Delhi High Court
Geoenpro Petroleum Ltd vs Geophysical Institute Of Israel on 12 May, 2020
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 18.12.2019
% Pronounced on: 12.05.2020
+ O.M.P. (COMM) 509/2016
GEOENPRO PETROLEUM LTD .... Petitioner
Through Mr. Rajshekhar Rao, Mr. Aashish
Gupta, Mr. Dushyant Manocha,
Mr. Sharad Kharra, Mr. Chaitanya
Puri & Ms. Sadhika Gulati,
Advocates
versus
GEOPHYSICAL INSTITUTE OF ISRAEL ..... Respondent
Through Mr. Abhimanyu Mahajan,
Mr. Arjun Mahajan, Ms. Anubha
Goel, Mr.Suneha Jain & Mr. Pulkit
Thareja, Advocates
CORAM:
HON'BLE MS. JUSTICE JYOTI SINGH
JUDGEMENT
1. Present petition has been filed under Section 34 of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as an „Act‟) seeking
setting aside of majority Award dated 30.07.2012 passed by the Arbitral
Tribunal whereby the Tribunal has partially allowed the Claim of the
Respondent herein and rejected the Counter Claim of the Petitioner.
2. The brief background facts are that the Government of India
desired that the petroleum resources at the Kharsang Oil Fields
(hereinafter referred to as „KS‟) be exploited with utmost expedition and
in accordance with international petroleum industry practices. Therefore,
Government of India entered into a Production Sharing Contract
(hereinafter referred to as „PSC‟) on 16.06.1995 with Oil India Ltd.,
Geopetrol International Inc., Enpro India Ltd. and the Petitioner.
Petitioner was appointed as the Operator under the Contract.
3. Petitioner herein as an Operator for and on behalf of KS required
services for acquisition, processing and interpretation of Seismic 3D data
in KS. Thus an Agreement dated 13.12.2007 was entered into between
the Respondent herein and the Petitioner. Respondent Geophysical
Institute of Israel is an Israeli Government Company. On 03.01.2008, a
Sub-Contract Agreement was entered into between the Respondent and
Asian Oilfields Services Ltd. with Respondent as the Contractor and
Asian Oilfields as a sub-Contractor. This was with the approval of the
Petitioner. Contract was to be performed by the Respondent in three
stages (a) Data collection/acquisition (b) processing and (c)
interpretation.
Case of the Petitioner (Respondent before the Arbitral Tribunal)
4. Under the terms of the Contract, in order to collect acceptable
Seismic Data, Respondent had to drill shot holes of 20 m for loading the
charge and exploding the same. It was mentioned in the Contract itself,
that in case where drilling up to 20 m was not possible, two holes of 10 m
could be drilled or four holes of 5 m, called pattern holes. It was
mentioned that Respondent will not drill any holes less than 5 m and the
area covered under the survey shall be 52.5 km² with 2760 shots of work.
5. Respondent had admittedly in the past, undertaken similar
operations in the State of Assam and Tripura. Further, Respondent as per
the terms of the Contract, before commencing its operations had
undertaken an experimental drilling at the site from 29.08.2007 to
02.09.2007 and had, therefore, acquainted itself with the geological and
other working conditions of the site. Parties had expressly agreed that
time shall be the essence of the Contract as the work had to be undertaken
by the Respondent before the onset of monsoon on account of fair
weather in Arunachal Pradesh coming to an end by mid-June for purposes
of drilling. Therefore, the Contract specifically provided that mobilisation
of equipment, which was the sole responsibility of the Respondent, had to
be completed within 60 days from signing of the Contract. Contract was
signed on 13.12.2007 and, therefore, Respondent ought to have mobilised
its equipment latest by 11.02.2008. However, mobilisation was completed
only around late April 2008 and it was only on 15.04.2008 that shooting
commenced. Thus, there was a delay in mobilisation of equipment and
personnel by the Respondent. Clearly, this delay was extremely
detrimental to the overall project, since it significantly reduced fair
weather window within which Respondent could have acquired the Data.
6. As a result of the delay in mobilisation of resources and equipment
by the Respondent, it was unable to complete the entire work contracted
and abandoned the site without completing the entire contractual work.
Consequently, out of the agreed 52.5 km² with 2760 shots, which was
unilaterally even otherwise downsized by the Respondent to working area
of 43.2 km² with 2299 shots, Respondent was able to shoot only 1688
shots, out of which 1440 shots, corresponding to 27 km², were accepted
in the field i.e. half the contracted area. Further, the Respondent drilled
shot holes of depth much less than the prescribed limit under the
Contract. Since the Respondent could not achieve the depths mentioned
in the Contract including the relaxed norms, Petitioner‟s representative
gave further relaxation to the Respondent to drill seven holes of 3 m deep,
provided the Data was acceptable. However, the Respondent even failed
to achieve the relaxed norms, resulting in the objectives of the 3D
program not being achieved.
7. Since the Respondent could not perform its obligations under the
Contract, it started blaming the Petitioner for its failure to inform the
Respondent about the law and order situation at the Oilfield. It was
alleged by the Respondent that locals of the area interrupted the
mobilisation of equipment and personnel and the execution of the work
on site. Respondent also started raising frivolous claims for standby
charges for idling of equipment for reasons other than those attributable
to the Petitioner. Significantly, these allegations of law and order
situation were raised by the Respondent after it had written to the
Petitioner that things were under control and it would commence the
work under the Contract.
8. As the acquisition of Data by the Respondent was of poor quality,
the processing and interpretation of the same resulted in a Report which
was of no use to the Petitioner. In the Report itself the Respondent had
admitted that acquisition of the Data was of poor quality. The Directorate
General of Hydrocarbons, Ministry of Petroleum and Natural Gas,
Government of India, which is the sectoral regulator for oil and gas
sector, contested the cost recovery of the project on the ground that the
work executed by the Respondent could not be used. Further, two other
independent agencies, namely, Oil India Ltd., a Government of India
Undertaking and M/s Mindset Seismic Pvt. Ltd., an expert in the field of
seismic processing and interpretation also rejected the work done by the
Respondent. The work executed was poor in quality and since the
Petitioner could not put the same to any use, it entered into a separate
Contract with a Third party for undertaking the same scope of work.
9. Respondent failed to carry out its obligations under the Contract in
a professional and efficient manner, in accordance with standards and
specifications of the Contract and as per generally accepted oilfield
practice and thus the Petitioner withheld the payments under certain
Invoices raised by the Respondent. Petitioner had earlier made payments
against certain Invoices raised during seismic acquisition and only some
Invoices remained unpaid. Also, the Petitioner was not under any
contractual obligation to pay the standby charges to the Respondent and
thus, the Petitioner refused to clear the Invoices raised by the Respondent
towards the said charges. In addition to the above, as provided in the
Contract the Petitioner withheld amount of USD 385,000 from the
Invoices raised for mobilisation fee.
10. As a result of the above, Respondent invoked the Arbitration
Clause under the Contract. Parties could not mutually agree to appoint an
Arbitrator and finally, the Supreme Court vide order dated 02.12.2009
appointed the Arbitral Tribunal in a petition filed under Section 11 of the
Act.
11. Respondent filed its Statement of Claim and sought the following
reliefs: -
―CLAIM NO.1
That the Claimant claims USD 1,631,288/- (USD) (or 1
Million 631 Hundred Thousand 2 Hundred and 88 USD
only) per month from the date since the aforesaid invoices
became due and the interest @24% on the above said
amount from the date of accrual to the date of payment.
CLAIM NO.2
Claimant Claims and amount of INR 480,000.00 towards
Invoice No. AOSL/GN/18 dated 30.06.2008 for INR
480,000.00 for reimbursement of G.B. Commission.
CLAIM NO.3
The C1aimant claims the refund of an amount of USD
385,000.00 paid by the Claimant to the Respondent as
performance bond along with an interest of 24% from the
date of completion of works till the date of refund.
CLAIM. NO.4
It is submitted that by the time the Claimant had paid the
various parties demanding protection money, to save its
personnel and equipment, it had already suffered
substantial damage to its equipment caused on account on
not being provided adequate security by cutting, fire and
sabotage which are estimated at amount of USD
500,000.00.
CLAIM. NO.5
Expense of USD 5,000.00 incurred towards 2 trips made
to India by Mr. shabtayYakkov, Deputy General Manager,
Finance & Administration of the Claimant to persuade the
respondent to make payment of outstanding amounts due
to the Claimant along with interest @ 18 per annum from
the date of incurring of the same to the date of payment.
Claim of USD 255,787 towards theft of equipment worth
the aforesajd amount.
The Claimant had received various payments from the
Respondent Company on which the Respondent Company
deducted tax at source. However, the Respondent
Company has failed to issue TDS certificate towards the
said payments, which is its legal responsibility. Therefore,
the Claimant claims the amount of USD 60,130.49 that
had been deducted at source from the payments of the
Respondent to the Claimant on account of the failure of
the Respondent to furnish the TDS certificate for the
aforesaid amount along with an interest of 24%, per
month, from the date of accrual to the date of payment.
CLAIM NO.8
The Claimant claims USD 800,000.00 towards the cost of
new equipment purchased on account of damage, sabotage
and theft.
The Claimant claims the cost of the litigation and the
proceedings to be attended before the arbitrator.‖
12. Petitioner filed its Statement of Defence refuting the claims of the
Respondent and also filed a Counter Claim for an amount of Rs.
11,07,51,470/- along with interest at the rate 18% as the expenses made
by the Petitioner on the project. Counter Claim is as under: -
―Claim for the difference in the amount to be incurred by
the Counter Claimant on account of the work being
contracted out to another contractor.‖
Case of the Respondent (Claimant) before the Arbitral Tribunal:
13. Stand of the Claimant was that it struggled hard to mobilize the
equipment and personnel in the oilfields as the local mafia was
obstructing the movement of the trucks carrying the equipment and
personnel. Petitioner assured that it would render all possible help to
remove the hindrances, but failed to do so. Despite difficulties,
Respondent started execution of the work. It executed the work as per
specifications and drilled shot holes under supervision of the Petitioner
and the work was approved from time to time by representatives of the
Petitioner. Scope of work was in three phases of Data acquisition,
processing, and interpreting and Respondent while working under the
supervision of a Consultant, a Geologist and a General Manager
(Operations) deputed by the Petitioner prepared Daily Progress
Reports (DPR) which were duly signed by representative of the Petitioner
who while signing, rejected work which was not as per specifications.
14. Respondent claimed that there was lot of lawlessness prevailing in
the area and it had to pay money to the locals so that they permitted the
Respondent to carry out work at the site. This money was paid as GB
Commission. Respondent also alleged that the local police did not
provide any protection to the employees or for the equipment to the
Respondent and even the Petitioner did not intervene. The locals would
often sabotage the work and damage the tools and equipment to extort
money. The terrain and topography of the area was such that it was
difficult to shoot points drilled by the Respondent though cables had been
laid and geo-phones connected. Due to these logistic difficulties and
damage to the equipment, Respondent could not complete the contracted
volume of work within the available time window and the 3D coverage
had to be restricted to 35.02 km² against the planned 52.5 km². Later, the
area was reduced to 45 km² from 52.5 km² on instructions of the
Petitioner.
15. Respondent alleged that despite the execution of the work, the
standby charges as well as charges for Data processing and interpretation,
though being fixed under the Contract were not paid, under the Invoices
raised, on the pretext that the Report indicated that the Data was of poor
quality. Petitioner had never raised any objection during the execution of
the work and had never required the Respondent to change or add
anything to the Report during several meetings held between the parties.
Petitioner was also bound to refund the money under the Performance
Bond, which it failed to do even after execution of the work.
16. The Arbitral Tribunal, by a majority Award in the ratio of 2:1
allowed some of the Claims of the Respondent as under:
―(1) Respondent GeoEnpro Petroleum Ltd. shall pay to
the Claimant, Geophysical Institute of Israel
US$1,387,379.00 and Rs.(INR) 4,80,000/-.
