises Ltd v. Union of India, [1999) 9 sec 449 and Hind Construction v. State ofMaharashtra, (1979) 2 SCC 70, referred to. 2. 3. The question which, further, arises for consideration is as to whether the respondents having proceeded on the basis that time was the essence of the contract, it was bound to issue a notice of repudiating the contract subject to reservation as regards its claim of damages. Appellant, however, states that it had never raised a contention that the time was of the essence of the contract, but the claim arises in view of the delay caused in completion of the contract for a period of 34 months and consequent escalation of costs.

The price payable in terms of the sub-contract did not adequately cover increased costs expended by appellant. On a plain reading of the provisions of section 55 of the Indian Contract Act, it is evident that as the parties did not intend that time was to be of the essence of the contract on the expiry whereof the contract became voidable at the instance of one of the parties, but by reason thereof the parties shall never be deprived of damages. The MCDERMOTT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. 417 respondent had never pleaded before the Arbitrator that the time was the essence of the contract. In Construction contracts generally time is not the essence of the contract unless special features exist therefor. No such special features, in the instant case, was brought to notice of the Court. [458-E-G, H, 459-A] 3. It is not correct to contend that the invoice is the only base whereby and whereunder a claim can be made. There is no legal warrant for the said proposition.

A claim can also be made through correspondence or in meetings. A claim for overhead costs resulting in decrease in profit or additional management costs is a claim for damages. An invoice is drawn only in respect of a claim made in terms of the contract. For raising claim based on breach of contract, no invoice is required to be drawn. It is furthermore not in dispute that the claim for · damages had been made prior to invocation of arbitration. Once such a claim was made prior to invocation, it became a dispute within the meaning of the provisions of the 1996 Act. [463-G-H, 464-A-C] 4. 1. While claiming damages, the amount therefor was not required to be quantified. Quantification of a claim is merely a matter of proof. In fact respondent never raised any plea before the arbitrator that the said claim was arbitrary or beyond its authority. Such an objection was required to be raised by respondent before the arbitrator in terms of Section 16 of the 1996 Act.

It is an accepted position that different formulas can be applied in different circumstances and the question as to whether damages should be computed by taking recourse to one or \ . the other formula, having regard to the facts and circumstances of \ particular case, would eminently fall within the domain ofthe Arbitrator. If arbitrator, therefore, applied the Emden Formula in assessing the amount of damages, he cannot be said to have committed an error warranting interference by this Court. [464-C-D, 467-C-D] Norwest Holst Construction Ltd. v. Cooperative Wholesale Society Ltd. , decided on 17 February, 1998; Beechwood Development Company (Scotland) Ltd. v. Mitchell, decided on 21 February, 2001; Harvey Shoplifters Ltd. v. Adi Ltd. , decided on 6 March, 2003; Nicon Inc. v. United States, decided on 10 June, 2003 (USCA Fed. Cir. ); Gladwynne Construction Company v. Balmimore, decided on 25 September, 2002 and Charles G. William Construction Inc. v. White, 271 F.

3rd 1055, referred to. 4. 2. Sections 55 and 73 of the Indian Contract Act do not lay down the mode and manner as to how and in what manner the computation of damages or compensation has to be made. There is nothing in Indian law to show that any of the formulae adopted in other countries is prohibited in law or the same would be inconsistent with the law prevailing in India. As computation depends on circumstances and methods to compute damage, how the quantum thereof should be determined is a matter which would fall for the decision of the arbitrator. There is no reason to interfere with that part of the award in view of the fact that the aforementioned formula evolved over the years, is accepted internationally and, therefore, cannot be said to be wholly contrary to the provisions of the Indian law. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract.

The construction of the contract agreement, is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot, be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. (467-G-H, 468-A-B, H, 469-A-BJ Pure Helium India (P) Ltd v. Oil & Natural Gas Commission, (20031 8 SCC 593 and D. D. Sharma v. Union ofIndia, (2004] 5 SCC 325, relied on. 4. 3. Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award.

A court of law or an arbitrator may insist on some proof of actual damages, and may not allow the parties to take recourse to one formula or the other. In a given case, the court of law or an arbitrator may even prefer one formula as against another. But, only because the arbitrator in the facts and circumstances of the case has allowed appellant to prove its claim relying on or on the basis of Emden Formula, the same by itself would not lead to the conclusion that it was MCDERMOTT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. 419 in breach of section 55 or Section 73 of the Indian Contract Act. [469-C, E, F) State of UP. v. Allied Constructions, [2003) 7 SCC 396; Chairman and MD, NTPC Ltd v. Reshmi Constructions, Builders & Contractors, [2004) 2 SCC 663; Union ofIndia v. Banwari Lal & Sons (P) Ltd, [2004) 5 SCC 304; Continental Construction Ltd v, State of UP. , [2003) 8 SCC 4 and State of UP. v. Allied Constructions, [2003) 7 SCC 396, relied on. 5.

In every case the claim is not required to be followed by a denial. If a matter is referred to any arbitrator within a reasonable time, the party invoking the arbitration clause may proceed on the basis that the other party to the contract has denied or disputed his claim or is not otherwise interested in referring the dispute to the arbitrator. [470-D-E) Major (Retd. ) Inder Singh Rekhi v. Delhi Development Authority, [1988) 2 sec 338, distinguished. 6. 1. In terms of Clause 37 of the main contract neither of the parties are liable to the other for any consequential damages. The claim for damages raised by appellant cannot be said to be consequential damages. The claim relates to direct losses purported to have been occasioned by the failure to perform the contractual duty on the part of the respondent and to honour the time bound commitments.

Such loss, according to appellant occurred on account of increased overhead cost and decreased profit and additional management costs by reason of respondent's delays and disruptions. It is only in that view of the matter, the Emden formula was taken recourse to. [471-C-D) Bharat Coking Coal Ltd. v. L. K. Ahuja, [2004) 5 SCC 109, distinguished. 6. 2. Clause 37 of the main contract was a matter of an agreement by and between ONGC and respondent. In law, it could not have been extended to the obligations assumed by respondent towards appellant in terms of the contract entered into by and between the said parties. So far as ONGC is concerned, it cannot be said to have any role to play in the event of breach of obligation on the part of the respondent towards its sub-contractor. By reason of Article 3.

