Delhi High Court
Man Industries (India) Limited vs Gail (India) Limited on 11 March, 2026
Author: Amit Bansal
Bench: Amit Bansal
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Reserved on: 20th February, 2026
Judgment pronounced on: 11th March, 2026
+ O.M.P. (COMM) 191/2019
MAN INDUSTRIES (INDIA) LIMITED .....Petitioner
Through: Mr. Jayant Mehta, Sr. Advocate with
Ms. Amrita Singh, Mr. Sanket
Khandelwal, Mr. Prasang Sharma and
Mr. Vinod Mehta, Advocates.
versus
GAIL (INDIA) LIMITED .....Respondent
Through: Mr. K.M. Natraj, ASG with Mr. Lalit
Chauhan, Ms. Laxmi Chauhan, Mr.
Manish Yadav and Ms. Nikita
Chauhan, Advocates.
CORAM:
HON'BLE MR. JUSTICE AMIT BANSAL
JUDGMENT
AMIT BANSAL, J.
1. The present petition has been filed under Section 34 of the Arbitration
and Conciliation Act, 1996 (hereinafter ‘the Act’) on behalf of the claimant
in the arbitration proceedings challenging the Award dated 7th January 2019
(hereinafter ‘Impugned Award’) passed by the Arbitral Tribunal.
2. The petitioner (claimant in the arbitration proceedings) shall
hereinafter be referred to as ‘Man Industries’ and the respondent (respondent
in the arbitration proceedings) shall hereinafter be referred to as ‘GAIL’.
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FACTUAL BACKGROUND
3. Brief facts leading to the present petition are as under:
3.1. Man Industries is engaged in the business of manufacture of carbon
steel coated line pipes which are used in the transportation of petroleum/
natural gas and other related products.
3.2. GAIL (India) Limited is a public sector undertaking optimising use of
natural gas and its fractions.
3.3. GAIL planned to lay onshore a Regassified Liquid Natural Gas
(RLNG) pipeline, from its despatch terminal at Dabhol, Maharashtra to
receipt terminal at Bibadi near Bangalore, Karnataka (hereinafter the
‘Dabhol-Bangalore project’).
3.4. GAIL, through its agent M/s Engineers India Ltd. (EIL) invited offers
against its bid document for procurement of API 5L Grade X-70 PSL 2
carbon steel line pipes in respect of its Dabhol-Bangalore project.
3.5. The bid of Man Industries was accepted vide Fax of Acceptance dated
26th August 2010 (hereinafter ‘FOA’). Thereafter, a formal purchase order
was issued by GAIL in favour of Man Industries vide Purchase Order dated
19th October 2010 (hereinafter the ‘Purchase Order’). The Purchase Order
specifies that all other provisions covered under the bid document, General
Conditions of Contract-Goods (hereinafter ‘GCC-Goods’) and Special
Conditions of Contract-Goods (hereinafter ‘SCC-Goods’) would be
applicable to supply of bare line pipes.
3.6. In terms of the Purchase Order, Man Industries was required to supply
the bare line pipes to GAIL as per a progressive delivery schedule. The
delivery was to be done in a staggered manner, with the first lot to be
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delivered by the 5th month from the date of FOA, i.e. 25th January 2011 and
the last delivery by the 10th month from the date of FOA, i.e. 25th June 2011.
The dates of delivery as per the delivery schedule at Annexure-3 of the
Purchase Order were 25th January 2011, 25th February 2011, 25th March
2011, 25th April 2011, 25th May 2011 and 25th June 2011.
3.7. Man Industries was also required to maintain dump yards at
designated sites for a period of 2 months beyond the last date of delivery of
the coated pipes at those dumpsites, without being entitled to any payment
from GAIL for the said period of 2 months.
3.8. On 3rd August 2012, a ‘No Claim Certificate’ was issued by Man
Industries to GAIL which stated that a total sum of Rs.64,13,790.57/- was
due and all other claims under the contract stand fully and finally settled
except the Price Reduction Schedule (hereinafter ‘PRS’) amount.
3.9. The total price for supply of the aforesaid coated pipes was
Rs.125,39,40,190/-. As stipulated in the Purchase Order, 90% of the
payment was to be made progressively against the receipt of the coated
pipes at the dumpsites. The balance 10% of the total value was to be paid to
Man Industries within 30 days from handing over of coated pipes to the
laying contractor of GAIL.
3.10. Disputes arose between the parties and Man Industries invoked the
arbitration clause vide letter dated 18th February 2015. The Arbitral Tribunal
comprising a Sole Arbitrator was constituted.
4. Man Industries filed a statement of claim dated 20th May 2016 before
the Arbitral Tribunal with the following claims:
(i) Claim No.1: Wrongful withholding of Rs. 3,82,95,630/- towards
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Price Reduction Schedule (PRS)
(ii) Claim No.2: Wrongful Withholding of Rs. 43,69,038/- towards
Central Sales Tax (hereinafter ‘CST’)
(iii) Claim No.3: Interest for the delayed payment of 10% of the total
value of the Contract
(iv) Claim No.4 : Interest pre-suit, pendente lite and future
(v) Claim No.5: Cost of Proceedings
4.1. On 21st July 2016, GAIL filed its statement of defence before the
Arbitral Tribunal. An additional statement of defence dated 23rd September
2017 was also filed on behalf of GAIL.