(2) Respondent, GeoEnpro Petroleum Ltd. shall pay to the
Claimant, Geophysical Institute of Israel
Rs.(INR)13,00,000/- (Rupees thirteen lakh) as cost of
arbitration proceedings.
(3) Respondent, GeoEnpro Petroleum Ltd. shall pay to the
Claimant, Geophysical Institute of Israel interest @ 6%
per annum on the amount of US$ 1,387,379.00 and
Rs.(INR) 4,80,000/- from 2.3.2009 till the date of Award.
(4) Further interest at the rate of 6% on the amount of
US$ 1,387,379.00 and Rs. (INR) 4,80,000/- from the date
of Award till the payment. However, no such future
interest shall be payable in case Respondent, GeoEnpro
Petroleum Ltd. pay to the Claimant, Geophysical Institute
of Israel this amount of the Award within two months from
today i.e. the date of Award.‖
17. Assailing the Award, learned counsel for the Petitioner contends
that the Tribunal has completely failed to appreciate that work performed
by the Respondent was of extremely poor quality and of no use to the
Petitioner. As per the terms of the Contract, Respondent was under an
obligation to perform its work "diligently, efficiently, in a safe and
workman like manner, according to the standards and specifications
contained in this Contract and generally accepted Oil field practice."
Reliance is based on Clauses 4.4.1 and 4.4.4 of the Contract. Contrary to
the above, Respondent delayed mobilizing its equipment and personnel to
the site. Respondent failed to drill the holes of required specifications and
could not cover the entire area of survey as agreed under the Contract. To
support the argument, counsel relies on KS 3D Survey Report where
Respondent itself admitted that the Data acquisition was of poor quality
and thus the objectives could not be met. Reliance is placed on letter
dated 22.01.2010 written by Directorate General, Hydrocarbons, which is
the sectoral regulator for the oil and gas sector, wherein it was mentioned
that the work executed was not usable. The Data sent in the Report was
examined by two independent agencies, namely, Oil India Ltd. and
Mindset Seismic Pvt. Ltd. Both the agencies had rejected the Data and
detailed reports by them were placed before the Tribunal.
18. Learned counsel explained the methodology used for seismic
survey. To conduct the survey, holes of required depths are drilled and
explosives are placed in them and the holes are exploded. The energy
produced by this explosion travels inside the earth and gets reflected by
different soil layers. The energy so reflected is captured by
geophones/detectors planted on the surface. The vibrations received by
geophones are converted to electrical pulses and recorded by instrument
on magnetic tapes/cartridges. These pulses are the seismic Data which is
ultimately processed and interpreted. Thus, it is imperative that the shot
holes are of required depths, as deeper the hole, more energy would travel
inside the earth for better results. It was submitted that the objective of
seismic survey is to map the different Sub-Surface Formations deep
inside the Earth and identify the composition of the Formations, to find
suitable location for drilling a Well, where probability of occurrence of
Hydrocarbons, is high. However, if Formations are not properly mapped,
the objective cannot be met. The whole purpose of survey was to provide
the Data to DGH and Oil India Ltd. in accordance with the PSC, which
the Petitioner had entered into with the Government of India. Therefore,
it is argued that there is complete perversity in the Award in as much as
the Tribunal has held that rejection of the Report has no relevance to the
issues involved in the case. It is also perverse for the Tribunal to have
rejected the argument of the Petitioner of poor quality Data on the ground
that nature of the Contract is such that nobody could predict the ultimate
result.
19. Learned counsel next contends that the majority Award proceeds
on an incorrect presumption that Petitioner did not object during the
execution of the Contract, at any stage and all objections were raised at
the final stage, once the results were not in favour of the Petitioner. On
this basis, the Tribunal concluded that since the Respondent performed its
obligations without any objections, it was entitled to the claims raised.
The above conclusion is incorrect according to the learned counsel. It is
argued that a comparison of Chief Driller‟s Report prepared by the
Respondent and the Observer‟s Log, which was shared by the
Respondent with the Petitioner during the execution of the work, would
reflect number of inconsistencies and discrepancies in the two Reports. In
fact, the Counsel even alleged that Respondent played a fraud by not
sharing the Chief Driller‟s Report during the execution of the work and
the same was shared only during the Arbitration Proceedings. The Report
brings out the deficiencies in the shot holes and had the same been made
available to the Petitioner during execution of the work, Petitioner would
not have approved many of the shots which have been otherwise
approved on the basis of false representations by the Respondent in the
Observer‟s Log and DPRs. The said issue was highlighted before the
Tribunal but has been disregarded on the ground that it could not be
believed that the Petitioner did not have the Chief Driller‟s Report with it
at the appropriate time. Even assuming that Petitioner was privy to the
Report at an earlier point of time, yet it was not open to the Tribunal to
disregard the discrepancies and deficiencies pointed out in the said
Report.
20. Learned counsel argues that minority Award expressly records that
issue regarding shot hole depth had been raised time and again by the
Petitioner, including its effect in deterioration of Data quality. On the
said basis, minority Award concludes that Respondent failed to carry out
Data acquisition in a professional manner. It is pointed out that
correspondence on record and the DPRs clearly reflect that Petitioner
regularly objected to the work executed by the Respondent.
21. Learned counsel next contends that as per the terms of the Contract
it was agreed that to collect seismic Data, shot hole depth will be 20 m
but where drilling up to 20 m was not possible, 2 holes of 10 m or 4
holes of 5 m each could be drilled called pattern holes. Further,
Respondent before entering into the Contract had undertaken
experimental drilling for four days and assured that it could achieve depth
of 20 m. However, after starting the work belatedly, Respondent lost the
fair weather window and also drilled shot holes of unacceptable depths.
Petitioner categorically informed the Respondent, vide its email dated
11.04.2008 that if depth of holes was less than 3 metres, it would not be
loaded and the shot point would be deemed as skipped. Also, the
Petitioner informed the Respondent to drill 4 m deep pattern holes to get
better Data. When the Respondent could not achieve the Contractual
depths, Petitioner‟s representative gave further relaxation to drill seven
holes of 3 m depth, provided Data was acceptable. Respondent, however,
failed to achieve even the further relaxed norms. The Tribunal has erred
in holding that it was not material for the Tribunal to go into
technicalities of drilling shot holes of 3 m or less. The whole issue before
the Tribunal was about the quality of Data acquired and processed by the
Respondent and which in turn depended on the depth of the shot holes.
By not getting into the technicality of the depth of the holes, the Tribunal
has completely decided contrary to the contractual terms. Too much
emphasis has been laid on the signing of the DPRs by the representative
of the Petitioner without appreciating that the DPRs did not specify the
depth of the holes in most cases.
22. The next argument of learned counsel for Petitioner is that the
Tribunal has erred in appreciating the issue of area to be covered under
the survey by the Respondent. The Contract clearly envisaged an area of
52.5 km². Petitioner had initially suggested that the area be 45 - 48 km²
vide its email dated 04.01.2008. However, Respondent vide its email
dated 08.01.2008, rejected the suggestion and insisted on covering the
contractual area stating that reducing the surface area will save money,
but will risk the final result. Therefore, it was an admitted stance of the
Respondent that area under the Contract for survey could not be
compromised. Subsequently, however, the area was unilaterally
downsized to 43.2 km² by the Respondent and Petitioner was informed
accordingly. The same was objected to by the Petitioner which is evident
from the email dated 09.05.2008. Respondent vide its email dated
14.05.2008 admitted that area under survey was reduced on account of
monsoon. Respondent, admittedly, failed to achieve even the downsized
area and was able to shoot only 1688 shots, after which 1440,
corresponding to 27 km², were acceptable i.e. half of the contracted area.
This is evident from the last day‟s DPR entry, made on 14.06.2008.
23. Counsel for the Petitioner assails the majority Award also on the
ground that the Tribunal has accepted the stand of the Respondent that
delay in mobilisation was on account of prevailing law and order
situation in KS area on account of interference by locals and threats from
mafia and wrongly concluded that Petitioner being the principal employer
failed to help. It is contended that as per Clause 6.6.1 of the Contract
Respondent was required to complete mobilisation within 60 days of
signing of the Contract on 13.12.2007 and ought to have mobilised its
equipment by 11.02.2008. This was critical as the acquisition of the Data
was to be completed before the onset of monsoon. However, mobilisation
was completed around mid April 2008 and only on 15.04.2008, shooting
commenced which is evident from the DPR. It is argued that under the
Contract it was the sole responsibility of the Respondent to ensure safety
of its personnel and equipment as clearly specified in Clause 5 and Clause
10.3 of the Contract. Respondent, in any case, had got the Contract on the
basis of its representation that it had substantial work experience in North
- East India and was thus familiar with the ground realities.
24. The next contention is that grant of standby charges was erroneous
as the standby was not caused due to any factor attributable to the
Petitioner. Contract provided for standby charges @ USD 70,000 per day
and does not define the term standby. Contract is also silent on when the
standby shall be payable. Perusal of the reasons for claiming standby
shows that the claim was primarily on account of damage and sabotage
by the locals and theft of the equipment. This admittedly was not
attributable to the Petitioner. It was not the Petitioner‟s responsibility
under the Contract to ensure safety of the equipment and thus no standby
charges could be claimed from the Petitioner. The Tribunal, however,
disregarding this fact has awarded the Claim in favour of the Respondent.
This has led to rewriting of the Contract between the parties and makes
the Petitioner responsible for security of the personnel and equipment,
despite the Contract being to the contrary. This conclusion leads to an
absurdity whereby the Respondent could have mobilised its machinery,
kept it on a standby mode and claimed the charges without doing any
work.
25. The argument is that the standby charges have been allowed
without examining individual claims and reasoning under one claim, for
standby has been applied to the others. Petitioner had initially informed
the Respondent to suspend work between 24.05.2008 - 26.05.2008 on
account of elections. However, on 24.05.2008, Petitioner had
immediately instructed to suspend work only for one day and was willing
to pay standby charges for that day. However, Tribunal has allowed
standby charges for all the three days.
26. It is argued that the Tribunal has erred in allowing the claim for GB
commission since the same was not only illegal but beyond the terms of
the Contract. Payments under the Contract were to be made only as per
appendix III and no additional payments were to be made as clearly
stipulated in Clause 6.1. It was alleged by the Respondent that such
commissions were paid by it at the instance of the Petitioner, who had
undertaken to refund the same to the Respondent. Tribunal allowed the
Claim on the ground that Petitioner in the past had paid the Respondent
for crop compensation. It is argued that such a finding is against public
policy of India and contrary to terms of the Contract. No such
commission is provided under the Contract. Crop compensation cannot be
equated with GB commission as the former was provided for in the
Contract. In any case, there cannot be a direction of specific performance
of an illegal payment.
27. Arguing on the rejection of its Counter Claim, counsel for the
Petitioner submits that the Tribunal has failed to give any reasons while
rejecting the Counter Claim. There is only a broad analysis of the Claim
but no reasons for its rejection. It is submitted that Section 31(3) of the
Act mandates that the Award must contain reasons. This part of the
Award also deserves to be set aside and the Petitioner is entitled to its
Counter Claim as the payment sought was on account of the expenses
actually incurred by the Petitioner on the project.
28. As to the analysis of the evidence given by the witnesses of the
Petitioner, by the Tribunal, learned counsel argues that the Tribunal has
rejected the evidence of Mr. Murty on the baseless ground that he made
statements on facts he was unaware of, without appreciating that he was
involved in all the three stages of execution of the work and was
deployed at site from 13.04.2008 to 15.05.2008. No reason has been
given for this conclusion. Mr. Puri‟s evidence has been perversely
rejected by the Tribunal on the ground that he has not deposed much on
the merit of the controversy between the parties. This cannot be a reason
to disregard the evidence of a necessary witness. Again, no reason has
been given for arriving at an adverse presumption on account of failure of
Mr. Suresh Kumar Batra, Senior Vice President to appear before the
Tribunal as a witness. He did not appear during the proceedings since he
joined the Petitioner company only in May 2008 and had little
knowledge, to depose on the controversy. In any case, if the Tribunal
considered it important to examine him as a witness, it could have
exercised the power available to it under Section 27 of the Act.
