Delhi High Court
General Electric Inc. Canada & Anr vs National Hydroelectric Power ... on 18 May, 2010
Author: Valmiki J. Mehta
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+
Reserved on : 18th May, 2010
Pronounced on: 18th May, 2010
CS(OS) No.1480/2003
GENERAL ELECTRIC INC. CANADA & ANR ...... Petitioner
Through: Mr. Sandeep Sethi, Sr. Advocate with
Mr. Abhinav Vashist, Advocate.
VERSUS
NATIONAL HYDROELECTRIC POWER CORPORATION LTD.
....Respondents
Through: Mr. B. Dutta, Sr. Advocate with Mr.
Sachin Datta, Advocate.
AND
CS(OS) No. 1475-A/1996
NATIONAL HYDROELECTRIC POWER CORPORATION LTD.
.... Petitioner
Through: Mr. B. Dutta, Sr. Advocate
with Mr. Sachin Datta,
Advocate.
Versus
GENERAL ELECTRIC INC. CANADA & ANR ... Respondents
CS(OS) No.1480/2003 Page 1
Through: Mr.Sandeep Sethi, Sr. Advocate with
Mr. Abhinav Vashist, Advocate
CORAM:
HON'BLE MR. JUSTICE VALMIKI J.MEHTA
1. Whether the Reporters of local papers may be
allowed to see the judgment?
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported in the Digest? Yes
% JUDGMENT
VALMIKI J. MEHTA, J
I.A.No. 4860/2004 in CS(OS) No. 1480/2003
1. Objections to the Award dated 7.5.1996 (impugned Award) have been filed
under Sections 30 and 33 of the Arbitration Act, 1940 by means of the subject IA
and which is being disposed of by means of the present judgment. The applicant-
objector is also referred to as the petitioner and the non-objectors are also referred
to as the claimants/respondents.
2. The impugned Award came to be passed by the Arbitration Tribunal
constituted by the International Chamber of Commerce (for short „ICC‟) Paris and
which Tribunal comprised of three members namely Justice Raghunandan S.
Pathak, Jeffrey M. Hertzfeld and John Murray Lord Dervaird. By the impugned
Award the Arbitration Tribunal accepted the claims filed by the respondents/non-
objectors against the petitioner/objector. The objector is M/s National Hydro
CS(OS) No.1480/2003 Page 2
Electric Power Corporation Ltd. and the claimants/non-objectors are M/s MIL
Group Inc. a Corporation Incorporated under the laws of Canada and Canadian
General Electric Company Ltd. a company similarly incorporated.
3. A contract dated 3.8.1984 was entered into between the objector as the
owner of the project and the non-objectors as the suppliers of goods and services.
The project in question was the Chamera Hydroelectric Project on the Ravi River
in the State of Himachal Pradesh. Whereas Canadian General Electrical Company
Ltd. (GE) provided the machinery and services with respect to Generator Core
Package, MIL Group Inc. (MIL) supplied machinery and services with respect to
the Turbine Core Package. The disputes between the parties arose with respect to
the price variation claims made by the non-objectors against the objector with
respect to the equipment and the tools supplied as also the consultancy services
provided. Incidental issues also arose with respect to this main claim of price
variation and which incidental issues pertain to rate of interest, existence or
otherwise of force majeure conditions and the issue of limitation. The Arbitrators,
as already stated above, accepted the price variation claims and also awarded
interest to the non-objectors leading to the filing of the objections to the impugned
Award by the petitioner herein.
4. Before this court, the same issues and arguments were raised, as was done
before the Arbitration Tribunal. I will take up and decide each aspect one by one.
CS(OS) No.1480/2003 Page 3
5. The issue of price variation encompasses within it, the entitlement to price
variation not only with respect to the basic equipment supplied, but also with
respect to tooling supplied for the purposes of installation and commissioning and
also as regards consultancy services. In order to determine the issues with respect
to price variation, it is also necessary to decide two defences of the objector that
the claims were time barred and there were no force majeure conditions which
entitled the non-objectors to supply the equipment with delay. It was contended by
the objector that the delay was on the part of the non-objectors/claimants and thus
they cannot get the benefit of price variation in supply of the equipment, tools and
consultancy services.
6. The first issue which was taken up by the Arbitration Tribunal and is also
being taken by me, is the issue with regard to the claims being time barred. It is a
mis-description to call the present defence in that the claims were barred by
limitation, because the defence was not the usual defence of the claims being
barred as per the limitation period provided under the Limitation Act, 1963 but the
defence was that the claims were not filed within the period as required under a
particular clause viz Clause 15.1 of the General Terms and Conditions of the
Contract and consequently, it was contended that since the claims were filed
beyond the period as prescribed under Clause 15.1 , therefore, the same were
CS(OS) No.1480/2003 Page 4
barred. In fact, this issue was argued by the objector as an issue touching
jurisdiction of the Tribunal.
On 18.2.1994, the claimants filed a request for Arbitration in accordance
with Clause 15.1 of the Contract. Prior thereto on 22.10.1993 the claimants
intimated their intention to submit the disputes to arbitration in accordance with
Clause 15.1. At that stage it was not contended by the objector that the claims were
out of time in October, 1993, and, this issue was raised for the first time only in the
arbitration proceedings.
7. In order to understand the contention of the objector and the decision
thereon of the Arbitration Tribunal on this aspect, it is necessary to reproduce
Clause 15.1 of the contract at this stage and which reads as under:-
"In the event of any controversy or claims between NHPC and any
other Party pursuant to this Contract, or any alleged breach hereof,
every effort will be made to attempt to settle such disputes in an
equitable manner. If such settlement is not made within 120 days
after the written demand therefore has been submitted by one to the
other, then upon either NHPC or the affected Canadian Party
giving written notice one to the other, the matter shall be submitted
within the subsequent 120 day period for arbitration subject to the
rules of procedure of the International Chamber of Commerce,
Paris by a board of three arbitrators."
The objector contended that the demand to settle the disputes has to be
submitted within an overall period of 240 days once the period begins to run i.e
first 120 days to reach the settlement and the second period of 120 days thereafter
starts immediately on the 121st day, till the 240th day and the matter can be
CS(OS) No.1480/2003 Page 5
referred to arbitration up to the 240th day but not a day after the 240th day. It was
contended that once the overall concurrent period of two periods of 120 days each
expired i.e. a total period of 240 days concurrently, then, there cannot be reference
of disputes to arbitration. On the basis of the aforesaid interpretation as was sought
to be canvassed by the objector on the basis of Clause 15.1 it was argued that since
the first request was made on 29.4.1992, the period of 240 days had expired when
the request for arbitration was made on 18.2.1994. The claimants however
contended that the two periods of 120 days each did not run concurrently and the
second period of 120 days begins only when a notice was given by the claimants
after the failure of the settlement talks between the parties. The arguments and the
contentions of the claimants found favour with the Arbitration Tribunal which held
as under:-
"2.4 The Tribunal is satisfied that the Claimants‟ interpretation is
to be preferred. The natural reading of the relevant part of the
Clause is that the words "then upon either NHPC or the affected
Canadian Party giving written notice one to the other "qualify the
phrase" the subsequent 120 day period"; that is, the 120 days
period these referred to is subsequent to the giving of the written
notice just referred to. The Respondents‟ interpretation gives no
content to the word "upon". It was stated to the Tribunal by
Counsel for the Respondents that claims of this type must be
construed strictly. He made that submission under reference to
Mustill & Boyd: Commercial Arbitration Ist Edition, 167 but
the relevant passage states "Claims of this type must be construed
strictly, and a claim will not be barred by lapse of time unless the
provision clearly applies to the claim in question". It is clear
therefore that what the authors of Mustill & Boyd had in mind
was that such claims should be construed strictly against the party
seeking to rely thereon, so as not to render the claim effective to
bar resort to arbitration unless it is quite clear that it must do so.