1 of the sub-contract the Main Contract between ONGC and respondent would apply to the relevant sub-contract work and appellant was enjoined with a duty towards respondent to fulfill its obligations and responsibilities. But, thereby, respondent cannot absolve itself from its liability so far as breach of the terms and conditions of the sub-contract is concerned. In other words, by reason of Article 3. 1. , the contract by and between ONGC and respondent has not been subsumed in the sub-contract so as to absolve the respondent from its own contractual liability for breach of contract or otherwise. 1471-D-E, 472-A-B] 7. 1. Submission of respondents that a combined reading of the Clauses 5, 11 and 23. l. l(a) and (c) would go to show that the method of measurement was the subject matter of the contract is not acceptable. Clause 23. I. I has no application in the present case as it covers payment for structural material which has no nexus with the Claim No. 4.

The claim of appellant was for labour charges due under the sub-contract for fabricat:ng the structures. The use of AISC Code relates to the claim for fabrication charges being Claim No. I. The said claim was for labour charges which was not a claim for cost of material and, thus, nothing to do therewith. The scheme of the contract provides that total estimated tonnage of 18,178 ST. Since the total tonnage of 18,178 ST was only an estimated tonnage, the sub-contract made provision for variation of the contract price on the basis of 'as fabricated' tonnage. Further the quantities of the materials used were to be jointly determined by ONGC/EIL, respondent and appellant on the basis of fabricated tonnage which was to be used for adjusting the sub-contract price. If the "as fabricated tonnage" was found to be less than the estimated tonnage, the excess payment received by appellant through monthly bills was to be refunded.

If the "as fabricated tonnage" was found to be more than the estimated tonnage, appellant was to be paid for the additional tonnage by applying the rate of US $ 1067 per ST. The contract was silent with respect to the method or code to be applied for determining the "as fabricated tonnage". 1473-F, 474-E-F, G-H, 475-AI Gangappa v. Atmakur Nagbhushanam Setty & Co. , (1973] 3 SCC 406, referred to. lavarack v. Woods ofColchester ltd.. 1196711 QB 278, referred to. 7. 2. Clause 1. 1. 13 defined specifications to mean Industry Standard Codes (JSC). In the absence of a contractually specified method of MCDERMOTT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. 421 calculation, the appellant applied the AISC Manual of Steel Construction for calculating the fabricated tonnage. AISC is an industry standard. It has been applied by ONGC in other contracts. Ev('. n the Arbitrator has noted that the respondent has also accepted the validity of the AISC Code.

Now the respondent cannot turn around and take a contrary position before this court in the proceedings under Section 34 of the Act. Hence by adopting the AISC Code, the Arbitrator has not acted contrary to the terms of contract. The arbitrator in his award noticed that the parties impliedly accepted the validity of the AISC method of calculation for calculating the final fabricated weight. If before the arbitrator, the said mode of calculation was accepted, the respondent should not be permitted to raise the said question before the Court. [475-B-C, D, G] 8. Claim for Buoyancy Tanks for ED and EE Jackets involves a question of fact. It was a part of Claim No. 1 for fabrication. The "llrbitrator in his partial award found as of fact that substantial fabrication work had been done by appellant in the refurbishment of the said Buoyancy Tanks.

It has further been held by the arbitrator that appellant had also been able to establish that there had been a difference in weight between the original Buoyancy Tanks used on N-3 and WI- S Jackets and the weight of those tanks when used in ED and EE Jackets. In fact, the arbitrator in arriving at the said conclusion had taken into consideration the admission of witness examined on behalf of respondent itself that attachment of Buoyancy Tanks involved substantial fabrication activity. The dispute raised is a matter of appreciation of evidence. The findings arrived at by the arbitrator cannot, thus, be said to be perverse. (475-H, 476-A-C, F-G( 9. The claim regarding Tie-Downs and Sea-Fastening relates to the question whether appellant was entitled to payment for fabrication :is the tie-downs and sea-fastening require substantial fabrication job in regard whereof there did not exist any provision in the contract.

The arbitrator has accepted the claim of appellant holding that offshore construction contracts, jackets and decks are fabricated onshore and then they are transported on barges to the offshore location for installation where for the lugs, braces and other sea fastening and tiedown items are required to be created which the installation contractor is to use to weld the jackets and decks to the transportation barges, thereby securing the jackets for their journey to the offshore location. Appellant had merely claimed payment for fabrication of tie-downs and sea-fastening as part of the fabrication scope of work. Clause 2 of the contract has no application in the instant case as it merely provides for stage payment on milestone basis. In fact, the clause which would be attracted in the present case is contained in clause 2. l(a)(i). It specifically covers sea-fastening as part of the scope of fabrication contract work.

WI-8, Wl-9, Wl-10 and N-3 fabrication contract also contains a similar clause in Clause 2. 1. The arbitrator in para 12. 24 of his award noticed that respondent itself has acknowledged to ONGC that the tie-down materials had been fabricated as part of the fabrication scope and the weight could not be disallowed in calculating the 'as fabricated tonnage'. It, therefore, evidently cannot take a stand which is contrary thereto and inconsistent therewith. Thus, by reason of the award, the arbitrator was of the opinion that the sea-fastening and tie-down were part of the transportation and installation scope and respondent did not succeed in proving that the said item should be included in the scope of transportation and is not a separate item under the head of fabrication. Again, the findings of the arbitrator were within his domain, being findings of fact. [476-H, 477-A-B-H, 478-A-Cf 10.

The arbitrator held that appellant would be entitled to receive the entire amount as respondent, despite receipt of payment from ONGC, did not pay the amount to appellant. For the purpose of applicability of the exchange rates, the same is irrelevant. The award was required to be made in terms of the contract whereby and whereunder the foreign exchange rate was frozen as was applicable on 9th August, 1984. The parties were bound by the said terms of contract. It may be noticed that the sub-contract was entered into on 1st January, 1986. The execution of the contract had started much earlier, i. e. , much before the date of entering into the contract. The purpose for which the Rupees-US Dollar conversion rate has been frozen as on 9th August, 1984 must be viewed from the angle that thereby the parties thought that loss or gain towards the exchange rates would be on account of appellant. It is in the aforementioned situation that a letter of intent was served.

It cannot be said that the exchange variation provision does not relate to the payments in respect of Claim Nos. 1, 2 and 3. The objection raised by the claimant to the said extent is accepted. (481-A-C, 483-Hf II. I. Clause 5 of the contract categorically states that appellant was to procure the l'laterial which was to be reimbursed by respondent. The extra amount incurred by appellant for procuring materials having MCDERMOIT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. 423 extra thickness, therefore, was not payable. To the aforementioned extent, there has been a novation of contract. Appellant had never asserted, despite forwarding of the contention ofONGC, that it would not comply therewith. It, thus, accepted in sub silentio. It, thus, must be held to have accepted that no extra amount shall be payable. (484-H, 485-A-B) 11. 2.