29. Per contra counsel for the Respondent argues that the present
petition is not maintainable as none of the grounds mentioned under
Section 34 of the Act to challenge an Award have been made out in the
petition. Petitioner has been unable to make out a case as to how the
majority Award is against the public policy of India. The Petitioner is
seeking indulgence of this Court to re-appreciate the evidence and also go
behind the plausible view taken by the Tribunal, which is beyond the
scope of judicial review by this Court, as has been held by the Supreme
Court in several judgments including in the case of Associate Builders v.
DDA, (2015) 3 SCC 49.
30. Learned counsel for Respondent contends that the Respondent duly
performed its part of the obligations under the Contract. Prior to
acquisition of Data Respondent completed mobilisation and this was
certified by the Petitioner. RW-1 admitted in cross-examination that
mobilisation of equipment and personnel was completed and he was
present at the site during that period. There was no correspondence or any
material on record which indicated that any objection was raised to delay
in mobilisation. Respondent drilled shot holes in the area under survey as
per required specifications and this was duly approved from time to time
by the supervisor/consultant/representative of the Petitioner i.e. Mr.
M.S.N. Murty. Work in all the three phases was under the control and
supervision of the officials deputed by the Petitioner in terms of Clause 8
of the Contract and every evening Daily Report was prepared,
summarising all activities and then duly signed by the representative,
signifying progress and approvals.
31. On the whole, Respondent posted four groups in the KS area, one
for topographic survey, second for clearing of undergrowth, third for
drilling of shot holes and fourth for recording data. This fact was never
denied by the Petitioner. RW-1 admitted that he was scrutinising and
signing DPRs prepared by the Respondent. It is further contended that
the Supervisor was always aware that the geological conditions of the
area did not always permit the Respondent to recover the skipped or
rejected shots and was also aware that on account of hostile terrain, it was
not possible to achieve deeper drilling and that is why no defects were
ever pointed out, in this regard under Clause 4.3.1.6 of the Contract.
32. Counsel next contends that Respondent repeatedly approached the
local police for protection but there was no respite from the locals and the
crew of the Respondent was constantly threatened and equipment was
regularly damaged. Respondent was disabled from completing the
targeted volume of work within the available time window due to these
factors and as a consequence 3D coverage had to be restricted to 35.024
km². This situation was duly communicated to the Petitioner and is
admitted by RW1 in answer to Q. 73. Because the Petitioner was aware
of ground realities, it did not decline the request for reduction of the
survey area, as is evident from the documents on record.
33. The next contention of the Respondent is that Petitioner being
aware of the expertise and reputation of the Respondent, as a well-known
service provider specialising in seismic exploration for oil and gas,
including seismic field surveys, data processing and interpretation,
awarded the Contract to the Respondent. The competency or expertise
has never been disputed by the Petitioner even during the Arbitration
Proceedings. Respondent being a foreign company had not worked in
Arunachal Pradesh, prior to the signing of the Contract and had no
knowledge of either the hostile terrain or the law and order situation.
Petitioner, in fact, concealed that local mafia was operating in the area
making it difficult for any agency to work, uninterruptedly. Despite
several requests, Petitioner never came forward to salvage the situation.
34. Counsel next argues that in case the Respondent had allegedly
failed to perform its obligation under the Contract, Petitioner was at
liberty to suspend the work under Clauses 3.3.1 and 3.3.2 of the Contract
or even terminate the Contract under Clause 3.4.3. However, Petitioner
did not do so and after sizeable amount was due to the Respondent, after
completion of work, allegations were made against the Respondent. RW1
has also admitted in answer to Q.76 that permission to demobilise was
given by the Petitioner and only thereafter the Respondent carried out the
demobilisation of equipment and personnel. Insofar as the depth of the
shot holes is concerned, counsel argues that even in the experimental
drilling Report dated 29.08.2007, it was mentioned that it was difficult to
drill beyond 3 m. Knowing the difficulties of the area, Petitioner
accepted shallow holes throughout the period of execution of the work.
The expert who signed the DPR, had acknowledged in his email dated
01.04.2008 that keeping the charge below the layer of boulders is ideal,
provided it is possible to drill. The Tribunal has given clear findings on
the issue of depth of the shot holes and on the Driller‟s Report and this
Court cannot and should not interfere in such findings of fact. It is further
argued that data processing was carried out by experienced personnel of
the Respondent in Israel and representatives of the Petitioner, Mr. M.S.N.
Murty and Mr. B.P. Sharma were present throughout. They were satisfied
with the data processing and had admitted during cross-examination that
they never wrote any note of objection or dissent. Likewise, the
processed 3D data was interpreted at Israel under the supervision of both
the officers. Final report was duly prepared and the findings clearly
revolutionized the way KS field is viewed. For the first time, it was
suggested that the field was limited to the area between the Miao vertical
fault and the Miao thrust. Further, no claim was put forward by the
Petitioner to change or add anything to the final Report during the
technical meeting held from time to time. It is argued that RW1 who was
actively involved in the interpretation of data, admitted in response to
Q.38 in cross-examination that while acquiring data, it is not possible to
ascertain the results.
35. It is further argued that in terms of Clause 4.4.4.2 of the Contract,
Petitioner had the right to call upon the Respondent within two months
after termination of the Contract and submission of final report, to
remedy the defects, if any. Report was submitted in October 2008 and no
such right was ever exercised by the Petitioner within two months. It was
only after the Respondent served notice dated 02.03.2009 for payment of
dues that the Petitioner, as an afterthought, came up with the excuse of
getting the work redone on 19.03.2009. Respondent had completed all the
three stages of the Contract and performed its obligations and the
Arbitrators, in the majority Award have rightly held the Respondent is
entitled to its dues.
36. Learned counsel has also briefly argued on the merits of the Report
and submitted that only after Respondent took charge of 2D data certain
events started to appear, which could be co-related to the wells. It was
demonstrated in the Report that old 2D lines were only processed and
could not be reference for any comparison. The result of the survey
brought out a much better migration of Data, new stratigraphical and
petrophysical interpretation providing better net/gross porosity and water
saturations, that the aerial extent of the field is limited by the Miao fault
to the South-West and the Miao thrust to the North-East and the
estimation of reserves of oil based on interpreted parameters indicated
44% increase from the earlier estimates. The report thus revolutionized
the way KS field was viewed. It was suggested, for the first time, that the
present field was limited to the area between Miao vertical fault and the
Miao thrust. No such view was put forward before based on wrong
interpretation of old 2D data.
37. Learned counsel further contends that having performed the
Contract in all its three stages and given the report, Respondent rightly
became entitled to refund of the Performance Bond and it is incorrect for
Petitioner to argue that the Award is perverse in having allowed the said
Claim. Tribunal has rightly held that merely because the Result is not to
the liking of the Petitioner, Respondent had no legitimate ground to
deprive the Respondent of its lawful dues.
38. Insofar as the objection to the standby charges is concerned, it is
argued that the said charges were payable to the Respondent at the rate of
USD 70,000 per day under the Contract. Evidence on record clearly
established that Respondent did not carry out seismic operations for three
days i.e. 24th, 25th and 26 May, 2008 and this was pursuant to
communication dated 24.05.2008 from the Petitioner directing the
Respondent to stop the survey for three days on account of Panchayat
elections in the state of Arunachal Pradesh. Although, the Petitioner did
communicate that Respondent could carry out work at its risk, fact was
that there was lawlessness and security issues prevailing in the area and
were well-known to the Petitioner. The Tribunal has given clear
reasoning for allowing the claim for standby charges.
39. Insofar as claim for GB commission is concerned, it is contended
by the Respondent that payment on account of commission/crop
compensation was made by the Respondent or its sub-Contractor to
placate unruly elements who were hindering the work at site. It is an
admitted case that Petitioner had reimbursed the Respondent of the
amount of compensation paid earlier and had thus varied the terms of the
Contract and, therefore, could not have declined payment of
Rs. 4,80,000/-.
40. Arguing on the issue of supply of Chief Driller‟s Report at a
belated stage, as alleged by the Petitioner, counsel for Respondent
submits that there was no occasion for the Petitioner to get the said
Report as the Respondent was regularly submitting the DPRs and there is
no mention of the said report either in the defence statement or the
Counter Claim filed by the Petitioner during the arbitration proceedings.
This issue was raised only as an afterthought to give a wrong impression
that the Respondent was trying to play fraud on the Petitioner.
41. Responding to the argument on rejection of the Counter Claim,
counsel submits that during the arbitration proceedings, Petitioner failed
to substantiate its Counter Claim and even failed to explain how it was
claiming an amount more than the amount paid to the Respondent.
Petitioner claimed Rs. 11,07,51,470/- though total payment made to the
Respondent was only Rs.8,70,49,844/-. A question in this regard was put
to the witness of the Petitioner, Mr. Puri, who merely answered that the
amount claimed is the amount incurred on the project, but no evidence
was produced. While the Petitioner repeatedly stressed that it had to
appoint new Contractor to redo the survey, but even the Austrian entity so
appointed was not informed of the lawlessness and complex geopolitical
conditions prevailing and finally, even the said Contract was terminated.
It is thus argued that there is no perversity or illegality in the Award and
the same should be upheld and the petition be dismissed.
42. I have heard the learned counsels for the parties and examined their
contentions.
43. The undisputed facts are that the Government of India desired that
petroleum resources at the KS be exploited and entered into a PSC on
16.06.1995 with Oil India Ltd., Geopetrol International Inc., Enpro India
Ltd. and the Petitioner, whereby the Petitioner was appointed as the
Operator under the Contract. The Petitioner, in turn, entered into a
Contract with the Respondent on 13.12.2007 for services relating to
acquisition, processing and interpretation of 3D seismic data. It is also
undisputed that to collect the acceptable seismic data, Respondent had to
drill shot holes of 20 m for the loading and exploding the charge.
However, certain disputes arose between the parties and the matter went
into arbitration wherein the Respondent raised certain Claims as
mentioned above and the Petitioner raised a Counter Claim.
44. Before proceeding further, some relevant provisions of the
Contract need to be noticed. Under Clause 3.2, the duration of the
Contract was nine months from the signing of the Contract or six months
from the commencement date, whichever was earlier, until termination in
accordance with the provisions of the Contract. Commencement date of
operation was as jointly agreed by both the parties. Clauses 3.1 and 3.2
read as under:
―3.1 Commencement Date of Operations
The date of commencement of operations shall be
the date as jointly agreed by both the parties which
shall be subsequent to Company's verifying
completion of mobilisation.
3.2 Duration
The Contract shall be effective from the date of
signing the Contract. The duration of the Contract
is 9 months from the signing of the contract or six
months from the Commencement Date as specified
in 3.1 whichever is earlier until the termination in
accordance with the provisions of the Contract."
45. Clauses 3.3.1 and 3.3.2 provide for suspension of the Contract due
to the failure of the Contractor to fulfil its obligations and Clause 3.3.3
provides that the Contractor will not be entitled to any payment due for
the work or part thereof done in case the work is suspended by the
Company. The three Clauses are as under:
―3.3.1 Suspension due to Contractor's failure to fulfill
obligations
Company shall have the right at any time and at its
discretion to order contractor to immediately
suspend all or part of the Work which Company in
its sole discretion considers necessary by giving
Contractor a (seven) 7 days notice of Suspension.
