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TMI Blog2009 (10) TMI 956X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain to the tender called for by the objector for design, manufacture, supply of pumps with erection, testing and commissioning of circulating water pumps (CW pumps) for the project of the objector at Ramagundam in the State of Andhra Pradesh. The non-objector (hereafter "Flowmore") submitted its offer on 29.7.1979 and it was accepted by NTPC by issuing a Letter of Intent on 18.1.1980. Flowmore under the contract was to supply 7 CW pumps along with electric motors as also some spare parts. Flowmore was also to undertake installation of the pumps at site. The total value of the contract was ₹ 1,15,02,900/- for supply of the equipment, spares and erection. It may be noted that the contract was for supply of Stainless Steel Impellers (S.S. Impellers). The S.S. impellers were to be purchased by Flowmore from M/s. Peerless Pumps Inc. U.S.A. M/s. Peerless Pumps failed to supply the S.S. Impellers and NTPC therefore agreed to purchase indigenously manufactured S.S. Impellers. Flowmore started manufacturing pumps with indigenous technology approved by NTPC. The sum and substance of the matter is that Flowmore could not supply pumps with S.S. Impellers and it could only sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y profession but who unfortunately died during the pendency of the arbitration proceedings and he came to be substituted by Sh. P.P. Dharwadkar, who was the former Chairman and Managing Director of National Building Construction Corporation. 5. The major disputes and differences which arose between the parties can be basically summarized under the following broad heads: (i) Claim of Flowmore for the balance price payable. (ii) Refund claim with respect to the bank guarantees encashed by NTPC. (iii)The claim of NTPC for liquidated damages. (iv) Respective claims of the parties for interest. 6. Keeping in view the legal position with respect to the scope of challenge to an Award under Section 30 and 33 of the Arbitration Act, 1940, I have heard the parties at length on different dates. It is settled law now that the Court cannot go into the reasonableness of the reasons of the Arbitrator. Meaning thereby, if the view of the Arbitrator is one plausible view, then, the Court will not interfere merely because it is of another view. It is also necessary that the view of the arbitrators has to be either illegal or violative of the contractual provisions or so perverse that it calls ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts in the Award that no complaints have been at all shown with regard to either vibration or unsatisfactory parallel operation. In fact the Arbitrators note that there is a positive statement of NTPC's own witnesses which shows that the Flowmore pumps were giving satisfactory service since 1984, 1986 and 1987 when the five pumps were supplied. The witness also admits that tests were carried out as contemplated in the contract. Obviously thus there can be nothing which remains. At this stage, it is also relevant to note that the clause 14.3 which deals with performance guarantee tests specifically provided for the conduct of the test at site by the owner and not by Flowmore. The requisite performance tests as required under the contract have been done by Flowmore and this has been found as a matter of fact, thus there is no scope for interference under Sections 30 and 33 of the Arbitration Act, 1940. The Arbitrators have after considering the abovesaid facts have held that how can the owner/NTPC in view of such findings refuse to make the payment of the balance of 10% value of the contract. The Arbitrators have held that the owner can reject the equipment if it fails to meet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut bronze impellers. That being the position the Arbitrators have held that this amounted to unilateral novation of the contract qua the impellers and thus the risk and purchase cost of a different item cannot be fastened upon Flowmore under Section 73 of the Contract Act, 1872. To this, I may add if there is a novation of the contract by purchase of substituted items then it was imperative for NTPC to give a similar offer to Flowmore because it is quite clear that Flowmore was ready to supply pumps with bronze impellers as were supplied by the Johnston and in fact NTPC received four pumps with bronze impellers from Flowmore itself amending the original contract which was for S.S. Impellers. Admittedly, this was not done in the present case and NTPC simply went ahead in purchasing pumps from M/s. Johnston containing bronze impellers without giving this offer to Flowmore. During the course of hearing, I asked the counsel for the objector to point out any correspondence by which Flowmore was put to notice that it is entitled to supply bronze impellers instead of S.S. impellers and which were being procured at a higher cost by NTPC. The counsel for the objector could not point out any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the express term of the contract. The purchase from Johnston does not bind Flowmore as the purchase did not conform with the description. It was a case of non conformity. The pumps purchased are non-compliant pumps. Contract with Flowmore was of seven pumps. They supplied 5 pumps. NTPC claims extra cost of 3 pumps. Flowmore is not liable even for two pumps. We were surprised at counsel's pertinacity when he sought to justify NTPC's claim for 3 pumps. We, therefore, hold that the claim of NTPC of alleged risk purchase for the amount of ₹ 14,03,581/- is not tenable and is therefore rejected." 