The exchange of letters categorically proves that appellant had accpeted that it would not be entitled to any extra amount in that behalf, appellant by necessary implication accepted the said contention. The principle of acceptance sub-silentio shall be attracted in the instant case. Appellant was, therefore, not entitled to raise a claim to the extent of fabrication on account of the increased charges for substitution of material used for WI-8, Wl-9, WI-10 and N-3 Jackets and piles. To the aforementioned extent, the claim of appellant was beyond the terms of the contract. (485-E-F) 12. It is one thing to say that some more amount might have been spent towards fabrication but the arbitrator has awarded the exact amount claimed by appellant.

It is in· the aforementioned context that the involvement of ONGC was necessary and if it is the accepted case of the parties that ONGC would not entertain any claim of respondent in this behalf, a fortiori having regard to the tripartite agreement, the arbitrator could have. no jurisdiction to determine the claim in favour of appellant only because at one point of time respondent had raised its own claim with ONGC. In other words, any reduction of the claim of the respondent by ONGC had a direct nexus with the claim of appellant. It was, therefore, not a case where ONGC was not involved in the inatter. (485-B, C-D) 13. The 1996 Act provides for award for 18% interest. The arbitrator in his wisdom has granted 10% interest both for the principal amount as also for the interim. By reason of the award, interest was awarded on the principal amount. An interest thereon was upto the date of award as also the future interest at the rate of 18% per annum.

However, in some cases, this Court was resorted to exercise its jurisdiction under Article 142 in order to do complete justice between the parties. In this case, given the long lapse of time, it will be in furtherance of justice to reduce the rate of interest to 7%. (486-C-D, HJ CIVIL APPELLATE JURJSDICTION : I. A. No. 2-3 in Civil Appeal No. 4492 of 1998. From the Judgment and Order dated 8. 5. 1998 of the High Court of Calcutta in A. P. No. 237/1997. Dipankar Gupta, Sr. Adv. , Anil Bhatnagar, O. P. Khaitan, Mrs. Bharti Badesra for M/s. O. P. Khaitan & Co. , Advs. , with him for the Appellant. Jayanto Mitra, Debal Banerjee, Sr. Advs. , Pallav Sisodia. Rudgaman Bhattacharya, Ms. Shipra Ghose, Adv. , with them for the Respondents. · The Judgment of the Court was delivered by S. B. SINHA, J.

: INTRODUCTION Oil was discovered in the Bombay High Region in 1974 whereupon a plan of rapid development of off-shore oil and gas production was embarked by the Government of India through Oil and Natural Gas Commission (ONGC). With a view to achieve exploration of production programme, ONGC appointed contractors to fulfill substantial portions of its off-shore construction requirements. Bum Standard Company Limited (for short "BSCL") was interested in the second stage of platform construction of ONGC, i. e. , structural and progress fabrication and material procurement. Four contracts were thereafter awarded in favour of BSCL for fabrication, transportation and installation of six platforms bearing No. ED, EE, WI-8, WI-9, WI- I0 and N3 and associated pipelines. They were to be installed in ONGC's Bombay High Sea. CONTRACT The said contracts covered: (i) Material procurement and fabrication of the ED and EE jackets, piles and decks.

(ii) Transportation and installation of the ED and EE jackets. piles and decks. MCDERMOTT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. [SINHA, J. ] 425 (iii) Material Procurement and fabrication of the WI-8, WI-9, WI-10 ar. d N-3 Jackets, piles, temporary decks and decks (the "Four Platform Fabrication Main Contract") and (iv) Transportation and installation of the WI-8, WI-9, WI-10 and N-3 jackets, piles, temporary decks and decks, and installation of four pipelines and eight risers (the "Four Platform Installation Main Contract"). The said contracts contained arbitration agreements.. BSCL and Mcdermott International Inc. (for short "MII") entered into Technical Collaboration Agreement on 25th September, 1984 in terms whereof the latter agreed to transfer technology to the former with regard to design, construction and operation of a fabrication yard. The said agreement contains a separate arbitration clause between the parties.

However, with regard to the fabrication and installation of off-shore platforms, BSCL decided to give a sub-contract of the work to Mll on a project by project basis. BSCL while retained the job of fabrication of the ED and EE decks, six helidecks and procurement of materials for the overall project other than pipeline materials and some process equipment which was issued by ONGC sub-contracted the remaining work. In terms of a letter of intent dated 14th September, 1984 a contract was entered into by and between BSCL and ONGC for fabrication and installation of offshore platforms ED, EE, Wl-8, WI-9, WI- I0 and N-3 and laying of WI-8 to WI-9, WI-9 to WI-10, WI-9 to WIS and N-3 to NO pipelines and 8 associated risers as well as WI-7 to WI-8, Wl-9 to SD, WI-10 to SV, EB to SCI, EC to SHP, ED to SHP, EE to SHP pipelines and 11 associated risers. A part ofthe said contract work was assigned to MI!

in respect offabrication, transportation and installation ofstructures, modules, platforms and pipeline components on or about 1st January, 1986. The work under the said agreement was to be completed within 24 months but in all respects it was completed in early 1989. TERMS OF THE CONTRACT The relevant covenants between the parties contained in the said agreement are as under: "Article 2. Mil shall unless inconsistent with the provisions of this Sub-contract perform fulfill and observe all the obligations, covenants and agreements required on the part of BSCL to be performed, fulfilled and observed in terms of the Main Contracts to the extent these obligations, covenants and agreements relate to the Subcontract Work including such obligations, agreements and covenants as may in future be added, modified or provided in the Main Contracts between the Buyer and BSCL with concurrence of MII to the extent thereof.

These obligations, covenants and agreements, as have been agreed to be perfonned, fulfilled and observed by Mii shall include the perfonnance of the Sub-contract work in the manner and to the specifications as provided in the respective Main Contracts. Article 3 3.

l Mii shall be bound to BSCL by the tenns of this Sub-contract Agreement and to the extent that the provisions of the respective Main Contract between Buyer and BSCL apply to the relevant Subcontract work of Mii as defined in this Sub-contract Agreement, MII shall assume towards BSCL all the obligations and responsibilities which BSCL, by such Main Contract, assumes to Buyer and shall have the benefit ofall rights, remedies and redresses against BSCL which BSCL, by such Main Contract, has against Buyer, insofar as applicable to this sub-contract Agreement, provided that when any provision of the respective Main Contract between Buyer and BSCL is inconsistent with this Sub-contract Agreement, this Sub-contract Agreement shall govern and prevail over the Main Contract. 3.

