Dai-Ichi Karkaria Limited vs Oil And Natural Gas Corporation ...
2012 Latest Caselaw 455 Bom

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                IN THE HIGH COURT OF JUDICATURE AT BOMBAY




                                                                                    
                     ORDINARY ORIGINAL CIVIL JURISDICTION

                      ARBITRATION PETITION NO. 488 OF 2006




                                                            
                                    WITH
                         INTERIM PETITION NO. 4 OF 2007
                                      IN
                      ARBITRATION PETITION NO. 488 OF 2006




                                                           
      Dai-Ichi Karkaria Limited,
      a company incorporated under the provisions of the
      Companies Act, 1956 having its registered office




                                                
      at Liberty Building, Sir Vithaldas Thackersey Marg,
      Mumbai 400 020             ig                         ....       Petitioner

                                             Versus
                               
      Oil and Natural Gas Corporation Limited,
      having its ergisterd office at 5/A, Vasudhara
      Bhavan, Bandra East, Mumai 400 051.                   ....       Respondent
          

                                    WITH
                      ARBITRATION PETITION NO. 102 OF 2007
       



      Oil and Natural Gas Corporation Limited,
      incorporated under the Indian companies Act,
      1956 having its registered office at Tel Bhavan,
      Dehra Dun and a Branch Office at 5/A, Vasudhara





      Bhawan, Ali Yavan Jung Marg, Bandra East,
      Mumbai 400 051.                                       ...        Petitioner

                                             Versus





      Dai Ichi Karkaria Ltd.
      a company incorporated under the provisions of the
      Companies Act, 1956 having its registered office
      at Liberty Building, Sir Vithaldas Thackersey Marg,
      Mumbai 400 020                                        ....       Respondent

      Mr. Zuben Behram Kamdin along with Ms. Natasha Bopaiah and Ms. Parinaz
      Vakil i/by M/s. Bharucha and Parnetrs for petitioners in Arbitration Petition No.
      488 of 2006 and Arbitration Petition No. 4 of 2007 and respondents in Arbitration
      Petition No. 102 of 2007.




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    Ms. Snehalata Paranjape alongwith Mr. J. Kapadia and Mr. F. Lakdawala i/by M/s.
    Little & Co. for petitioner in Arbitration Petition No. 102 of 2007 and respondent




                                                                                   
    in Arbitration Petition No. 488 of 2006.




                                                           
                         CORAM : R.D. DHANUKA,J.

DATED : DECEMBER 06, 2012

ORAL JUDGMENT :

1. Both parties have filed petitions under section 30 of the Arbitration Act,

1940 and seek to challenge the impugned award dated 25 th September, 2006.

Arbitration Petition No. 102 of 2007 has been filed by M/s. Oil and Natural Gas

Corporation Limited (hereinafter referred to as "ONGC"). Arbitration Petition No.

488 of 2006 has been filed by M/s. Dai Ichi Karkaria Ltd. (hereinafter referred to

as "Contractor"). Some of the relevant facts for the purpose of deciding these

petitions are as under :

2. On 23rd April, 1985 ONGC floated tenders for supply of 9,500 MT of

Pour Point Depressant/Flow Improver. The tender submitted by the contractor was

found favourable. On 9/12th September, 1986 the contractor placed supply order

No. C-1438 B&A for supply of total 3500 MT of PPD by supplying its product

"Diatrolate MNF 1206". On or about 29 th January, 1987 the contractor completed

the entire supply of PPD namely 1500 MT in total eight lots. The samples from

the first two lots were tested by the ONGC on 18 th October, 1986 and the test

results were intimated to the contractor. It is the case of ONGC that by letter dated

20th October, 1986, the contractor accepted the condition of payment of excess

dosage compensation at a higher dose in the field use beyond 300 ppm as

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specified in the supply order. It is the case of ONGC that during the period 12 th

November, 1986 and 23rd November, 1986, the PPD offered in the first lot was

put to field use, at BHS offshore platform of the ONGC it achieved pour point of

18ºC at the dosage ranging from 325 ppm to 368 ppm. It is the case of ONGC

that the sampling/bonding of the subsequent three lots, that is, third lot of 100.40