CS(OS) No.1480/2003 Page 6
For the reasons already stated, the Tribunal is in any event of the
view that on a proper construction of Clause 15.1 the time limit
for resort to arbitration was one of 120 days which did not begin
to run until the Claimants‟ letter of 22nd October, 1993. (It should
be recorded that it was not in dispute before the Tribunal that that
was the only written notice requiring arbitration.) The reference
to arbitration was therefore timeous and this arbitration is duly
based on Clause 15.1."
8. I do not find any error in the interpretation as put forth by the Arbitrators on
Clause 15.1 of the contract. The Arbitrators act within their jurisdiction when they
interpret a Clause in the contract and merely because two interpretations are
possible, this court is not entitled to interfere with one interpretation which is
adopted by the Arbitrators, once the interpretation which is adopted is plausible
and possible.
Further, it is necessary that every attempt should be made to interpret a
clause so that valid legal rights are not extinguished by purely technical
interpretations which would thwart justice. The legislature in furtherance of this
wisdom has now amended Section 28 of the Contract Act, 1872 and has added an
additional sub-Section in Section 28 whereby extinguishing of the rights of a party
by a Contractual Clause before the expiry of the period of limitation as provided
under the Limitation Act, 1963 has been held to be void. While exercising
jurisdiction under Sections 30 and 33 of the Arbitration Act, 1940, this court does
not sit as a court of appeal over the Award of the Arbitrators. Unless and until the
interpretation of the Arbitrators of a contractual clause is an interpretation which is
CS(OS) No.1480/2003 Page 7
wholly perverse i.e. one which no reasonable man well informed of all the facts
and law would have taken, courts do not interfere with the interpretation as given
of the contractual clauses by the Arbitrators.
9. I, therefore, reject the contention raised on behalf of the objector that the
claims filed by the claimants were barred on account of Clause 15.1 of the
Contract.
10. The second defence of the objector going to the root of the matter was the
objection that the claimants were themselves guilty of delay in the supply and
consequently, they were not entitled to the benefit of the price variation clause. It
was contended that the force majeure clause in the contract could not assist the
claimants because there were no force majeure conditions. The Arbitration
Tribunal has rejected this contention of the objector. In fact, the Arbitration
Tribunal found that this was not an issue which was ever seriously contested and
canvassed in the arbitration proceedings and in fact no evidence had been led by
the objector on the issue of force majeure. In this regard, the Arbitration Tribunal
while dealing with this aspect of force majeure has held as under:-
"4.1..........................However, at the stage of the hearing the
Respondents sought in their later submissions to argue an entitlement to resist
all the price calculations. The apparent basis upon which they sought to do so
was that the delay of some three years between 1988 and 1991 which the
Claimants attributed to force majeure was not entirely so. No material was
put or attempted to be put before the Tribunal hearing on this issue. In these
circumstances the Tribunal is not concerned with any question of delay."
CS(OS) No.1480/2003 Page 8
Before this court, it was very vehemently contended on behalf of the
objector that the Arbitration Tribunal has clearly fallen into an error because the
objector had clearly taken up the defence of disentitlement of the claimants to price
variation and it was therefore contended that the Arbitrators could not have
brushed aside this defence. It was further contended that the onus of proof to
prove the existence of force majeure conditions was on the claimants and in which
they miserably failed. It was thus sought to be concluded on behalf of the objector
that since there were no force majeure conditions, consequently, the delay in the
supply is on account of the own faults of the claimants and hence the claimants are
not entitled to the benefit of the price variation clause.
11. In my opinion, this objection of the objector is also wholly misconceived.
The objector in its pleadings has not disputed that there took place in August,
1988 force majeure conditions such as earth quakes and floods in India which did
in fact cause a delay in the project. In its pleadings filed in the arbitration
proceedings the claimants and the objector respectively stated as under:-
Pleadings of claimants
"52. The project experienced approximately a three year delay from August
1988 to 1990 due to force majeure conditions of earthquakes and floods in
India. On 23 August, 1988 SNC/Acres duly wrote to NHPC' stating that:
"In accordance with the provisions of Article 14 of the
General Terms and Conditions, we are notifying the
Corporation [NHPC] that a Force Majeure condition is
developing at the Chamera Hydroelectric project as a result
of floods and washouts, which may affect the timely
CS(OS) No.1480/2003 Page 9
commissioning of the Generating Units in accordance with
the Contract" (Appendix A Exhibit 11)"
As a result of the floods and washouts, the infrastructure had to be
substantially reconstructed before the GE and MIL equipment could be
shipped. Due to these conditions, the Claimants could not commission the
equipment they had manufactured and delivered until 1991-92. The various
turbines and generators and related equipment were kept in storage for
approximately three years pending clean-up and repairs to the power house
complex. The earthquakes and floods had thus set the project back about
three years.
.
53 In 1990-91, as work recommenced by the Claimants, the issue of
NHPC' inexplicably withholding payments, was revisited. It appeared that
there was a dispute over the escalation calculations, but NHPC'had not
expressed any particular objection."
Pleadings of Objector
"52. "The Respondents deny that Force Majeure conditions
because of earth quakes and floods continued for three years
from August 1988 to 1990 as alleged by the Claimants.
Damages to the infrastructure due to the floods in august 1988
were restored promptly and the construction activities on most
of the installations in the Project had continued without
interruption during the above said period.
53. The contents of this para are completely denied. As already
explained in Para 52 above, the construction work at Chamera
Project had not remained suspended during the period August,
1988 to 1990 as alleged by the Claimants. The construction
activity on all the installations in the Project had continued
uninterruptedly during the said period. The payments
pertaining to the price variation claims of the Claimants were
regulated as per the relevant contractual provisions and the so-
called "with-held payments" as alleged by the Claimants were,
in fact, the result of recoveries /set off of the over-payments
made earlier by the respondents on the basis of wrong price
variation of the Claimants". (underlining added)
From the aforesaid pleadings one fact is absolutely clear that there were
damages to the infrastructure due to floods in August, 1988. Once force majeure
CS(OS) No.1480/2003 Page 10
conditions are found to exist, if the objector contended that the situation was
restored promptly, the onus of proof surely shifted upon the objector to show as to
when the force majeure conditions ceased to be exist. Surely when there is damage
on account of floods and earth quakes " promptly" cannot have any meaning. In
fact, it is for this reason I tend to accept the findings of the Arbitrators that this
issue was not canvassed with fervor and vehemence before the Arbitrators and it is
only sought to be canvassed with a lot of fervor before this court by the objector
because the Award is now against the objector, and, the objector would definitely
seek to use all the weapons in its armory to dislodge the Award. I, therefore, am
unable to agree with the contention as raised by the counsel for the objector that
the force majeure conditions did not exist or that it was for the claimants to prove
the force majeure conditions.
12. That takes me to the main issue of the entitlement to price variation claims.
This claim of price variation was argued and can be dealt with under two heads.
First is the price variation claims on equipment and consultancy for which the
same arguments apply and secondly for the price variation on tooling with respect
to which different arguments were raised.
Issue of price variation on equipment and consultancy
13. In order to understand and appreciate this issue, it is necessary to reproduce
the relevant clauses of the contract and which read as under:
CS(OS) No.1480/2003 Page 11
"2. SCOPE OF WORK
2.1 MIL Scope of Work-Turbine Core Package
Marine Industries Limited will supply the Turbine Core Package as hereinafter
described, and effect delivery FAS INCOTERMS of the said Turbine Core Package
to NHPC on principal to principal basis, the title to which shall pass to NHPC
outside India on negotiation of documents of title.