2 BSCL shall be bound to Mil by the tenns of this Sub-Contract Agreement and to the extent that the provisions of the respective Main Contracts between Buyer and BSCL apply to the relevant Subcontract work of Mil as defined in this Sub-contract Agreement, BSCL shall assume towards MII all the obligations and responsibilities that Buyer, by such Main Contracts, assumes towards BSCL, and shall have the benefit of all rights, remedies and redress against Mil which Buyer, by such Main Contracts, has against BSCL insofar as applicable to this sub-contract Agreement provided that when any provisions of the Main Contract between Buyer and MCDERMOTI INTERNATIONAL INC. 1•. BURN STANDARD CO. LTD. [SINHA, J. ] 427 BSCL is inconsistent with any provisions of this Sub-contract Agreement, this Sub-contract Agreement shall govern and prevail over the Main Contract. Article - 5 5.

1 Except as otherwise provided herein, all claims made by Buyer against BSCL shall be the responsibility of Mil when such claims arise or are derived from Mil's Sub-contract Scope of Work; similarly, all claims made by Buyer that arise or derive from BSCL's Scope of Work shall be the responsibility of BSCL. To the extent that BSCL, as Main Contractor vis-a-vis Buyer, would be liable for any claims that arise or are derived from Mll's Subcontract Scope of Work, Mii shall hold harmless and keep indemnified BSCL from any such claims to the extent analogous with MII's Sub-contract. Article - 6 - Arbitration 6.

1 Should there by any dispute or difference between BSCL and Buyer in regard to any matter connected with BSCL relating to or arising out of the Main Contract (s), which may involve Mil's performance or affect Mii's interest under the subcontract, BSCL shall keep Mil informed and shall act in consultation and coordination with Mii to ascertain the facts and agree on the appropriate action to be taken. Mii shall render all assistance and cooperation that BSCL may require in this regard. If it is determined that the dispute or difference does not involve Mil's performance or affect Mil's interests, Mii shall render such reasonable assistance and cooperation as BSCL may require; provided, however, that MII shall be entitled to reimbursement of costs, if any, incurred therefor with the prior approval of BSCL. 6.

2 If any dispute or difference arising between BSCL and Buyer under or in respect of or relating to the Main Contract insofar as it relates to the work to be carried out by Mil is referred to arbitration and any award/ judgment/ decree/ order is passed, or settlement is otherwise reached with Mll's consent, Mll shall be bound to accept the same and bear all Mii's liability resulting therefrom. MU shall, however, be assisted at all stages by BSCL with such arbitration proceedings and Mil shall bear all expenses of such arbitration/ litigation and/ or negotiated settlement, if any. However, expenses incurred by BSCL in deputing their officials to attend such arbitration/ proceeding/ litigation would be to BSCL/s accounts. 6.

3 All disputes and differences in respect of any matter relating to or arising out of or in connection with the execution or construction of this subcontract document, if the same cannot be and/ or is not the subject matter of dispute between BSCL and the Buyer under the Main Contracts and is not settled mutually by negotiation, shall be referred to arbitration under the Indian Arbitration Act. 1940, as amended from time to time, by appointing some agency acceptable to both the parties as Arbitrators and if no agency is found acceptable to both the parties, then by constituting a Board of Arbitration consisting of three Arbitrators, one to be nominated/ appointed by each party and the third to be appointed by the two Arbitrators as Umpire. The arbitration proceeding shall be held at New Delhi and the decision of the Arbitrators or the Umpire as the case may be shall be final and binding on both parties hereto.

The arbitrators or the umpire, as the case may be, shall record their reasons for passing awards, copies of which shall be sent to the parties. Article - 10 I0. 1 Any amendment and/ or modification ofthis Sub-contract shall be valid only if it is in writing and signed by both the parties. All other terms and conditions not specified in this sub-contract shall be as stipulated in the Main Contracts. 10. 2 This Sub-Contract Agreement shall be governed by the Laws of the Republic of India. " DISPUTES Disputes and differences having arisen between the parties, Mil invoked the arbitration clause by a legal notice dated 10th April, 1989. Several proceedings as regards invocation of arbitration clause were MCDERMOTI ! NlERNATIONAL INC. '" BURN STANDARD CO. LID. [SINHA, J. ] 429 initiated by the parties before the Calcutta High Court.

The said proceedings ultimately ended in favour of Mil leading to appointment of two arbitrators for determination of the disputes and differences between the parties. The arbitrators who were earlier appointed were removed and Mr. Justice A. N. Sen, a retired Judge of this Court was appointed as a sole arbitrator. It is stated that Mr. Justice A. N. Sen declined to act as an Arbitrator and by an order dated 28th August, 1998, Mr. Justice R. S. Pathak was appointed by this Court as a sole arbitrator. The Arbitrator was to continue with the proceedings from the stage it had reached. The said order is in the following terms: "I. Mr. Justice R. S. Pathak, retired Chief Justice of India is appointed as the sole Arbitrator.

In the case to resolve the disputes and differences which had been raised by the parties and were the subject matter of the arbitration proceedings before the arbitrators earlier appointed; 2) That the Learned Arbitrator shall enter upon the reference within three weeks from the date of service of this order upon him. 3) That the arbitration proceedings shall be held at New Delhi. However, in the event the learned Arbitrator considers it necessary to hold any sitting at any other place, he may do so with the consent of the parties; 4) The learned Arbitrator shall continue with the proceedings from the stage where the proceedings ofthe arbitration were on 8. 5. 1998, when the impugned order came to be made by the Calcutta High Court; 5) All the proceedings held till 8. 5.

1998 shall be treated as the arbitration proceedings held before the learned sole Arbitrator now appointed; 6) It shall be in the discretion of the learned Arbitrator to take or not to take oral evidence or to take oral evidence by way of affidavits. The learned arbitrator would be at liberty to adopt summary proceedings for concluding arbitration proceedings. 7) That the learned Arbitrator shall publish his Award, as far as possible, within a period of one year from the date of entering upon the reference; 8) That the fees of the Arbitrator (which may be fixed by him) and all expenses of arbitration proceedings shall be shared equally by the parties; 9) The learned Arbitrator shall file the Award in this Court. 1O) Any application which may become necessary to be filed during or after the conclusion of arbitration proceedings, shall be filed only in this Court. " CLAIM OF Mii Before the learned Arbitrator, Mil raised the following claims: I.