3.3.2 Company shall have the right at any time and at its
discretion to immediately suspend all or part of the
Work for a period not to exceed thirty (30)
consecutive days in a manner which Company
considers necessary by giving Contractor a (seven)
7 days notice of Suspension.
3.3.3 Payments
i. No payments shall be due by Company to
Contractor for work or part thereof which is
suspended by Company in accordance with
provisions of article 3.3.1.
ii. For Work or part of Work suspended under
article 3.3.2; Company shall pay Contractor in
accordance with the Schedule of Prices and Rates of
the Contract.‖
46. Termination of the Contract is provided in Clause 3.4 and reads as
under:
―3.4 Termination
3.4.1 General
The Contract shall terminate at the end of contract
period without any notice being required, subject to
elsewhere provided In the Contract.
3.4.2 Termination by Company
Company shall have the right at any time and at its
discretion to Terminate the Contract or part thereof
by giving Contractor a 30 (Thirty) days notice of
termination.
3.4.3 Termination due to fault of Contractor
In the event that, in Company's reasonable opinion
and at Company's discretion, the Contractor
becomes unable to satisfactorily perform the work,
Company shall have the right to terminate the
Contract by giving Contractor a 15 (fifteen) days
notice of such Termination."
47. Provisions relating to the payment to the Contractor on account of
termination under the above Clauses is provided for in Clause 3.4.5,
which is as under:
―3.4.5 Provisions in case of Termination
i. Subject to Articles 3.4.1 and 3.4.2, Company shall
pay Contractor until the Date of termination, in
accordance with the Schedule of Prices and Rates of
the Contract.
ii. No payments shall be due by Company to
Contractor for Work or part thereof which is
terminated by Company in accordance with
provisions of Article 3.4.3. (fault of Contractor) and
Article 3.4.4. (Force Majeure).‖
48. Clause 6.6 under Article 6 provides for liquidated damages and
penalty. Clause 6.6.1 which deals with liquidated damages is as under:
―6.6 Liquidated damages and Penalty
6.6.1 Liquidated damages
The mobilisation should be completed and work
should commence within 60 days of date of signing
the contract. The mobilisation shall be complete on
positioning at site of all the equipment along with
the spares, consumables and accessories etc. for
seismic data Acquisition. Aforesaid positioning of
equipment etc. at the site as per list of equipment
should be free of defects / encumbrance and duly
certified by Company's representative as fit to
undertake / commence the work assigned under the
Contract.
In the event the Contractor fails to mobilise within
the stipulated period, liquidated damages at the rate
of 0.5% of the Contract value for delay of each week
or part thereof, subject to a maximum of 5.0% of the
Contract value shall be payable by the Contractor.
In the event the Contractor is unable to mobilize
within a period on 75 days, the Company at its sole
discretion may terminate the contract and the
Contractor shall be deemed to have failed to
perform under the Contract.‖
49. Clause 6.6.2 stipulates that time is the essence of the Contract and
in the event of default in timely completion, the Contract provides that
the Contractor would be liable to pay penalty at the percentage prescribed
therein. Clause 6.6.3 provides that the liquidated damages/penalty would
be the genuine pre-ascertained damage which the company will suffer in
case of delay by the Contractor and the same could be recovered from
any money due to the Contractor. Clauses 6.6.2 and 6.6.3 are as under:
―6.6.2 PENALTY
Time is the essence of the Contract. In the event of
default in timely completion of the contract, the
Contractor will be liable to pay penalty at the rate
of ½ % of Contract value for each week subject to a
maximum of 5.0%.
6.6.3 Such liquidated damages/penalty are agreed
between the parties to be genuine pre-ascertained
damages which Company will suffer in case of
delays in completion of the contract by the
Contractor.
The Company may, without prejudice to any other
method of recovery, deduct the amount of such
liquidated damages and penalty from any monies
due or which become due to the Contractor. The
payment or deduction of such damages shall not
relieve Contractor from its obligations and
liabilities under this contract, neither will it effect
right of Company pursuant to other provisions of
the Contract.‖
50. Clause 6.7.6 relates to the withholding of the payment by the
company on account of certain defaults by the Contractor which are
specified therein and is as under:
―6.7.6 With-holding
6.7.6.1 The Company may with-hold or nullify the whole
or any part of the amount due to Contractor on
account of subsequently discovered evidence in
order to protect the Company from loss on account
of:
a) For non-completion of contracted work to
Company's satisfaction.
b) Contractor's indebtedness arising out of
execution of the Contract.
c) Defective work not remedied by Contractor.
d) Claims by sub-contractor of Contractor or others
field or on the basis of reasonable evidence
indicating probable filing of such claims against
Contractor.
e) Failure of Contractor to pay or provide for the
payment of salaries I wages, contributions,
unemployment compensation, taxes or enforced
savings with-held from wages etc.
f) Failure of Contractor to pay the cost of removal
of unnecessary debris, materials, tools or
machinery.
g) All claims against Contractor for damages and
injuries and I or for non-payment of bills etc.
h) Any failure by Contractor to fully reimburse the
Company under any of the Indemnification
provisions of this contract. If, during the process of
the work Contractor shall allow any indebtedness to
accure for which Company may be primarily or
contingently liable or ultimately responsible and
Contractor shall, within five days after demand is
made by the Company, fail to pay and discharge
such indebtedness, then Company may during the
period for which Indebtedness shall remain unpaid,
with-hold from the amounts due to Contractor, a
sum equal to the amount of such unpaid
indebtedness. When all the above grounds for with-
holding payments shall be removed, payment shall
thereafter be made for amounts so with-held from
the amounts due to Contractor, a sum equal to the
amount of such unpaid Indebtedness. When all the
above grounds for withholding payments shall be
removed, payment shall thereafter be made for
amounts so with-held. With-holding will also be
effected on account of the following:
i) Garnishee order issued by a Court of Law
in India.
ii) Income-tax deductible at source according
to law prevalent from time to time in the
country, according to clause 6.7.3.
iii) Any obligation of Contractor which by
any law prevalent from time to time to be
discharged by the Company in the event of
Contractor's failure to adhere to such laws.
iv) Any payment due from Contractor in
respect of unauthorised imports.‖
51. Article 12 is force majeure clause and is as under:
"12. Force Majeure
General
Neither the Company nor the Contractor shall be
liable one to the other for any delay in completion
of the work where and to the extent such delay is
caused by the inability of either party to fulfill its
obligation under this contract due to Force Majeure
as defined herein.
12.1 Definition
Force Majeure shall mean any occurrence affecting
the rights and obligations of either party under the
Contract which is beyond the control of the party
claiming Force Majeure and could not have been
foreseen or prevented by that party when exercising
reasonable diligence.
12.2 Inclusions
Force Majeure shall Include but not limited to Acts
of God, wars (declared or not), fires, rebellion,
Insurrection, acts of terrorist, acts of Governments,
strikes, boycotts, blockades, lockouts, unusually
severe weather or any similar matters beyond the
control of the party affected by same.
12.3 Exclusions
Notwithstanding Article 12, a Force Majeure
occurrence shall not include:
i. a strike affecting the Work restricted solely to
Contractor's or Subcontractor's Personnel.
ii. breakdown of any equipment used by Contractor
or its Subcontractors unless caused by a Force
Majeure event.
iii. inclement weather typical for the operating area.
12.4 Outstanding payments
Force Majeure occurrence other than Government
instructions not to pay, shall not be just cause for
non-payment of monies due under the Contract for
work satisfactorily performed."
52. Insofar as the execution of the work and its methodology is
concerned, the same was provided for under Article 4. Clauses 4.3.1.3
and 4.3.1.4 deal with shot hole and loading and blasting of the holes as
under:
―4.3.1.3 Shot-hole
• Contractor shall provide shotholes as per
specifications and instructions from Company
representative. A single shothole of depth upto 20m
would serve the purpose. However at places where
desired shothole depth cannot be achieved a pattern
of shotholes as indicated under operating rate and
approved by Company representative will be
permitted. It is desirable to deploy large number of
Mechanical Rotary Rigs.
• The accepted depth of shothole will be the depth
upto which explosives charges has been loaded.
• In case of collapse of drilled shothole the
Contractor will ensure another shothole drilled to
specified depth.
• Wherever a shot point is skipped due to logistics,
the Contractor shall try to make recovery of the shot
at the nearest possible shotpoint.
4.3.1.4 Loading of shothole and blasting of loaded holes
• The Contractor shall deploy competent and
qualified personnel for preparation of charge, its
priming, loading and blasting of shothole, following
all relevant safety and security rules. The
Contractor shall take necessary precautions in case
of misfired holes.
• The Contractor shall transport explosives
detonator, blasters and loading poles etc. under
security, manually from base camp to worksite and
back to camp.
• Advance loading of shothole would not be
permitted and loaded holes would not be allowed to
be left behind.‖
53. Clauses 4.3.1.8, 4.3.1.9 and 4.3.10 deal with reports, data
processing and data interpretation and are as under:
―4.3.1.8 Reports
The Contractor will submit the following to the
Company:
• A detailed report on experimental work (Within 15
days of completion of work)• Daily/Weekly /Monthly
report regarding performance and progress of work
duly signed and certified by Company
representative.
• An Operational Report within one month of the
Completion of data acquisition work.
4.3.1.9 DATA PROCESSING:
The Contractor shall employ state-of-the-art
computer system and effective seismic application
software and high resolution plotting system to
obtain optimum results.
The processing sequence to be followed shall in
general, be as given in the seismic 3-DAPI
Programme. Certain special sub-routines may be
added if so warranted.
Processing of data shall be completed within one
month of the completion of data acquisition.
The Contractor shall submit a detailed report
consisting of 5 hard copies including 5digital copies
on processing of data highlighting the sequence and
Q.C. checks followed and measures taken to obtain
best possible results, within one month of the
completion of data processing work.
4.3.1.10 DATA INTERPRETATION:
• The Contractor shall employ state-of-the-art
Interactive Interpretation Work station, with
suitable Interpretation packages for obtaining
optimum results. The system as a whole should be
such that it should be possible to integrate all
geoscientific data and bring out geological models
in terms of structural and stratigraphic traps.
• Data interpretation will be carried out following
the details given in the seismic 2-D API programme.
Certain special sub routines may be added if so
warranted.
• Data interpretation work shall be completed
within 5 months from commencement of data
acquisition.
• The Contractor shall submit a detailed report
consisting of 5 hard copies including 5digital copies
on interpretation of data as per oil industry
standards within 6 months from the commencement
of data acquisition. Such report shall accompany
requisite maps and plates.‖
54. Clauses which deal with the performance of the Contractor and its
obligations under the Contract and are very relevant for the present case
are as under:
―4.4 Contractor Performance
4.4.1 Performance of Contractor
Contractor represents that the Work hereunder
shall be carried out diligently, efficiently, in a safe
and workman like manner according to the
standards and specifications contained in this
Contract and generally accepted Oil field practice.
The contractor will provide a performance
guarantee in one of the following two options:
Op. I Contractor shall provide to the Company
within 15 days of Contract signing on irrevocable
and unconditional Performance Bank Guarantee
equivalent to 10 % of Contract value as per
Appendix V, which shall be valid upto 60 days
beyond the contract period. In the event of failure,
to honour any commitments entered into under this
Contract, the Company shall have the unconditional
option under the guarantee to invoke the said
guarantee with the bank and claim the amount from
the bank.
Op. II. The company will hold the sum of USD
385000 from the mobilization fee as a performance
guarantee upto 60 days beyond the contract period.
4.4.2 Performance of the Contractor during the
Contract period
Company reserves the right at any time during the
duration of the Contract to suspend or terminate the
Contract if Contractor fails to comply with any of its
obligations and duties under the Contract.
