MCDERMOTT INTERN ATI ONAL INC. v. BURN STANDARD CO. LTD. AND ORS.

4.67 Change Order no. 7 relates to offshore installation or late- supplied equipment on the WI-8 , WI-9, WI-I 0 and N3 decks. As G early as February, 1986, the parties contemplated that certain BSCL- supplied equipment planned for installation by McDermott onshore would have to be installed offshore due to the projected late delivery. The cost of installing equipment off shore is much US $ 1,140,705.00. On 6 November 1986, McDermott reviewed the list H

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A of outstanding equipment and revised its change order to US $ 355,000.00. On the instructions of BSCL, McDermott performed the change order work and installed outstanding equipment offshore. BSCL has failed and neglected to make payment of the invoice for this change order."

B ln the Final Award also the learned arbitrator noticed:

"The discussion covering earlier issues establishes that BSCL was guilty of delays and disruptions. Proceeding from there, the question is whether Mil is entitled to an amount on account of increased c overhead and loss of profit and additional project management .... costs? Mil states that construction law recognizes that construction contractor incurs two general jobs of costs in the course of its operation; the operating costs that are attributable to a particular project, and costs such as overhead that are expended for the performance of the business as a whole, including the particular project. Consequently, construction law recognizes that owner caused delay entitles the contractor to recover from the owner the increased overhead and loss of profit as part of damages. Reference has been made to Hudson's building and Engineering Contracts. Article 8.176-91 pp. 1074--81 (I Ith edn.), Molly J.B., "A formula for Success''. Three formulae have been evolved for computation of a claim for increased overhead and loss of profit due to prolongation of the works : the Hudson Formula; The Emden Formula and Eicheay Formula. Of these three, the Emden Formula is the one widely applied and which has received judicial support in a number of cases."

Section 55 of the Indian Contract Act

Section 55 of the Indian Contract Act reads as under:

G "55. When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified time, and fails to do any such thing 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 intention of the parties was that time should be of the essence of the contract.

MCDERMOTT INTERNATIONAL INC.'"· BURN STANDARD CO. LTD. [SINHA, J.] 457

If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specified time; but the promisee is entitled to compensation from the promiser for any loss occasioned to him by such failure.

If, in case of a contract voidable on account of the promiser's failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than that agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of such acceptance, he gives notice to the promiser of his c intention to do so."

In Arosan Enterprises Ltd. (supra), the law was stated in the following terms:

D "13. These presumptions of the High Court in our view are wholly unwarranted in the contextual facts for the reasons detailed below but before so doing it is to be noted that in the event the time is the essence of the contract, question of there being any presumption or presumed extension or presumed acceptance of a renewed date would not arise. The extension if there be any, should and ought to be categorical in nature rather than being vague or on the anvil of presumptions. In the event the parties knowingly give a go-by to the stipulation as regards the time- the same may have two several effects: (a) parties name a future specific date for delivery, any (b) parties may also agree to the abandonment of the contract- as regards (a) above, there must be a specific date within which delivery has to be effected and in the event there is no such specific date available in the course of conduct of the parties, then and in that event, the courts are not left with any other conclusion but a finding that the parties themselves by their conduct have given a go-by to the original term of the contract as regards the time being the essence of the contract. Be it recorded that in the event the contract comes within the ambit of Section 55, Contract Act, the remedy is also provided therein ... "

It was further observed: H

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"19. Turning now on to the issue of duty to speak, can it be said that silence on the part of the buyer in not replying to the letters dated 15-11-1989, 20-11-1989, 24-11-1989, 4-12-1989 and 20-12- 1989 only shows that the buyer was not willing to extend the delivery period after 15-11-1989 - the answer cannot but be in the negative, more so by reason of the fact that fixation of a second B delivery date by the Appellate Bench of the High Court as noticed above, cannot be termed to be in accordance with the law. There was, in fact, a duty to speak and failure to speak would forfeit all the rights of the buyer in terms of the agreement. Failure to speak would not, as a matter of fact, jeopardise the seller's interest neither c would the same authorise the buyer to cancel the contract when there have been repeated requests for acting in terms of the agreement between the parties by the seller to that effect more so by reason of a definite anxiety expressed by the buyer as evidenced in the intimation dated 8-11-1989 and as found by the arbitrator as also by the learned Single Judge." D We, therefore, are of the opinion that in the instant case the second part of Section 55 of the Indian Contract Act would be attracted and not the first part.

Whether time was the essence of contract E The question which, further, arises for consideration is as to whether the Respondents having proceeded on the basis that time was of the essence of the contract, it was bound to issue a notice of repudiating the contract subject to reservation as regards its claim of damages. MII, however, states that it had never raised a contention that the time was of the essence of the contract, but the claim arises in view of the delay caused in completion of the contract for a period of 34 months and consequent escalation of costs. The price payable in terms of the sub-contract did not adequately cover increased costs expended by MII. On a plain reading of the provisions of Section 55 of the Indian Contract Act, it is evident that as the parties did not intend that time was to be of the essence of the contract on the expiry whereof the contract became voidable at the instance of one of the parties, but by reason thereof the parties shall never be deprived of damages.

We may notice that the BSCL had never pleaded before the Arbitrator H that the time was of the essence of the contract. In Construction contracts

MCDERMOTIINTERNATIONAL INC."· BURN STANDARD CO. LTD. [SINHA,!.) 459

generally time is not of the essence of the contract unless special features exist therefor. No such special features, in the instant case, has been brought to our notice.

The learned arbitrator proceeded on the basis that the BSCL had accepted and acknowledged that no additional cost on account of delay was occasioned in completing the helidecks. Mii is found to have incurred additional cost for offshore installation. The learned arbitrator has also found that Mii had not received any payment on account of such increased cost. The compensation under the said head of claim was only in addition to Change Order Nos. 2, 3 and 7 to which we shall advert to a little later. c This Court in Hind Construction v. State ofMaharashtra, [1979] 2 SCC 70 stated: ,.

"7. The question whether or not time was of the essence of the contract would essentially be a question of the intention of the parties to be gathered from the terms of the contract. [See Halsbury's D Laws of England, 4th ed,, Vol.4, para 1179]."

"8. Even where the parties have expressly provided that time is of the essence of the contract such a stipulation will have to be read along with other provisions of the contract and such other provisions may, on E construction of the contract, exclude the inference that the Completion of the work by a particular date was intended to be fundamental. [See Lamprel/ v. Billericay Union, (19849) 3 Exch 283, 308; Webb v. Hughes, [1870] LR 10 Eq 281; Charles Rickards Ltd. v. Oppenheim (1950) 1 KB 616]."