4.2. Pleadings were completed in the arbitral proceedings on 8th November
2017, when rejoinder to the additional statement of defence was filed by
Man Industries.
4.3. Both parties led their respective evidence before the Arbitral Tribunal.
5. Via the Impugned Award, the Sole Arbitrator dismissed all the claims
of Man Industries.
6. Aggrieved by the Impugned Award, the present petition has been filed
on behalf of Man Industries challenging the Impugned Award under Section
34 of the Arbitration and Conciliation Act, 1996.
SUBMISSIONS ON BEHALF OF THE PETITIONER
7. Mr. Jayant Mehta, Senior Counsel appearing on behalf of Man
Industries, has made the following submissions claim-wise:
7.1. Claim No.1 – Wrongful withholding of Rs. 3,82,95,630/- towards
Price Reduction Schedule (PRS)7.1.1. The Arbitral Tribunal has wrongly held that GAIL was prejudiced by
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the delay in delivery. GAIL accepted the deliveries without any objections.
7.1.2. The last delivery was made by Man Industries on 2nd June 2011, much
before the scheduled final date of delivery i.e. 25th June 2011, however, the
pipes were lifted from the designated dumpsites by GAIL only on 9th April
2012. Even though the contract stipulated that time would be of essence,
GAIL waived this condition through its conduct. Reliance has been placed
on Swaran Ramachandran v. Aravacode Chakungal Jayapalan, (2004) 8
SCC 689.
7.1.3. In a mechanical manner, GAIL withheld a sum of Rs.3,82,95,630/-
from the amount payable to Man Industries, towards liquidated damages
termed under the contract as ‘Price Reduction Schedule’/ ‘PRS’. GAIL did
not produce any evidence to show loss suffered on account of delay in
supply of the pipes. In this regard, Man Industries has placed reliance on
Kailash Nath Associates v. DDA, (2015) 4 SCC 136, Bharat Heavy
Electricals Limited v. Kanohar, 2024 SCC Online Del 1453 and Indian Oil
Corporation v. Standard Casting, 2025 SCC OnLine Del 8393.
7.2. Claim No.2 – Wrongful refusal to reimburse the increase in
Central Sales Tax (CST) from 4% to 5% amounting to Rs. 43,69,038/-
7.2.1. It an admitted position that the CST increased from 4% to 5% on 11 th
April 2011 during the contractual period i.e. 25th January 2011 to 25th June
2011. Hence, Man Industries was not required to produce any evidence in
this regard and the Arbitral Tribunal grossly erred in rejecting the claim of
Man Industries for reimbursement of the differential rate of tax.
7.3. Claim No.3 – Interest for the delayed payment of 10% of the total
value of the Contract
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7.3.1. The Arbitral Tribunal failed to appreciate that Man Industries was
under economic duress due to more than a year’s delay on the part of GAIL
in making balance payment and in these circumstances, a ‘No Claim
Certificate’ was issued in favour of GAIL. A ‘No Claim Certificate’ does
not bar a party from raising a claim if there is an acceptable claim.
7.4. Claim No.4 – Interest pre-suit, pendente lite and future
7.4.1. Since the Award pertaining to first three claims is patently illegal, the
finding in this claim also deserves to be set aside.
7.5. Claim No.5 – Cost of Proceedings
7.6. Man Industries has already paid cost of Rs.1,80,000/- for
adjournments sought during arbitral proceedings, which has been recorded
in the Impugned Award. Yet, the Arbitral Tribunal imposed a cost of
Rs.10,00,000/- on the basis of these adjournments and for the expenses
incurred by GAIL towards Arbitrator’s fee and secretarial expenses.
SUBMISSIONS ON BEHALF OF THE RESPONDENT
8. Mr. K.M. Natraj, ASG appearing on behalf of GAIL, has made the
following submissions claim-wise:
8.1. Claim No.1 – Wrongful withholding of Rs. 3,82,95,630/- towards
Price Reduction Schedule (PRS)
8.1.1. The Arbitral Tribunal has correctly held that the amount to be
deducted on account of PRS is not penalty or liquidated damages. The PRS
clause cannot be disregarded as the parties are bound by the terms of the
Contract. Man Industries, on its own volition, deducted the PRS amount
from its Running Account Bills dated 5th April 2011, 25th April 2011, 10th
May 2011 and 4th June 2011.
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8.1.2. In the alternative, if PRS clause was considered to be a liquidated
damages clause, it gives a genuine pre-estimate of the loss which may be
suffered by GAIL due to delayed deliveries of the pipes.
8.1.3. Considering that the Dabhol-Bangalore pipeline project was a project
of national importance involving multiple players, any delay in monthly
deliveries would have affected the timelines drawn up by GAIL for
completion of different stages of the project. Taking into account the nature
of the project, GAIL was not required to prove any actual loss. In this
regard, GAIL has placed reliance on Fateh Chand v. Balkishan Dass,
(1964) 1 SCR 515, ONGC v. Saw Pipes, (2003) 5 SCC 705, Gail v. Punj
Lloyd, 2017 SCC OnLine Del 8301 and Tamilnadu Telecommunications
Ltd. v. Bharat Sanchar Nigam Ltd., 2016 SCC OnLine Del 5939.
