Multi-Clause Contracts Should Be Interpreted So That A View On Any Particular Clause Doesn't Violate Another Part Of The Contract: Delhi HC

Brief Facts

The appellant (hereafter GAIL), has filed the present intra court appeal under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 (hereafter the A&C Act) impugning a judgment dated 26.11.2010 (hereafter the impugned judgment) passed by the learned Single Judge of this Court in OMP (COMM) No.264/2003.

SPL (Saw Pipes Limited) was awarded the contract pursuant to being successful in a competitive bidding process initiated by GAIL by floating a global tender. GAIL issued a Purchase Order dated 31.10.1994 (hereafter the PO) for supply of pipes. Section III of the bid document contains the General Conditions of the Contract (hereafter GCC). Article 1.2 of GCC defines the Contract to include the Purchase Order and all attached exhibits and documents thereto.

The disputes arose between the parties as GAIL withheld the payment of amounts due to SPL under the Contract. It is the case of GAIL that the amounts were withheld towards damages for delay in delivery of the pipes attributable to SPL. Article 28 of the GCC contained an arbitration clause, whereby the disputes in relation to the Contract were agreed to be resolved by arbitration under the rules of the Conciliation and Arbitration of International Chamber of Commerce (ICC) by one or more arbitrators. The venue of arbitration proceedings was agreed to be New Delhi.

SPL approached the ICC for commencement of the arbitration proceedings in regard to the disputes/claims of SPL arising out of the Contract.GAIL objected to the said reference. GAIL contended that the ICC does not have the jurisdiction to commence the arbitration proceedings as the contract was awarded to SPL, which is an Indian concern.

However, the ICC rejected GAIL's objection and proceeded with the arbitration. The arbitral tribunal also rejected GAIL's objection to the jurisdiction of the arbitral tribunal by a detailed order dated 11.02.1998.

SPL filed a civil suit before this Court for an injunction restraining GAIL from encashing the performance bank guarantee furnished by SPL in terms of the Contract. In the said proceedings the parties agreed for the arbitration to be conducted under the A&C Act in place of the ICC Rules. Further, a new arbitral tribunal was constituted for adjudication of the disputes between the parties. This Court further directed that the Arbitral Tribunal shall take up the matter from the stage already reached and that the aforementioned bank guarantee would be kept alive.

The Arbitral Tribunal held that GAIL was responsible for the delay by not taking the delivery of the goods even when large quantities of finished and coated pipes were available with SPL. Therefore, GAIL was not entitled to reduce the price payable for the pipes, on account of delay on the part of SPL. Accordingly, the Arbitral Tribunal allowed SPL's claim for the amount withheld by GAIL and awarded the said amount along with the interest.

The learned Single Judge also rejected GAIL's petition to set aside the impugned award as the Court found that the Arbitral Tribunal's interpretation of the Contract was reasonable and its view was plausible one.

Contentions

The appellant submitted that SPL was not able to meet the production targets on account of its own defaults. GAIL contended that there is no stipulated schedule for lifting of pipes and it had no obligation to lift pipes to match SPL's production schedule.It also followed that SPL was required to arrange for storage of pipes for a reasonable period till GAIL lifted the stocks.

• That Article 13.10 of the GCC expressly provided that all tests and trials in general would be witnessed by an Inspector and SPL would confirm to the consultant the exact date of inspection by a thirty days' prior notice. It was obvious that SPL was required to make arrangements for storage equivalent to production capacity of at least thirty days. Since the storage facilities available with SPL were only equivalent of eight days production, it was evident that the bottleneck resulting in the delay in supplies was for reasons attributable to SPL.
• That its decision to apply the price reduction formula under Article 24.1 of the GCC is not arbitrable and that SPL has waived its right to raise such claims as it had not raised any claim during the currency of the Contract.
• Reliance was placed on GAIL (India) Limited v. Punj Lloyd Limited in support of his contention that it was not necessary for GAIL to prove that it had suffered actual loss claiming reduction in price.

Per contra, the respondent submitted that it had made all necessary arrangements and complied with all its obligations as per the Contract. However, the delivery of coated pipes was not completed within the stipulated period, that is, by October, 1995.

• That the total requirement of trailers for lifting the pipes was 60 (sixty) trailers of 25-ton capacity each, per day for the evacuation rate of the pipes to be in consonance with the delivery schedule as per the Contract. However, GAIL did not comply with the said condition. As a result, around 2000 (two thousand) pipes were lying in the stack yard of SPL on account of failure of GAIL to lift the pipes promptly in the months of March, April, and May, 1995
• That GAIL continued taking delivery of the coated pipes even after the stipulated period and making payments. The last delivery of finished pipes from main coating yard was accepted by GAIL on 16.01.1996 and the last delivery from the buffer stack yard, was accepted on 28.02.1997.

