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2007 DIGILAW 1458 (DEL)

GAIL (INDIA) LIMITED v. SURYA ROSHINI LIMITED

2007-07-24

SANJAY KISHAN KAUL

body2007
SANJAY KISHAN KAUL, J. ( 1 ) A Contract was executed between the petitioner and National Thermal power Corporation ( for short, "ntpc" ) in terms whereof the petitioner agreed to supply gas to NTPC for its power plant at Village Mujheri, Tehsil ballabhgarh, District Faridabad, w. e. f. 01. 05. 1999. " In furtherance of the contract, the petitioner provided a tap off at Village Chainsa in its main gas pipe line running from Bijapur to Dadr. " A fourteen km. long Spur pipeline of 14 inches diameter from tap off point at Village Chainsa to the power plant of ntpc at Faridabad was also required to be laid. " The petitioner, thus, floated a global tender through its consultants on 11. 04. 1998 for procuring the line-pipes of two descriptions. ( 2 ) THE respondent is engaged in the business of production of electric welded pipes and tendered its bid document to the petitioner, which was accepted by the petitioner. " This resulted in a purchase order dated 12. 08. 1998 for supply of line-pipes, which was duly signed by the respondent in token of its acceptance on 20. 08. 1998. " The purchase order was subsequently modified in terms of the clarification sought by the respondent, such clarification being issued by the petitioner vide letter dated 26. 08. 1998. ( 3 ) IN furtherance of the contract, the line-pipes were supplied by the respondent to the petitioner and the same were laid and installed by the petitioner. " It is the case of the petitioner that the pipes failed the Field hydrostatic Test even before the requisite test pressure was reached and the petitioner resorted to alternative remedial measures for carrying out its operations under the contract with NTPC and incurred huge expenditure. " On 01. 03. 2000, the petitioner sent a notice of demand, which was rebutted by the respondent vide its letter dated 14. 03. 2000. " The respondent also claimed that, in any case, the liability to reimburse the petitioner for alleged failure of its pipes during the Field Hydrostatic Test was only to the extent of 10% of the contract value. ( 4 ) THE disputes between the parties not having been resolved, the petitioner initiated arbitration proceedings under Article 30. 4. 1 to the General terms and Conditions of the Contract as set out in the letter dated 01. 03. ( 4 ) THE disputes between the parties not having been resolved, the petitioner initiated arbitration proceedings under Article 30. 4. 1 to the General terms and Conditions of the Contract as set out in the letter dated 01. 03. 2000 and also requested the respondent to select an Arbitrator from the panel of three persons mentioned in the letter. " The respondent in turn requested for negotiation in a subsequent letter dated 10. 05. 2001 and in a letter dated 27. 03. 2003, the respondent requested for condonation of its lapses on account of failure of the pipes supplied to the Field Hydrostatic Test but claimed its liability to reimburse the petitioner was to the maximum extent of 10% of the contract value. " The petitioner was not satisfied with the same and invoked performance bank guarantee furnished by the respondent to the extent of 10% of the contract value. " ( 5 ) THE petitioner also filed a civil suit before the Delhi High Court for damages. " The respondent filed an application under Section 8 of the arbitration and Conciliation Act, 1996 ( for short, "the said Act" ) seeking reference of disputes to arbitration in terms of Article 30. 4. 1 of the General conditions of Contract. " This application was allowed by this Court on 03. 11. 2004 and Justice Anil Dev Singh (Retd.) was appointed as the Sole arbitrator to adjudicate upon the disputes between the parties. " ( 6 ) THE petitioner filed Statement of Claims in which a total sum of rs. 90,68,035/- was claimed. " One of the components of damages is the price difference between the cost of line-pipes of specified quality as compared to the one actually supplied by the respondent, which was alleged to be of lower specification, lower quality, lower strength, lower weight. " This claim was to the tune of Rs. 61,72,728/ -. " ( 7 ) THE Arbitrator made and published an Award dated 19. 04. 2007 holding that the petitioner was entitled to a total sum of Rs. 28,69,563/- from the respondent, out of which, the bank guarantee amount of Rs. 15,84,357/- had already been received leaving only the balance sum payable of Rs. 12,85,206/ -. " interest @ 12% p. a. from the date of suit till the date of the Award was also awarded apart from the costs. 