8.2. Claim No.2 – Wrongful refusal to reimburse the increase in
Central Sales Tax (CST) from 4% to 5% amounting to Rs. 43,69,038/-
8.2.1. The lack of evidence adduced by Man Industries demonstrates that
Man Industries is not entitled to reimbursement for the differential rate of
tax. By way of the present petition, Man Industries is attempting to invite the
Court to re-appreciate the evidence.
8.3. Claim No.3 – Interest for the delayed payment of 10% of the total
value of the Contract
8.3.1. Even the own witness of Man Industries admitted in front of the
Arbitral Tribunal that this claim was in the nature of an afterthought. Once
Man Industries has discharged all claims against GAIL at the time of
issuance of full and final settlement, it cannot revive such a claim. The plea
of economic duress raised by Man Industries was not proved by way of
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evidence before the Arbitral Tribunal.
8.4. Claim No.4 – Interest pre-suit, pendente lite and future
8.4.1. Since all the claims have been rejected, the Arbitral Tribunal has
correctly rejected the claim of interest.
8.5. Claim No.5 – Cost of Proceedings
8.5.1. The Arbitral Tribunal has correctly assessed the costs in favour of
Man Industries.
ANALYSIS AND FINDINGS
9. I have heard counsel for the parties and perused the material on
record.
10. The Supreme Court has defined the scope of interference by courts in
a petition challenging an Award passed by the Arbitrator under Section 34
of the Arbitration and Conciliation Act, 1996 (hereinafter ‘the Act’) in a
plethora of judgments.
11. In Ssangyong Engineering and Construction Company Limited v.
National Highways Authority of India (NHAI), (2019) 15 SCC 131, the
Supreme Court made the following observations with regard to scope of
interference under Section 34 of the Act:
“37. Insofar as domestic awards made in India are concerned, an
additional ground is now available under sub-section (2-A), 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 reappreciation of evidence,
which is what an appellate court is permitted to do, cannot be permittedSignature Not Verified
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under the ground of patent illegality appearing on the face of the
award.
39. To elucidate, para 42.1 of Associate Builders [Associate Builders v.
DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], namely, a mere
contravention of the substantive law of India, by itself, is no longer a
ground available to set aside an arbitral award. Para 42.2 of Associate
Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC
(Civ) 204], 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 paras 42.3 to 45 in Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204],
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(2-A).
41. What is important to note is that a decision which is perverse, as
understood in paras 31 and 32 of Associate Builders [Associate Builders
v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], 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.”
[emphasis supplied]
12. In paragraph 40 of Ssangyong (supra) set out above, the Supreme
Court has categorically stated that construction of the terms of the contract
falls within the exclusive domain of the arbitrator. The court cannot interfere
unless the interpretation of the arbitrator is such that no reasonable or fair-
minded person could have adopted. If the view taken by the Arbitral
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Tribunal is a plausible view, no interference is called for.
13. The Supreme Court has reiterated the same principles in Delhi Metro
Rail Corporation Limited v. Delhi Airport Metro Express Private Limited,
(2024) 6 SCC 357 and OPG Power Generation Private Limited v. Enexio
Power Cooling Solutions India Private Limited, (2025) 2 SCC 417. The
position of law with regard to scope of interference with an Arbitral Award
under Section 34 of the Act has been summarized by the Supreme Court in
OPG Power Generation (supra), the relevant paragraph of which is set out
below:
“Scope of interference with an arbitral award
74. The aforesaid judicial precedents make it clear that while exercising
power under Section 34 of the 1996 Act the Court does not sit in appeal
over the arbitral award. Interference with an arbitral award is only on
limited grounds as set out in Section 34 of the 1996 Act. A possible view
by the arbitrator on facts is to be respected as the arbitrator is the
ultimate master of the quantity and quality of evidence to be relied
upon. It is only when an arbitral award could be categorized as
perverse, that on an error of fact an arbitral award may be set aside.
Further, a mere erroneous application of the law or wrong appreciation
of evidence by itself is not a ground to set aside an award as is clear
from the provisions of sub-section (2-A) of Section 34 of the 1996 Act.”
[emphasis supplied]
14. With this background, I shall now proceed to apply the aforesaid
principles in the facts and circumstances of the present case in relation to
objections raised by Man Industries.
Claim No. 1 – Wrongful withholding of Rs. 3,82,95,630/- towards Price
Reduction Schedule (PRS)
15. At the outset, it may be relevant to refer to Clause 25.2 of the GCC-
Goods which provides for options available with the purchaser in case of
delay in delivery. For ease of reference, Clause 25.2 of the GCC-Goods is
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set out below:
“25. Delays In The Seller’s Performance
25.1 … … …
25.1 Any unexcusable delay by the SELLER or his subcontractor shall
render the SELLER liable, without prejudice to any other terms of the
Contract, to any or all of the following sanctions: forfeiture of Contract
performance guarantee, imposition of price reduction for delay in
delivery and termination of the contract for default.”