2.1.1 Turbines and Inlet Valves
3 Francis turbines, 3 electro-hydraulic governors, 3 lattice-type butterfly inlet valves
including conducting turbine model tests, including submission of report, spare
parts for turbines, governors and butterfly inlet valves and necessary auxiliary
equipment, as per the Technical Specifications 7161-4-4500-TS-001-00 for Turbine,
Governor and Auxiliaries and 7161-4-4500-TS-002-00 for Turbine Inlet Valves and
Auxiliaries.
The limit of the turbine supply will include extension of spiral casing up to the
downstream flange of butterfly valve along with the make-up piece.
2.1.2 Gates
Various gates, hoists, embedded parts and other related equipment as per the
following Technical Specifications:
7161-2-4500-TS-001-00 Low Level Sluice Gates and
Bulkhead Gates
7161-2-4500-TS-002-00 Diversion Tunnel Gates and Guides
7161-4-4500-TS-003-00 Draft Tube Gates and Guides
7161-3-4500-TS-002-00 Tailrace Tunnel Outlet Portal
Stoplog, Guides and Follower
7161-3-4500-TS-001-00 Power Tunnel-Bulkhead Gate, Intake
Gate and Embedded Parts
7161-3-4500-TS-003-00 Surge Shaft Stoplogs, Guides and
Followers
2.1.3 Tools, Testing and Installation Equipment
MIL will supply all special tools, testing and special installation equipment required
for the installation, testing and commissioning of the Turbine Core Package as per
the Technical Specifications.
2.1.4 Supervisory Services for Installation, Testing and Commissioning
MIL will provide supervisory services for the management of installation and
supervision of testing and commissioning of the Turbine Core Package, hereinafter
described throughout this Annex B as "Consultancy Services". The installation of
the Turbine Core Package shall be the responsibility of NHPC who shall award the
contract to an installation contractor under a separate contract in consultation with
MIL.
2.2 CGE Scope of Work- Generator Core Package
CS(OS) No.1480/2003 Page 12
Canadian General Electric Company Limited will supply the Generator Core
Package as hereinafter described, and effect delivery FAS INCOTERMS of the said
Generator Core Package to NHPC on principal to principal basis, the title to which
shall pass to NHPC outside India on negotiations of documents of title.
2.2.1 Generators
Three (3) only Type ATI, 200,000 KVA, 13800 volts, 3 phase, 50 Hz, hydro-
electric generators, complete with static exciters, grounding cubicles, station tools,
testing, commissioning and maintenance equipment and spare parts all as per the
Technical Specifications 7161-4-4700-TS-001-00 for Generators and Excitation
Systems.
2.2.2 Bus Ducts
Three (3) sets Isolated bus duct equipment, each set as per the Technical
Specifications 7161-4-4700-TS-002-00 for Isolated Phase Bus Duct.
2.2.3 Unit Auxiliary Transformers
Three (3) sets 1250 KVA, 3 phase, 50 Hertz, indoor dry type mental enclosed unit
auxiliary transformers as per the Technical Specifications 7161-4-4700-TS-005-00
for the Unit Auxiliary Transformer.
2.2.4 Tools, Testing and Installation Equipment
CGE will supply all special tools, testing and special installation equipment required
for the installation, testing and commissioning of the Generator Core Package as per
the pertinent Technical Specifications.
2.2.5 Supervisory Services for Installation, Testing and Commissioning
CGE will provide supervisory services for the management of installation and
supervision of testing and commissioning of the Generator Core Package,
hereinafter described throughout this Annex B as "Consultancy Services". The
installation of the Generator Core Package shall be the responsibility of NHPC who
shall award the Contract to an installation contractor under a separate contract in
consultation with CGE.
3. CONTRACT PRICES AND TERMS OF PAYMENT
3.1 MIL Contract Prices
3.1.1 The Contract Price for the Equipment delivered FAS Eastern Canadian Port
or other port of origin, described in Articles 2.1.1, 2.1.2 and 2.1.3 hereof shall be
thirty-nine million two hundred and sixty thousand CANADIAN dollars (CAN.
$39,260,000.00) Net.
3.1.2 The Contract Price for the Consultancy Services described in Article 2.1.4
hereof shall be three million six hundred and forty thousand CANADIAN dollars
(CAN. $3,640,000.00) Net.
CS(OS) No.1480/2003 Page 13
3.1.3 The Contract Prices are subject to variation in accordance with the Price
Variation as per Article 4.1 and 4.3 hererof.
3.2 CGE Contract Prices
3.2.1 The Contract Price for the Equipment delivered FAS Eastern Canadian Port
or other port of origin, described in Articles 2.2.1, 2.2.2 2.2.3 and 2.2.4 hereof shall
be twenty million seven hundred and eighty one thousand, six hundred and thirty
nine CANADIAN dollars (CAN.$ 20,781,639.00) Net.
3.2.2 The Contract Price for the Consultancy Services described in Article 2.2.5
hereof shall be two million four hundred and eighteen thousand, three hundred and
sixty one CANADIAN dollars (CAN.$ 2,418,361.00) Net.
3.2.3 The Contract Prices are subject to variation in accordance with the Price
Variation as per Articles 4.2 and 4.3 hereof.
3.3 Terms of Payment
NHPC shall pay or cause to be paid the Contract Price as set forth in Articles 3.1.1
and 3.2.1 hereof (referred to as FAS Contract Price in this Article 3.3) in accordance
with the following terms:
3.3.1 Subject to Articles 13.1.1, 13.1.2 and 13.1.3 of the General Terms and
Conditions of this Contract, 15% (fifteen percent), free of interest, of the FAS
Contract Price for the supply of the Turbine Core Package and Generator Core
Package shall become due and payable as advance, immediately after the signing
date of the Contract and upon presentation of the invoice and advance payment
bond as per Article 12.1 of this Annex B.
3.3.2 75% (Seventy-five percent) of the FAS Contract Price for the supply of the
Turbine Core Package and Generator Corer Package in quarterly progress payments
as per schedule of payments shown in Appendix B1 and B2 respectively to this
Annex B related to the schedule of Work progress.
3.3.3 Subject to Article 19 of this Annex B, 10% (ten percent) of the FAS
Contract Price on the completion of the shipment for each Unit of each Major
Equipment Group due against presentation of shipping documents including
warehouseman‟s receipt, dock receipt or airway bill evidencing delivery. However,
where manufacturer is ready for shipment from work-shop to Port of Shipment but
NHPC is not able to arrange for shipment within thirty (30) days for certain reasons
at the appropriate time, NHPC shall make payment to the Manufacturer upon
Manufacturer‟s readiness to Ship being established but the delivery and transfer of
ownership shall pass to NHPC only as per the provisions of Article 1.(7) of the
General Terms and Conditions.
Each shipment for each Unit of each Major Equipment Group for which Readiness
to Ship has been established, will be held at the Manufacturer‟s Plant for a further
period of thirty (30) days free of storage charge and duly insured without cost of
CS(OS) No.1480/2003 Page 14
NHPC and thereafter, if required, mutually acceptable arrangements will be made
for further storage and insurance coverage, as necessary.
3.3.4 All invoices shall normally be verified for payment by NHPC within thirty
(30) days after receipt by NHPC. In the event of a dispute in respect of any part of
the claim, only the disputed portion of the claim may be withheld. NHPC will
advise the Manufacturer immediately of the nature of the specific dispute and ask
for detailed clarification or proof of claim. The Manufacturer will either submit
written clarification or proof of claim, acceptable to NHPC, upon which NHPC will
approve the release of the disputed portion of the claim, or the Manufacturer will
correct the claim if found in error.
3.3.5 In the event the verification of an invoice is not done by NHPC within forty-
five (45) days of its receipt without any objection or dispute in respect of any part of
any claim being raised, the invoice shall be deemed to have been verified.
