Merely having an explicit clause not sufficient to make time the essence of contract: SC

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This report delivers about The apex court hearing on the appeal of Oil and Natural Gas Corporation (ONGC) v. Remi Metal Gujarat Ltd (Remi Metals), arising out of SLP (C) No. 19203 of 2012. 

Facts 

The brief facts were that a global tender was floated by the ONGC for the purchase of an aggregate quantity of 3,93,297 metres of seamless steel casing pipes. Remi Metals was a successful bidder. It claims that it had bid to supply pipes as a supplier on behalf of Volski Tube Mills, Russia. Thereafter, they entered into a contract with liquidated damages stipulated. During the execution there were certain delays in the delivery due to strike and other reasons, various extensions were given by the ONGC to fulfil their obligations, yet ONGC deducted the liquidated damages. The arbitral tribunal framed 17 issues in the following case, there were 7 main issues answered by the Supreme court. 

Issues 

1. Was a time the essence of the Agreement to make supplies under the purchase orders and was the delivery date to be reckoned from the date of the supply order?

2. Was ONGC justified in recovering liquidated damages of US $8,07,804.03 and Rs.1,05,367/-?

3. Is the Claimant entitled to refund of any part of the amount recovered by ONGC as liquidated damages?

4. Was the Claimant entitled to an extension of delivery dates without levy of liquidated damages on account of force majeure condition as stated in paragraphs 12.D.3 and 12.D.4 of the Statement of Claim?

5. Was ONGC entitled to impose liquidated damages based on the entire value of the Purchase Orders?

6. Is the Claimant entitled to the US $2,44,121.03 and ₹5,76,244.21 as interest on delayed payment as in exhibit ‘H’ to the Statement of Claim? 

7. Whether the Claimant is entitled to any interest? If so, at what rate and for what period?

 The apex court upheld the judgment of the arbitral tribunal, that merely having an explicit clause is not sufficient to make time the essence of the contract. As the whole terms and conditions of the contract are to be considered not just an explicit clause that speaks about the extensions and liquidated damages.

Time was not the essence of the contract as a contract provided for extensions and waived liquidated damages twice. Generally, in construction contracts, time is not the essence of the contract and It was also held that ONGC would not be entitled to claim any damage for losses incurred during the extended period of delivery where liquidated damages were expressly waived. Hence, liquidated damages cannot be granted, but the actual loss awarded to the ONGC is considered valid and a valid interpretation.

The claimant is entitled to refund the amount deducted as liquidated damages ( US $8,07,804.03 and Rs.1,05,367/-)

The honorable Court extensively discussed the court’s jurisdiction to set aside an award under Section 34 of the Arbitration and Conciliation of 1996 and the various grounds on which interference was permissible.

And concerning issues 4 to 7, the Supreme court upheld the arbitral tribunal’s decision, also decided claimant gets the amount deducted as liquidated damages (it shall be returned). The court mentioned that when the terms and conditions are clear, precise the contract is thereby identified and enforceable under law. It is at the desire of the parties of whether they are stipulating the damages ( liquidated), terms of the contract about the breach under section 73,74 of the Indian Contract Act of 1872 respectively.

What is section 55 in the Indian Contract Act?

When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the parties intended that the time should be of the essence of the contracts.

Conclusion

Here, the essence of the contract is identified only when there is the time specified, and for a series of transactions under a contract (where the party agrees to send the subject matter of the contract for a certain period) the conditions get diluted and hence the essence of the contract is not time. The apex court thereby dismissed the orders of the district court and High court and upheld the view of the arbitral tribunal.

Author

  • This snippet is penned by an enthusiastic learner " Koushik chittella" who is pursuing his1st year law degree from Dr.Ambedkar Global Law Institute , Tirupati.

Koushik Chittella

This snippet is penned by an enthusiastic learner " Koushik chittella" who is pursuing his1st year law degree from Dr.Ambedkar Global Law Institute , Tirupati.

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