[Emphasis supplied]
16. Clause 26 of the GCC-Goods provides for Price Reduction Schedule
for delay of delivery, the same is set out below:
“26. Price Reduction Schedule For Delayed Delivery
26.1 Subject to Article -29, if the SELLER fails to deliver any or all of the
GOODS or performance the services within the time period (s) specified
in the CONTRACT, the PURCHASER shall, without prejudice to his
other remedies under the CONTRACT, deduct from the CONTRACT
PRICE, a sum calculated on the basis of the CONTRACT PRICE,
including subsequent modifications.
26.1.1 Deductions shall apply as per following formula: In case of
delay in delivery of equipment/materials or delay in completion, total
contract price shall be reduced by ½ % (half percent) of the total
contract price per complete week of delay or part thereof subject to a
maximum of 5% (five percent) of the total contract price.
26.2 In case of delay in delivery on the part of Seller, the
invoice/document value shall be reduced proportionately for the delay
and payment shall be released accordingly.
26.3 In the event the invoice value is not reduced proportionately for the
delay, the PURCHASER may deduct the amount so payable by SELLER,
from any amount falling due to the SELLER or by recovery against the
Performance Guarantee.
Both seller and PURCHASER agree that the above percentages of
price reduction are genuine pre estimates of the loss/damage which the
PURCHASER would have suffered on account of delay/breach on the
part of the SELLER and the said amount will be payable on demand
without there being any proof of the actual loss/or damage caused by
such breach/delay. A decision of the PURCHASER in the matter ofSignature Not Verified
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applicability of price reduction shall be final and binding.”
[Emphasis supplied]
17. Price reduction on account of delay also finds a reference in Clause 17
of the Special Conditions of Contract-Goods, which is set out below:
“17. PRICE REDUCTION SCHEDULE (PRS)
17.1. In partial modification of provisions of GCC-Goods 26.0 and
pursuant to clause 4 of SCC-Goods, in case of delay in delivery of
specified item wise monthly quantity of line pipes as given in delivery
schedule for respective item as specified in Clause 4 of SCC-Goods, the
contract price shall be reduced by 1/2 % (half percent) of the total price
of the undelivered quantity of line pipes covered in monthly quantity
for which delivery is delayed, per week of delay or part thereof subject
to a maximum of 5%(five percent) of total Contract Price.
17.2. Item wise monthly quantity specified in delivery schedule shall be
considered separately for applying PRS in case of delay as described
above. However, the total amount of PRS shall be limited to 5% of the
total Contract Price.”
[Emphasis supplied]
18. Clause 6 of the Purchase Order also makes a reference to Clause 17 of
SCC-Goods. For ease of reference, the same is reproduced below:
“6.0 PRICE REDUCTION SCHEDULE FOR DELAY IN DELIVERY
(PRS):
6.1 Price reduction schedule (PRS) shall be as per clause no. 17.0 of
Special Conditions of Contract (Goods) SCC (Goods).”
19. In terms of Clause 26 of GCC-Goods read with Clause 17 of SCC-
Goods, in case there is a delay in delivery of the monthly quantity of pipes
as given in the delivery schedule, the purchaser shall be entitled to price
reduction in terms of the Price Reduction Schedule, which shall be
considered a genuine pre-estimate of loss/damages that may be suffered by
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the purchaser.
20. It is an admitted position that there was a delay in supply of the
monthly quantity of pipes as provided in the delivery schedule by Man
Industries. Man Industries gave certain justifications for the said delay.
However, the Arbitral Tribunal held that the delay was not excusable.
21. The case set up by Man Industries before the Arbitral Tribunal was
that the entire material had been delivered to GAIL on 2nd June 2011, way
ahead of the due date of 25th June 2011, as per the delivery schedule.
22. The Arbitral Tribunal has rejected this contention holding that as per
the delivery schedule, specific quantities had to delivered on a monthly
basis. It was further held that Man Industries was only one of the players in
the entire project and delay by one of the players would result in a chain
reaction causing delay in schedules of the remaining players, thus causing
overall delay in the competition of the project.
23. Clause 17 of SCC-Goods specifically provided that the delivery has to
be made on a monthly basis. In the opinion of this Court, there is no
infirmity in the finding of the Arbitral Tribunal rejecting the aforesaid
contention of Man Industries. As noted above, the Arbitral Tribunal has
given cogent reasons for the same.
24. As regards the contention of Man Industries that the time was not the
essence of the contract, reference may be made to Clause 24.1 of the GCC-
Goods, which provides as under:
“24. Time As Essence of Contract
24.1 The time and date of delivery/completion of the GOODS/SERVICES
as stipulated in the Contract shall be deemed to be the essence of the
Contract.”
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25. It has been reiterated in Clause 3 of the Purchase Order that time was
of essence in the contract. Clause 3 of the Purchase Order is set out below:
“3.0 DELIVERY PERIOD
3.1 Delivery is the essence of this Purchase Order and the Seller shall try
to improve upon the same.
3.2 The contractual delivery schedule of bare line pipes for each item
shall be as per progressive Delivery Schedule specified in Annexure – 3
enclosed herewith. This shall be governed by the conditions specified
under Special Conditions of Contract for Goods (SCC-Goods) i.e.
Section-IIIB of Bidding Document and Commercial Corrigendum No. 1
& 2 to the Bidding Document.”