3.4 Terms of Payment for Consultancy Services
3.4.1 NHPC shall pay or cause to be paid that portion of the Contract Price set
forth in Articles 3.1.2 and 3.2.2 hereof in accordance with the following terms:
3.4.2 20% (twenty percent), free of interest, of the Contract Price set forth in
Articles 3.1.2 and 3.2.2 hereof for the Consultancy Services of the Turbine Core
Package and the Generator Core Package shall become due and payable, as advance,
on the date which the Manufacturer notifies to NHPC as the date of its readiness to
mobilize for that part of the work to be performed at the site and upon presentation
of the invoice therefore and an advance payment bond in a like amount in the form
appended hereto as Appendix B-5 of Annex B.
3.4.3 70% (seventy percent) of the Contract Price set forth in Articles 3.1.2 and
3.2.2 hereof for the Consultancy Services of the Turbine Core Package and the
Generator Core Package shall become due and payable in monthly payments as per
the schedule of payments appended thereto as Appendix B-3 and B-4 of Annex B,
subject to verification by NHPC in relation to the progress of the work.
3.4.4 10% (ten percent) of the Contract Price set forth in Articles 3.1.2 and 3.2.2
hereof for the Consultancy Services of the Turbine Core Package and the Generator
Core Package shall become due and payable within thirty (30) days of completion
of the work provided that if commissioning is delayed through causes beyond the
control of the Manufacturer, such payment shall become due and payable thirty (30)
days after the date on which the Manufacturer was ready for commissioning.
3.4.5 All invoices shall normally be verified for payment by NHPC within thirty
(30) days after receipt by NHPC. In the event of a dispute in respect of any part of
any claim, only the disputed portion of the claim may be withheld. NHPC will
advise the Manufacturer immediately of the nature of the specific dispute and ask
for detailed clarification or proof of claim. The Manufacturer will either submit
CS(OS) No.1480/2003 Page 15
written clarification or proof of claim acceptable to NHPC, upon which NHPC will
approve the release of the disputed portion of the claim, or the Manufacturer will
correct the claim if found in error.
3.4.6 In the event the verification of an invoice is not done by NHPC within forty-
five (45) days of its receipt without any objection or dispute in respect of any part of
any claim being raised, the invoice shall be deemed to have been verified.
4. PRICE VARIATION
4.1 Turbine Core Package
4.1.1 Turbines
All prices for the turbines and butterfly inlet valves are subject to variation for
changes in labour and material costs.* Such variation, involving increases or
decreases in the prices stated herein, is to be determined in accordance with the
following:
LABOUR
a) For the purpose of variation, the proportion of the price representing labour
is accepted as an amount equal to 50% (fifty percent) thereof.
(b) The above amount accepted as representing labour will vary for changes in
labour cost. Such variation will be based upon the average hourly earnings in the
electrical industrial equipment manufacturing S.I.C. 315 Cat. No. 72-002, Table No.
11 for total Canada, Published monthly by Statistics Canada.
*However, the prices shall not be subject to variation for the period during which
the delivery is delayed by the Manufacturer for reasons other than Force Majeure.
MATERIAL
a) For the purpose of variation, the proportion of the price representing
material is accepted as an amount equal to 40% (forty percent) hereof.
b) The above amount accepted as representing material will vary for changes in
material costs. Such variation will be based upon the selling price of primary metal
industries (D52710) Cat. No.62-011, Table No.1, published monthly by Statistics
Canada.
FORMULA
Each payment will be subject to price variation as follows:
a) 100% (one hundred percent) of the claim for price variation shall be
chargeable and payable on a quarterly basis, based on 100% (one hundred percent)
of the progress payments claimed, i.e. without holdback, for the quarter.
b) P1 = Po X A(L1-Lo) + B(M1-Mo)
Lo Mo
P1= Amount of variation claimed.
Po= Payment for which variation is being claimed without holdback.
A= Percentage of payment applicable to labour (50%).
B= Percentage of payment applicable to material (40%)
CS(OS) No.1480/2003 Page 16
Lo= Labour index at base date April 1984.
L1= Labour index as averaged over the quarterly variation period.
Mo= Material index at base date April 1984.
M1= Material index as averaged over the quarterly variation period.**
**For the variation claimed in respect of the last 2 quarterly payments prior to
shipment, the labour index used in respect of the second previous quarterly payment
shall be used.
**For the variation claimed in respect of the last 2 quarterly payments prior to
shipment, the material index used in respect of the second previous quarterly
payment shall be used.
4.1.2 Gates
All prices for the gates are subject to variation for changes in labour and material
costs.* Such variation, involving increases and decreases in the prices stated herein,
is to be determined in accordance with the following:
LABOUR
a) For the purpose of variation, the proportion of the prices representing labour
is accepted as an amount equal to 50% (fifty percent) thereof.
b) The above amount accepted as representing labour will vary for changes in
labour cost. Such variation will be based upon the average hourly earnings in the
metal fabricating industries S.I.C. Code 300-309, CANSIM No.L5629, Table No.2,
Cat. No. 72002 published monthly by Statistics Canada.
MATERIAL
a) For the purpose of variation, the proportion of the prices representing
material is accepted as an amount equal to 40% (forty percent) thereof.
b) The above amount accepted as representing material will vary for changes in
material costs. Such variation will be based upon the selling price of primary metal
industries Code 12-2910-707, CANSIM No. D-527-757, Table No. 1, "Plate Carbon
and Alloy".
*However, the prices shall not be subject to variation for the period during which
the delivery is delayed by the Manufacturer for reasons other than Force Majeure.
FORMULA
Each payment will be subject to price variation as follows:
a) 100% (one hundred percent) of the claim for price variation shall be
chargeable and payable on a quarterly basis, based on 100% (one hundred percent)
of the progress payment claimed, i.e. without holdback, for the quarter.
b) P1= Po X A(L1-Lo) + B(M1-Mo)
Lo Mo
P1= Amount of variation claimed.
Po= Payment for which variation is being claimed without holdback.
A= Percentage of payment applicable to labour (50%).
B= Percentage of payment applicable to material (40%)
Lo= Labour index at base date April 1984.
CS(OS) No.1480/2003 Page 17
L1= Labour index as averaged over the quarterly variation period.
Mo= Material index at base date April 1984.
M1= Material index as averaged over the quarterly variation period.**
* For the variation claimed in respect of the last quarterly payment prior to
shipment, the labour index used in respect of the previous quarterly payment shall
be used.
** For the variation claimed in respect of the last 2 quarterly payments prior to
shipment, the material index used in respect of the second previous quarterly
payment shall be used.
4.2 Generator Core Package
All prices for the Generator Core Package are subject to variation for changes in
labour and material costs.* Such variation, involving increases or decreases in the
prices stated herein, is to be determined in accordance with the following:
LABOUR
a) For the purpose of variation, the proportion of the price representing labour
is accepted as an amount equal to 50% (fifty percent) thereof.
b) The above amount accepted as representing labour will vary for changes in
labour cost. Such variation will be based upon the average hourly earnings in the
electrical industrial equipment manufacturing, S.I.C. 336 Cat. No. 72-002, Table
No. 11 for total Canada, published monthly by Statistics Canada.
MATERIAL
a) For the purpose of variation, the proportion of the price representing
material is accepted as an amount equal to 40% (forty percent) thereof.
b) The above amount accepted as representing material will vary for changes in
material costs. Such variation will be based upon the selling price of primary metal
industries (D527100) Cat. No. 62-011, Table No. 1, published monthly by Statistics
Canada.
*However, the prices shall not be subject to variation for the period during which
the delivery is delayed by the Manufacturer for reasons other than Force Majeure.
FORMULA
Each payment will be subject to price variation as follows:
a) 100% (one hundred percent) of the claim for price variation shall be
chargeable and payable on a quarterly basis, based on 100% (one hundred percent)
of the progress payment claimed, i.e. without holdback, for the quarter.
b) P1= Po X A(L1-Lo) + B(M1-Mo)
Lo Mo
P1= Amount of variation claimed.