For Fabrication of jackets, Temporary Decks and Main Decks US$ 1,182,817. 94 2. For Transportation and Installation of jackets and Decks US$ 4,351,062. 68 3. For Installation of Pipelines and Risers US$ 840,064. 23 4. For Structural Material Procurement US$ 5,301,534. 13 For Bulk Material Procurement US$ 84. 919. 14 UKL 262,296. 43 S$ 680,764. 29 5. For Transportation of Pipe US$ 1,231,415. 00 6. For Reimbursables US$ 377,309. 30 7. For Change Orders and Extra Work US$ 7,423,741. 95 8. For Delays & Disruptions US$ 13,233,343. 00 8A. For exchange Entitlements US$ 2,881,195. 03 9. For Interest upto 21 August, 1989 US$ 10,909,772. 19 UKL 148,254. 14 S$ 521,I02. 56 Total US$47,8l7,174. 59 UKL 410,550. 57 - S$ 1,201,866. 85'' MCDERMOTI INTERNATIONAL INC. v. BURN STANDARD CO. LTD. [SINHA, J.

] 43 J Before the Arbitrator, apart from the aforementioned amount, interest on the outstanding amount was also claimed at the rate of 15% per annum on all claims for which invoices were not paid until the award, as well as interest from 21st August, 1989 and future interest at the rate of fifteen per cent. BSCL filed counter statements as also counter-claims before the learned Arbitrator. The learned arbitrator took up for his consideration the following claims for his consideration: 1. Fabrication of Jackets, Temporary Decks and Main Decks 2. Transportation and Installation of Jackets, Decks (Permanent & Temporary) and Helidecks 3. Pipelines and Risers Installation 4. Structural Material and Rolling 5. Bulk Material 6. Transportation of Pipes 7. Reimbursables 8. Change Orders and Extra Works 9. Delays and Disruptions 9A. Whether Mil is entitled to an exchange loss as claimed in paragraphs 4. 74 to 4. 78 ofthe Statement ofClaims? Ifso, in what amount? 10. Interest 11.

Jurisdiction 12. Did Mil commit breach of the contract? 13. ls the Claim of Mii barred by limitation? 14. Counter Claim .. 15. General It was agreed to by and between the learned counsel for the parties that the 1996 Act instead and in place of 1940 Act shall apply. PARTIAL AWARD The learned arbitrator having heard the parties inter alia on jurisdictional question initially passed a partial award on 9th June, 2003 determining the same in favour of MIL The decision on points Nos. 6, 8 and 9 were deferred for a period of four months by the learned Arbitrator so as to enable BSCL to dispose of all claims raised by Mil in the meanwhile which had arisen before reference to the arbitration. The said claims were rejected. A detailed reasoned statement by ONGC/BSCL referring to each individual document relied upon were filed in the arbitral proceedings. However, by reason of the said partial award, as regards points Nos.

I to 5, 7 and 9A, Mil became entitled to payment from BSCL the following amounts: "On Point No. 1 US$ LI 82,817. 69 On Point No. 2 US$ 3,133,612. 40 & US$ 28,400. 00 On Point No. 3 US$ 665,039. 41 & US$ 54,000. 00 On Point No. 4 US$ 2,809,100. 54 & US$ 2,300,200. 00 On Point No. 5 US$ 65,207. 39 UK Pound 232,604. 40 & Singapore$ 548,271. 81 On Point No. 7 US$ 322,351. 87 US$ 52,422. 51 US$ 1,573,466. 00 US$ 512,187. 16 On Point No. 9A US$ 3,330,790. 94" PROCEEDINGS RE: ADDITIONAL AWARD On point No. I0, Mii was held to be entitled to interest on the amount awarded at the rate of I0% per annum from the date on which the amount fell due for payment till the date ofthe partial award and the awarded amount together with interest was directed to bear interest at the same rate from the date of the award to the date of payment. MCOERMOIT INlERNATIONAL INC. v. BURN STANDARD CO. LTD. [SINHA, J.

) 433 The parties thereafter filed applications under Section 33 of the Arbitration and Conciliation Act, 1996 alleging that certain claims made by them had not been dealt with and/ or were omitted from consideration by the learned arbitrator in· his partial award. Mii in its application contended: "(i) While deciding Point No. 4 regarding Structural Material and Rolling, Mii's claim for US$ 128,000. 00 as contended in paragraph 4. 29 ofthe Statement of Claim has not been dealt with and has been omitted from the Award. (ii). While deciding Point No. 7 regarding Corporate Income Tax, Mii's claim that BSCL should be liable to the tax authorities for all further liabilities for Indian Corporate Income Tax as may be assessed in respect of the income received by MII under the Subcontract as also for all tax liabilities that may be assessed in respect ofany Award in favour ofMII in the. present arbitration proceedings as contained in paragraph 4.

84 of the Statement of Claim has not been dealt with and has been omitted from the Award. (iii) In deciding Point No. 7 regarding Corporate Income Tax, MII has claimed two amounts one of US$ 804,789. 36 being interest @15% per annum up to 29 February, 1992 paid by MII in respect ofCorporate Income Tax liability to the Tax authority, and the other on account ofprincipal amount oftax payment ofUS$ 1,623,048. 00. In paragraphs 18. 17 and 18. 18 of the Award, the learned Arbitrator has in respect of the principal claim allowed an amount of US$ 1,573,466. 00 on account of Corporate Income Tax and an amount ofUS$ 512, 187. 16 by way ofinterest. MII has also claimed interest on these two amounts from 29 February 1992 till payment. This claim for interest has not been dealt with in the Award and has been omitted from the Award. (iv) While deciding Point No. 10 relating to interest, MII's claim for interest on amounts paid but paid late as contained in paragraphs 5. 1 and 5.

2 has not been dealt with and has been omitted from the Award. " BSCL raised a preliminary objection in regard to the Mil's claim under - Section 33 of the Act contending that there exists no provision for making a partial award. ADDITIONAL AWARD By reason of the additional award dated 29th September, 2003, the learned Arbitrator, however, held: "I. Mil's claim in respect of US$ 128,000. 00 is not accepted. 2. Mil's claim for a declaration that BSCL is liable to the tax authorities for all further liabilities for Indian Corporate Income-tax as may be assessed in future in respect of income received by Mil under the Sub-Contract is allowed only insofar as it related to Mil's liability, if any, to Corporate Income-tax, on the amounts awarded to it by a Partial Award, an Additional Award and a Final Award. 3. Mil is entitled to interest at 10% per annum for the period from 1 March 1992 to the date of payment in respect of the principal >1mount of US$ 1,573,466.

00 on account of Corporate Income-tax and the interest amount of US$ 512, 187. 16 calculated up to 29 February, 1992. 4. Mil is entitled to interest at 10% per annum for the period of delay in BSCL making payment of Mil's invoices, that it: for the period from due date of payment to the date of actual payment. Such amount will carry interest at 10% per annum from the date of the Partial Award to the date of its payment. " The learned Arbitrator rejected the BSCL's objection in regard to the maintainability ofthe said proceeding stating that the same can be a subject matter for determination of jurisdictional question in a proceeding under Section 33 of the 1996 Act. BSCL filed an application under Section 34 of the Act questioning the said partial award dated 9th June, 2003 as also the additional award dated 29th September, 2003. MCDERMOIT INTERNATIONAL INC. ''- BURN STANDARD CO. LTD. [SINHA, J.