26. A reference may also be made to the Clause 25 of the GCC-Goods,
which provides for consequences in case of breach of delivery schedule and
Clause 26 of the GCC-Goods which provides for Price Reduction Schedule
(‘PRS’) for delayed delivery.
27. Relying on the aforesaid clauses, the Arbitral Tribunal rejected the
contention of Man Industries that time was not of essence in the contract.
The Arbitral Tribunal further noted that Man Industries itself has admitted
that the project was “a time bound, prestigious gas project of national
importance”.
28. On the aforesaid aspect, Man Industries has relied upon a judgment of
the Supreme Court in Swaran Ramachandran (supra). In the facts of the
said case, the Supreme Court had held that time was not an essence of the
contract in the said case. The said finding was based on the provisions of the
contract in the said case and the evidence led by the parties. The contract in
the said case was with regard to the sale and purchase of property and
therefore, would have no relevance in the present case.
29. Therefore, no fault can be found with the finding of the Arbitral
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Tribunal that time was of essence in the contract.
30. On the aspect of deduction in terms of PRS, the Arbitral Tribunal held
that GAIL was justified in imposing PRS on account of delay. The relevant
observations of the Arbitral Tribunal in this regard are set out below:
“In my opinion it is not necessary to minutely examine whether the
above clause is a penalty clause or not. For the present purpose, it
would be necessary to only examine whether the Respondent could
invoke the said Clause to effect a price reduction. Since both the parties
are bound by the terms of the Contract, and since the delay in the
delivery of the pipes was “unexcusable”, as already held by me, the
Respondent was justified in imposing PRS for the delay in accordance
with the said clause. I am inclined to think that it is unnecessary in the
present case to examine the question whether the Respondent is under
a duty to prove that it actually suffered loss on account of the delay.
The Clause 25.2 does not profess to import any notions of liquidated
damages so that it can give rise to the controversy whether it is for the
Respondent to prove actual loss or not. All that the Respondent has to
show is that there was a delay in supplying the pipes and the delay was
unexcusable. If these two conditions are satisfied, the Respondent
would be entitled to impose price reduction. In my opinion, these two
conditions are present and therefore, the Respondent was clearly in the
right in effecting PRS.”
[Emphasis supplied]
31. The Arbitral Tribunal has duly interpreted the various clauses of the
Contract to come to a conclusion that Clause 26 of the GCC-Goods is
neither a penal clause nor does it provide for levy of liquidated damages. It
is no longer res integra that interpretation of the Contract is the sole domain
of the Arbitral Tribunal unless the Contract is interpreted by the Arbitrator
in a completely irrational or arbitrary manner.
32. In the alternative, the Arbitral Tribunal held that, even if it is
presumed that the aforesaid clause provides for liquidated damages, the
clause provides for a pre-estimate of loss that GAIL may suffer on account
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of delay and therefore, GAIL was not bound to prove the loss. In this regard,
the Arbitral Tribunal placed reliance on the judgment of the Supreme Court
in Fateh Chand v. Balkishan Dass (supra), which was followed by this
Court in Gail v. Punj Lloyd (supra).
33. The Arbitral Tribunal held that the parties knew at the time of making
the Contract that some loss is likely to result in the delivery of pipes and
therefore, provided for an estimate of that loss in the Contract itself.
34. In this regard, a reference may be made to the following observations
of the Supreme Court in ONGC v. Saw Pipes (supra):
“64. It is apparent from the aforesaid reasoning recorded by the Arbitral
Tribunal that it failed to consider Sections 73 and 74 of the Indian
Contract Act and the ratio laid down in Fateh Chand case [Fateh Chand
v. Balkishan Dass, AIR 1963 SC 1405 : (1964) 1 SCR 515] wherein it is
specifically held that jurisdiction of the court to award compensation in
case of breach of contract is unqualified except as to the maximum
stipulated; and compensation has to be reasonable. Under Section 73,
when a contract has been broken, the party who suffers by such breach is
entitled to receive compensation for any loss caused to him which the
parties knew when they made the contract to be likely to result from the
breach of it. This section is to be read with Section 74, which deals with
penalty stipulated in the contract, inter alia (relevant for the present
case) provides that when a contract has been broken, if a sum is named
in the contract as the amount to be paid in case of such breach, the party
complaining of breach is entitled, whether or not actual loss is proved to
have been caused, thereby to receive from the party who has broken the
contract reasonable compensation not exceeding the amount so named.
Section 74 emphasises that in case of breach of contract, the party
complaining of the breach is entitled to receive reasonable compensation
whether or not actual loss is proved to have been caused by such breach.
Therefore, the emphasis is on reasonable compensation. If the
compensation named in the contract is by way of penalty, consideration
would be different and the party is only entitled to reasonable
compensation for the loss suffered. But if the compensation named in
the contract for such breach is genuine pre-estimate of loss which the
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parties knew when they made the contract to be likely to result from the
breach of it, there is no question of proving such loss or such party is
not required to lead evidence to prove actual loss suffered by him.