Po= Payment for which variation is being claimed without holdback.
A= Percentage of payment applicable to labour (50%).
B= Percentage of payment applicable to material (40%)
Lo= Labour index at base date April 1984.
CS(OS) No.1480/2003 Page 18
L1= Labour index as averaged over the quarterly variation period.
Mo= Material index at base date April 1984.
M1= Material index as averaged over the quarterly variation period.**
* For the variation claimed in respect of the last quarterly payment prior to
shipment, the labour index used in respect of the previous quarterly payment shall
be used.
** For the variation claimed in respect of the last 2 quarterly payments prior to
shipment, the material index used in respect of the second previous quarterly
payment shall be used.
4.3 Consultancy Services
Prices for the Consultancy Services are subject to variation. However, the prices
shall not be subject to variation for the period during which the Manufacturer is
delaying the Consultancy Services for reasons other than Force Majeure. Such
variation, involving increases or decreases in the prices stated herein, is to be
determined in accordance with the following formula and each payment will be
subject to such price variation:
a) 100% (one hundred percent) of the claim for price variation shall be
chargeable and payable on monthly basis, based on 100% (one hundred percent) of
the progress payment claimed, i.e. without holdback, for the month.
b) P1 = Po (L1 - Lo) x 0.92
Lo
P1 = Amount of variation claimed.
Po = Payment for which variation is being claimed without holdback.
Lo = Labour index at base date of 1st April, 1984.
L1 = Labour index at date for which payment is claimed.
The above labour indices shall be those published monthly by Statistics Canada, for
the relevant month, Electric Utility Construction Price Index (Cat. No. 62-007 D
482208) for Engineering and Administration of Hydro Electric Generating
Stations."
A reading of the aforesaid clauses shows that the scope of the work of MIL
for the Turbine Core Package is contained in Clauses 2.1 to 2.1.4 and the scope of
work of GE for Generator Core Package is contained in Clauses 2.2 to 2.2.5. The
contract prices for MIL are contained in Clauses 3.1.1 to 3.1.3 and the contract
prices for GE are contained in Clauses 3.2.1 to 3.2.3. So far as payment is
concerned, with respect to equipment, 15% was to be paid as advance, 75% as
CS(OS) No.1480/2003 Page 19
progress payment and the balance 10% on the completion of shipment of each unit.
The only difference with respect to the consultancy services was that the advance
was 20% and progress payment was 70%. The contract prices by virtue of Clauses
3.1.3 (for MIL) and 3.2.3 (for G.E) were subject to price variation as per Clauses
4.1 and 4.3 with respect to MIL and 4.2 and 4.3 with respect to G.E. The price
variation formulae for GE and MIL are same and as per which formulae out of the
100% payment under the contract only 90% of the payment was subject to
escalation being comprised of the components of material and labour. The balance
10% payment was therefore obviously towards the profit margin of the claimants
on which no escalation was allowable and also was not allowed. It is thus the
material and the labour components which were to be subject to price variation i.e.
90% of the total payment was to be subject to price variation.
Keeping the aforesaid broad categorization of the clauses of the contract let
us examine the stand and the arguments of the respective parties with respect to
price variation claims on equipment and consultancy.
The claimants contended that price variation was payable on the entire 90%
component of the price whereas the objector contended that price variation could
only be allowed on the progress payments to be made of 75% (for equipment i.e.
90% of 75%) and 70% (for consultancy i.e. 90% of 70%). What the objector
therefore contended was that the advance price to be paid and the balance 10%
CS(OS) No.1480/2003 Page 20
payable on shipment were not subject to price variation. The Arbitrators have held
that the entire payment of 90% of the price is subject to price variation. Payment is
no doubt made of all the bills, which may indicate that price variation is given for
the entire amount of 100% of the price, however, by virtue of the factor of only the
material and labour component being included in the formulae, the price variation
was in fact granted only for the 90% of the price. The Arbitrators have held that in
terms of the formulae, the entire 90% payment of the price is subject to price
variation because the clauses which contained the price variation formulae begins
with the expression " each payment will be subject to price variation as follows."
The Arbitrators have buttressed their conclusion by reference to Clauses 4.1.1
(Turbine Core Package) and 4.2 (Generator Core Package) which use the
expression "All prices..... are subject to variation for changes in labour and
material costs". In my opinion, the conclusion is buttressed by reference to Clauses
3.1.3 and 3.2.3 which state that "contract prices" i.e. the entire contract prices are
subject to price variation. The logic and the life of the provision entitling price
variation for the entire component of 90% of the price argued by Mr. Sandeep
Sethi, Sr. Advocate on behalf of the claimants/non-objectors was that the base
price given for the contract was of many months earlier than arriving at the
contract itself i.e. by the time the contract was arrived at the actual prices were in
fact higher than the base prices on which the bid was submitted. It was further
CS(OS) No.1480/2003 Page 21
canvassed that surely once the contract is performed and there is an actual
escalation in the prices therefore the payments were infact to be made in terms of
the price variation clause because the prices actually rose. It was therefore,
contended that merely because certain price was paid in advance cannot mean that
price escalation is not payable because even qua the advance payment portion with
respect to the labour and material component thereof actual escalation took place
and which escalation had necessarily to be compensated by the price variation
clause. It was contended that advance payment given is used in a different manner
and for different requirements under the contract by the respondents and merely
because price is paid in advance would not mean that the advance price
component is not towards labour and material on which in fact actual escalation
did take place during performance of the contract. It was therefore argued by Mr.
Sandeep Sethi that in terms of both the expressions used of "all prices" and "each
payment" as also the life and the rationale of the clauses as reproduced above, the
same did in fact entitle the claimants for the price variation. Mr. Sethi also sought
to remove a confusion which was sought to be created on behalf of the objector
that there is a big mystery in the expression "grossing up" as was being used by the
claimants and the Arbitrators. Mr. Sethi, and in my opinion rightly, pointed out that
what grossing up meant was that progress payments were only 75% or 70% of the
price and they had to be factored up for 100% of the price payable by assuming
CS(OS) No.1480/2003 Page 22
that no advance payment was made, therefore, the progress payments were
multiplied by 100 x75 or 100x70 i.e., the fact thereof was that the progress
payment bills were theoretically enhanced as if advance payment was not made,
however, the advance payment was not claimed the second time in the progress
payment but it was only the escalation part of the advance payment which was
claimed in the progress payment bills. It was therefore contended that unnecessary
hype and apprehension is sought to be created on account of the use of the
expression "grossing up" by the Arbitrators, when, the only thing is that the effect
of price escalation is granted for the 90% of the price payable. I also agree with
Mr. Sandeep Sethi, Sr. Advocate that the expression „based on‟ as used in the price
variation formula will not in any manner help the objector to contend that price
variation is not payable on the 100% of the 90% component of the total price. The
expression „based‟ is only to indicate the apportionment of the advance price paid
in the different bills of progress payment raised for being paid during the currency
of the contract. The arbitrators have also given correct reasoning on this aspect
which I agree to.
14. I am unable to accept the argument as advanced on behalf of the petitioner-
objector that price variation should only be granted towards the progress payment
of 75% and 70% and not with respect to the entire price under the contract being
90% of the total price payable. I accept the contentions and arguments as raised on
CS(OS) No.1480/2003 Page 23
behalf of the claimants/non-objectors as stated above. The Arbitrators have also
given valid reasoning and rationale for accepting the stand of the claimants/non-
objectors. Once there are two interpretations possible of the relevant clauses of the
contract and the Arbitrators have adopted one reasonable interpretation of the
contractual clauses, this court would not interfere with such an interpretation
merely because it is of another view. Of course, I must hasten to add that I am not
of the other view as is sought to be canvassed on the arguments as raised by the
objector that price variation should not be given for the entire 90% component of
the prices payable under the contract. The Arbitrators have dealt with this aspect
in the following paragraphs of the Award and which I adopt and accept.