28,69,563/- from the respondent, out of which, the bank guarantee amount of Rs. 15,84,357/- had already been received leaving only the balance sum payable of Rs. 12,85,206/ -. " interest @ 12% p. a. from the date of suit till the date of the Award was also awarded apart from the costs. " Future interest @ 18% p. a. was also granted. The claim of Rs. 61,72,728/- was disallowed. ( 8 ) IN this detailed Award running into 88 pages, the Arbitrator found that the cap of an overall limit of 10% of the contract price was in respect of cost of replacement and installation of pipes and did not deal with reimbursement relating to consequential damages. "the Arbitrator came to the conclusion on appraisal of the evidence that the pipes had failed during the field Hydrostatic Test and the said failure caused defects in the pipes. " In para 57, the Arbitrator recorded the following findings :- "57. Having regard to the evidence on record, the following have been established :-" (1) It was necessary to de-rate the entire pipeline; and" (2) Modification at Chainsa tap off point to de-rate the entire pipeline cost the claimant a sum of Rs. 23,18,464/ -. " (3) The respondent is liable to reimburse the aforesaid cost to theclaimant. " ( 9 ) THE question of the claim of Rs. 61,72,728/- on account of the price difference between the cost of line-pipes of specific quality and strength and the one actually supplied by the respondent alleging the same to be of lower specifications was considered in paras 58 and 59. " The petitioner based the claim on the fact that the pipes ordered were to withstand a design pressure of 92 kg. / CM2 with corrosion allowance of 1 mm and Field Hydrostatic Pressure of 129 kg. / CM2. " Three pipes burst during the Field Hydrostatic Test at a much lower pressure than the specified pressure and the pipes were de-rated to withstand the design pressure of only 58. 27 kg. / CM2 considering the corrosion allowance of 1 mm. " The pipes of 4. 4 mm were found good enough to withstand the design pressure of 58. 27 kg. / CM2. " The contention of the petitioner was that since the pipes supplied of 6. 27 kg. / CM2 considering the corrosion allowance of 1 mm. " The pipes of 4. 4 mm were found good enough to withstand the design pressure of 58. 27 kg. / CM2. " The contention of the petitioner was that since the pipes supplied of 6. 4 mm failed during Field Hydrostatic Test and did not fulfill the purpose for which they were ordered, the pipes of 4. 4 mm could have been used for withstanding the lower pressure of 58. 27 kg. / CM2. " The petitioner, thus, claimed the difference between the cost of the pipes of 6. 4 mm wall thickness and pipes of 4. 4 mm wall thickness. " The Arbitrator found that undisputedly the pipes supplied were of 6. 4 mm wall thickness. " The contract between the petitioner and NTPC required the gas to be supplied at a design pressure of 25"30 kg. / CM2 and not at a design pressure of 92 kg. / CM2. " Thus, even after de-rating the pipeline, the gas could be supplied to NTPC at the design pressure of 25"30 kg. / CM2. " The petitioner had not alleged that because of de-rating of pipeline, the purpose of laying pipeline for supply of gas to ntpc was not achieved or its profitability affected. " In fact, it is noted in the Award that the parties were heard on the question of impact of de-rating and asked to furnish any further clarification as may be required. ( 10 ) THE counsel for the petitioner claimed that the pipeline was not meant only for supplying gas to NTPC, but also meant to supply gas to other parties in future. " The Arbitrator found that this was not the case set up in the pleadings. " The fourteen km. long Spur pipeline of 64 inches was liable to be laid and accordingly for acquiring pipes of 6. 4 mm diameter tenders were floated. The purpose was only to supply to NTPC and, thus, there was no question of serving any other customer. " This claim was rejected. ( 11 ) THE present petition has been filed by the petitioner aggrieved by the Award to the aforesaid extent. 