UNINVOICED CLAIMS: F

The principal question which arises for consideration is whether uninvoiced claims could be a subject matter of dispute. While dealing with the claims falling within the purview of the partial award, the arbitrator noticed: G "23. Interruption of WI-9 to WI-S Pipeline laying (US$ 115,087 .50)

The Statement of claim by MII mentions that an amount of US $ 10,671,340.00 on account of delay and disruption expenses and H

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- A ·'costs are claimed .. Admittedly, they had not yet been invoiced when the reference to arbitration was made. It is not clear what are the specific claims included within that sum. If they had not been invoiced, it cannot be said that they remained unpaid, and that therefore, a difference or dispute had arisen between the parties whtti the reference to arbitration was made." B .~ ;,

It was further noticed: ·

"Reference has been made to the claim in respect of the standby of the Mil transportation spread, additional compensation on account c of the construction of temporary emergency helidecks, the extended stay of Mii personrlet~ a claim in respect of Lay Barge 26. All these claims will be considered after it has been satisfactorily proved that invoices in respect of each of these claims were issued and had become due for payment before the reference to arbitration was made and also meanwhile the arbitration record will have D received the statement of ONGC/BSCL in respect of Change Order Proposals Nos. 2,3,7 and 8. Therefore, the consideration of these claims is deferred."

No invoice was raised by Mii for the following claims: E , (i) Claim of US$ 2,300,200 for procurement of structural material on BSCL's behalf.

(ii) US $28,400 for additional Barge trip. F (iii) US $54,000 for additional pipeline survey.

The said claims are the subject matter of the partial award. It was dealt _4 with by the learned arbitrator in the following terms:

G "It was pointed out by BSCL that ONGC did not accept the reconciliation attempted by Mil in regard to the pipelines. I have examined the documents pertinent to this question, and I find that the variation is so marginal that it can reasonably be ignored. It seems to me that to take account of those variations is to attempt H to make too fine a point. I would accept the reconciliation statement

MCDERMOTI INTERNATIONAL INC. 1•. BURN STANDARD CO. LTD. [SINHA, J.] 46 J

and proceed on that basis. BSCL contends that the claim made by A Mil on account of the additional survey of the WI-8, WI-9 pipelines is not acceptable because it is covered within the lump sum price mentioned in the Subcontract. I am not impres~-::d by that submission because had it been so covered ONGC would not have undertaken to conduct the additional survey itself. It was treated as some thing outside the subject matter covered by the lump sum price and when B ONGC requested BSCL to conduct the additional survey, and at the behest of BSCL the additional survey was conducted by Mil, there is good reason for Mil to claim the payment ofUS$54,000 for that survey."

While dealing with the claims for the standby of DB 26 and interruption c to WI-9 to WI S pipelines laying, the arbitrator in its partial award held:

"22. Standby Derrick Barge 26 (US$1,396,800.00)

The claim for payment of standby charges in respect of Derrick D Barge 26 relates to a standby for 24 days of that vessel. The Mil Statement of Claim mentions that Mil has not sent any invoice to BSCL. Therefore it cannot be said that any claim has been made by Mil yet in the matter. Consequently, the position is that no difference or dispute concerning this had arisen between the parties when the reference to arbitration was made. Therefore, so far as this E arbitration is concerned, the claim cannot be entertained. It falls outside this arbitration and cannot be considerc,..i."

"23. Interruption ofWI-9 to WI-S Pipeline Laying (US$115,087.50) F The Statement of Claim by Mil mentions that an amount of US$ I 0,671,340.00 on account of delay and disruption expenses and costs are claimed. Admittedly, they had not yet been invoiced when the reference to arbitration was made. It is not clear what are the Specific claims included within that sum. If they had not been invoiced, it cannot be said that they remained unpaid, and that G therefore a difference or dispute had arisen between the parties when the reference to arbitration was made."

The said claims were, thus, rejected only on the ground that no invoice had been raised and consequently no difference or dispute had arisen by and H

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A between the parties at the time when the reference to arbitration was made.

Mr. Mitra contended that applying the same line of reasoning, the learned arbitrator should have rejected the aforementioned claims. However, we may notice that the said claim as regard procurement of structural material related to damages. According to Mil, the said claim strictly did B not relate to damages under the contract. The BSCL was required to procure the steel and as it was not in a position to do so, the Mii had agreed to procure steel on its behalf provided it agreed to cover the Mii's cost for accelerated procurement, material priced premiums, order fixing costs and other incidental charges. It is not in dispute that such a claim was the subject matter of c correspondence which passed between the parties. Receipt of such letters from Mii is not denied or disputed by BSCL. It has also not been disputed that right reserved by Mil to claim such additional costs towards procurement of the materials on behalf of BSCL was not denied or disputed. Only pursuant to or in furtherance of the said correspondence, procurement on the said basis had been undertaken by Mil and acceptance of BSCL in this behalf D was presumed. The learned Arbitrator proceeded on such presumption. According to learned arbitrator, despite such knowledge, BSCL failed to make payment. The learned arbitrator in his award has gone into the said question in detail. Reference had been made to the evidence of Shri A.R. Taylor, who was examined on behalf of Mil. The said witness was cross- E examined by BSCL. Both the parties had filed detailed written submissions before the learned arbitrator. It is on the basis of such evidence brought on record and submissions made before him, the learned arbitrator held:

" ... In my opinion, BSCL must be taken to have accepted the proposal of Mii and to have gone along with Mil's action flowing from that proposal and to have benefited thereby."

With a view to consider the submission of Mr. Mitra that in terms of the contract entered into by and between the parties, Mil was not entitled to the said claim, it would be proper to notice the relevant clause of the contract which is in the following terms:

"5. Replacement Steel :

BSCL shall procure suitable steel for jackets (based on MTO supplied by Mil) on a replacement basis for Mii purchased steel. H

MCDERMOTT INTERNATIONAL INC. 1•. BURN STANDARD CO. LTD. [SINHA, J.] 463

-. BSCL shall purchase steel as plate suitable for rolling 24 in O.D. and above tubulars. Replacement material shall be delivered by A BSCL to Mil's yard at Dubai Emirate, United Arab Emirates or to Singapore Port Authority for transshipment by Mil (at BSCL's cost) to Batam Island, Indonesia. Mii shall indicate the destination when furnishing the replacement steel request." B In terms of the aforementioned provision of the contract, BSCL was required to procure suitable steel for jackets on replacement basis in regard to quantum of steel purchased by Mii. If BSCL had failed to procure the said required amount of steel to replace the structural materials which Mii had provided from its inventory as an accommodation to BSCL, indisputably c the understanding between the parties was that either such materials should be replaced or the cost therefor had to be paid. it has not been disputed before the arbitrator that BSCL promptly replaced the material. It is in that view of the matter, the learned arbitrator in his partial award held: D "IS.19 The procurement was effected by Mii from its inventory on the basis that it would be replaced by BSCL promptly. It was not so replaced. To effect the replacement Mll would be compelled 'tb;ass through the entire burdensome process of procuring the structural material directly from outside sources. MII suffered loss E and damage which it has quantified at US$ 2.3 million in the light of the considerations mentioned by it earlier."