] 435 FINAL AWARD The learned Arbitrator thereafter took up the left over matters for his consideration, viz. , points Nos. 6, 8 and 9 observing that ONGC in the meantime had expressed no interest in participating in the decision making process at the inter-party level and, thus, arrived at an inference that the machinery set up under the sub-contract has broken down and it would be for him to determine the same. The final award was thereupon passed. On point No. 6 which related to transportation of pipes, the learned arbitrator held Mll to be entitled to US$ 919, 194. 32 against BSCL in respect of the nine barge pipes for transporting them from Mangalore to Bombay. Point No. 8 related to Change Orders and Extra Work. The learned Arbitrator awarded MI! US$ 305,840. 00 as regards Change Order No. 1. As regards Change Order No. 6, MII was awarded US$72,000. 00 against BSCL. Furthermore, in respect of Change Order No. 9, MII was awarded US$ 300,000. 00 against BSCL.

As regards Extra Work, Mii was awarded US$ 4,870,290. 96 against BSCL pursuant to the invoices covered under the said point whereas MIT's claim for US $637,473. 00 was rejected. Point No. 9 related to delays and disruptions. MI! was awarded US$ 574,000. 00 against BSCL in respect ofChange Order No. 2. Ml! was further awarded US,271,820. 00 and US$355,000. 00 against BSCL under Change Order Nos. 3 and 7 respectively. As regards increased cost and expenditure incurred by MII, it was awarded US$8,973,03 l. OO. So far as the claim of interest is concerned, the learned arbitrator made the following order: "Mil is entitled to interest on the amounts awarded under various heads by Final Award. In my opinion, having regard to the circumstances of the case, a rate of interest at 10 percent per annum will be appropriate from the date on which the amount fell due for payment to the date of this Final Award.

The awarded amount including interest shall bear the interest at the same rate from the date of this Final Award to the date of the payment by BSCL. " The learned arbitrator also awarded US$750,000. 00 as costs of the·~ arbitration. An application was filed by BSCL under Section 34 ofthe Act praying for setting aside the final award. SUBMISSIONS: Mr. Jayanto Mitra, learned senior counsel and Mr. Pallav Sisodia, learned counsel appearing on behalfofBSCL made the following submissions: (i) The arbitrator had no jurisdiction to make a partial award which is not postulated under the 1996 Act as an award in piecemeal is impermissible in law. (ii) While making the partial award, the learned Arbitrator opined that involvement of ONGC was imperative for determination of point Nos. 6,8 and 9, i. e. , claims relating to transportation of pipes, Change Orders and Extra Work and delays and disruptions and, thus, the final award must be held to be bad in law.

(iii) As the subcontract provided for a back to back contract, determination of various claims depended upon determination of interpretative application of the main contract by ONGC wherefor directions of ONGC were binding on the parties. (iv) Although US $ 8. 8 million has been awarded as regard alleged delay and disruption of work, no reason, far less any cogent or sufficient reason, as was mandatorily required in terms of Section 31 of the Act having been assigned, the impugned award is vitiated in law. (v) In its award, the learned Arbitrator was bound to determine the actual loss suffered by the parties and as the same was not determined, the award cannot be enforced. (vi) The award as regards loss of profit under various heads is based MCDERMOTT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. [SINHA, J. ] 437 on ,110 evidence and, thus, wholly unreasonable.

(vii) The claims made by Mii were not only contrary to the terms ofcontract but also substantive law oflndia and were otherwise opposed to public policy. (viii) As the contract did not contain any agreed schedule or any stipulation as to whether the work was required to be finished within a stipulated period, in view ofthe fact that the contention ofthe Mii was that the time was of the essence of contract, the only remedy available to it in terms of Section 55 ofthe Indian Contract Act was to revoke the contract upon giving a notice therefor. In absence of such a notice, damages could not be claimed. Reliance in this behalf has been placed on Arosan Enterprises Ltd v. Union ofIndia and Another, [1999] 9 SCC 449. (ix) No amount towards extra work was payable to Mii having regard to the payment clauses contained in the contract and in particular the minutes ofthe meeting held by the parties on 9th August, 1984.

(x) In view of the clear terms of the contract, ONGC was a necessary party and the learned Arbitrator committed an error in refusinr to implead it in the proceeding. (xi) The learned Arbitrator having rejected the claim of the Mil in his partial award dated 9th June, 2003 on the ground that increased overhead decrease ofprofit and additional management cost had not been raised before reference to arbitration and, thus, was beyond the scope ofarbitral reference, could not have determined the self same question in his final award. The objection and the award for US$ 8. 8 million had not been taken into consideration and, thus, the same is liable to be set aside. (xii) The learned Arbitrator could not have awarded the said sum solely on the basis of the opinion of one Mr. D. J.

Parson who did not have any personal knowledge of the facts of the case, particularly in view of the fact that no evidence was adduced as regards sufferance of actual loss by MIL Mechanical application of Emden Formula was also wholly uncalled for and no award could be made relying on or on the basis thereof. (xiii) So far as the claim of extra work is concerned, the learned Arbitrator has wrongly allowed the claim of Mil in respect of invoice Nos. 2806470 to 2806475 although due date for payment of the said amount fell after the commencement of reference to arbitration and, thus, as no dues existed on that date, the Arbitrator had no jurisdiction to make an award in relation thereto. (xiv) As regards "exchange loss", Mii's claim was allowed without any amendment to the statement of claim.

Claim of Mil was wrongly allowed by the learned Arbitrator for entire value of the invoices without any deduction as delay in making payment by BSCL to Mil on account ofdelay in receiving payment from ONGC has no relevance and in any event was contrary to the terms of the contract. The learned Arbitrator had also not taken into consideration that in terms of the contract, foreign exchange rate was frozen at the rate of Rs. 100 X 8. 575 Dollars as was applicable on 9th August, 1984. (xv) The claim for US$ 2. 3 million was outside the scope of reference to arbitration as no demand therefor was made. Such a claim was made for the first time only in the statement of claim. (xvi) In terms of Clause 37 of the contract entered into by and between ONGC and BSCL, no award by way of damage was payable. Similar provision was also contained in the subcontract entered into by and between the parties. (xvii) As Mil was !

o compensate for the suppl}' ofmaterials by BSCL subsequently, no award for a sum of US$ 2. 3 million could be made. MCDERMOTI INTERNATIONAL INC. v. BURN STANDARD CO. LTD. [SINHA, J. ] 439 (xviii) As no invoice in respectofthe claim ofUS$ 28,400 on account ofan additional barge trip to transport the ED Temporary Deck had been raised, the learned Arbitrator had no jurisdiction to decide the same. (xix) The award under the said head for a sum of US$ 54,000 on account of additional survey of WIS and WI9 pipeline was not an arbitrable dispute being dearly outside the purview of the arbitration proceedings. (xx) Relying on or on the basis of American Institute of Steel Construction (AISC) Code as a base for measurement being contrary to the contract, the award is liable to be set aside.