"3.9 Before the Tribunal it was contended on behalf of the Claimants that the
correct application of the formula in the case of Equipment was to "gross
up" the relevant progress payment in relation to which a price variation
was being claimed. The reason for so doing was that as in the case of the
equipment contracts 15% of the Contract Price was paid in advance and
10% was paid at the end, the progress payment only amounted to 75% of
the whole. If, therefore, the price variation was treated as referable only
to the actual amount of any particular progress payment, the result would
be to deprive the parties of that proportion of the price variation which
should have related to the prior and posterior payments. So to do would
be to ignore the words of the Contract which provided that the Contract
Prices were subject to variation, without suggesting that the whole of the
Equipment Contract Prices were not so subject, except in so far as the
Contract expressly limited the variation to 90% of the whole Contract
Price. Further it ignored the express provision in Clause 4.1 and 4.2 in
every case that "each payment will be subject to price variation". Lastly,
it gave no explanation to the reference in head (a) of the formula to the
claim for price variation being based on 100% of the progress payment
claimed.
3.10 For the Respondents it was contended that nowhere in the Contract
provisions was there any reference to "grossing up" in the manner
suggested by the Claimants. The reference in head (a) of the formula
CS(OS) No.1480/2003 Page 24
was intended to ensure that the claim for price variation at any particular
progress payment stage was related to the whole of the progress payment
then being claimed (that is without any holdback at all) and whatever the
fate of the progress payment itself in so far as it might be diminished by
holdback, the whole of the price variation upon the whole of that
progress payment was then to be chargeable and payable. The Contract,
it was argued, must be construed strictly on its terms, and nothing should
be implied which does not clearly emerge from the language used in the
Contract. The Respondents expressly stated that they rested their entire
case for limited price variation upon Clause (a) of the price variation
formula. They did nevertheless point out that in other contracts in this
project which they drew to our attention price escalation was not applied
in respect of (at least) the advance payment portion of the price. The
difficulty that the Tribunal has with that branch of the Respondents‟
argument is that in each of the three cases to which our attention was
drawn, there was an express provision to that effect in the Contract itself.
Thus in the portion of the Purchase Order placed on M/s Federnl Pioneer
( Appendix IV to Mr. Jamwal‟s statement) Clause 9.1(a) in respect of
fabrication states: "The amount of the contract price subject to escalation
with respect to fabrication costs is ninety per cent (90%) of the ex-works
price (excluding certain costs)... The amount of the advance payment
shall not be subject to escalation". Similarly the Purchase Order placed
on M/s ABB (Appendix V to Mr. Jamwal‟s statement) provided 3.0 Price
Variation...." (a) The amount of the contract price subject to escalation
with respect to fabrication costs in ninety (90%) per cent of the ex- works
price (excluding certain costs).... The amount of the advance payment
shall not be subject to variation". Again, in reference to the Dominion
Bridge Quebec, the Respondents have produced (Appendix A, item 1) a
letter dated 22nd September 1992 which states: "A) 10% Down Payment.
As per Clause 12.1 (b) of the Special Conditions dated April 1986 for the
spillway Radial and Wheeled Bulkhead Gates, the 10% down payment is
not subject to escalation". They have also produced an Instruction to
Bidders which states in 12.1(a) "The proportion of the contract price
subject to escalation with respect to fabrication costs is sixty five per cent
(65%).... but not including the amount of the down payment (10%).
3.11 In approaching the issue of the proper construction of the Price Variation
formula, the Tribunal considers that it is their task to construe the words
used in this part of the Contract in their setting as a whole. To that end
Articles 3 and 4 of Annex B in particular have to be considered. Upon so
doing it is expressly clear from the general words to which reference has
already been made in Article 3 that the Contract Prices are subject to
price variation. This in ordinary language would normally be taken to
mean that the variation provision would apply to the whole Contract
Price. Further the provision in relation to each aspect of the equipment
contract prices is that "all prices" are subject to variation. More
CS(OS) No.1480/2003 Page 25
significantly perhaps, the provision relating to the variable elements
provides that (to take an example) (a) For the purpose of variation, the
proportion of the price representing labour is accepted as an amount
equal to 50% thereof and (b) the above amount accepted as representing
labour will vary for changes in labour costs. Such variation will be based
upon [particular index]-Article 4.1.1 etc. The natural reading of that
provision is that the whole sum which is 50% of the relevant Contract
Price will vary for changes in labour costs. There is no suggestion that
part only of that amount will vary. On the contrary what is made clear at
that stage is that, on the face of it, two parts of the whole, i.e. the amounts
representing 50% and 40%, will vary for changes in the relevant costs
(material and labour). The remaining 10% will not vary.
3.12 The matter is however put beyond doubt by Articles 4.1.1, 4.1.2 and
4.1.3, each of which clauses provide that such payment is subject to price
variation. The express provision, without qualification, imports that the
parties agreed that all payments which were to be made in respect to each
of the Contract Prices would be subject to price variation. Clause (a) of
the formula provides that 100% (one hundred per cent) of the claim for
price variation shall be chargeable and payable on a quarterly basis,
based on 100% (one hundred per cent) of the progress payment claimed,
i.e. without holdback, for the quarter. That suggests that at any stage at
which a price variation claim is being made it has to be based on the
whole (i.e 100%) of the progress payment claimed. That is not the same
as saying that it is to be limited to the progress payment claimed. The
contention put forward by the Respondents would be exactly the same if
the word "based" were omitted from head (a) of the formula. The
consequence of the Respondents‟ interpretation is not only that it gives
no content to the word "based" in head (a) but that it cannot be
reconciled with the commencing words of the relevant clause that each
payment will be subject to price variation. If content is to be given to the
whole of Article 4.1.1 then the phrase each payment must be reconciled
with the formula also contained in Article 4.1.1 that claims for price
variation shall be based on 100% of the progress payment claimed. That
can clearly be done by aggregating the advance and the final payments,
in the case of equipment 25% of the whole, and then applying a grossing
up formula so that each progress payment carries with it the additional
25% for the purpose of arriving at the overall price variation.
3.13 It appears to the Tribunal that so to proceed can be seen to be consonant
with the general scheme of the payment provisions. If 15% of the
Contract Price is to be paid in advance then, given that the Contract Price
is to be subject to price variation, it cannot be ultimately determined what
that amount which represents 15% of the Contract Price will be until the
conclusion of the period and the application of the last variation indices.
Similarly, in relation to the 10% which is withheld, the calculation of
CS(OS) No.1480/2003 Page 26
what variation is appropriate should be made on an ongoing basis. (It
would of course have been possible if the formula had in (a) referred to
payments and not to progress payments to apply the formula to all
payments.) Such an approach however would have been less accurate in
so far as it would not have resulted in price variation being calculated so
close to the event as is the case when the "grossing up" formula is
applied. However the language of the formula here, by limiting the
payments upon which the price variation is based to the progress
payments, requires the formula to be applied in relation to these progress
payments, in such a way that the overall Contract Prices are appropriately
varied. The grossing up method is simply a technique for achieving that
result. It should be noted that the mathematical consequence of applying
a factor of 100/75 to the Interim progress payments is effectively to
apply the formula to the full Contract Price. For these reasons the
Tribunal is of the view that considering the Contract as a whole and the
price and price variation provisions in particular, the proper interpretation
and application thereof requires the whole Contract Price (less 10%) to
be subject to variation and that the appropriate technique to calculate that
variation in accordance with the formulae is by grossing up each interim
(progress) payment by a factor of 100/75. Only by so doing is full effect
given to the words used in the Contract between the parties.