The arbitrator has noticed that the claim of Mii arose only after it has been satisfactorily proved that the invoices in respect of each of these claims were issued and had become due for payment before reference to arbitrator. F It furthermore appears that paragraph 23 of the partial award and the claim for compensation on the aforementioned head are not identical. Para 23 of the partial award dealt with the claim in respect of WI-9 to Wl-S pipeline laying. So far as paragraph 24 of the said award is concerned, the learned arbitrator noticed the specific invoices issued against Change Order Nos. 2, G 3 and 7 relating to delay and disruptions. It is, therefore, in our considered opinion, not correct to contend that the invoice is the only base whereby and where under a claim can be made. There is no legal warrant for the said proposition. A claim can also be made through correspondence or in meetings. H

464 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A A claim for overhead costs resulting in decrease in profit or additional management costs is a claim for damages.

An invoice is drawn only in respect of a claim made in terms of the contract. For raising a claim based on breach of contract, no invoice is required to be drawn. B It is furthermore not in dispute that the claim for damages had been made prior to invocation of arbitration. Once such a claim was made prior to invocation, it became a dispute within the meaning of the provisions of the 1996 Act. It is not disputed that the same claim was specifically referred to arbitration by Mil in terms of its notice dated 10th April, 1989.

While claiming damages, the amount therefor was not required to be quantified. Quantification of a claim is merely a matter of proof.

In fact BSCL never raised any plea before the arbitrator that the said claim was arbitrary or beyond its authority. Such an objection was required to be raised by BSCL before the arbitrator in terms of Section 16 of the 1996 Act. It may also be of some interest to note that this Court even prior to the enactment of a provision like Section 16 of the 1996 Act in Waverly Jute Mills Co. Ltd. v. Raymon & Co .. [1963] 3 SCR 209; Dharma Prathishthanam v. Madhok Construction, [2005] 9 SCC 686 clearly held that it is open to the parties to enlarge the scope of reference by inclusion of fresh dispute and they must be held to have done so when they filed their statements putting forward claims not covered by the original reference.

METHOD FOR COMPUTATION OF DAMAGES F What should, however, be the method of computation of damages is a question which now arises for consideration. Before we advert to the rival contentions of the parties in this behalf, we may notice that in M.N. Gangappa v. Atmakur Nagabhushanam Setty & Co. and Another, (1973] 3 SCC 406, this Court held that the method used for computation of damages will depend upon the facts and circumstances of each case.

In the assessment of damages, the court must consider only strict legal obligations, and not the expectations, however reasonable. of one contractor that the other will do something that he has assumed no legal obligation to do.

MCDERMOTI INTERNATIONAL INC. v. BURN STANDARD CO. LTD. [SINHA, J.] 465

(See Lavarack v. Woods of Colchester Ltd., (1967] J QB 278) A The arbitrator quantified the claim by taking recourse to the Emden formula. The learned arbitrator also referred to other formulae, but, as noticed hereinbefore; opined that the Emden Formula is a widely accepted one. B It is not in dispute that MU had examined one Mr. D.J. Parson to prove the said claim. The said witness calculated the increased overhead and loss of profit on the basis of the formula laid down in a manual published by the Mechanical Contractors Association of America entitled 'Change Orders, Overtime, Productivity' cominonly known as the Emden Formula. The said c formula is said to be widely accepted in construction contracts for computing increased overhead and loss of profit. Mr. D.J. Parson is said to have brought out the additional project management cost at US$1,109,500. We may at this juncture notice the different formulas applicable in this behalf.

(a) Hudson Formula: In Hudson's Building and Engineering Contracts, D Hudson formula is stated in the following terms:

"Contract head office x contract sum x period of delay" overhead & Profit contract period percentage E In the Hudson formula, the head office overhead percentage is taken from the contract. Although the Hudson formula has received judicial support in many cases, it has been criticized principally because it adopts the head office overhead percentage from the contract as the factor for calculating the costs, and this may bear little or no relation to the actual head office costs of the contractor.

(b) Emden Formula: In Emden's Building Contracts and Practice, the Emden formula is stated in the following terms:

"Head office overhead & profit x Contract sum x period of delay" G I 00 contract period

Using the Emden formula, the head office overhead percentage is arrived at by dividing the total overhead cost and profit of the contractor's organization as a whole by the total turnover. This formula has the advantage H

SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A of using the contractors actual head office and profit percentage rather than those contained in the contract. This formula has been widely applied and has received judicial support in a number of cases including Norwest Holst Construction Ltd. v. Cooperative Wholesale Society Ltd, decided on 17 February, 1998, Beechwood Development Company (Scotland) ltd. v. Mitchell, decided on 21 February, 2001 and Harvey Shoplifters Ltd v. Adi •. B Ltd, decided on 6 March, 2003.

(c) Eichleay Formula: The Eichleay formula was evolved in America and derives its name from a case heard by Armed Services Board of Contract Appeals, Eichleay Corp. It is applied in the following manner: c Step I

Contract Billings Total overhead for Overhead allocable Total Billings for x contract period to the contract contract period D Step 2

Allocable overhead

Total days of contract Daily Overhead rate E Step 3

Daily Contract Number of Days Amount of Unabsorbed Overhead Rate x of delay overhead"

F This formula is used where it is not possible to prove Joss of opportunity and the claim is based on actual cost. It can be seen from the formula that the total head office overheads during the contract period is first determined by comparing the value of work carried out in the contract period for the project with the value of work carried out by the ccntractor as a whole for the contract period. A share of head office overheads for the contractor is allocated in the same ratio and expressed as a lump sum to the particular contract. The amount of head office overhead allocated to the particular contract is then expressed as a weekly amount by dividing it by the contract period. The period of delay is then multiplied by the weekly amount to give the total sum claimed. The Eichleay formula is regarded by the Federal

MCDERMOIT INTERNATIONAL INC. 1•. BURN STANDARD CO. LTD. [SINHA, J.] 467

Circuit Courts of America as the exclusive means for compensating a A contractor for overhead expenses.

Before us several American decisions have been referred to by Mr. Dipankar Gupta in aid of his submission that the Emden formula has since been widely accepted by the American courts being Nicon Inc. v. United B States, decided on I 0 June, 2003 (USCA Fed. Cir.), Gladwynne Construction Company v, Balmimore, decided on 25 September, 2002 and Charles G. William Construction Inc. v. White, 271 F.3d 1055.

We do not intend to delve deep into the matter as it is an accepted position that different formulas can be applied in different circumstances and c the. question as to whether damages should be computed by taking recourse to one or the other formula, having regard to the facts and circumstances of a particular case, would eminently fall within the domain of the Arbitrator.