Burden is on the other party to lead evidence for proving that no loss is
likely to occur by such breach. …
***
67. … In our view, in such a contract, it would be difficult to prove exact
loss or damage which the parties suffer because of the breach thereof. In
such a situation, if the parties have pre-estimated such loss after clear
understanding, it would be totally unjustified to arrive at the conclusion
that the party who has committed breach of the contract is not liable to
pay compensation. It would be against the specific provisions of Sections
73 and 74 of the Contract Act, 1872. There was nothing on record that
compensation contemplated by the parties was in any way
unreasonable. It has been specifically mentioned that it was an agreed
genuine pre-estimate of damages duly agreed by the parties. It was also
mentioned that the liquidated damages are not by way of penalty. It was
also provided in the contract that such damages are to be recovered by
the purchaser from the bills for payment of the cost of material
submitted by the contractor. No evidence is led by the claimant to
establish that the stipulated condition was by way of penalty or the
compensation contemplated was, in any way, unreasonable. There was
no reason for the Tribunal not to rely upon the clear and unambiguous
terms of agreement stipulating pre-estimate damages because of delay
in supply of goods. Further, while extending the time for delivery of the
goods, the respondent was informed that it would be required to pay
stipulated damages.”
[Emphasis supplied]
35. The judgment in ONGC v. Saw Pipes (supra) has been followed by
the Supreme Court in Construction and Design Services v. Delhi
Development Authority, (2015) 14 SCC 263, where the Court was dealing
with the question whether the stipulated liquidated damages for breach of
contract are in the nature of penalty or are a measure of compensation for
loss. The relevant paragraph from the said judgment is set out below:
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“15. Once it is held that even in the absence of specific evidence, the
respondent could be held to have suffered loss on account of breach of
contract, and it is entitled to compensation to the extent of loss
suffered, it is for the appellant to show that stipulated damages are by
way of penalty. In a given case, when the highest limit is stipulated
instead of a fixed sum, in the absence of evidence of loss, part of it can be
held to be reasonable compensation and the remaining by way of
penalty. The party complaining of breach can certainly be allowed
reasonable compensation out of the said amount if not the entire amount.
If the entire amount stipulated is genuine pre-estimate of loss, the
actual loss need not be proved. Burden to prove that no loss was likely
to be suffered is on the party committing breach, as already observed.”
[Emphasis supplied]
36. In GAIL v. Punj Lloyd (supra), the appellant-GAIL had deducted
liquidated damages on account of failure of the respondent-Punj Lloyd to
complete the works at intermediate dates fixed under the contract for laying
pipelines for the Dahej-Vijaipur Pipeline Project. The relevant clause in the
contract provided for price reduction/ liquidated damages for delay in
delivery.
37. Relying upon the judgments of the Supreme Court in Fateh Chand v.
Balkishan Dass (supra), ONGC v. Saw Pipes (supra) and Kailash Nath
Associates v. DDA (supra), the Division Bench rejected the contention of
Punj Lloyd that GAIL had to prove actual damages to recover the amounts
agreed under the contract. The Division Bench also rejected the submission
of Punj Lloyd that intermediate delays, which did not impact the final
commissioning schedule, were condonable. The observations of the Division
Bench are set out below:
“34. The commissioning of the three spreads was over a period of 7 to
7½ months each. The performance of these contracts, treated as one
whole meant that Punj Lloyd had to ensure that equipment was in place,Signature Not Verified
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the requisite material and men were on site and all necessary work
(welding, joining etc) was done according to a pre-arranged schedule.
Now, there is no dispute that there were intermediate delays – to the
extent of about 65 days. If one sees from the perspective of the contractor
(Punj Lloyd) that this did not impact the final commissioning schedule,
undoubtedly the imposition of the liquidated damages clause would seem
unjustified. However, two aspects are to be kept in mind here : first, that
when bidding was done, there was every likelihood of different
contractors being declared successful in respect of different spreads,
which would have meant that as far as they were concerned this
condition was essential to ensure compliance with timelines. That one
party (Punj Lloyd) secured three spreads was providential, perhaps a
coincidence. Secondly, the objective of this condition was to ensure that
timelines were adhered to. For instance, if one spread were completed
in time and the other not completed in time, there could potentially be
an adverse impact on the commissioning/overall pipeline laying
schedule. Furthermore, at the time when the delays occurred, the final
picture was unknown. The nuanced nature of the condition, introduced
as an amendment meant that the parties were alive to these details and
voluntarily agreed that such compensation was recoverable. The court
finds insubstantial the argument of Punj Lloyd that omission to the
reference to the liquidated damages from the later condition, agreed to
by the parties, meant that necessarily GAIL had to prove actual
damage, to recover the amounts agreed. It is well settled that the nature
of a condition does not depend on its nomenclature, but on its effect
having regard to the overall circumstances of the case.
*** *** ***
37. This court is of the opinion that considering all these materials on
record, the stipulation in clause 57.2.1 and the amounts deducted were
by way of liquidated damages and a genuine pre-estimate of the loss
calculated in monetary terms. They were not merely precautionary
conditions not meant to be enforced, but conditions that could be insisted
upon, as is evident from clause 57.2.2, which clarifies that
“compensation for Delay/Liquidated Damages stated in sub-clause
57.2.1 above shall be in addition to compensation for Delay/Liquidated
Damages stated in sub-clause 57.1.1 of SCC.” Furthermore, the overall
cap on damages at 20% (Clause 57.3) includes intermediate liquidated
damages contemplated under clause 57.1.1. These intermediate delay
liquidated damages were of the kind contemplated in Maula BuxSignature Not Verified
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(supra) and Bharat Sanchar Nigam (supra), which the parties agreed,
would be payable by one of them (Punj Lloyd) without proof of actual
loss.”