3.14. So far as the Consultancy Agreements are concerned, similar
considerations apply. In language similar to the Equipment provision the
Contract provides that the "Contract Prices" (which include as separate
items Consultancy Prices) are subject to price variation (Articles 3.1.3,
3.2.3) and that Prices for the Consultancy Services are subject to
variation (Article 4.3). Further "each payment will be subject to such
price variation"- Article 4.3. The formula in Clause (b) is different in
that there is only one item, labour, subject to price variation; but it
comprises 92% of the whole leaving the fixed element at 8%. By Clause
(a) the variation claimed is based on 100% of the monthly progress
payments. The advance is 20% and the final payment 10%. For exactly
the same reasons as already discussed, the use of a grossing up technique,
in this case 100/70, is necessary in order to achieve the result the
Contract seeks that each payment is subject to price variation but that the
calculation is made based on progress payments only."
Price variation on tooling
15. That takes me to the aspect with respect to price variation on tooling. At the
outset, the Award did seem difficult to accept on this aspect because with respect
CS(OS) No.1480/2003 Page 27
to the claim of price variation on tooling the claim of GE was rejected and against
which no objections have been filed whereas the claim for price variation on
tooling for MIL was allowed. If we read the contractual clauses as they are, then,
at first blush one seems to come to the conclusion that price variation cannot be
granted on tooling to MIL because tooling falls under Clause 2.1.3 and price
variation is only on turbines and butterfly inlet valves falling under Clauses 2.1.1
and 2.1.2, more so because for the Generator Core Package of GE, all prices were
subject to price variation. A conclusion could therefore have been canvassed for
acceptance that since with respect to the scope of supply as envisaged for MIL
which contains equipment, tooling and consultancy services since price variation
could only be granted for turbines, butterfly inlet valves and consultancy, price
variation therefore could not have been claimed for tooling supplied by MIL which
forms part of clause 2.1.3 and clause 2.1.3 was not subject to price escalation but
only Turbines and butterfly inlet vales were subject to price variation in view of
the language of Clause 4.1.1.
However the above prima facie conclusion is in fact wrong and the issue
has been clarified by Mr. Sandeep Sethi, learned senior counsel for the
claimants/non objectors. The clarification which has been given, and also one
which has been accepted by the Arbitrators and which I also accept, is that the total
price paid to MIL for the consultancy services was Canadian Dollars $ 3,640,000.
CS(OS) No.1480/2003 Page 28
In this price for consultancy services payable to MIL, the price of tools were
included i.e. price of tools was not included in the price of equipment of Canadian
Dollars $39,260,000 in which, prima facie, the cost of tooling was included under
Clause 2.1.3. This contention on behalf of the non-objectors is shown to be correct
when we refer to the bill raised by the claimants for the consultancy services of the
value of Canadian Dollars $3,640,000 in terms of Clause 3.1.2 of the contract. On
doing so we find that this amount of Canadian Dollars $ 3,640,000 includes the
cost of tools of Canadian Dollars 5,31,990. The letter dated 13.2.1987 addressed
by MIL to the objector (page 1548 of the paper book before the Arbitrators) clearly
shows that payment of the price of consultancy services of Canadian Dollars
$3,640,000 included the cost of tools. The objector itself accepted this position by
its letter dated 27.11.1987 (page 1568 of the paper book of the Arbitrators) and
alongwith which letter when the price break-up is given for the consultancy
services totaling to Canadian Dollars $3,640,000, the price of Canadian Dollars
$ 5,31,990 with respect to tools is shown as a part of the price of consultancy
services of Canadian dollars $3,640,000. Once this conclusion is clear that the
price payable for consultancy services includes the price of tooling and admittedly,
the price payable for consultancy was in fact subject to the price variation in terms
of Clause 4.3 of the contract, it is clear that the cost of tooling is also subject to
price variation being part of consultancy services so far as MIL is concerned.
CS(OS) No.1480/2003 Page 29
16. If there was any doubt whatsoever in this regard that the price variation
ought not to be granted on the tooling component with respect to MIL, the same is
removed by the agreed stipulations dated 14.9.1995 signed by all the parties
before the Arbitration Tribunal and which shows that with respect to MIL,
consultancy included the price variation on tooling. This stipulations are signed by
both the parties as also their counsel and the same reads as under:
The following amounts are owed as regards GE and MIL Consultancy:
"
Owed to With respect to Amount owed (SCdn) Amount owed (SCdn)
under GE's /MIL's underNHPC's
Interpretation Interpretation
GE Consultancy $437,518 $187,484.60
MIL Consultancy
(a) Including price
variation on tooling: $ 405,727.57 $59,958
(b) Excluding price $ 190,989.00 (-) $ 90,394.36
variation on tooling:
sd/- sd/- sd/- sd/- sd/-"
In view of the aforesaid agreed stipulations, it is more than abundantly clear
that it was the admitted case of the objector that price variation on tooling in fact
formed a part of the consultancy services so far as MIL is concerned.
CS(OS) No.1480/2003 Page 30
In my opinion, in view of the letter dated 27.11.1987 of the objector itself shows
tooling as part of the consultancy and then the agreed stipulations before the
Arbitrator, leaves no manner of doubt that escalation was payable on tooling
because tooling forms part of consultancy and escalation was payable on
consultancy in terms of para 4.3 of the contract.
17. The Arbitration Tribunal has given its conclusions in the following para of
the Award with which I agree and adopt:
"3.28 As already stated, Article 4.3 of Annex B is provides without any
exception that prices for Consultancy Services were subject to variation in
accordance with the state formula. Nothing in the contractual documents
alters that. The Correspondence between the parties in 1987 relative to
Consultancy Services provided by MIL refers in respect of tooling to a "fixed
amount as per contractual document." This must relate back to the Contract
including its Annexes which provide expressly for price variation.
Accordingly it does not exclude the tooling price element from variation.
Further, it should be observed that the Price Breakdown referred to in 1987
refers back to the Contract Price of $3,640,000 agreed in 1984 as the 1984
prices basis; and in terms of the same correspondence the option to purchase
tooling from MIL might not be exercised until May 1988 (letter from MIL
dated 13 February 1987). Against that background, express language
conflicting MIL to the price agreed in 1984 would have been required, and no
such express provision has been demonstrated."
18. In my opinion, there is an additional reason to accept the conclusion of the
Arbitrators and the arguments of the non-objectors that price variation is payable
for tooling and for rejecting the stand and arguments of the objector that price
variation is not payable on tooling to MIL. This is for the reason that though the
contract may prima facie appear to say something different but if the parties during
the performance of the contract understand the contract in a different manner, then,
CS(OS) No.1480/2003 Page 31
it cannot be contended that by doing so the parties are amending the contract and
which is impermissible under Sections 91 and 92 of the Evidence Act, 1872. It has
been held by the Courts that interpretation of a contract when done by the very
parties to the contract who entered into the contract, in fact, shows that the
language of the contract did not mean prima facie what the written words of the
contract show but in fact, means what the parties have subsequently understood
the contract to be by means of acting upon the same. Reference, in this behalf, is
invited to the judgment of the Supreme Court in Godhra Electricity Company Ltd.
Vs. State of Gujarat AIR 1975 SC 32. Para 11 of which reads as under:-
"11. In the process of interpretation of the terms of a contract, the
court can frequently get great assistance from the interpreting statements
made by the parties themselves or from their conduct in rendering or in
receiving performance under it. Parties can, by mutual agreement make
their own contracts; they can also by mutual agreement, remake them. The
process of practical interpretation and application, however, is not regarded
by the parties as a remaking of the contract; nor do the courts so regard it.
Instead, it is merely a further expression by the parties of the meaning that
they give and have given to the terms of their contract previously made.