If the learned Arbitrator, therefore, applied the Emden Formula in D assessing the amount of damages, he cannot be said to have committed an error warranting interference by this Court,

ACTUAL LOSS : DETERMINATION OF E A contention has been raised both before the learned Arbitrator as also before us that Mii could not prove the actual loss suffered by it as is required under the Indian law, viz., Sections 55 and 73 of the Indian Contract Act as Mr. D.J. Parson had no personal knowledge in regard to the quantum of actual loss suffered by the Mil. DJ, Parson indisputably at one point ohime or the other was associated with Mii. He applied the Emden Formula while F calculating the amount of damages having regard to the books of account and other documents maintained by Mii. The learned Arbitrator did insist that sufferance of actual damages must be proved by bringing on record books of account and other relevant documents. G Sections 55 and 73 of the Indian Contract Act do not lay down the mode and manner as to how and in what manner the computation of damages or compensation has to be made. There is nothing in Indian law to show that any of the formulae adopted in other countries is prohibited in law or the same would be inconsistent with the law prevailing in India. H

468 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A As computation depends on circumstances and methods to compute damage, how the quantum thereof should be detennined is a matter which would fall for the decision of the arbitrator. We, however, see no reason to interfere with that part of the award in view of the fact that the aforementioned fonnula evolved over the years, is accepted internationally - and, therefore, cannot be said to be wholly contrary to the provisions of the B Indian law.

In State of U.P. v. Allied Constructions, [2003] 7 SCC 396, this Court held:

"4. Any award made by an arbitrator can be set aside only if one c or the other tenn specified in Sections 30 and 33 of the Arbitration Act, 1940 is attracted. It is not a case where it can be said that the arbitrator has misconducted the proceedings. It was within his jurisdiction to interpret clause 47 of the agreement having regard to the fact-situation obtaining therein. It is submitted that an award D made by an arbitrator may be wrong either on law or on fact and error of law on the face of it could not nullify an award. The award is a speaking one. The arbitrator has assigned sufficient and cogent reasons in support thereof. Interpretation of a contract, it is trite, is a matter for the arbitrator to detennine (see Sudarsan Trading Co.

E v. Govt. of Kera/a). Section 30 of the Arbitration Act, 1940 providing for setting aside an award is restrictive in its operation. Unless one or the other condition contained in Section 30 is satisfied, an award cannot be set aside. The arbitrator is a Judge chosen by the parties and his decision is final. The court is precluded - from reappraising the evidence. Even in a case where the award contains reasons, the interference therewith would still be not available within the jurisdiction of the court unless, of course, the reasons are totally perverse or the judgment is based on a wrong proposition of law. An error apparent on the face of the records would not imply closer scrutiny of the merits of documents and materials on record. Once it is found that the view of the arbitrator is a plausible one, the court will refrain itself from interfering (see UP. SEB v. Searsole Chemicals Ltd and /spat Engg. & Foundry Works v. Steel Authority of India Ltd.)."

It is trite that the terms of the contract can be express or implied. The H conduct of the parties would also be a relevant factor in the matter of

MCDERMOTT INTERNATIONAL INC. 1·. BURN STANDARD CO. LID. [SINHA, J.] 469

construction of a contract. The construction of the contract agreement, is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot, be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties. are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. [See Pure Helium India (P) Ltd. v. Oil & Natural Gas Commission, [2003] 8 SCC 593 and D.D. Sharma v. Union of India, [2004] 5 SCC 325. . ( Once~ thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award.

The above principles have been reiterated in Chairman and MD, NTPC Ltd v. Reshmi Constructions, Builders & Contractors, [2004] 2 SCC 663; D Union of India v. Banwari Lal & Sons (P) Ltd, [2004] 5 SCC 304; Continental Construction Ltd. v. State of U.P., [2003] 8 SCC 4; State of U.P. v. Allied Constructions, [2003] 7 SCC 396.

A court of law or an arbitrator may insist on some proof of actual damages, and may not allow the parties to take recourse to one formula or E the other. In a given case, the court of law or an arbitrator may even prefer one formula as against another. But, only because the learned arbitrator in the facts and circumstances of the case has allowed MU to prove its claim relying on or on the basis of Emden Formula, the same by itself, in our opinion, would not lead to the conclusion that it was in breach of Sections F 55 or Section 73 of the Indian Contract Act.

CLAUSE 37 - EFFECT OF

We may now look at clause 37 of the main contract entered into by and between ONGC and BSCL which reads as under: G "37. INDIRECT AND CONSEQUENTIAL DAMAGES:

Neither company nor contractor shall be liab[e to the other for any consequential damages, which shall include but not be limited to H

470 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A loss of revenue/ profits, loss or escape of product, etc."

In Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority [ 1988] 2 SCC 338, whereupon Mr. Mitra placed strong reliance, an award made under the old Act was in issue. A dispute had arisen whether there was a claim and denial or repudiation thereof. In that context, it was held: ... B "There should be dispute and there can only be a dispute when a claim is asserted by one party and denied by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive c element and assertion of denying, not merely inaction to accede to a claim or a request. Whether in a particular case a dispute has arisen or not has to be found out from the facts and circumstances of the - case."

There is no dispute about the aforementioned principle but the same D would not mean that in every case the claim must be followed by a denial. If a matter is referred to any arbitrator within a reasonable time, the party invoking the arbitration clause may proceed on the basis that the other party to the contract has denied or disputed his claim or is not otherwise interested in referring the dispute to the arbitrator. E In Bharat Coking Coal Ltd. v. L.K. Ahuja, [2004) 5 SCC 109, this Court opined:

"24. Here when claim for escalation of wage bills and price for materials compensation has been paid and compensation for delay in the payment of the amount payable under the contract or for other extra works is to be paid with interest thereon, it is rather difficult for us to accept the proposition that in addition 15% of the total profit should be computed under the heading "Loss or Profit". It is not unusual for the contractors to claim loss of profit arising out of diminution in turnover on account of delay in the matter of completion of the work. What he should establish in such a situation is that had he received the amount due under the contract, he could have utilised the same for some other business in which he could have earned profit. Unless such a plea is raist:d and established, claim for loss of profits could not havt: been granted. In this case,

MCDERMOTI INTERNATIONAL INC. 1•. BURN STANDARD CO. LTD. [SINHA, J.] 47 J

no such material is available on record. In the absence of any evidence, the arbitrator could not have awarded the same. This aspect was very well settled in Sunley (B) & Co. Ltd v. Cunard White Star Ltd by the Court of Appeal in England. Therefore, we have no hesitation in deleting a sum of Rs. 6,00,000 awarded to the claimant." B We are herein not concerned with such a case.

In terms of Clause 37 of the main contract, reference whereto has been made hereinbefore, neither of the parties are liable to the other for any consequential damages. The claim for damages raised by MII cannot be said C to be consequential damages. The claim relates to direct losses purported to have been occasioned by the failure to perform the contractual duty on the part of the BSCL and to honour the time bound commitments. Such a loss, according to MII, occurred on account of increased overhead cost and decreased profit and additional management costs by reason of BSCL's D delays and disruptions. It is only in that view of the matter, the Emden formula was taken recourse to. Furthermore, clause 37 of the main contract was a matter of an agreement by and between ONGC and BSCL. In law, it could not have been extended to the obligations assumed by BSCL towards MII in terms of the contract entered into by and between the said parties. So far as ONGC is concerned, it cannot be said to have any role to play in E the event of breach of obligation on the part of the BSCL towards its sub- contractor.