12. The aforementioned conclusions are given at the end of a detailed discussion by the Arbitrators which commences from page 20 ending with page 27 of the award. I thus do not find any fault whatsoever with the reasons or the conclusions of the Arbitrators this behalf. Surely, a person against whom a claim of damages on account of risk and cost purchase is sought to be imposed is entitled in case of an alteration in the contracted goods to have notice that it could have supplied the alternative goods and which admittedly was not done in this case. In fact, as stated by me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new when they made the contract that a particular loss is likely to result from such breach, they can agree for payment of such compensation. In such a case, there may not be any necessity of leading evidence for proving damages, unless the court arrives at the conclusion that no loss is likely to occur because of such breach. Further, in case where the court arrives at the conclusion that the term contemplating damages is by way of penalty, the court may grant reasonable compensation not exceeding the amount so named in the contract on proof of damages. However, when the terms of the contract are clear and unambiguous then its meaning is to be gathered only from the words used therein. In a case where agreement is executed by experts in the field, it would be difficult to hold that the intention of the parties was different from the language used therein. In such a case, it is for the party who contends that stipulated amount is not reasonable compensation, to prove the same. 66. In Maula Bux case19 the Court has specifically held that it is true that in every case of breach of contract the person aggrieved by the breach is not required to prove actual loss or damage suffered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 15. A reference to these paras clearly show that in certain contracts it is impossible to prove the damages/losses which are suffered on account of breach of contract because of the delay in performance. In such contracts it has been held that liquidated damages can be imposed and the aggrieved party is entitled to claim such liquidated damages under Section 74 of the Contract Act, 1872. In the present case, the Arbitrators have denied NTPC the entitlement to liquidated damages, and in my opinion by a very strange reasoning of such claim being time barred. Arbitrators have held that the claim with respect to liquidated damages would arise from the date of supply of an individual pump, and, this finding of the Arbitrator is very surprising to say the least, because in one part of the award while holding the issue of limitation in favour of Flowmore, the Arbitrators have held that it is a single indivisible contract and limitation for the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.3.1990 was written, even then I find that this difference of claim basically pertains to the claim towards entitlement for risk and purchase cost and cost of spares and so on and since I have already disallowed the basic and broad head of the risk and purchase cost and the cost of spares, therefore, once the NTPC is held disentitled to whatever amount claimed in these particular heads then even if the claim of NTPC is taken for a larger amount it shall make no difference as this head of claim has been rejected. 18. I may note for the sake of completeness that Mr. J.C.Seth canvassed that the amounts which have been encashed from bank guarantee have been wrongly directed by the arbitrators to be paid to Flowmore. This objection is merely stated to be rejected because at best the amounts kept by encashing bank guarantees are ultimately towards the net amount which is due from one party to the other under the contract and once no claims are found due to NTPC, except the claims allowed above, surely the amounts which were encashed by NTPC with respect to the bank guarantees have been rightly held repayable by the Arbitrators to Flowmore. 19. Various other small issues with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c scenario and the consistent fall in the rates of interests, whereby the courts should be alive to the fact that the higher interest regime which was earlier permissible should no longer be adhered to. In this behalf, I must refer to the following judgments of the Supreme Court namely Rajendra Construction Co. Vs. Maharashtra Housing & Area Development Authority & ors.2005 (6) 678, McDermott International Inc. Vs. Burn Standard Co. Ltd.& ors 2006 (11) SCC 181, Rajasthan State Road Transport Corpn. Vs. Indag Rubber Ltd. (2006) 7 SCC 700 and Krishna Bhagya Jala Nigam Ltd. Vs. G.Harischandra, 2007 (2) SCC 720 which emphasise that lower rate of interest has to be granted, more so if the proceedings are pending for a long period of time. Being bound by the ratio of the Supreme Court in the aforesaid judgments, I accordingly, award a uniform rate of 9% per annum to Flowmore and against NTPC with respect to the net amount which is granted to Flowmore and as against NTPC as granted by the award and till actual payment. I may note that this benefit which is granted to NTPC will give to NTPC a substantial relief quantified to a huge amount because at a point of time when the contract was to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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