There is no good reasons why the courts should not give great weight to
these further expressions by the parties in view of the fact that they still
have the same freedom of contract that they had originally. The American
Courts receive subsequent actings as admissible guides in interpretation. It
is true that one party cannot build up his case by making an interpretation in
his own favour. It is the concurrence therein that such a party can use
against the other party. This concurrence may be evidenced by the other
party‟s express assent thereto, by his acting in accordance with it, by his
receipt without objection of performances that indicate it, or by saying
nothing when he knows that the first party is acting on reliance upon the
interpretation. (see Corbin on Contracts, vol. 3, pp. 249 and 254-255)."
Therefore, since the objector itself has understood the contract in a particular
manner that consultancy includes the tools and since consultancy is subject to the
CS(OS) No.1480/2003 Page 32
price variation, tools are also therefore clearly subject to price variation. That the
objector itself has understood it to be so, is clear from its letter dated 27.11.1987
referred by me above and also the agreed stipulations dated 14.9.1995 filed before
the Arbitrators.
I am also of the opinion that the reasoning of Godhara Electricity case
(supra) will equally apply to the price variation issue qua the equipment and
consultancy inasmuch as various bills of the claimants over years were in fact paid
by the objector as per the interpretation agreed by claimants/non-objectors and as
also given by the Arbitration Tribunal in the impugned Award.
19. That leaves me with the issue with regard to the rate of interest granted
under the Award. The Arbitrators have, in this regard, somehow without
justifiable/understandable reasons, awarded two separate rates of interest. Whereas
interest has been awarded at 6% per annum during the pendency of the proceedings
i.e. from 14.2.1994 till the date of the Award, however, from the date of the Award
till payment, interest has been awarded @ 10% per annum. I do not find any legal
basis or justification for having such a high rate and also two separate rates of
interest for two separate periods. In fact, the provision of Section 34 of the Code
of Civil Procedure, 1908 fixes the rate of interest @ 6% per annum ordinarily and
uniformly where no other provision is made. I have already stated that the Award
gives no acceptable reasons for giving two separate rates of interest. Further, in
CS(OS) No.1480/2003 Page 33
my opinion, the rate of interest of 10% is indeed very high because international
transactions are governed by LIBOR rates which are low and also considering the
present scenario in which it has been held by the Supreme Court in the recent
catena of decisions in the cases of Rajendra Construction Co. v. Maharashtra
Housing & Area Development Authority and others, 2005 (6) SCC 678,
McDermott International Inc. v. Burn Standard Co. Ltd. and others, 2006 (11)
SCC 181, Rajasthan State Road Transport Corporation v. Indag Rubber Ltd.,
(2006) 7 SCC 700 & Krishna Bhagya Jala Nigam Ltd. v. G.Harischandra, 2007
(2) SCC 720 and State of Rajasthan Vs. Ferro Concrete Construction Pvt. Ltd
(2009) 3 Arb. LR 140 (SC) that the Courts should lean against high rates of
interest granted by the Award and in fact ought to reduce the high rates of interest
as granted by the Award. Considering that this is an international transaction
involving foreign companies and where LIBOR rates are the base for grant of
interest, I feel that in the facts and circumstances of the case, interest @ 4% per
annum simple is the appropriate rate to be granted during the pendency of the
arbitration proceedings and thereafter till Award is made a rule of the Court by
means of this judgment. I am supported in this view by a Division Bench judgment
of this court reported as MMTC Vs. Al Bamar Company Ltd., 2009 (159) DLT
513. In para 10 of this judgment it is held as under:-
"10. That leaves us with the issue with regard to the interest and
CS(OS) No.1480/2003 Page 34
in fact was the only issue seriously urged before us by the counsel for
the appellant. As per the award, the respondent has been granted its
claim of US Dollars 52,913.97 along with interest at International
Lending Rate (LIBOR) of 7%. We are inclined to interfere with this
part of the award and the judgment of the learned Single Judge
whereby interest has been granted at 7%. We find that in international
transactions interest at 7% is indeed on the higher side more so, when
the appellant is already prejudiced by the increase in the value of the
dollar as compared to the Indian rupee. Also, internationally, and of
which we take judicial notice, that the LIBOR rate has fluctuated in
the intervening period and is presently around 3%. From January,
2002, till 2009, the LIBOR rate has fluctuated from around 3% in
2002 to 6/7% during 2006-2007 and thereafter came down again to
about 3% and even less. Therefore, considering the facts and
circumstances of the case, and more particularly the trend in the
reasoning in the recent judgments of the Hon‟ble Supreme Court in
reducing the interest granted in the award on account of passage of
time from the date of passing of the award till the time the matter
comes up in the court, we reduce the rate of interest as granted under
the award from 7% to 3 ½% . The relevant judgments of the Supreme
Court on this issue are the judgments of Rajendra Construction Co.
Vs. Maharashtra Housing & Area Development Authority &
ors.2005 (6) 678, McDermott International Inc. Vs. Burn Standard
Co. Ltd.& ors 2006 (11) SCC 181, Rajasthan State Road Transport
Corpn. Vs. Indag Rubber Ltd. (2006) 7 SCC 700 and Krishna
Bhagya Jala Nigam Ltd. Vs. G.Harischandra, 2007 (2) SCC 720."
While granting this rate of interest, I am mindful of the fact that foreign
exchange rate fluctuation from 1992 would have an impact, however, considering
all the circumstances, facts, LIBOR rates over this long period and other incidental
issues, I have held and I am of the clear opinion that 4% interest per annum simple
ought to be awarded from 14.2.1994 till the passing of the Award and thereafter till
Award being made rule of the Court.
CS(OS) No.1480/2003 Page 35
20. That leaves me as regards the aspect of the rate of interest from the date of
this judgment till payment in terms of Section 29 of the Arbitration Act, 1940.
Though the Award states that the interest is payable till payment, in law, this has to
be construed as only till the Award is made a rule of the Court. I, therefore, award
further interest @ 6% per annum from the date of this judgment till payment,
however, in case payment is made by the objector under the Award and as
modified by this judgment within a period of two months of the date of this
judgment , then, interest shall only be @ 3% per annum simple from the date of
this judgment till payment. However, in case payment is not made within a period
of two months from the date of this judgment, interest will continue to remain @
6% per annum simple. The reason for awarding these different rates of interest is
that the objector knows as per this judgment its crystallized liability under the
Award and therefore is entitled to a reasonable time for payment, however, in case
the objector even after the expiry of a period of two months fails to pay then
claimants/non objectors should be entitled to commercial rate of interest
considering LIBOR rate. I have also kept in view the fact that pendency of
objections of the petitioner has deprived the respondent/claimants of its moneys
since 1996 i.e roughly about fourteen years.
21. Before concluding, I must note that an Award is ordinarily interfered with
only if the findings of the same are such that they are violative of the law of the
CS(OS) No.1480/2003 Page 36
land or the findings are so perverse that it shocks the judicial conscience or
interpretation of documents and its clauses is such that the interpretation is not one
which any reasonable man could have taken. It has been time and again held that a
Court while hearing objections to the Award will not substitute its views for the
views of an Arbitrator unless the view of the Arbitrator is ex facie liable to be set
aside or is illegal or it shocks the judicial conscience by a perverse
finding/interpretation. As already stated, this Court does not sit as an Appellate
Court to re-apprise the findings as arrived at in the Award. Therefore, in view of
the settled parameters of hearing objections to an Award under Sections 30 and 33
of the Arbitration Act, 1940, I find that the objections are without substance and
dismiss the same, leaving the parties to bear their own costs. The Award dated
7.5.1996 is thus made a rule of the Court subject to modification of the rate of
interest as stated above. Let a decree be drawn up accordingly. Suit No. 1475-
A/1996, which is a petition under Sections 14 & 17 of the Arbitration Act, 1940
will also stand disposed of accordingly.
VALMIKI J. MEHTA, J
May 18 , 2010
ib/Ne
CS(OS) No.1480/2003 Page 37