[Emphasis supplied]
38. The Arbitral Tribunal has correctly placed reliance on the aforesaid
judgment as the said case also involved levy of liquidated damages on
account of failure of the contractor to complete the work in a timely manner
in a contract with GAIL for laying pipelines.
39. In Tamilnadu Telecommunications Ltd. v. Bharat Sanchar Nigam
Ltd. (supra), the Co-ordinate Bench of this court, was dealing with the case
where there was a delay of supply of the contracted quantities by the
supplier/appellant and the Clause in the contract provided for liquidated
damages. The court observed that since the supplier/appellant did not lead
any evidence to indicate that the damages are unreasonable and not a
genuine pre-estimate of damages, the supplier would be bound to pay the
same. The court also observed that it is difficult to prove in public utility
projects, the actual loss that may be suffered on account of delay. In the said
case, it had been specifically pleaded by BSNL that it had suffered loss on
account of delay in the projects. The relevant paragraph nos. 18 and 19 of
the said judgment is set out below:
“18. In the present case, TTL had agreed that the liquidated damages
would be payable for delay in supply of contracted quantities. TTL has
not led any evidence to indicate that the measure of damages was
unreasonable and not a genuine pre-estimate of damages. It is also
relevant to bear in mind that BSNL is a public utility and it would not
be easy for BSNL to articulate the loss suffered by it for delays in
execution of various projects. Undoubtedly, the failure on the part of
the TTL to supply OFC would have caused a corresponding delay in
BSNL providing services to its customers. It is difficult to prove withSignature Not Verified
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any exactitude actual loss suffered by BSNL. However, that does not
mean that TTL is absolved from its liability to compensate the BSNL.
…..”
19. In the present case, BSNL had expressly pleaded that it had
suffered loss on account of delay in its projects and had also suffered
loss of goodwill. As noticed above, it is difficult to reasonably estimate
the damages suffered on the aforesaid account; this coupled with the fact
that TTL has not led any evidence to indicate that the liquidated damages
are unreasonable and, therefore, the finding of the Arbitrator that BSNL
is entitled to recover liquidated damages cannot be held to be perverse
or contrary to the fundamental policy of the Indian Law.”
[Emphasis supplied]
40. Applying the ratio of the aforesaid judgments to the facts of the
present case, it has specifically been pleaded by GAIL that it has suffered a
loss on account of delay in suppling the pipes by Man Industries. It was also
pleaded on behalf of GAIL that the formula for PRS was a genuine pre-
estimate of the loss to be suffered on account of delay and that it was
difficult to prove or assess the actual loss. Reference may be made to
paragraph 4 of Statement of Defence dated 21st July 2016 with respect to the
loss suffered on account of delay, which is set out below:
“4. There is an admitted delay by the Claimant, as per the Delivery
Schedule in delivering the first Pipe to the Varul- Kolhapur-
Maharashtra dumpsite (the ‘DS-1’) as also to the Chitradurga-
Karnataka dumpsite (the ‘DS-2’). The delay caused by the Claimant led
to further cascading delays in the timely completion of the Project. The
Respondent suffered loss as a result of the delay by the Claimant in
delivering the Pipes, as a result of which the Respondent was unable to
supply gas which led to a consequent reduction in the revenue and
profits of the Respondent. Due to the nature of the loss caused to the
Respondent, it is difficult for the Respondent to prove the loss caused to
it as a result of the admitted delays by the Respondent in delivery of the
Pipes. It is, however, reiterated that the formula for the PRS, as
contained in clause 17 of the SCC (Goods) and clause 26 of the GCCSignature Not Verified
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(Goods), is by way of reasonable compensation and is a genuine pre-
estimate of the loss the parties knew when they made the contract to be
likely from delay by the Claimant in delivery of the Pipes. The
imposition of the PRS Amount is valid and legal and as per the
contract between the parties. Furthermore, it does not lie in the mouth of
the Claimant to, after admittedly breaching its contractual obligations,
allege that Respondent is not liable to receive payment of any money
towards the admitted damages caused to it as a result of the said delay.
Such an allegation is arbitrary and contrary to principles of natural
justice and would have the effect of rendering as redundant the various
provisions of the contract between the parties. Reliance is placed on
paragraph 1 of the preliminary submissions.”
[Emphasis supplied]
41. Man Industries relied upon the judgment of the Supreme Court in
Kailash Nath Associates v. DDA (supra) in support of its submission that
the party claiming damages on account of breach of contract must show the
actual loss suffered. In Kailash Nath Associates v. DDA (supra), the
Supreme Court observed that to avail the benefit of Section 74 of the Indian
Contract Act, 1872, damage or loss is a sine qua non. In the said case, it was
held that there was no breach of contract by the appellant-Kailash Nath.