MT, fourth lot of 207.90 MT and fifth lot of 207.54 MT were carried out on 4 th,

6th and 7th November, 1986. The aforesaid lots failed even in preliminary test that

is Onshore laboratory test, vide Laboratory Test report which were communicated

by the ONGC to the contractor. It is the case of ONGC that the PPD offered in the

third, fourth and fifth lots were withdrawn and re-offered by the contractor which

were sampled/bonded on 14th and 15th December, 1986. It is the case of ONGC

that on 2nd January, 1987, the samples passed on Onshore Laboratory test were

tested on loop line where these three lots achieved a pour point of 21 degree

centigrade to 18ºC at 356 ppm, 355 ppm and 352 ppm respectively. The

subsequent lot No. 6 according to ONGC was also sampled/bonded and the said

PPD was tested on loop line test and achieved a pour point of 18ºC at 390 ppm,

393 ppm and 393 ppm respectively. According to ONGC the contractor refused to

pay any dosage compensation on 23 rd February, 1987 on the ground that all the

lots were performed at 329 ppm, i.e. within reasonable limit considering the

alleged variations in crude oil at BHS and also asked for refund of

Rs.32,56,763/- deducted by ONGC from the invoices of PPD in respect of the last

lots of 507.60 MT. It is not in dispute that ONGC had deducted sum of

Rs.32,56,763/- towards penalty from the invoices issued by the contractor.

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3. The dispute arose between the parties and was referred to arbitration.

There was a dispute in respect of the right of ONGC to collect such

compensation. In view of the said dispute, the contractor was required to extend

the bank guarantees from time to time.

4. The contractor filed statement of claim. ONGC filed counter claim before

the learned arbitrator.

5. By award dated 25th September, 2006 the learned arbitrator directed ONGC

to pay to the contractor the sum of Rs.3,20,666/- being the excess deduction made

by it on account of dosage compensation with interest at the rate of 9% from the

date of deduction that is 19th January, 1987 till the date of payment. The learned

arbitrator also directed ONGC to pay to the contractor amount of Rs.25,68,661/-

being the bank commission paid by the contractor to the bank for keeping the

two bank guarantees alive with interest at the rate of 9% p.a., on different

amounts paid on different dates. The ONGC was directed to release the bank

guarantees furnished by the contractor.

6. ONGC challenged these three directions given by the learned arbitrator in

this petition. The contractor also filed cross petition challenging the adjustment

permitted by the learned arbitrator in favour of ONGC regarding dosage

compensation. On perusal of prayer clause in the present petition, it is clear that

ONGC has not challenged the rejection of counter claim filed by ONGC.

    7.     The learned counsel for the contractor fairly stated that the       contractor is





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not pressing the petition (488 of 2006) and submits that the petition filed by

ONGC be dismissed as no case is made out under section 30 of the Arbitration

Act, 1940. The learned counsel for ONGC submits as under :

(a) In so far as direction to return sum of Rs.3,20,666/- in the impugned

award toward the excess deduction made on account of dosage compensation is

concerned, it is submitted that the ONGC was entitled to recover the dosage

compensation of Rs.84,22,904/- whereas the learned arbitrator has determined the

penalty payable by the contractor only at Rs.29,36,060/-. The learned counsel

submits that the part of rejection of this claim by the learned arbitrator is contrary

to the terms of the contract. The learned counsel placed reliance on clause 2, 8(c ),

13(a) of the supply order which reads thus :

"2. Performance Test : The material will be evaluated on Bombay Crude Oil (BHS).

(a) After heating the crude oil to 50ºC, the oil will be doped at 45- 50ºC with 300 ppm (w/v) of Pour Point Depressant/ Flow Improver. The crude oil should have a modified pour point of 15ºC/18ºC (max.) when measured as per IP 15 or ASTM D-97. Plastic viscosity and yield

value of treated crude oil at 20ºC should be 10 CP (max) and 5 dynes/CM² (nax.) respectively when determined by six speed Fann VG meter.

8(c) Despatch instructions :

Material is to be dispatched only after satisfactory laboratory test and loop line test and approval and debonding by ONGC representative.

13(a) Method of evaluation of performance and working out of penalty, if any :

In order to establish consistency of quality of product supplied, one MT out of the first lot supplied to ONGC against this order would be retained separately by ONGC at its store as a reference sample. This reference of PPD over a period of four month from the date of putting

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into field use the quantity of PPD supplied against the first lot or 1500 MT PPD whichever is less.