(xxi) (a) Re: Buoyancy Tanks in respect of ED and EE Jackets As BSCL had paid MII for fabrication of the same buoyancy tanks and the buoyancy tanks were the same which were used for Wl8, W19 and Wl 10 and N3 Platform, claim on the said account once over again was not maintainable ignoring the evidence of Mr. S. K. Mukherjee (RW-1). (b) Tie Down and Sea Fastening As Tie Down materials are required for safe transportation of structures allotted on transportation barge, the learned Arbitrator erred in allowing the claim of Mil as they are not permanent part of jacket decks of any platform. (c ) Substitution of Materials The learned Arbitrator committed a serious error in not taking into account the material evidence adduced by BSCL to the effect that Mil was instructed to substitute the specified materials with available material at no addi_tional cost of fabrication. In terms of the contract, it was for the Mil to procure the materials which were to be reimbursed by BSCL.

The claim for US$ 20832. 108 was based on fabrication charges on account of increased tonnage for material substitution for W18, Wl9, WI 10 and N3 jackets and piles as well as ED and EE jackets and, thus, as the learned Arbitrator had allowed claim only to the extent of fabrication, the amount claimed by Mii could not have been allowed in toto. Mr. Dipankar Gupta, learned senior counsel appearing on behalf of Mii, on the other hand, submitted that no case has been made out for setting aside the award of the learned Arbitrator. In reply to the submissions made on behalf of BSCL, it was urged: Re. Increased Overhead Decrease of Profit and Additional Management Cost The amount has been awarded on the basis of statement of Mr. D. J. Parsons. Tile contract clearly provided that WIS, Wl9, WI 10 and N3 platforms were to be completed by 30th December, 1985 whereas ED and EE platforms were to be commissioned in February, 1986.

It is not the case of Mii that the time was of the essence of contract and, thus, in terms of Section 55 ofthe Indian Contract Act, damages were payable. Even in terms ofthe main contract between BSCL and ONGC, time was not ofthe essence of the contract. The contract contained clauses for extension of time and liquidated damages which is also indicative of the fact that time was not of the essence ofthe contract and, thus, damages for delay is permissible in law in view of the decision of this Court in Hind Construction v. State of Maharashtra, [I 979] 2 SCC 70. Change Order Nos. 2, 3 and 7 covered compensation under various heads as specified therein. The award ofthe learned Arbitrator clearly shows that additional costs had been incurred by Mii and, thus, the award cannot be faulted. The partial award did not deal with the said claims. The dispute was specifically referred to arbitration in terms of notice dated 10th April, 1998.

The quantification of damages being a matter of evidence and proof, no case has been made out for interference with the award particularly in view of the fact that BSCL had never raised any objection as regards the jurisdiction of the Arbitrator. MCDERMOTT INTERNATIONAL INC. '" BURN STANDARD CO. LID. [SINHA, J. ] 441 Reliance on the Emden Formula cannot be said to be against the law prevailing in India as Sections 55 and 73 ofthe Indian Contract Act provided only for entitlement to compensation and not the mode and manner in which such compensation is to be quantified. Clause 37 of the Main Contract between ONGC and BSCL has no application as Mii's claim is not for any consequential damage but for the direct losses occasioned by BSCL's breach of contractual duty to honour its time bound commitments. The said clause cannot be extended to the obligations towards MI!

under the sub-contract as ONGC has no role to play in respect of the breach of its obligations towards it by BSCL under the subcontract. Re: Partial Award A partial award is in effect and substance an interim award within the meaning of Section 31 (6) and 2(c) of the Act and, thus, the validity of the partial award is not open to question. ' Re: Exchange Loss Clause 4. 0 of contract only relates to payment for transportation and installation and BSCL did not make any payment to Mii despite receipt of the whole amount from ONGC except an amount of Rs. 12,70,290. In any event, Clause 4. 0 has no relevance to the exchange loss dispute. BSCL acted contrary to the agreed terms as it made payment upon applying the fixed exchange rate of Rs. I00 = US$8. 575. BSCL was to pay to Mil the amount as per the current rate,' only on reconciliation Mii was to refund the excess amount to BSCL which ensured that exchange loss would be shared by both the parties. ..

Re: Uninvoiced Claims BSCL never raised any objection before the Arbitrator that the claim for US$ 2,300,200 for procurement ofstructural material could not be raised in view of the provisions contained in Section 16 of the 1996 Act. Invoice in any event, is merely a basis for claim and such a claim may be raised in correspondences as also in the meetings. The claim for US$ 2,300,200 was not strictly claim for damages, as in terms ofthe contract BSCL was required to procure the steel and as it being not in a position to do so, Mii agreed to procure the same on its behalf if BSCL would agree to pay US$ 2,300,200 to cover Mil's cost for accelerated procurement and other costs. This offer was the subject matter ofcorrespondence between the parties. As no dispute was raised to recover the same amount from BSCL, procurement job was undertaken. The finding arrived at by the learned Arbitrator in this behalf is entirely a finding offact.

Reference to Clause 5 ofthe Contract was wholly irrelevant. This clause provides that BSCL shall procure suitable steel for "jackets' on replacement basis for Mil purchased steel. BSCL did not procure the required amount of steel to replace the structural materials that Mil provided from its inventory as an accommodation to BSCL. Mil did so on the understanding that the structural material removed from Mii's inventory would be promptly replaced by BSCL. BSCL did not replace the material. Re: Method of Measurement Clause 23. 1. 1 (a)& (c) ofthe Main Contract between BSCL and ONGC has no application as the same covers payment for 'structural material' which is an altogether different claim being Claim No. 4. The claim was towards labour charges for fabrication ofstructures, labour charges and not claim for cost of material.