4.4.3 Rejection of the Work
Company shall have the right to reject any part of
the Work which is not performed in accordance with
the Contract. Where Company desires to exercise
this right Company shall so advise Contractor In
writing. Upon receipt of such notification,
Contractor shall correct the defects in its
performance of the Work and shall be responsible
for all its costs associated therewith.‖
55. Clause 4.4.4 deals with warranty and remedy of defects and are
also important to the present controversy and are as under:
―4.4.4 Warranty and Remedy of Defects :
4.4.4.1 Contractor warrants that it shall perform the work
in a first class, workmanlike, professional manner
and that all work shall be performed in accordance
with the highest quality, efficiency and current
state-of-the-art oil industry practices and in
conformity with all specifications and standards,
and guidance which Company may, from time to
time, furnish to Contractor.
4.4.4.2 Should Company discover at any time during the
terms of the Contract or within 2 (two)months after
termination of this Contract that the work does not
conform to the foregoing warranty, Contractor
shall, after receipt of notice from Company,
promptly perform any and all corrective work
required for make the Services conform to the
Warranty. Such corrective work shall be performed
by the Contractor at its own expenses. Company, at
its opinion may have such remedial work performed
by others and charge the cost thereof to Contractor.
In case Contractor fails to perform remedial work,
the performance security shall be forfeited.
4.4.4.3 The rights and remedies of Company provided by
this Clause 4.4.4 are in addition on any other rights
and remedies provided by law or in equity or
otherwise."
56. The Contract also clearly provided a price Schedule relating to the
different stages of data acquisition/processing/interpretation and is as
under:
―PRICE SCHEDULE
A. DATA ACQUISITION
A.1 MOBILISATION CHARGES: $540,000
(see Para 6.2.2)
i) Mobilisation charges are inclusive of all
spares / consumables /accessories and main
equipment for data acquisition.
ii) Mobilisation charges will be payable when
all equipment and personnel are positioned at
their appointed site free of defects/ any
encumbrances and duly certified by the
Company representative to undertake/
commence the work assigned under the
Contract.
iii) Mobilisation charges cover all local and
foreign costs of the Contractor to mobilize the
equipment to the appointed site and include
all duties and other local and foreign taxes,
port fees and inland transport to the
appointed site.
iv) Details in relation to all equipment / spares /
consumable/ any other material to be brought
by the Contractor is as per annexure II.
A.2 OPERATING RATE: USD 60,000 per Square
Kilometer
(minimum program: 50 Sq
km)
A
pA.3 EXPERIMENTAL $ 75,000 per day,
A SHOOTING
p $6,500 per hour
p
eA.4 STANDBY CHARGES $ 70,000 per day
n
A.5 DATA PROCESSING $ 600 per SQ km (in
d
i CHARGES Israel)
xA.6
DATA INTERPRETATION $ 720 per SQ km (in
- CHARGES Israel)
Appendix-III
SUMMARY OF SCHEDULE OF PRICE AND RAT ES
Sl. Item Rate USD USD-In Words
No.
1. Mobilisation Lump Sum 540,000 Five Hundred
forty thousands
only
2. Experimental Per day 75,000 Seventy Five
Shooting thousands only
3. Operating Sq. km 60,000 Sixty thousands
Rate only
4. Standby Per day 70,000 Seventy
Thousand Only
5. Data Sq. Km. 600 Six Hundred
processing only
6. Data Sq. Km. 720 Seven Hundred
interpretation twenty only
7. Demobilisation Lump Sum NIL NIL
1. Service Tax, if any, as per Indian regulations
would be borne by the Company.
2. Payments will be divided between Contractor
and their Subcontractor i.e. ASIAN
OILFIELD SERVICES LTD - India as per
Contractor's approval.
3. Contractor would provide the Company a
detail of Jobs to be carried by their
subcontractor (s) and value of the same.
However, it is clearly understood by the
Contractor that the Contractor not
subcontractor would be fully responsible for
technical and commercial aspect and
implementation of the Contract.
4. Invoice raised by subcontractor for the Job
done by the Subcontractor would also be
verified by the Contractor.
5. The Company agrees to pay the invoice
directly to the Subcontractor.‖
57. The Arbitral Tribunal after a detailed analysis of the documents
and the evidence on record observed that the Respondent did perform the
Contract in all the three stages and gave a final Report to the Petitioner.
Till the final report was given, Petitioner did not object to the execution
of the Contract by the Respondent at any of the three stages and raised
objections after the Report was given, which was not up to its
expectations. The Arbitral Tribunal concluded that nature of the Contract
was such that the ultimate result could not be predicted. It also observed
that there had been no objection by the Petitioner to the nature of
equipment deployed by the Respondent or on the expertise of its
personnel working at site. When the data collected was processed and
interpreted at Israel, a representative of the Petitioner was associated and
stayed there for almost a month and, in fact, the Petitioner has not even
raised any objection about the processing and interpretation of the data.
Tribunal did not agree with the Petitioner on the aspect that the
Respondent had delayed mobilisation which resulted in the work not
being completed during the said fair weather window or that the
Respondent abandoned the work on the ground.
58. Though the permission to demobilise was conditional but there
was nothing on record to show that the Petitioner ever asked the
Respondent to come back and fulfil any conditions that had remained to
be fulfilled. The Tribunal has also arrived at finding that it was
impossible for the Respondent to continue the work for factors such as
lawlessness in the area including occasions of sabotage and theft of the
equipment and police and the Administration did not give a helping hand.
Petitioner being a principal employer also did not come to the aid and
help of the Respondent. Tribunal was of the view that only because Oil
India Ltd., with whom Petitioner had a Contract did not accept the
Report, it had no relevance to the issue to deny the dues of the
Respondent, once it had performed its obligations under the Contract at
all the three stages. Relevant parts of the Award are as under:
―Geophysical did perform the contract in three stages as
per the contract. Geophysical after completion of the
contract gave final report to the Respondent GeoEnpro.
Till final report was given, Respondent GeoEnpro did not
object to the functioning of the contract by Geophysical at
any of the three stages. Geophysical says that GeoEnpro
raised all the objections after the final stage because the
result was not in favour of GeoEnpro. Nature of contract
is such as to what the result would be ultimately no one
can predict. There has not been any objection from
GeoEnpro to the nature of equipment deployed by the
Claimant as well as expertise of its personal. After data
collection, when it was processed and interpretation done
at Israel, a representative of the GeoEnpro was associated
and he stayed there for almost a month. About the
processing and interpretation nothing has been said to
debar Geophysical from claiming the amount under these
two heads.
Objection of the GeoEnpro is that the majority of the work
is data collection wherein Claimant failed. It is stated that
there was delay in mobilization which resulted in work
could not be done during the fair weather window; data
collection was not done over the agreed area. All these
and other objections to debar admissible payments to the
Claimant even though no payment could be made for
rejected and skip shots. GeoEnpro says that Claimant
wound-up its work without completing the work but then
the fact remains that GeoEnpro had agreed to
demobilization by Geophysical. Though GeoEnpro says
demobilization was conditional but then nothing hasbeen
said if Geophysical was ever asked to fulfill any such
conditions or that geophysical failed to do that. Evidence
on record would show that it had become impossible for
the Claimant to continue the work for whole of the area.
Factors are not far to seek. There existed conditions of
lawlessness in the area and police and administration
were not helpful. There were occasions of sabotage and
theft of the equipment. GeoEnpro was also not helping
even though being the Principal employer. In fact first it
had reimbursed Geophysical/AOSL payment for crop
compensation but later declined to do so.
Geophysical/AOSL could not continue making payments
when GeoEnpro was in breach of the contract to
reimburse Geophysical/AOSL of those payments.
That Oil India Ltd. (OIL) with whom GeoEnpro had
entered into production sharing contract did not accept
the report of Geophysical, has no relevance to the issues
involved in the present case and that cannot be the ground
to deprive Geophysical of its dues under the contract.
Geophysical has claimed certain amounts towards
damages caused by local by fire, cutting of lines and
sabotage and has also claimed amounts for purchase of
new equipment. It is difficult to see as to how Geophysical
is entitled to all these amounts as this fall outside the
terms of the contract.
Having thus performed the contract by covering all these
three stages in submitting the final report, GeoEnpro
became entitled to refund of the performance bond. Merely
because results are not to its liking, Geo Enprohas
certainly no ground to deprive the Claimant, Geophysical,
of its lawful dues under the contract.‖
59. The Tribunal went into the evidence given by the three witnesses
of the Respondent, in great details. It analysed the affidavit filed by Dr.
Yuval Ben Gai, who was working as Head of the Geophysical Project of
the Respondent and was the Operations Manager at the stage of
acquisition phase and In-charge of data processing and interpretation
phases. Dr. Yuval Ben Gai had stated that the Respondent had to struggle
to mobilise equipment and personnel as the locals in the area were
obstructing the movement and that the Petitioner had kept the Respondent
in dark about the hostile conditions in the area. Despite bringing the
situation to the notice of the Petitioner and the District Administration
and local police, no help was given to the Respondent. He also deposed
that execution of the work, despite all hostilities was done with due
diligence and as per specifications and more importantly, under the
guidance and supervision of the representatives of the Respondent who
signed the Daily Progress Reports. Mr. M.S.N. Murty (Geophysical
Consultant), General Manager Operations, Kharsang Oil Field and Mr.
D.K. Gogoi, Geologist were also supervising the day to day activities.
The DPRs mentioned the number of accepted shots and the corresponding
square kilometres coverage. Rejected shots were also noted separately
and the fact that all shots were not accepted by the Petitioner, is evidence
of the fact that the accepted shots were as per the required specifications.
Dr. Yuval Ben Gai also explained at length the entire procedure of
acquisition and processing of data, apart from deposing that both the
processing and interpretation of the data was carried out by its
experienced personnel in Israel and under the guidance and supervision of
Mr. M.S.N. Murty and Mr. B.P. Sharma, who were in Israel for about a
month. He further deposed that the Invoices were raised only for the work
executed under the Contract and in accordance with the price schedule
agreed and as referred to in the Contract.
60. Insofar as reduction in the area of survey was concerned, Dr. Yuval
Ben Gai deposed that the targeted area could not be surveyed on account
of the law and order situation at the site and the geological conditions.
He, however, emphasized that despite all this, the Report was a clear
revolution and it revealed several facts which threw light on how the old
2D data was poorly processed. He also supported the correctness of the
Invoices and the amounts due. On being questioned on the dimensions of
the holes as given in the Contract, Dr. Yuval Ben Gai deposed that the
DPRs were generated each day which was a summary of operations of
each day and collated a lot of information of execution of work on the
same day and were being signed by both the parties. He agreed that the
Report did not mention the depth of the holes, but stated that at certain
places and for some time the daily reports did include the depths and the
pattern information and data showed that the depth was shallower than
3m. However, this was on account of the fact that the ground conditions
were adverse and sometimes on account of the river overflowing and the
risk to life, required depth could not be achieved in the holes.
61. The Tribunal also examined the evidence of the second witness of
the Respondent, namely, Mr. Shabtay Yakkov, who clearly brought out
that the seismic data provided by the Respondent in its Report was far
superior as compared to the earlier 2D data available with the
Department. He emphasized that the criticism of the data was only an
afterthought once the Report was received, while the Petitioner was
throughout aware of the surface formations and complex seismo -
geopolitical conditions prevailing in the area, with serious challenges. He
corroborated the stand of Dr. Yuval Ben Gai that no deficiencies in the
execution of the work were pointed out till the Report was furnished
which showed that the work was being executed to the satisfaction of the
representatives of the Petitioner present on ground. He supported the case
of the Respondent as regards the payment towards the performance bond
as well as towards loss of equipment due to theft, damage and sabotage
by the locals. This witness clearly deposed that the Petitioner had agreed
and approved the demobilisation by the Respondent from the area and
this was well documented. In any case, under the Law in India,
Respondent would not demobilise the equipment, without the permission
and approval of the Petitioner and also referred to the no objection
certificate given by the Petitioner for demobilization.
