ONGC vs. SAW PIPES LTD. : Landmark Case Law of Section 73, 74, 55 Indian Contract act and Section 34 of Arbitration act

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 ONGC VS SAW PIPES LTD.  CIVIL APPEAL 7419/2001



The company Saw pipes came into a contract with ONGC for the supply of pipes. Due to sudden labor strikes was happened in all over the European continent that cause Saw pipes ltd. failed to transfer the product on time to their client ONGC. So, Saw pipes ltd. requested to the ONGC for extension the time period for delivery the same.There was a clause in the contract that stated- for delay of every week the contractor will be charged 1% of the whole unit price of the order or the part which the contractor has failed to deliver and these liquidated damages can be recovered up to the ceiling limit of 10% of the whole price of the unit. It has also been agreed by the parties that the stipulated liquidated damages are genuine, pre-estimated, not in the form of penalty, and can be deducted from the bill of the payment.

Saw pipes ltd. (respondent) had caused the delay and when the ONGC (appellant) withheld the US $ 3, 04,970.20 and Rs. 15, 75,559/- on account of customs duty, freight charges, sale tax by way of liquidated damages. The respondent disputed the deduction and the dispute was referred to the Arbitral tribunal. The Arbitral tribunal passed the award in favour of Respondent. Aggrieved by this Appellant filed an appeal challenging the arbitral award before the Bombay High Court which was dismissed and The defendant moves to the Honorable Supreme Court for seeking relief against the decision of the High Court. The Honorable Court upheld their appeal and order that Arbitral Tribunal was adjudged to be beyond its jurisdiction and not according to Section 32(2)(a)(v).

This section mentions that procedure should be followed in accordance by Tribunal. Thus Award would be patently illegal and set aside under Section 34 of Arbitration and Conciliation Act, 1996. Therefore, the award directing the appellant to refund the US dollars 3,04,970.20 and Rs. 15,75,559/- with interest which were deducted for the breach of contract as per agreement requires to be set aside and hence set aside accordingly. The appeal is allowed and there shall be no order as to costs.

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