# MCDERMOTT INTERN A TI ON AL INC v. BURN STANDARD CO. LTD. AND ORS

- **Citation:** [2006] Supp. 2 S.C.R. 409
- **Court:** Supreme Court of India
- **Decided:** 2006-05-12
- **Bench:** B.P. Singh, S.B. Sinha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mcdermott-intern-a-ti-on-al-inc-v-burn-standard-co-ltd-and-ors-21410
- **Pages:** 79

## Headnote

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-If it answered definition of award 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 of arbitrators
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 of claim of party to contract by one
who was not party to it-Held: Latter was involved in the matter and had
a direct nexus with claim of former.
Contract Act, 1872:
409
A
B
c
D
E
F
G
H
410
SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.
A
Section 55-Time being essence of construction contract-Specific date
B
c
D
E
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 schedule fixed by contract expired-Delay and disruptions
might have occurred for various reasons-Parties did not intend time to be
of essence of contract as (i) contract itself provided for extension of time and
payment of damages in case of delay in execution of contract (ii) party
claiming that time was of essence 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 of the case
were not brought to notice of Court.
Sections 55 and 73-Quantification of claim for damages-HeldAmount 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 proof of
actual damages, and may not allow the parties to take recourse formulaOne 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 7 3-Claim for damages for breach of contract--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 of contract-Claim for breach of contract
F
can be made through correspondence or in meetings-Jn facts of the 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.
G
Section 73---Consequential damages-}vfain contract providing that
neither of parties thereto were liable to other for such damages--Applicability
to sub-contract with one of those parties with another party-Held: Main
contract was

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MCDERMOTT INTERN A TI ON AL 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-If it answered definition of award 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 of arbitrators
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 of claim of party to contract by one
who was not party to it-Held: Latter was involved in the matter and had
a direct nexus with claim of former.
Contract Act, 1872:
409
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B
c
D
E
F
G
H
410
SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.
A
Section 55-Time being essence of construction contract-Specific date
B
c
D
E
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 schedule fixed by contract expired-Delay and disruptions
might have occurred for various reasons-Parties did not intend time to be
of essence of contract as (i) contract itself provided for extension of time and
payment of damages in case of delay in execution of contract (ii) party
claiming that time was of essence 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 of the case
were not brought to notice of Court.
Sections 55 and 73-Quantification of claim for damages-HeldAmount 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 proof of
actual damages, and may not allow the parties to take recourse formulaOne 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 7 3-Claim for damages for breach of contract--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 of contract-Claim for breach of contract
F
can be made through correspondence or in meetings-Jn facts of the 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.
G
Section 73---Consequential damages-}vfain contract providing that
neither of parties thereto were liable to other for such damages--Applicability
to sub-contract with one of those parties with another party-Held: Main
contract was a matter of an 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 of latter providing
H for !Is application---Party common to it and sub-contract was not absolved
MCDERMOIT INTERNATIONAL INC. v. BURN ST AND ARD CO. LTD.
411
of its liability for breach of terms and conditions of sub-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
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was to procure material which was to be reimbursed by other party-Extra
amount incurred for procuring materials with extra thickness-Claim forC
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 behalfPrinciple of acceptance sub-silentio found applicable.
D
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
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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
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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
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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
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SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.
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 of jurisdictional 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 interE' 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.
F
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
G 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
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could be made relying on or on the basis thereof (vi) in terms of Clause
MCDERMOTT INTERNATIONAL INC. v. BURN STANDARD CO. LTD.
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37 of the contract entered into by and between ONGC and respondent,
A
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
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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
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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 D
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
a count of delay in receiving payment from ONGC has no relevance and
E
, 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)
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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
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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
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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)
of the 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 behalf of 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 of contract 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.
A
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)
of section 31 contemplates an interim award. An interim award in terms
of the said provision is not one in respect of which a final 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
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SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.
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,
C
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
D 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)
E
Arosan Enterprises Ltd v. Union of India, [1999) 9 sec 449 and
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Hind Construction v. State of Maharashtra, (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
G 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
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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
A
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 a \
particular case, would eminently fall within the domain of the 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,
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SUPREME COURT REPORTS [2006) SUPP. 2 S.C.R.
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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
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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
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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
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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 of India, (2004] 5 SCC 325, relied
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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
G 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
H 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 of India 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 a
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
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by and between ONGC and respondent. In law, it could not have been
extended to the obligations assumed by respondent towards appellant
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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
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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
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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
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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
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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 of Colchester 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 WIA
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c
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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
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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
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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
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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
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SUPREME COURT REPORTS [2006) SUPP. 2 S.C.R.
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
I I.I. Clause 5 of the contract categorically states that appellant
was to procure the l'laterial which was to be reimbursed by respondent.
H
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,
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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)
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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
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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
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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
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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)
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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
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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
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SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.
A
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.
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Dipankar Gupta, Sr. Adv., Anil Bhatnagar, O.P. Khaitan, Mrs. Bharti
c
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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,
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WI-9, WI- I 0 and N3 and associated pipelines. They were to be installed
in ONGC's Bombay High Sea.
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CONTRACT
(i)
The said contracts covered:
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
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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
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Contract").
The said contracts contained arbitration agreements ..
BSCL and Mcdermott International Inc.