62. The Arbitral Tribunal then analysed the evidence of the third
witness of the Respondent Mr. Ashok Sarin, who was working as General
Manager (Operations) of Asian Oilfield Services Ltd. (AOSL), the sub-
Contractor. He also corroborated the stand of the other witnesses
regarding the difficulties faced in mobilisation. He specifically deposed
on the reduction in the survey area to finish the survey before the
beginning of May 2008 as also with respect to the work being executed
under the supervision of the expert representatives of the Petitioner and
the law and order situation. He threw light on the detailed procedure in
rendering the DPRs. He stated that due to the topography of the oilfield,
several shot points drilled by the Respondent could not be shot, even
though the cables had been laid and geophones connected, as sometimes
this could have endangered human settlements and at other times, the
river flowing next to the oilfield would swell up and this could endanger
the life of the personnel working on the oilfield. He stated that the
Petitioner was kept informed of the ground realities and the reduction of
the coverage area was with the knowledge and on instructions of the
Petitioner.
63. The Arbitral Tribunal thereafter went on to examine the evidence
led by the Petitioner. The Tribunal took serious note of the fact that while
the pleadings had been signed by Mr. Suresh Kumar Batra, Senior Vice
President of the Petitioner and most of the correspondence had been
exchanged with the Respondent by Mr. Suresh Kumar Batra, however, he
never came forward to give evidence. The Tribunal took note of the
admission of Mr. D.K. Puri, one of the witnesses of the Petitioner that
there was nothing in the Contract which indicated that the Respondent
will be entitled to the payment only after the approval of expenses by the
Directorate General, Hydrocarbons, as also that the Respondent had not
been paid for processing and interpretation of data, against which there
was no objection. Mr. Puri admitted that even for the Invoice dated
23.10.2008, Respondent had not been paid for 97 shots which were
rejected, but had been used for processing the data. Tribunal also took
note of the answer of Mr. Puri in cross-examination that it was nowhere
stated in the Contract that standby charges would be payable only if
Respondent was unable to perform his work due to the fault of the
Petitioner.
64. Second witness of the Petitioner was Mr. M.S.N. Murty, who was a
Geophysicist and working with the ONGC. He had been deployed at the
site by the Petitioner from 13.04.2008 till 15.05.2008. Mr. Murty took a
stand that he was not supervising the work on a day-to-day basis and it
was the Respondent who prepared the DPRs and put them to the
representative of the Petitioner. He put the blame of delay in mobilisation
on the Respondent which then led to the significant portion of fair
weather window being lost. He stated that the Respondent did not drill
shot holes of requisite depth which adversely affected the quality of the
data acquired. Mr. Murty, however, in cross-examination admitted that
Respondent did not do experimental drilling after completion of
mobilisation as also that quality of the data largely depended upon
geological conditions prevailing in the area. He admitted that the
geological conditions in the oilfield were complex and could have partly
affected the quality of data. Significantly, he also admitted that complex
areas are essentially faulted zones and formations under high velocity and
hard rocks and informed that KS area was one such area and that it was
not possible to ascertain the results, while acquiring data with certainty.
Insofar as the recording of the DPRs was concerned, the witness was able
to point out only Reports of four dates, where objection had been raised
to the hole depth. The witness admitted having received a mail dated
14.05.2008, from the Respondent regarding continuance of test and
sabotage by the local people. There was an admission that the survey area
was reduced to 35 km2 by the Petitioner, in order to ensure completion of
work within the fair weather window and that the demobilisation of the
equipment by the Respondent was certified by the Petitioner, though
conditionally, but the conditions were never invoked. Mr. Murty further
admitted that he was involved at the stage of processing of the data in
Israel and pointed out that he was not satisfied with the work of data
processing, but when questioned about any evidence to that effect, he
could not point out any such objection having been raised on any
document. To the same effect was his response with respect to data
interpretation. Most significantly, Mr. Murty admitted that parameters
regarding required depth of shot holes were changed, although this was at
the request of the Respondent. He also admitted that the Respondent and
its sub-Contractor had from time to time written to the Petitioner about
the difficulties created by the local people and lack of security, thereby
causing unwarranted delay in execution of the work.
65. Having analysed the evidence, the Tribunal also went through the
various correspondences exchanged between the parties and the
provisions of the Contract. On the issue of Invoices relating to Claim
towards acquisition, processing and interpretation of data as well as
towards Performance Bond, the Tribunal, while allowing the said Claims
other than those for skipped holes also relied on the evidence of Dr. Ben,
whose evidence was unrebutted.
66. Having analysed the Award and the documents and the arguments
of the parties, I am of the view that the said Claims have been rightly
allowed by the Tribunal. The basis of this part of the Award is that the
Respondent performed its part of the Contract in all three stages and gave
a final Report which did have significant findings and data was far
superior compared to the earlier 2D data. The entire work was executed
under the guidance and supervision of the representatives of the
Petitioner, namely, Mr. M.S.N. Murty (Geophysical Consultant), General
Manager Operations, Kharsang Oil Field and Mr. D.K. Gogoi, Geologist,
who were well-versed with the constraints of near-surface formations and
complex seismo-geological conditions of the field area. Daily reports
were signed by the representative of the Petitioner which mentioned the
number of accepted and rejected shots, with the corresponding accepted
square kilometres coverage. The Tribunal rightly found that till the
submission of the final Report, no objection was taken at any stage by the
Petitioner pointing out any defects in the execution of the work.
67. The witnesses of the Petitioner had clearly admitted that after the
acquisition of the data the same was processed and interpreted in Israel
under the supervision of the representatives of the Petitioner. At no stage
any objection was taken to the acquired data, not being up to the mark.
Respondent is right in its contention that if the data acquired was not of
the required standard and the holes shot were not as per the
specifications, then there was no reason for the Petitioner to have not only
permitted processing and interpretation of the data, but having deputed its
expert officers to oversee the process for over a month in Israel. In fact, it
is pertinent to note here that there is no objection to the processing and
interpretation of the data.
68. The Tribunal has also observed at various places that the nature of
the Contract was such that it was not possible for anyone to predict the
result during the process of acquisition of the data. The relevant portion
of the Award is as under:
―Nobody howsoever expert he may be, can predict the
result of the 3D seismic survey. It is only when the result
did not go as per the expectation of the Respondent and
was not even recognized by DGH and OIL the Consortium
member, that it dawned upon the Respondent to withhold
payment and advance counter-claim alleging breach of
contract by the Claimant.‖
69. As regards the allegation of abandonment of work by the Petitioner
is concerned, on the basis of the admission made by the witnesses of the
Petitioner, the Tribunal correctly came to a conclusion that the
demobilisation was carried out by the Respondent only after necessary
permission and no objection certificate to that effect was granted by the
Petitioner. Tribunal is right in concluding that without the permission,
Respondent could not have demobilised its equipment and personnel and
though the permission was conditional, but the condition was never
invoked by the Petitioner, by calling upon the Respondent to rectify any
defects or complete any work.
70. Tribunal also relied upon and extracted the email dated 16.08.2008
written by Mr. Batra, Senior Vice President of the Petitioner wherein he
raised three issues for the Respondent to respond and which were: (a)
Crop compensation, (b) Submission of Invoices for standby charges and
(c) Skipped shots. The Respondent sent its Invoices and requested for
their clearance. This email is evidence of the fact that the Petitioner had
no objection with regard to the execution of work not being as per the
specifications, which is now being alleged by the Petitioner.
71. Insofar as the stand of the Respondent that there was lawlessness
and sabotage at the site, is concerned, the Tribunal on the basis of
evidence on record including the email dated 09.05.2008 by Mr. Murty
has rendered a finding that, in fact, the locals did create a situation which
hampered the timely execution of the work and also that neither the
Administration nor the police and the Petitioner rendered any help or
assistance in redeeming the situation.
72. In my view, the Tribunal has correctly held that the terms of the
Contract empowered the Petitioner to not only suspend the work but even
terminate the Contract, in case the same was not being performed as per
the specifications or to the satisfaction of the Petitioner, but the Petitioner
chose not to exercise any such right as provided under Clauses 3.3 and
3.4 of Article 3 of the Contract. Tribunal also rightly noted that under
Clause 4.4.2, the Petitioner, even after two months of completion of the
Contract, could call upon the Respondent to re-do the work, but no such
action was taken by the Petitioner. Having held so, the Tribunal only
allowed the Claims made in the Invoices for the charges for acquisition of
the data, the accepted shots and the amount claimed towards Performance
Bond, which had been withheld by the Petitioner, from the mobilisation
amount. The Tribunal did not allow the claim towards the skipped shots
and rightly so.
73. Insofar as the reduction of the survey area was concerned, the
Tribunal relied upon the evidence of Mr. Sarin, who clearly stated that the
Respondent was disabled from completing the targeted volume of work
within the available window due to on-site threats by the local population
and as a consequence, the 3D coverage had to be restricted to 35.024 km2
as against the planned 52.5 km2 (later on changed to 45 km2 on
instructions of the Respondent) but the situation was duly communicated
to the Petitioner and was concurred to. This fact has also been admitted
by the witnesses of the Petitioner. Accordingly, the Tribunal found no
fault with the Respondent in having surveyed an area lesser than the one
agreed upon under the Contract and, in my view, rightly so.
74. The major issue sought to be raised by the Petitioner is about the
drilling of the shot holes which according to the Petitioner has affected
the output of the data, adversely. Mr. Murty had clearly in his evidence
brought out that steps were taken by the Respondent towards clearing of
site, laying down cables etc. and drilling of shot holes. Mr. Murty
admitted that Respondent had on several occasions pointed out the
difficulties faced on account of the obstruction by the local population.
Relevant part of the order of the Tribunal is as under:
―Murthy admitted as correct that area of acquisition of
data initially was stipulated at 54 Sq.km. and was reduced
to approx .. 35 Kms. In stages by the Respondent. He said
the main reason for reduction in the area was caused by
the considerations that acquisition of data could not have
been completed within fair weather window. Murthy said
that demobilization of the equipment by the Claimant was
conditionally certified by the Respondent. He said, he
however, did not remember the condition as
demobilization was not part of his function. If that is so,
how come mobilization was part of his function? He said
he was not aware if the foreign party can re-export its
equipment only after obtaining demobilization certificate
from the Claimant for whom the said foreign party carried
out the work. Murthy said that steps taken by the Claimant
for acquisition of data included clearing of site, laying
down of cable and geophones, drilling of shot holes,
laying down and blasting of shot holes. He was asked even
for skipped shot holes, clearing of site laying down of
cables, geophones and drilling of shot holes was
undertaken by the Claimant. He replied in affirmative and
added that geophones and cables were to be laid all along
the area including the places where shotpoints were
drilled. Any places where shot points are to be skipped for
safety reasons should not have been drilled as permission
to drill the holes at an offset of 50 to 100 meters was
given. Murthy admitted that Claimant and its sub-
contractor had time to time written to the Respondent
about the difficulties created by the local people and lack
of security whereby causing unwarranted delay in the
acquisition work. He said he was not aware if Claimant
and its sub-contractor had given money to the local people
in the interest of the continuation of the work. He said he
was also not aware if some payment was reimbursed by
the respondent.‖
75. With respect to the evidence given by Mr. Ben Gai, Tribunal
observed that there was nothing on record to contradict his evidence,
more particularly, the fact that all through the period of drilling the depth
of the holes was brought to the notice of the representatives of the
Petitioner who were supervising the work on ground. Relevant part of the
Tribunal‟s order is as under:
―.....During his cross-examination Dr. Ben Gai said that
Claimant did try drilling up to 20 meters even in the foothills
or higher elevations. He said record of drilling performed
there was brought to the attention of Respondent's
representative during the entire length of survey. He denied
the suggestion that the depth to which the drilling carried
out was never brought to the attention of the Respondent
while the contract was being executed. Dr. Ben Gai said that
in general terms all decisions regarding operations on the
ground during survey on daily basis were subject to
discussions between the Operations manager of the
Claimant and the representative of the GeoEnpro. He said
for this reason a daily report was issued by the Claimant
and signed by the parties. Dr. Ben Gai said that daily report
was a summary of the operations for each individual day
and there was a lot of other information collected and
documented that was available at all times to all the parties
at the site. He further said that in addition each party could
perform its own operation on drilling site to verify the
performance. Dr. Ben Gai said that signing of the daily
report meant that the parties were satisfied with all the
operations that took place during the day which are
summarised in single page in the daily report. Daily report
summarised the number of holes and their locations. Dr.