AISC Code applied in relation to the fabrication job is as under: "The scheme ofthe Contract provides in relation to Fabrication and the application of AISC Code is explained below: (i) the sub-contract provides total estimated tonnage of 18, 178 ST with following break-up: ED? EE Platforms 6078 ST (page 166 I. A. no. 2 Vol. 2) WIS, WI9, WilO and N3 platforms - 12,100 ST/ 18, 178 ST (page 371 I. A. no. 2 Vol. 2)" Re: Buoyancy Tanks for ED and EE Jackets Mil's claim is for labour cost at the rate of US$ 1067 per ST involved for fabrication work in the n:furbishment of the Buoyancy Tanks. The MCDERMOTT INIERNATIONAL INC. 1·. BURN STANDARD CO. LTD. [SINHA, J. ] 443 finding ofthe Arbitrator is a finding offact inter alia based on the admission of the witness, namely, Shri S. K.

Mukherjee, who was examined on behalf of BSCL Re: Tie Down and Sea Fastening In offshore construction, jackets and decks are fabricated onshore and then they are transported on barges to the offshore location for installation. Jobs pertaining to Tie Down and Sea Fastening required substantial fabrication work and no claim has been made towards costs of welding the Tie Downs and Sea Fasteners to the deck. Clause 2 of the Contract would have no application to the instant case as it provides only for a stage payment on milestone basis. But, clause 2. 1(a)(i) which substantially covers sea fastening job as part ofthe fabrication contract would be applicable. BSCL had not been able to show that the fabrication of Tie Down and Sea Fastening materials were included within the scope of transportation and not as a separate item under the head 'fabrication'.

Re: Substitution It was for BSCL in terms of the sub-contract to procure and supply all materials but as it was not in a position to do so, Mii on instructions ofBSCL. used available materials which was having larger thickness and weight visa-vis those specified in the ONGC's specifications. The same having been approved both by the Engineer and ONGC, Mii was entitled to compensation towards the labour charges at the rate of US$ 1067 per ST. Re: Extra Work Invoice Nos. 2806470 to 2806475 The invoices which were contained in Annexure 9 to Mil's statement of claims were substituted by new documents in terms whereof the due date of invoice was corrected to 9th March, 1989 and, thus, fall due for payment prior to the notice dated 10th April, 1989 invoking arbitration. The payment of extra work became due when the work was performed and moreover, the invoices in question did not specify any date for payment.

Re: Interest The ground has been taken only in the supplementary affidavit filed on behalfofBSCL on 2 lst September, 2004 beyond a period ofthree months as specified in Section 34 of the Act. The Arbitrator has awarded the principal amount and interest thereon upto the date of award and future interest thereupon which do not amount to award on interest as interest awarded on the principal amount upto the date ofaward became the principal amount which is permissible in law. CHALLENGE TO AWARD: LEGAL SCOPE OF Section 2(1)(b) of the 1996 Act reads as under: "2(1 )(b) "arbitration agreement" means an agreement referred to in section 7" In terms ofthe 1996 Act, a departure was made so far as the jurisdiction of the court to set aside an arbitral award is concerned vis-a-vis the earlier Act. Whereas under Sections 30 and 33 of the 1940 Act, the power of the court was wide, Section 34 of the 1996 Act brings about certain changes envisaged thereunder.

Section 30 of the 1940 Act reads, thus: "Grounds for setting aside award - An award shall not be set aside except on one or more of the following grounds, namely: (a) That an arbitrator or umpire has misconducted himself or the proceedings; (b) That an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under Sec 35; (c) That an award has been improperly procured or is otherwise invalid. " The Section did not contain expression "error of law .... ". The same was added by judicial interpretation. While interpreting Section 30 of the 1940 Act, a question has been raised before the courts as to whether the MCDERMOTI INTERNATIONAL INC. 1•. BURN STANDARD CO. LTD. [SINHA, J. ] 445 principle of law applied by the arbitrator was (a) erroneous or otherwise or (b) wrong principle was applied. If, however,.

no dispute existed as on the date of invocation, the question could not have been gone intci by the Arbitrator. CHANGES UNDER THE NEW ACT The 1996 Act makes a radical departure frcim the 1940 Act. It has embodied the relevant rules of the modem law but does not contain all the provisions thereof. The 1996 Act, however, is not as extensive as the English I Arbitration Act. Different statutes operated in the field in respect of a domestic award and a foreign award prior to coming into force of the 1996 Act, namely, the 1940 Act, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. All the aforementioned statutes have been repealed by the 1996 Act and make provisions in two different parts, namely, matters relating to domestic award and foreign award respectively.

Vis-a-vis Grounds for setting aside the award: After the 1996 Act came' into force, under Section 16 of the Act the party questioning the jurisdiction of the arbitrator has an obligation to raise the said question before the arbitrator. Such a question ofjurisdiction could be raised if it is beyond the scope of his authority. It was required to be raised during arbitration proceedings or soon after initiation thereof. The jurisdictional question is required to be determined as a preliminary ground. A decision taken thereupon by the Arbitrator would be subject matter of challenge under Section 34 of the Act. In the event, the arbitrator opined that he had no jurisdiction in relation thereto an appeal thereagainst was provided for under Section 37 of the Act. The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness.

Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violatiQ. n of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, scheme ofthe provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it. However, this Court, as would be noticed hereinafter, has the occasion to consider the matter in great detail in some of its decisions. In Primetrade A(J v. Ythun ltd. , [2006] I All ER 367, jurisdictional issue based on interpretation of documents executed by the parties fell for consideration having regard to the provisions of the Carriage of Goods by Sea Act, 1992.

It was held that as the appellant therein did not become holder ofthe bills of lading and alternatively as the conditions laid down in Section 2(2) were not fulfilled, the arbitrator had no jurisdiction to arbitrate in the disputes and differences between the parties. Vis-a-vis the duty to assign reasons Another important change which has been made by reason of the provisions of the 1996 Act is that unlike the 1940 Act, the Arbitrator is required to assign reasons in support of the award. A question may invariably arise as to what would be meant by a reasoned award. In Bachawat's Law of Arbitration and Conciliation, Fourth Edition, pages 855-856, it is stated: " ... 'Reason' is a ground or motive for a beliefor a course ofaction, a statement in justification or explanation of belief or action. It is in this sense that the award must state reasons for the amount awarded. The rationale of the requirement of reasons is that reasons assure that the arbitrator has not acted capriciously.

Reasons reveal the grounds on which the arbitrator reached the conclusion which adversely affects the interests of a party. The contractual stipulation of reasons means, as held in Poyser and Mills' Arbitration In Re, "proper. adequate reasons''. Such reasons shall not only be intelligible but shall be a reason connected with the case which the court can see is proper. Contradictory n:asons an: equal to lack of reasons. MCDERMOIT INIERNATIONAL INC. v. BURN STANDARD CO. LID. [SINHA, J. ] 447 The meaning of the word " reason" was explained by the Kerala High Court in the contest of a reasoned award... "Reasons are the links between the materials on which certain conclusions are based and the