Further, the respondent-DDA had profited from re-auction of the subject
land. Therefore, the basic requirement under Section 74 of the Indian
Contract Act with respect to loss or damage suffered by a party, was not
fulfilled. The relevant paragraph of Kailash Nath Associates v. DDA (supra)
is set out below:
“44. The Division Bench has gone wrong in principle. As has been
pointed out above, there has been no breach of contract by the
appellant. Further, we cannot accept the view of the Division Bench that
the fact that DDA made a profit from re-auction is irrelevant, as that
would fly in the face of the most basic principle on the award of
damages-namely, that compensation can only be given for damage or
loss suffered. If damage or loss is not suffered, the law does not provideSignature Not Verified
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for a windfall.”
[Emphasis supplied]
Hence, the ratio of the aforesaid judgment would not apply in the facts of the
present case.
42. In Bharat Heavy Electricals Limited v. Kanohar (supra) relied by
Man Industries, the Division Bench upheld the findings of the Arbitrator as
well as the Single Judge, that there was no legal justification for levy of
liquidated damages upon the respondent. However, the aforesaid finding
was premised on the fact that the appellant had failed to plead and
demonstrate the legal injury. In the present case as noted above, there are
clear pleadings by the respondent with regard to the loss caused on account
of delay.
43. Next, Man Industries has placed reliance on Indian Oil Corporation
v. Standard Casting (supra), where the claim for damages was rejected by
the Division Bench. However, the said conclusion was based on the fact that
IOCL, the appellant in the case, had neither pleaded nor produced any
material to demonstrate its entitlement to damages.
44. In view of the discussion above, I do not find any perversity in the
findings of the Arbitral Tribunal in respect of Claim No.1, which would
require interference under Section 34 of the Act. The view taken by the
Arbitral Tribunal in the Impugned Award is clearly a plausible view.
Claim No. 2 – Wrongful refusal to reimburse the increase in Central
Sales Tax (CST) from 4% to 5% amounting to Rs. 43,69,038/-
45. The aforesaid claim was on account of failure of GAIL to reimburse
Man Industries, upon an increase in Central Sales Tax (‘CST’) rate from 4%
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to 5%. The Arbitral Tribunal has held that the petitioner has not produced
any evidence to show that it has paid CST @ 5%. The aforesaid finding was
returned on the basis of evidence on record.
46. In this regard, reference may be made to Clause 33.2 of the GCC-
Goods, which is set out below:
“33. Taxes & Duties
33.1 … … …
33.2 A domestic Seller shall be entirely responsible for all taxes, duties,
licence fees etc. incurred until the delivery of the contracted goods to the
PURCHASER. However, Sales Tax and Excise duty on finished products
shall be reimbursed by PURCHASER.”
[Emphasis supplied]
47. The Arbitral Tribunal has also observed that in terms of Clause 33.2
of the GCC-Goods, GAIL is liable to reimburse the sales tax to Man
Industries and reimbursement necessarily implies that the tax would have
been paid by Man Industries. However, Man Industries did not adduce any
evidence to show that the differential rate of tax of 1% was paid to the
government.
48. The Arbitral Tribunal has specifically noted that Man Industries’
witness during cross examination had admitted that the claim of the CST
was not made in the final bill, but was for the first time made in arbitration
proceedings. Hence, GAIL was not liable to reimburse Man Industries.
49. The aforesaid finding has been arrived at by the Arbitral Tribunal,
while interpreting the relevant clause of the Contract and based on the
evidence produced on behalf of the parties. It is a settled position of law that
in proceedings under Section 34 of the Act, the Court cannot re-appreciate
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the evidence that was placed before the Arbitral Tribunal.
50. Hence, no fault can be found with the aforesaid finding of the Arbitral
Tribunal in respect of Claim No.2.
Claim No. 3 – Interest for the delayed payment of 10% of the total value
of the Contract
51. The Arbitral Tribunal has observed that Man Industries did not make
this claim in the “No Claim Certificate” dated 3 rd August 2012, wherein it
was confirmed by Man Industries that other than a sum of Rs. 64,13,790/-
and the PRS amount, no further amount is due. The Arbitral Tribunal also
gave a finding that the final settlement was arrived at between the parties
after mutual negotiations.
52. As regards the contentions of Man Industries that the ‘No Claim
Certificate’ was signed under economic duress, the Arbitral Tribunal has
held that no evidence has been led by Man Industries in this regard and only
an oral submission was made.
53. In view thereof, I do not find any infirmity in the finding of the
Arbitral Tribunal denying the Claim No.3 made by Man Industries.
Claim No. 4 – Interest pre-suit, pendente lite and future
54. Since this Court has upheld the Impugned Award in respect of Claim
Nos.1 to 3, consequently, the finding of the Arbitral Tribunal in respect of
Claim No.4 is also affirmed.
Claim No.5 – Cost of Proceedings
55. Taking into consideration the respondent’s share of Arbitrator’s fees,
secretarial expenses, expenses for the venue, lawyers’ fees etc., the Arbitral
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Tribunal came to the finding that Man Industries was liable to pay costs of
Rs.10,00,000/- to GAIL.
56. No cogent ground for interference has been made out on behalf of
Man Industries.
CONCLUSION
57. In light of the discussion above, I am of the view that the petitioner
has failed to make out any ground for interference with the Impugned
Award under Section 34 of the Act.
58. Accordingly, the petition is dismissed.
59. All pending applications stand disposed of.
AMIT BANSAL
(JUDGE)
MARCH 11, 2026
at
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