Ben Gai explained as to the depth of drilled holes which
have been noticed in the earlier part of the Award. There is
nothing on record to contradict the statement of Dr. Ben Gai
and there is nothing for us not to accept the same. When
Murthy said that Chief Driller's report was not available in
2008 and that it was made available to him only during
2010, he is not making a truthful statement. It does not stand
to reason that what was the occasion for Murthy to get the
Chief Driller's report now in the year 2010 when the final
report of the Claimant had already been submitted by
GeoEnpro. That apart Driller's report is not one of the
documents which the contractor has to submit to the
employer as per Clause 4.3.1.8 of the contract. On the basis
of Driller's report Respondent is trying to build up its
defence for its own failure to abide by the terms of contract
and in that it found Murthy a willing witness.‖
76. Respondent has rightly contended that the Petitioner was well
aware of the complex ground condition and topography of the oilfield and
which is why the Petitioner had itself sometimes allowed the Respondent
to drill shot holes of 3 m or less than 3 m. In fact, attention was drawn to
Para (1.b) of the petition, where the Petitioner has admitted this fact. On
the quality of the data acquired, the Tribunal has, in my view, rightly held
that the nature of the Contract was such that during acquisition process it
was not possible for anyone to predict the exact result. Moreover, it is
clear from the documents on record that the entire work was executed
under supervision of the expert representatives of the Petitioner, who
were privy to the daily reports and even signatory thereto. No objection
was raised of any kind during the execution of the first stage of the work
and the Petitioner permitted the Respondent to proceed to the second and
the third stage of the Contract.
77. In view of the above, it is not open for the Petitioner at this stage to
contend that the depths of the shot holes were not as per the specifications
or that the Contracted area was not surveyed. It is not open for the
Petitioner to question the quality of the data. As rightly held by the
Tribunal, once the Petitioner permitted the Respondent to carry out the
work under its supervision, the result being an uncertainty, could not
affect the claims of the Respondent towards the work done and nor can
the subsequent rejection of the report by the independent agencies or the
Department of Hydrocarbons can have relevance. The Tribunal has, after
a detailed analysis, given findings of fact and it is not possible for this
Court to interfere with this part of the Award as the view is not only
possible but a plausible view, apart from being well reasoned and based
on the evidence led before the Tribunal.
78. The scope of interference by this Court under Section 34 of the Act
is extremely limited, as rightly argued by learned counsel for the
Respondent. Supreme Court in the case of Ssangyong Engineering &
Construction Co. Ltd. v. National Highways Authority of India Ltd.,
(2019) SCC OnLine SC 677 held as under:
―34. What is clear, therefore, is that the expression ―public
policy of India‖, whether contained in Section 34 or in
Section 48, would now mean the ―fundamental policy of
Indian law‖ as explained in paragraphs 18 and 27 of
Associate Builders (supra), i.e., the fundamental policy of
Indian law would be relegated to the ―Renusagar‖
understanding of this expression. This would necessarily
mean that the Western Geco (supra) expansion has been
done away with. In short, Western Geco (supra), as
explained in paragraphs 28 and 29 of Associate Builders
(supra), would no longer obtain, as under the guise of
interfering with an award on the ground that the arbitrator
has not adopted a judicial approach, the Court's
intervention would be on the merits of the award, which
cannot be permitted post amendment. However, insofar as
principles of natural justice are concerned, as contained in
Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue
to be grounds of challenge of an award, as is contained in
paragraph 30 of Associate Builders (supra).
35. It is important to notice that the ground for interference
insofar as it concerns ―interest of India‖ has since been
deleted, and therefore, no longer obtains. Equally, the
ground for interference on the basis that the award is in
conflict with justice or morality is now to be understood as a
conflict with the ―most basic notions of morality or justice‖.
This again would be in line with paragraphs 36 to 39 of
Associate Builders (supra), as it is only such arbitral awards
that shock the conscience of the court that can be set aside
on this ground.
36. Thus, it is clear that public policy of India is now
constricted to mean firstly, that a domestic award is
contrary to the fundamental policy of Indian law, as
understood in paragraphs 18 and 27 of Associate Builders
(supra), or secondly, that such award is against basic
notions of justice or morality as understood in paragraphs
36 to 39 of Associate Builders (supra). Explanation 2 to
Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii)
was added by the Amendment Act only so that Western Geco
(supra), as understood in Associate Builders (supra), and
paragraphs 28 and 29 in particular, is now done away with.
37. Insofar as domestic awards made in India are
concerned, an additional ground is now available under
sub-section (2A), added by the Amendment Act, 2015, to
Section 34. Here, there must be patent illegality appearing
on the face of the award, which refers to such illegality as
goes to the root of the matter but which does not amount to
mere erroneous application of the law. In short, what is not
subsumed within ―the fundamental policy of Indian law‖,
namely, the contravention of a statute not linked to public
policy or public interest, cannot be brought in by the
backdoor when it comes to setting aside an award on the
ground of patent illegality.
38. Secondly, it is also made clear that re-appreciation of
evidence, which is what an appellate court is permitted to
do, cannot be permitted under the ground of patent illegality
appearing on the face of the award.
39. To elucidate, paragraph 42.1 of Associate Builders
(supra), namely, a mere contravention of the substantive law
of India, by itself, is no longer a ground available to set
aside an arbitral award. Paragraph 42.2 of Associate
Builders (supra), however, would remain, for if an
arbitrator gives no reasons for an award and contravenes
Section 31(3) of the 1996 Act, that would certainly amount
to a patent illegality on the face of the award.
40. The change made in Section 28(3) by the Amendment Act
really follows what is stated in paragraphs 42.3 to 45 in
Associate Builders (supra), namely, that the construction of
the terms of a contract is primarily for an arbitrator to
decide, unless the arbitrator construes the contract in a
manner that no fair-minded or reasonable person would; in
short, that the arbitrator's view is not even a possible view
to take. Also, if the arbitrator wanders outside the contract
and deals with matters not allotted to him, he commits an
error of jurisdiction. This ground of challenge will now fall
within the new ground added under Section 34(2A).
41. What is important to note is that a decision which is
perverse, as understood in paragraphs 31 and 32 of
Associate Builders (supra), while no longer being a ground
for challenge under ―public policy of India‖, would
certainly amount to a patent illegality appearing on the face
of the award. Thus, a finding based on no evidence at all or
an award which ignores vital evidence in arriving at its
decision would be perverse and liable to be set aside on the
ground of patent illegality. Additionally, a finding based on
documents taken behind the back of the parties by the
arbitrator would also qualify as a decision based on no
evidence inasmuch as such decision is not based on evidence
led by the parties, and therefore, would also have to be
characterised as perverse.
* * *
76. However, when it comes to the public policy of India,
argument based upon ―most basic notions of justice‖, it is
clear that this ground can be attracted only in very
exceptional circumstances when the conscience of the Court
is shocked by infraction of fundamental notions or principles
of justice. It can be seen that the formula that was applied by
the agreement continued to be applied till February 2013 --
in short, it is not correct to say that the formula under the
agreement could not be applied in view of the Ministry's
change in the base indices from 1993-1994 to 2004-2005.
Further, in order to apply a linking factor, a Circular,
unilaterally issued by one party, cannot possibly bind the
other party to the agreement without that other party's
consent. Indeed, the Circular itself expressly stipulates that
it cannot apply unless the contractors furnish an
undertaking/affidavit that the price adjustment under the
Circular is acceptable to them. We have seen how the
appellant gave such undertaking only conditionally and
without prejudice to its argument that the Circular does not
and cannot apply. This being the case, it is clear that the
majority award has created a new contract for the parties by
applying the said unilateral Circular and by substituting a
workable formula under the agreement by another formula
dehors the agreement. This being the case, a fundamental
principle of justice has been breached, namely, that a
unilateral addition or alteration of a contract can never be
foisted upon an unwilling party, nor can a party to the
agreement be liable to perform a bargain not entered into
with the other party. Clearly, such a course of conduct
would be contrary to fundamental principles of justice as
followed in this country, and shocks the conscience of this
Court. However, we repeat that this ground is available only
in very exceptional circumstances, such as the fact situation
in the present case. Under no circumstance can any court
interfere with an arbitral award on the ground that justice
has not been done in the opinion of the Court. That would be
an entry into the merits of the dispute which, as we have
seen, is contrary to the ethos of Section 34 of the 1996 Act,
as has been noted earlier in this judgment.‖
79. In Hindustan Construction Company Limited & Anr. v. Union of
India & Ors. (2019 SCCOnLine SC 1520), Supreme Court held as
under:-
―55. Further, this Court has repeatedly held that an
application under Section 34 of the Arbitration Act, 1996 is
a summary proceeding not in the nature of a regular suit -
see Canara Nidhi Ltd. v. M. Shashikala 2019 SCC O.M.P.
(COMM) 131/2017 Page 26 of 26 OnLine SC 1244 at
paragraph 20. As a result, a court reviewing an arbitral
award under Section 34 does not sit in appeal over the
award, and if the view taken by the arbitrator is possible, no
interference is called for - see Associated Construction v.
Pawanhans Helicopters Ltd. (2008) 16 SCC 128 at
paragraph 17.
56. Also, as has been held in the recent decision Ssangyong
Engineering & Construction Co. Ltd. v. NHAI 2019 SCC
OnLine SC 677, after the 2015 Amendment Act, this Court
cannot interfere with an arbitral award on merits (see
paragraph 28 and 76 therein). The anomaly, therefore, of
Order XLI Rule 5 of the CPC applying in the case of full-
blown appeals, and not being applicable by reason of
Section 36 of the Arbitration Act, 1996 when it comes to
review of arbitral awards, (where an appeal is in the nature
of a rehearing of the original proceeding, where the chance
of succeeding is far greater than in a restricted review of
arbitral awards under Section 34), is itself a circumstance
which militates against the enactment of Section 87, placing
the amendments made in the 2015 Amendment Act, in
particular Section 36, on a backburner. For this reason
also, Section 87 must be struck down as manifestly arbitrary
under Article 14.‖
80. This part of the Award is accordingly upheld in favour of the
Respondent.
81. With respect to the Claim of the Respondent regarding standby
charges, the same has been allowed by the Tribunal as under:
―Standby charges are payable at the rate US$ 70,000.00
per day. Standby as such has not been defined in the
Agreement. However, it is award of common parlance.
Concise Oxford Dictionary, 11th Edition, gives the
meaning of standby as -- "1. Readiness for duty or
immediate deployment - a person or things ready to be
deployed in an emergency. 2. The state of waiting to
secure an unreserved place for journey or performance."
On 24.5.2008 GeoEnpro wrote to Geophysical to stop the
seismic survey operations from 24th to 26th May 2008 and
resume from 27thMay 2008morning. It was stated that this
was on account of Panchayat Raj elections in the State of
Arunachal Pradesh. In pursuance to this Geophysical
stopped the operations for three days. On 24.5.2012 itself
GeoEnpro wrote another letter to Geophysical stating that
it had written the letter considering the detailed security
scenario in the Kharsang Oil-field and especially of
Geophysical personnel security point of view. The second
letter further stated that however, if Geophysical felt it can
carry out the seismic operations under the present
situation it was free to do so on its own risk and further
that GeoEnpro will only consider the payment of seismic
operation and not for any standby charges due to present
security/scene situation. However, fact remains that
Geophysical did not did seismic operations for three days
i.e. on24th, 25th and 26th May 2008 and had claimed
standby charges for three days. Considering the security
situation prevailing in the area and the first letter dated
24.5.2008 from GeoEnpro we are of the view that claim
for three days standby by Geophysical is correct.