4 mm diameter tenders were floated. The purpose was only to supply to NTPC and, thus, there was no question of serving any other customer. " This claim was rejected. ( 11 ) THE present petition has been filed by the petitioner aggrieved by the Award to the aforesaid extent. ( 12 ) LEARNED counsel for the petitioner contended that the Arbitrator failed to appreciate the crux of the dispute, which was the claim for differential in price between the two types of pipes. " It is, thus, the plea advanced that since de-rating was confirmed and de-rating is a consequence of the pipeline being enabled to withstand specifications, the price difference is bound to be reimbursed. " Learned counsel for the petitioner seeks to challenge the findings of the Arbitrator to the effect that the gas can be supplied to ntpc at designed pressure of 25"30 kg. / CM2 and, therefore, de-rating is of insignificance. " Learned counsel also seeks to contend that the aspect of profitability of the petitioner not being affected was not relevant. " The plea is that once a specification is provided for, the same must be adhered to. ( 13 ) THE findings of the Arbitrator that the pipes meant for supply only to the NTPC plant are also sought to be challenged. ( 14 ) IN order to appreciate the aforesaid pleas, it cannot be lost sight of that this Court is not sitting as a court of appeal nor is it the function of this Court to seek to derive different conclusions on the basis of the material before the Arbitrator. " It is not as if this Court steps into the shoes of the arbitrator to once again determine whether the findings arrived at on an appraisal of evidence could be the same as the one arrived at by the Arbitrator. ( 15 ) THE Arbitrator is the Judge chosen by the parties. " This was the legal position even under the Indian Arbitration Act, 1940 and the position would be more so under the said Act. " No doubt, the window of scrutiny under Section 34 (2) of the said Act has been enlarged in view of the judgment of the Supreme court in Oil and Natural Gas Commission v. Saw Pipes Ltd. , 2003 (5) SCC 705. " No doubt, the window of scrutiny under Section 34 (2) of the said Act has been enlarged in view of the judgment of the Supreme court in Oil and Natural Gas Commission v. Saw Pipes Ltd. , 2003 (5) SCC 705. " It has been held that an Award contrary to substantive provisions of law or provisions of the said Act or against the terms of the contract would be patently illegal and subject to interference. " The phrase "public Policy of india" used in Section 34 (2) (b) (ii) was given a wider rather than a narrower meaning to include the authority in Court to set aside an Award, which was contrary to the fundamental policy of Indian law, interest of India, justice of morality or is patently illegal or so unfair and unreasonable that it shocks the conscience of the Court. " Any illegality of trivial nature was to be ignored. " ( 16 ) IF the contentions of learned counsel for the petitioner are tested on the aforesaid parameters, I am of the considered view that the aspect sought to be raised does not fall within the aforesaid ambit. " The dispute pertains to the claim for damages. " Part of the claims has been allowed while part of the claims in dispute has not been awarded. " It is not as if the Arbitrator was not conscious of the nature of claims and defence in this behalf. " The Arbitrator came to the conclusion that the damages already awarded in terms of the Award would suffice as no damage could be said to have occurred on the basis of the claim of the petitioner. " The contentions of the counsel for the parties are clearly noted by the Arbitrator and it is not possible to accept the plea of learned counsel for the petitioner that he argued something different than what has been examined by the Arbitrator. " The matter in dispute pertains to the overall appraisal of evidence including the adequate material to come to the conclusion. ( 17 ) AN important aspect to be considered is that it is not in dispute that pipes of 6. 4 mm were ordered. These pipes failed during the Field hydrostatic Test before reaching the design pressure of 92 kg. / CM2. The case of the petitioner, thus, is that instead of 6. ( 17 ) AN important aspect to be considered is that it is not in dispute that pipes of 6. 4 mm were ordered. These pipes failed during the Field hydrostatic Test before reaching the design pressure of 92 kg. / CM2. The case of the petitioner, thus, is that instead of 6. 4 mm pipes, it was possible to use pipes of 4. 4 mm for withstanding the lower pressure of 58. 29 kg. / CM2. It is not a case of non-supply of pipes of requisite diameter, but that pipes supplied of the requisite diameter failed the test before reaching the pressure prescribed. Since they bore a lower pressure, one could have done with a lower diameter pipe. It is in this context only that the claim was made for difference in the price of pipes and not that the respondent had supplied pipes of a different diameter than the one specified. ( 18 ) IN view of the aforesaid, I am of the considered view that no interference is called for in respect of the Award in question. Dismissed.