Article 3. I of the sub-contract reads as under: F "MU shall be bound to BSCL by the terms of this Sub-contract Agreement and to the extent that the provisions of the respective Main Contract between Buyer and BSCL apply to the relevant sub- contract work of MII as defined in this sub-contract agreement, MII shall assume towards BSCL all the obligations and responsibilities which BSCL, by such Main Contract, assumes to Buyer and shall G have the benefit of all rights, remedies and redresses against BSCL which BSCL, by such Main Contract, has against Buyer, insofar as applicable to this sub-contract Agreement, provided that when any provisions of the respective Main Contract between Buyer and BSCL is inconsistent with this sub-contract agreement, this sub- H

472 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A contract agreement shall govern and prevail over the Main Contract."

By reason of the said provision, therefore, the Main Contract between ONGC and BSCL would apply to the relevant sub-contract work and Ml! was enjoined with a duty towards BSCL to fulfill its obligations and responsibilities. But, thereby, BSCL cannot absolve itself from its liability B so far as breach of the terms and conditions of the sub-contract is concerned. ·In other words, by reason of Article 3.1, the contract by and between ONGC and BSCL has not been subsumed in the sub-contract so as to absolve the BSCL from its own contractual liability for breach of contract or otherwise.

C METHOD OF MEASUREMENT

The main contention of BSCL in this behalf is that the learned arbitrator acted illegally and without jurisdiction in adopting the AISC Code. The question arose in the context of the provisions in the contract that MII was required to undertake to fabricate the materials which were required to be supplied and, therefore, was entitled to fabrication charges from BSCL. It has not been denied or disputed before us that the parties did n'ot agree to a fixed method of measurement. They did not refer to the AISC Code in the contract but only because AJSC code was not referred to in the contract, the same by itself may not be a ground for us to hold that the arbitrator had gone beyond the terms of the contract. Clause 23.1.l(a) and (c) of the main contract reads as under:

"(a) Payment for structural material viz. steel and steel tubulars, anodes, flooding and grouting stems, rubberized rings and rubberized items for barge hampare, rub-strips and boat landing shall be made on the basis of actual landed cost at Contractor's yard. Landed cost would include c.i.f. price, testing charges, if any plus port charges clearing and handling charges at Port, transportation to Contractor's fabrication yard plus local taxes (like octroi ) if any, company shall pay to Contractor an additional G 7 Yi per cent of the landed cost referred to above to cover the cost of procurement."

(c) In computing the quantity of steel materials used on each platform for the purpose of sub-clause (a) above, an allowance of H 4% shall be made for wastage. The payment to Contractor shall be

MCDERMOTT INTERNATIONAL INC."· BURN STANDARD CO. LTD. [SINHA, J.] 473

for weights including the wastage element credit for steel scrap shall A be given by Contractor to Company at the rate of Rs. 500.00 per short ton for the said wastage of 4%."

Clause 11 and Clause 5 read as under:

"11. Fabricated Tonnages: B

"The quantities of materials used in the Works shall be jointly ( i.e. by ONGC/Engineer, BSCL and MII ) determined on the basis of as-fabricated tonnage as per the Main Contract between Buyer and BSCL and shall be used for adjusting the Subcontract Price." c "5. The preceding fabrication rates are worked out taking into consideration installation of all equipment, fabrication and installation of process piping, electricals and instrumentation work including pre-comm1ss10nmg and all yard test in addition to structural fabrication work in accordance with the specifications. For computing D the tonnage for reimbursement of fabrication, installation, pre- commissioning and testing work at the yard by Mii the tonnage of equipment and items for top side facilities shall not be included and fabrication tonnage shall be solely on the basis of as built tonnage as approval by buyer." E Submission of Mr. Mitra is that a combined reading of the aforementioned provisions would go to show that the method of measurement was the subject matter of the contract. We do not agree. Clause 23.1.l has no application in the present case as it covers payment for structural material which has no F nexus with the Claim No. 4. The claim of MII was for labour charges due under the sub-contract for fabricating the structures.

The learned arbitrator, in his partial award, while dealing with the said claim held: G "15.7: As regards replacement steel, BSCL would procure suitable steel for jackets (based on MTO supplied by Mii) on a replacement basis for Mii purchased steel. BSCL would purchase steel as plate suitable for rolling 24 in OD and tubulars. Replacement material would be delivered by BSCL to MII's yard at Dubai, UAE or H

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A to Singapore Port Authority for transshipment by MU, at BSCL's cost, to Batam Island, Indonesia. In the matter of computing the prices payable for structural fabrication of piles, Jackets and decks Clause 23. l. l of the main fabrication contracts provided that the prices would be computed as· follows: The payment for structural material, namely, steel and steel tubulars and anodes, B flooding and grouting system, rubberized rings and rubberized items for barge bumpers, rub strips and boat landing would be made on the basis of actual landed cost at the yard of BSCL or MU. The landed cost would include CIF price, testing charges, if any plus port charges, clearing and handling charges at port, c transportation to BSCL' s or Mil's fabrication yard plus local taxes, and ONGC would pay to BSCL in additional 7 Y, per cent of the landed cost to cover the cost of procurement."

Wastage allowance was relevant only for the purpose of allowance due D

- to BSCL from Mil in respect of scrap materials. The learned arbitrator in his award had referred to evidence adduced in this behalf by Shri A.R. Taylor. The provisions of the contract have no bearing on calculation of gross fabricated weight of the structures for determining the fabrication charges due.

E The use of AISC Code relates to the claim for fabrication charges being Claim No. I. The said claim was for labour charges which was not a claim for cost of material and, thus, nothing to do therewith. The scheme of the contract provides that total estimated tonnage of 18, 178 ST will have the following break-ups: F ED/EE Platforms - 6078 ST WI-8, Wl-9, WI-IO and N3 platforms 12100 ST 18178 ST

G Since the total tonnage of 18, 178 ST was only an estimated tonnage, the sub-contract made provision for variation of the contract price on the basis of' as fabricated' tonnage. Further the quantities of the materials used were to be jointly determined by ONGC /EIL, BSCL and MU on the basis of fabricated tonnage which was to be used for adjusting the sub-contract price. If the "as fabricated tonnage" was found to be less than the estimated

MCDERMOTI INTERNATIONAL INC. 1·. BURN STANDARD CO. LID. [SINHA, J.] 4 75

tonnage, the excess payment received by MII through monthly bills was to be refunded. If the "as fabricated tonnage" was found to be more than the estimated tonnage, Mil was to be paid for the additional tonnage by applying the rate of US $ 1067 per ST. The contract was silent with respect to the method or code to be applied for determining the "as fabricated tonnage".

Clause 1.1.13 defined specifications to mean Industry Standard Codes B (!SC). In the absence of a contractually specified method of calculation, the MII applied the AISC Manual of Steel Construction for calculating the as fabricated tonnage. AISC is an industry standard. It has been applied by ONGC in other contracts. Even the Arbitrator has noted that the BSCL has also accepted the validity of the AISC Code. Now the BSCL cannot tum around and take a contrary position before this court in the proceedings under Section 34 of the Act. Hence by adopting the AISC Code, the Arbitrator has not acted contrary to the terms of contract.