In case on putting into field use, the material received against 2 nd lot or subsequent lots, if there is noticeable variation in the performance from that recorded in respect of first lot and such variation leads to penalty,

then performance of 20 ltre quantity of this lot drawn and that of 20 ltrs drawn out of one MT reference sample would be compared at the loop line. In case the lots are found to give same results, then level of penalty would be limited to penalty, if any, applicable against the first

lot. However, if this comparison shows a deterioration in performance then penalty as leviable on the basis of field consumption would become applicable.

After the period of validity of first 1 MT reference sample, fresh one

MT reference sample would be drawn from the lot under supply and the cycle repeated.

Samples of treated crude oil collected at four hourly interval will be tested in duplicate. In case of variation in data, the testing of the same

sample will be repeated.

Results of the composite sample collected over a period of 24 hours at the platform would also be taken into consideration for

evaluating the performance."

(b) There was no obligation on the part of ONGC to furnish the test results

for claiming dosage compensation. The claim of ONGC was restricted to only

loop line test. The learned arbitrator has decided contrary to the terms of the

contract.

10. Perusal of the award indicates that the learned arbitrator has rendered

finding of fact that the ONGC had placed DPRs (Daily progress reports) only in

respect of 1220 MT of PD used at BHS. The learned arbitrator found that the

ONGC Could not produce any DPR or test report in respect of balance PPM

other than at BHS. The learned arbitrator accepted the submissions made by the

contractor that in the absence of any DPRs or test report in respect of balance

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quantity, the dosage compensation could not be claimed. The learned

arbitratoraccordingly allowed the clam of ONGC only in respect of 1220 MT for

which test reports were made available by ONGC and rejected the claim in

respect of the balance quantity out of 3500MT supplied by the contractor. The

learned arbitrator also considered the oral evidence of witnesses examined by

OGNC who had made categorical statement that the DPRs brought on record

by the ONGC were only in relation to the 1220 MT used at BHS. The learned

arbitrator found that in the absence of the said reports the ONGC was not entitled

to recover the amount of dosage compensation. On perusal of the provisions of

the contract placed reliance by the learned counsel for ONGC it is clear that none

of the said clauses provide that the ONGC could recover dosage compensation

without producing any test results. In my view the learned arbitrator has

considered the provisions of the contract as well as pleadings and evidence

relied upon by both the parties and interpreted the terms of the contract. In my

view, the interpretation of the learned arbitrator is a possible interpretation and

thus this court can not interfere with such possible interpretation of the learned

arbitrator. I therefore, reject the submissions made by the learned counsel for

ONGC that the award is contrary to the terms of the contract or requires

interference.

11. In so far as claim for commission charges required to be incurred by the

contractor for renewal of the bank guarantee is concerned, the learned arbitrator

has rendered a finding of fact that nothing is found payable by the contractor to

ONGC. The learned arbitrator has rendered a finding that on the contrary the

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ONGC had recovered the amount more than that was due from the contractor

towards dosage allowance. The learned arbitrator has rendered finding that if

the bank guarantees would not have been renewed by the contractor, ONGC

would have encashed the same. In view of the dispute between the parties,

ONGC did not release the bank guarantees executed by the contractor and as a

result of that the same was required to be renewed. The learned arbitrator thus

having rendered finding that the contractor was not responsible for such renewal

of bank guarantees has in my view rightly allowed the claim for bank guarantee

charges incurred by the contractor. The learned arbitrator has not allowed the

entire claim but has allowed the said claim for limited period. In my view, such

finding of fact recoded by the learned arbitrator can not be interfered with under

section 30 of the Arbitration Act, 1940. The learned Arbitrator has not committed

any misconduct and has considered the entire evidence produced by both the

parties and has given a reasoned award. This court cannot go into the

reasonableness of the reasons under section 30 of the Act. In my view there is no

merit in any of the submissions of learned counsel for the petitioner and thus

Arbitration Petition No. 102 of 2007 is dismissed. No order as to costs.

Arbitration Petition No. 488 of 2006 filed by the contractor is dismissed as not

pressed. In view of the order passed in Arbitration Petition No. 102 of 2007,

Interim Petition No. 49 of 2007 does not survive and the same is disposed off.

12. In view of the dismissal of the petition, there shall be decree in terms of the

award under Rule 787(5) of the Bombay High Court (Original Side) Rules.

There shall be no order as to costs.

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13. The learned counsel for ONGC applies for stay of the order passed by this

court which has been resisted by the learned counsel for the contractor.

Application for stay is refused.

(R.D. DHANUKA,J.)