Court's Analysis

The court referred to the Supreme Court judgment in Nabha Power Limited (NPL) v. Punjab State Power Corporation Limited (PSPCL) and Another-2018 wherein while discussing the business efficacy principles in commercial transactions, it was held that the explicit terms of a contract are always the final word with regard to the intention of the parties. The multi-clause contract inter se the parties has, thus, to be understood and interpreted in a manner that any view, on a particular clause of the contract, should not do violence to another part of the contract.

While the applying the above ratio the facts of the present case, the court agreed with the findings of the tribunal and found no infirmity with the reasoning of the Arbitral Tribunal. A commercial transaction must be viewed in a reasonable manner and with a perspective that makes commercial sense. The Contract provided for SPL to make deliveries as scheduled, it must follow that GAIL also had the obligation to take delivery of the material in a reasonable manner.

The court further observed that what is reasonable must be viewed in the overall context of the Contract including the production and storage capacity of SPL, which was indisputably known to GAIL prior to issuance of the Purchase Order (PO) in question. It is not disputed that GAIL had prior to placing the PO, inspected SPL's premises and was aware of the storage facility at the coating plant.

The court further noted that GAIL's contention that SPL's storage capacity was limited to eight days production is also unpersuasive. The issue was regarding SPL's storage available at its coating yard. Since the same was creating a bottleneck, SPL had suggested creation of a buffer stack yard where pipes could be stacked and to free up the space in the coating yard. GAIL had consented to the said arrangement. It is also material to note that SPL had sent several communications calling upon GAIL to continue lifting material from the coating yard and not confine the same to buffer stack yard.

The court reiterated the well settled position of law and observed that the Arbitral Tribunal has interpreted the Contract in a reasonable manner as men of commerce would have intended. It is well settled that the jurisdiction to interpret a contract rests with the Arbitral Tribunal . Thus, unless the court finds that the Arbitral Tribunal's interpretation is wholly perverse and not a possible view, no interference with the exercise of jurisdiction would be called for in proceedings under Section 34 of the A&C Act.

The court further observed that no grounds to interfere with the Arbitral Tribunal's finding were made out that GAIL was responsible for the delay in lifting the stocks in a timely manner. Admittedly, GAIL had also withheld amounts due to SPL without providing any reasons for the same at the material time. Clearly, if GAIL was responsible for the delay, its claim for reduction in the consideration payable to SPL on account of delay in delivery of pipes, would be unsustainable.

The court further observed that admittedly, GAIL had lifted the pipes from the main coating yard for the last time on 16.01.1996. It had continued to lift pipes from the buffer stack yard till 28.02.1997, which was after a considerable time had expired after the said pipes had been manufactured and stored. As noted above, the Arbitral Tribunal did not accept that GAIL could delay taking delivery of the pipes at its will and had no obligation to take delivery in a timely manner. As discussed earlier, this view cannot be faulted as an unreasonable or a perverse view.

Based on the above, the court came to the conclusion that given the aforesaid view, it follows that the Arbitral Tribunal's decision that GAIL had waived the delivery schedule and had acquiesced in extension of delivery schedule by its conduct, warrants no interference in these proceedings. It is also material to note that the Arbitral Tribunal had found that GAIL's decision to apply the price reduction formula was an afterthought.

The court further noted that the Arbitral Tribunal's decision that GAIL had consented to reschedule the delivery without insisting on reduction of price cannot be stated to be an implausible or an unreasonable view. It is not disputed that after the issuance of the PO, GAIL was kept fully abreast of the state of preparation of SPL, the steps taken by it in this regard, as well as the proposed timelines for delivery of pipes. GAIL was also a participant in some of the steps (through Consultant), particularly, in relation to testing as well as for altering the specifications of the pipes.

The court further noted that GAIL was also aware of the delivery timelines during the initial period. Admittedly, GAIL had not placed any condition or indicated its intention to pay reduced price for the pipes at the material time. At that stage, GAIL had also not made necessary arrangement for taking of delivery of the goods.

Based on the above, the court observed that the Arbitral Tribunal also found that GAIL was responsible for part of the delay during the initial period as well. In view of the said finding, the Arbitral Tribunal's conclusion that GAIL had willingly and knowingly accepted deliveries as re-scheduled without demur or protest, cannot be stated to be a view, that is, perverse or implausible.

The court further agreed with the conclusion of the arbitrator and observed that in the aforesaid circumstances, the Arbitral Tribunal's decision that SPL is entitled to the agreed consideration for delivery of the goods in question without any reduction in price or imposition of liquidated damages, cannot be interfered with in these proceedings. Accordingly, the present appeal was dismissed.

Case Title: GAS AUTHORITY OF INDIA LTD versus SAW PIPES LTD

Case Reference: FAO(OS) (COMM) 313/2019 and CM APPL. 34865/2024

Judgment Date: 29/10/2024