The arbitrator in his award noticed that the parties impliedly accepted the validity of the AISC method of calculation for calculating the final fahricated weight in the following terms:

" .. .Instances of those contracts have been provided by Ml! during the arbitration proceeding showing that the AISC Code has been employed for detennining the final "as fabricated tonnage" of structures ... It seems to me that inasmuch as BSCL has applied the AISC Code in the case of long to long point distance measurement it cannot be denied that the AISC Code is regarded as a valid basis for measurement it cannot be denied that the AISC Code is regarded as a valid basis for measurement. There is no reason why it should be applied in the case of one category of fabrication and not in the case of another."

If before the arbitrator, the said mode of calculation was accepted, we do not see any reason why the BSCL should be permitted to raise the said question before us. G BUOYANCY TANKS FOR ED AND EE JACKETS

It involves a question of fact. It was a part of Claim No. l for fabrication. The contention of the BSCL is that whereas Buoyancy tanks which were used in Wl-8 and N3 jackets were removed by Mil after H

476 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A installation thereof, the same had been used after refurbishment on the ED/ EE jackets and in that view of the matter, no fabrication was required to be done. The claim of MI! was that it had nothing to do with the cost of material or the nature of the fabrication work involved. Its claim was purely based on the labour cost at the rate of US $1067 per ST which was incurred by it towards fabrication work in the refurbishment of the Buoyancy Tanks. B According to it, the tonnage of the Buoyancy Tanks had not been taken into account by ONGC on the ground that no fabrication work was done after removal of the Buoyancy Tanks from N3 and WI-8 Jackets. The learned arbitrator, however, in his partial award found as of fact that substantial fabrication work had been done by MU in the refurbishment of the said c Buoyancy Tanks in the following terms:

"12.22 ... Accepting those instructions, MU made substantial fabrication in refurbishing, handling, rigging and welding the buoyancy tanks on the ED and EE jackets. The oral evidences of RW S.K. Mukherjee shows that the attachment of buoyancy tanks D involves substantial fabrication activity. There can be no doubt that fabrication work had to be done and that involved a measure of labour activity. Mii has demonstrated that there was difference in weight between the original buoyancy tanks used on the N-3 and W-8 jackets and the weight of those tanks when used on the ED E and EE jackets. It says that this clearly points to substantial fabrication activity for refurbishment of those two tanks."

It has further been held by the learned Arbitrator that Mil had also been able to establish that there had been a difference in weight between the original Buoyancy Tanks used on N-3 and WI-8 Jackets and the weight of those tanks when used in ED and EE Jackets. In fact, the learned arbitrator in arriving at the said conclusion had taken into consideration the admission of Shri S.K. Mukherjee who was examined on behalf of BSCL itself that attachment of Buoyancy Tanks involved substantial fabrication activity. The dispute raised is a matter of appreciation of evidence. The findings arrived at by the learned arbitrator cannot, thus, be said to be perverse.

TIE-DOWNS AND SEA-FASTENING

This claim relates to the question whether MU was entitled to payment for fabrication as the tie-downs and sea-fastening require substantial fabrication

MCDERMOTT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. [SINHA, J.] 477

job in regard whereof there did not exist any provision in the contract. The A learned arbitrator has accepted the claim of Mll holding that offshore construction contracts, jackets and decks are fabricated onshore and then they are transported on barges to the offshore location for installation wherefor the lugs, braces and other sea-fastening and tie-down items are required to be created which the installation contractor is to use to weld the jackets and decks to the transportation barges, thereby securing the jackets B for their journey to the offshore location. MII had merely claimed payment for fabrication of tie-downs and sea-fastening as part of the fabrication scope of work. Reference has been made to clause 2 of the contract which is as under: c "2.1 (i) (a) Load-out, seafastening, .... 60% of the transportation and installation lumpsum price of jacket, piles & appurtenances

(b)Load-out, seafastening, ... .40% of the transportation and installation lumpsum price of Decks, Hook-up and resting

The said provision has no application in the instant case as it merely provides for stage payment on milestone basis. In fact, the clause which would be attracted in the present case is contained in clause 2. l(a)(i) is as under:

"The scope of work to be executed by Contractor under this Contract shall comprises ... F (i) Jackets

Including bergs bumbers, best landing, grouting and flooding systems, launch trustees, riser clamps. Catholic protection anodes, and mats and other accessories and components indicated in the drawings and specifications including lifting lugs, pulling lugs, G retaining lugs etc. for lead out and refastening and upending of the jacket."

It specifically covers sea-fastening as part of the scope of fabrication contract work. Wl-8, Wl-9, WI-10 and N-3 fabrication contract also contains H

478 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A a similar clause in Clause 2.1.

The learned arbitrator in para 12.24 of his award noticed that BSCL itself has acknowledged to ONGC that the tie-down materials had been fabricated as part of the fabrication scope and the weight could not be disallowed in calculating the 'as fabricated tonnage'. It, therefore, evidently B cannot take a stand which is contrary thereto and inconsistent therewith. Thus, by reason of the award, the learned arbitrator was of the opinion that the sea-fastening and tie-down were part of the transportation and installation scope and BSCL did not succeed in proving that the said item should be included in the scope of transportation and is not a separate item under the c head of fabrication. Again, the findings of the learned arbitrator were within his domain, being findings of fact.

FOREIGN EXCHANGE

Dispute in relation to the said claim would depend upon the interpretation D of clause 3 of Section 2 of the Consolidated Sub-Contract Price Schedule which provides:

"While the sub-contract price for the work described in the letter of intent is payable by BSCL to Mil in U.S. Dollars the Main E Contract Price is payable by" ONGC to BSCL in Indian Rup~es. It has been agreed that Rupee-U.S. Dollar Exchange rate shall remain fixed at Rs. 100.00=U.S$8.575 and loss or gain due to any variation in the Rupee-U.S. Dollar exchange rate at the time of actual remittance of bills would be to Mil's account. F The aforesaid rate was the prevailing rate as on 9 August 1984 as mentioned in the Letter of Intent dated 1 I September l 984. Within 30 days of completion of Mii's scope of work under the Sub-contract. a reconciliation will be made of all the payments made from time to time. G If the cumulative value of all Rupees expended to buy U.S. Dollar remittance for the Sub-contract work described in the Letter of Intent is less than the Rupee equivalent of the Sub-contract price as determined on the basis of the aforesaid rate prevailing on 9 H August 1984, BSCL shall remit the balance amount of Indian

MCDERMOTT INlERNAT!ONAL INC. 1·. BURN STANDARD CO. LTD. [SINHA, J.] 479

Rupees, if any, to Mii in U.S. Dollars at the prevailing rate of A exchange on the date of such U.S. Dollar remittance; and if after such reconciliation it is found that BSCL have expended Rupees in excess of the 'Rupees equivalent of the Sub-contract Price for the work described in the Letter of Intent, Mil shall arrange to refund any such excess in Rupees to BSCL.'' B Clause 4.0 of the contract provides that the payment will be made by BSCL to Mil on receipt of payment by BSCL from ONGC.