GeoEnpro cannot wash off its responsibility by sending
second letter of the same date. Claimant has claimed stand
by charges as well for other days on the basis of 10 hrs.
for a day reflected in the invoices. It is not disputed that
Claimant could not conduct seismic survey on these days
for which standby charges have been claimed. As to why
seismic survey could not be conducted was on account of
sabotage and threat by the locals to the equipment as well
as personnel of the Claimant. These facts are again not
disputed.
Respondent has referred to the minutes of the meeting
dated15.7.2008 to contend that parties had agreed to
payment of one day standby charges with reference to the
letter dated 24.5.2008 of the Respondent. It is not so. The
Claimant has recorded the following note of on the
minutes in its own handwriting:
"We do not agree regarding your comments on
compensation issue. The minutes of the meeting are
signed subjected to your releasing the payments of
the compensation to Asian Oilfield Services
immediately asper our letter dated 20th December
2007 and the mail of Mr. Ashok Sarin, GM, AOSL
dated 30th July 2008 addressed.
We do hope that we will receive a favourable
response from you and you will release the
payments of compensation & standby to AOSL
immediately."
This note throws doubt on the credence of the minutes in
this respect. We do not accept the stand of the Respondent
that standby of only one day was payable.‖
82. Standby charges were payable admittedly under the contract at the
rate USD 70,000 per day. The word "standby" has not been defined in
the Agreement as noticed by the Tribunal and thus it went by the
dictionary meaning of the word to mean "readiness for duty or initiate
deployment". Tribunal noted that on 24.05.2008, Petitioner wrote to the
Respondent to stop the seismic survey operations from 24th to 26 May,
2008 and resume from 27th May, 2008 morning. This was on account of
Panchayat elections in the State of Arunachal Pradesh. In pursuance
thereto, Respondent stopped operations for three days. Stand of the
Petitioner is that on 24.05.2008, itself Petitioner had written another letter
to the Respondent that the above letter had been written considering the
security scenario in the oilfield, but in the second letter it was stated that
if the Respondent felt that it could carry out the operations in the present
situation, it was free to do so at his own risk and that standby charges
would not be payable. The Tribunal was of the view that the security
situation prevailing in the area as also admitted by the Petitioner did not
inspire the Respondent to carry out the operations for these three days and
hence, the Claim for standby charges was correct. Court does not find any
infirmity with this view of the Tribunal. While it was very well for the
Petitioner to permit the Respondent to carry out the operations at its risk,
while admitting that there were security issues, the Respondent cannot be
faulted for not having taken the risk and stopping the operations, during
the said period.
83. The Petitioner has mainly contended that the Tribunal has not
applied its mind and has painted the other two claims of standby charges,
which were for different reasons, with the same analogy. From the
reading of the Award, I find that this contention is not justified. Tribunal
has separately dealt with the standby charges for the remaining days and
has come to a conclusion that the Respondent could not conduct the
seismic survey on these days on account of sabotage and threat by the
locals, to the equipment as well as personnel of the Respondent. The
conclusion on the hindrances by the locals has been separately drawn by
the Tribunal based on the detailed evidence which has been referred to in
the earlier part of this judgment. The Tribunal has also referred to and
extracted the minutes of the meeting dated 15.7.2008 and concluded that
it was never agreed between the parties that standby charges for only one
day was payable as was alleged by the Petitioner.
84. Learned counsel for the Petitioner sought to argue that by awarding
the standby charges, the Tribunal has gone beyond the contractual
provisions and has virtually rewritten the contract between the parties.
The argument is that Clause 4.4.5 and Clause 5 clearly stipulated that it
was for the Contractor to exercise due diligence and take necessary
measures and precautions to ensure that equipment and property is not
destroyed and would ensure that all the machinery and equipment is
maintained in running order. Learned counsel submits that under Clause
10.3.1 of the Contract, Respondent had undertaken that its responsibility
and indemnity under Article 10.3 would include events, amongst other
things, civil commotion, hostilities, sabotage, riot, blockade, etc. and even
in case of an event of force majeure under Clause 12, the Company and
the Contractor shall not hold each other liable for any delay in completion
of the work. Term force majeure has been defined in Clause 12.1 to
include under Clause 12.2 strikes, boycotts, blockades, lockouts, etc. He
thus, argues that the safekeeping of his personnel and equipment was the
responsibility of the contractor and once access to the site was given by
the Petitioner, only because the Respondent was allegedly prevented from
working on account of threats from the locals, cannot be the basis to
claim standby charges.
85. Learned counsel further contended that a perusal of the reasons
seeking standby charges under each individual Invoice and the award of
the Claims by the Tribunal itself shows that the Award is perverse. For
Claim under Invoice No. 89029, there are no reasons given and is, thus,
contrary to Section 31 (3) of the Act and the finding is in the teeth of the
vital evidence on record. Perusal of the Invoice shows that the same does
not even mention the day for which standby was claimed and the Tribunal
has not even examined this aspect. The DPR for 04.05.2008 clearly
evidenced that due to local worker strike, there was no activity in the area
and no production except drilling. This vital piece of evidence has not
even been referred to by the Tribunal. There is also a difference in the
reason given in the Invoice and the DPR. The Award is thus against the
ratio of the judgment of the Supreme Court in Ssangyong Engineering
(supra), more particularly, para 42.
86. With respect to Invoice No. 89034, it is argued that vital evidence
has been ignored and the only basis to allow the Claim was a Report
dated 15.05.2008 which was attached with the Invoice and that the
Petitioner did not contradict the Report. It is argued that in the Statement
of Defence, Petitioner had expressly stated that no report was received by
the Petitioner with the Invoice and, moreover, the Invoice mentioned the
standby time of 40 hours on 15.05.2008 which could not be possible. The
Tribunal has also disregarded the DPR for the said date, which records
that some work was carried out. With respect to Invoice No. 89040, the
argument is that the Award is unreasoned and not based on any evidence.
Claim has been allowed for standby of 33.5 hours across four days
disregarding the DPR for 18.05.2008 that the standby was due to
intensive and continuing sabotage along the seismic lines and not due to
the Petitioner‟s instructions. Again, with respect to Invoice No. 89043 the
argument is that the Award is perverse and ignoring the vital evidence in
as much as DPRs for 07.06.2008 and 08.06.2008 clearly recorded that the
work was suspended due to damage caused by river flooding and not on
account of any sabotage by the locals.
87. Having perused the documents and the evidence, I find the
Tribunal has wrongly allowed the claim under Invoice No.89034.
Tribunal has found merit in the case of the Respondent based on a report
which was attached with the Invoice. A categorical stand was taken by
the Petitioner that no such report was received by the Petitioner and the
DPR, which is on record for the said date, shows that some work was
carried out. The finding of the Tribunal is thus contrary to the evidence
on record and can be interfered with as held by the Court in the case of
Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd., 2019 SCC
OnLine SC 1656 and is, therefore, liable to be set aside.
88. Insofar as Invoice No. 89043 is concerned, there is merit in the
argument of the Petitioner. Learned counsel for the Petitioner rightly
argues that the DPRs clearly revealed that the work was suspended on
both days on account of river flooding and for the Tribunal to have
allowed the claim on the basis of damage and sabotage by local farmers
would be in the teeth of the evidence on record. It is well settled that the
Tribunal cannot pass an Award ignoring vital piece of evidence and if it
does, the Award suffers from perversity. This part of the Award also
deserves to be set aside. In so far as the Award with respect to Invoice
No. 89040 is concerned, this Court finds no infirmity to interfere in the
same.
89. The next contention of the Petitioner is with regard to the Claim of
the Respondent for GB commission and the argument is that this amounts
to granting specific performance of an illegal contract, as held by the
Supreme Court in the case of Associate Builders (supra). It is argued
that the Tribunal has overlooked that the nature of payment constituting
the commission is ex-facie illegal and even assuming that any such
payment was made by the Respondent to the locals, it was an illegal
gratification and cannot be awarded by any Court or Tribunal. It is also
argued that the Tribunal has wandered beyond the contractual provisions,
which it cannot do, as held in the case of McDermott International Inc.
vs. Burn Standard Co. Ltd. & Ors., (2006) 11 SCC 181. There is no
provision in the Contract envisaging such a payment.
90. I find merit in this argument of the Petitioner. There cannot be any
doubt on the proposition of law that the Arbitrator is a creation of the
contract and is bound by its terms and conditions. It is equally well-
settled that the Arbitrator cannot rewrite or script the terms of the
Contract between the parties.
91. Clause 6.1 of the Contract clearly provides that all payments shall
be made only as per the terms of the Contract and no payments additional
to those specified in Appendix 3 shall be due from the Petitioner to the
Respondent. The Contract does not stipulate any payment towards GB
commission, as claimed by the Respondent. Reliance of the Tribunal on
the earlier payment by the Petitioner in the form of crop compensation is
completely misplaced. Compensation to the landowners was provided in
terms of the Contract as given in Appendix 2 and the Petitioner had taken
the responsibility to make payment towards crop compensation to
landowners, which was in keeping with the industry practice as well. In
fact, the witness of the Respondent Dr. Ben Gai had accepted in his
evidence that Petitioner had never assured that any money would be
reimbursed to the Respondent on account GB commission. This part of
the Award is against the terms of the Contract and deserves to be set
aside.
92. As far as the rejection of the Counter Claim of the Petitioner is
concerned, learned counsel for the Respondent is right in its contention
that during the Arbitration Proceedings, Petitioner failed to substantiate
its Counter Claim. There was no explanation or basis on which the
Petitioner claimed an amount of Rs. 11,07,51,470/- though the actual
payment made to the Respondent under the contract was only Rs.
8,70,49,844/-. A specific question was also put in this regard to the
witness of the Petitioner Mr. D.K. Puri but other than merely stating that
the amount claimed was incurred on the project, he could not explain the
basis for claiming the difference. Respondent had categorically asserted
that even the new contractor engaged by the Petitioner for carrying out
the balance work had not been informed of the hostile conditions in the
Oil fields and finally even that contract was terminated. Moreover, once
the Tribunal has held that the Respondent was entitled to its Claims on
account of data acquisition, processing and interpretation and which has
been upheld by this Court in the earlier part of this judgment, Counter
Claim for the difference in the amount does not survive. This part of the
Award rejecting the Counter Claim is thus upheld.
93. Thus, the Award to the extent it has allowed the Claims towards
Invoice no. 89067 dated 23.10.2008 for USD 49,235.00 for data
processing and interpretation, is upheld as well as for Invoice No. 89068
dated 23.10.2008 for USD 58,200.00 for the accepted shots. Likewise,
Award with respect to claims under Invoice No. AOSL/GN/01 dated
21.10.2008 for USD 65,394.00 for data acquisition charges, is upheld
along with the Award for the Performance Bond.
94. Insofar as standby charges are concerned, the Award is upheld only
with respect to Invoice No. 89040 dated 02.06.2008 for USD 234,500 for
standby charges for 24th, 25th and 26 May, 2008. The Award with respect
to the remaining Invoices on account of standby charges is hereby set
aside. Award with respect to Invoice No. AOSL/GN/18, dated
30.06.2008, for Rs.4,80,000/- on account of payment to the locals is also
set aside.
95. Petition is partially allowed in the aforesaid terms with no orders as
to costs.
JYOTI SINGH, J
MAY 12th, 2020
rd/srb