It is not in dispute that by reason of the contract entered into by and between the parties the rate was frozen at Rs. 100 =US$ 8.575. One of the questions which arise for consideration is as to whether the said provision applied to all the claims or not. According to Mil, having regard to the provisions for milestone payments for transportation and installation, Clause 4.0 would apply only in relation thereto.

It is contended that BSCL had not correctly understood the merit and purport of the said provision which has been sought to be explained, The said provision according to MII would be as under:

If the contract is followed, Mil gets US$ I 00 and pays back US$7.43, therefore the net receipt of MII is US$ 92.57. However, E BSCL had adjusted the exchange rate at the time of payment only. The rate as per contract I US$= 11.662. Thus, the rate on the date of payment is Rs. IS. Therefore, the net receipt of Mil is only US$ '- 89.70. In reality, the loss suffered by MII was much greater since in the fifty-four month life of the project, the value of the Indian F rupee deteriorated drastically against the U.S. dollar.

It is not in dispute that in terms of the contract, the payments made by BSCL, which was to be in US dollars, was required to be reconciled at the end of the contract. According to Mil, ifBSCL expended less than the rupee amount stipulated in the sub-contract in dollar payments, BSCL would G convert the unused rupees to dollars to remit the dollars to Mil. Whereas ifBSCL expended more than the agreed amount of rupees, Mil would refund the excess amount to BSCL so as to ensure sharing of exchange loss by both the parties. According to Mil, however, BSCL acted contrary to the said provision insofar as instead of paying the full amount of invoice in US dollars H

480 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A it paid at the fixed exchange rate relying on, or on the basis of, the aforementioned provisions, resulting in loss suffered by Mil.

The learned arbitrator proceeded on the basis that loss of exchange provisions had no application in respect of structural material (claim 4), bulk material (claim 5), transportation of pipe (claim 6), reimbursables (claim 7), B change orders and extra work (claim 8) and delay and disruption (claim 9). BSCL although has acted in breach of the contract in which variation provision as regard the claims of the sub-contract, viz., scope of fabrication work (Claim I), transportation and installation of platforms (Claim 2) and transportation and installation of pipelines and risers (Claim 3) while making c payments. It is, however, one thing to say that having regard to the nature of breach on the part of BSCL, Mii would be entitled to claim damages, but it is another thing to say that by reason thereof it would be entitled to full payment without deduction relating to the BSCL conversion of Indian rupees to US dollars. It is not in dispute that the initial claim of Mil was US $ D 2881195.03 which was later on revised to US $ 3330790.94.

In terms of the agreement, payments were to be made to Mil if the payments were certified by EIL and upon receipt of payments from ONGC and upon receipt of foreign exchange clearance. For appreciating the aforementioned disputes, it may be necessary to refer to the gener'll tenns of payment clause:

"I. Fabrication

Claims for structural fabrication work is to be billed by Mil duly certified by EIL on monthly basis and the payment of the same bills shall be released after 60 days of receipt of the bill by BSCL.

4. Payments as stipulated above will be subject to the following conditions: G (a) Receipt of foreign exchange clearance by BSCL.

(b) Payments on milestone basis will be made by BSCL to Mil only after payments have been received by BSCL from ONGC." H

MCDERMOTT INIERNATIONAL INC. 1·. BURN STANDARD CO. LTD. [SINHA, J.] 481

The learned arbitrator held that Mil would be entitle(! to receive the entire amount as BSCL, despite receipt of payment from ONGC, did not pay the amount to Mii. For the purpose of applicability of the exchange rates, the same, in our opinion, is irrelevant. The award was required to be made in terms of the contract whereby and whereunder the foreign exchange rate was frozen as was applicable on 9th August, 1994. The parties were bound by the said terms of contract. It may be noticed that the subccontract was entered into on 1st January, 1986. The execution of the contract had started much earlier, i.e., much before the date of entering into the contract. The purpose for which the Rupee - US Dollar conversion rate has been frozen as on 9th August, 1984 must be viewed from the angle that thereby the parties thought that loss or gain towards the exchange rates would be on account c of Mil. It is in the aforementioned situation that a letter of intent in the following terms was served:

"M/s. McDermott International Inc., P.O. Box 3098 D Dubai United Arab Emerates.

Dear Sirs,

Sub: ED, EE, WI-8, 9, 10 & N3 Platforms E Ref: Minutes of Meeting dt. 9.8.84 Your offer P/M 547 dt. 9.8.84 8/3132 dt. 4.9.84

With reference to the above, we are pleased to issue this Letter of F Intent conveying acceptance of your offer for the following:

1.0 FABRICATION

I.I Fabrication, load-out & sea-fastening of 6 Jackets with Piles including all appurtenances such as boat !anding, conductor, riser G clamps etc.

1.2 Fabrication, load-out & sea-fastening of 4 main decks, WI-8, 9, 10 & N3 complete with installation of all equipment, process piping, electricals and instrumentation work including all yard test. H

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1.3 Refurbishing of 4 temporary decks to be supplied by ONGC. A 2.0 TRANSPORTATION

2.1 Transportation, installation, hook-up & commissioning of all above i.e. I.I, 1.2 & 1.3 and ED, EE Decks and 6 helidecks B fabricated by BSCL at Jellingham. Temporary deck will be collected from ONGC and taken to Mil yard. Additionally the temporary decks will be removed prior to installation of this deck and handed back to ONGC.

3.0 Transportation, installation, hook-up & commissioning of c Submarine Pipelines & Risers.

4.0 PRICES

The lump sum price is as follows:- D 4.1 For I.I, 1.2 & 1.3 of above US$ 19,400,000

4.2 For 2.0 of above US$ 23,025,000

TOTAL US$ 42,425,000

E 4.3 PIPELINES

For 3.0 above pipelines totaling 28 US$ 3,800,000 L.S. KM in length and installation of 8 risers @ US$ 91 per metre of pipeline and US$ 156,485 per Riser.

F 4.4 The above lump sum prices are based on estimated tonnages and flowline length and number of risers. Any variation in the above will alter the prices pro rata.

4.5 The above amounts are based on the exchange rate between U.S. Dollars and Indian rupees (as ruling on 9.8.84). Any variation in the above rate will be to Mil's account.

5.0 TERMS & CONDITIONS

5 .1 All terms and conditions other than the payment terms as stipulated by ONGC in their contract with BSCL for the above

MCDERMOTT INTERNATIONAL INC."- BURN STANDARD CO. LTD. [SINHA, J.] 483

platfonns will be applicable to Mii. A

5.2 The lumpsum price is inclusive of all engineering required for total scope of BSCL's & Mii's work for six platfonns as well as all technical service support by provision of expert personnel to BSCL. B 6.0 TERMS OF PAYMENT

Tenns of payment are to be mutually discussed and agreed to. It is however understood that payment on milestone basis will be made by BSCL to Mii only after payments have been received by c BSCL from ONGC.

7.0 DELIVERY

Mil will ensure delivery in such a manner that the delivery dates as stipulated by ONGC for the above platfonns will be met.

8.0 It may be noted that this Letter of Intent is subject to clearance oflmport List from DGTD and receipt of sanction from Government of India for release of requisite amount of foreign exchange and import licenses etc. In case Govt's clearance/ approval is not received, this Letter of Intent will be withdrawn without any financial repercussions on either side. We shall however infonn you as soon as Govt's approval/ clearance is received by us.

Subject to this, we would request you to proceed with the work to F _ensure completion within the agreed schedule."

There might be some delay on the part of BSCL to make payments. We may not go into the aforementioned question, but to hold that the exchange rate clause shall cease to have any application only because of the G breaches on the part of BSCL, cannot be accepted.

We are not in a position to accept that the exchange variation provision does not relate to the payments in respect of Claim Nos. I, 2 and 3. The objection raised by the claimant to the said extent is accepted. H

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A SUBSTITUTION

It is not in dispute that MII had substituted heavier material, as material conforming to ONGC specification was not available readily in the market. The matter was referred to EIL. Use of material was found to be technically acceptable to EIL to which ONGC agreed by a letter dated 3rd May, 1985. B ONGC, however, made it clear that it would not make payment for the substituted material. BSCL immediately by a telex dated 13th May, 1985 informed the same to MIL ONGC also in its letter dated 6th December, 1984 categorically stated:

c "The subject matter highlighted in your letter mentioned above has been reviewed by us and we have found that payment against increased tonnage on account of material substitutions proposed by Mis. BSCL/MII cannot be agreed to. Based on above we reiterate our view that we will pay the material/ fabrication costs based on the materials shown in the AFC drawings." D The claim of MII is based on the failure on the part of the BSCL to fulfil its part of the obligation in procurement of the required material. It is true that BSCL agreed to reimburse MII for the same. Mil's claim is partially based on the facts that EIL had recommended payments therefor E as stated in a letter to ONGC dated 10 February 1987 and 6 April 1ef87.

However, it is also not in dispute that ONGC did not accept the said recommendations and refused to take into consideration the substituted tonnage for payment of ·as fabricated tonnage'. F There may be a dispute in this behalf between BSCL and ONGC. However, admittedly, ONGC refused payment to BSCL.

In his partial award, the learned arbitrator noticed that ONGC's involvement was imperative. ONGC had all along maintained its stand that it was not ready and willing to bear the extra costs. The correspondence between the parties was brought on record.

Clause 5 of the contract categorically states that Mii was to procure the material which was to be reimbursed by BSCL. The extra amount incurred by Mii for procuring materials having extra thickness, therefore,

MCDERMOIT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. [SINHA, J.] 485

was not payable. To the aforementioned extent, there has been a novation of contract. Mii had never asserted, despite forwarding of the contention of ONGC, that it would not comply therewith. It, thus, accepted in sub silentio. It, thus, must be held to have accepted that no extra amount shall be payable. It is one thing to say that some more amount might have been spent towards fabrication but the learned arbitrator has awarded the exact amount claimed by Mii in the following terms: B

"I am satisfied that Mllis entitled to a payment of US$ 20, 832.108 for the disallowed tonnage of 19.584 ST at the contractual rate of US$ 1067 per ST." c It is in the aforementioned context that the involvement of ONGC was necessary and if it is the accepted case of the parties that ONGC would not entertain any claim of BSCL in this behalf, a fortiori having regard to the tripartite agreement, the learned arbitrator could have no jurisdiction to determine the claim in favour ofMII only because at one point of time BSCL D had raised its own claim with ONGC. In other word~, any reduction of the claim of the BSCL by ONGC had a direct nexus with the claim of Mii. It was, therefore, not a case where ONGC was not involved in the matter. The . exchange 9f letters categorically proves that Mii had accepted that it would not be entitled to any extra amount in that behalf. MII by necessary . implication accepted the said contention. The principle of acceptance sub- E silentio shall also be attracted in the instant case. Mii was, therefore, not entitled to raise a claim to the extent of fabrication on account of the increased charges for substitution of material used for WI-8, WJ-9, WI-I 0 and N-3 Jackets and piles. F To the aforementioned extent, the claim of MII was beyond the terms of the contract.

INTEREST

The power of the arbitrator to award interest for pre-award period, G interest pendent lite and interest post-award period is not in dispute. Section 31(7)(a) provides that the arbitral tribunal may award interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which award is made, i.e., pre-award period. This, however, H

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A is subject to the agreement as regard the rate of interest on unpaid sum between the parties. The question as to whether interest would be paid on the whole or part of the amount or whether it should be awarded in the pre- award period would depend upon the facts and circumstances of each case. The arbitral tribunal in this behalf will have to exercise its discretion as regards (i) at what rate interest should be awarded; (ii) whether interest B should be awarded on whole or part of the award money; and (iii) whether interest should be awarded for whole or any part of the pre-award period.

The 1996 Act provides for award of 18% interest. The arbitrator in his wisdom has granted l 0% interest both for the principal amount as also c for the interim. By reason of the award, interest was awarded on the principal amount. An interest thereon was upto the date of award as also the future interest at the rate of 18% per annum.

However, in some cases, this Court was resorted to exercise its jurisdiction under Article 142 in order to do complete justice between the parties.

In Pure Helium India (P) Ltd (supra) this Court upheld the Arbitration award for payment of money with interest at the rate of 18% p.a. by the respondent to appellant. However, having regard to long lapse of time, if award is satisfied in entirety, respondent would have to any a huge amount by way of interest. With a view to do complete justice to the parties, in exercise of jurisdiction under Article 142 of the Constitution of India, it was directed that award shall carry interest at the rate of 6% p.a. instead and in place of 18% p.a. F Similarly in Mukand Ltd v. Hindustan Petroleum Corpn., [2006] 4 SCALE 453, while this court confirmed the decision of the division bench upholding the modified award made by the learned single judge, the court reduced the interest awarded by the learned single judge subsequent to the decree from 11 % per annum to 7 Yi % per annum observing that 7 Yi % per annum would be the reasonable rate of interest that could be directed to be paid by the appellant to the respondent for the period subsequent to the decree.

In this case, given the long lapse of time, it will be in furtherance of justice to reduce the rate of interest to 7 Y2 %.

-·' MCDERMOTT INTERNATIONAL INC. 1•. BURN STANDARD CO. LTD. (SINHA, J.] 487

As regards certain other contentions, in view of the fact that the same relate to pure questions of fact and appreciation of evidence, we do not think it necessary to advert to the said contentions in the present case.

CONCLUSION

I.A. Nos. 2 and 3 are allowed in part and to the extent mentioned hereinbefore. The award ·of the learned Arbitrator is modified to the aforementioned extent. In the facts and circumstances of this case, there shall be no order as to costs.

v.s. IA's partly allowed. C