INDIAN OIL CORPORATION LTD  Vs LARSEN & TOUBRO LTD -Judgment by Delhi High Court

$~5
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Decided on: 25.01.2023
+ FAO(OS) (COMM) 171/2018
INDIAN OIL CORPORATION LTD. ….. Appellant
Through: Mr. Sandeep Sethi, Sr. Advocate with Mrs. Paramjeet Benipal, Mrs. Shanik Koura and Mr. Nirbhay Narain Singh, Advocates.
(Mob. No. 9810037778)

versus

LARSEN & TOUBRO LTD. ….. Respondent

Through: Mr. Rajiv Nayar, Sr. Advocate with Mr. Dhirendra Negi, Ms. Pragya Chauhan and Mr. Saurabh Seth, Advocates.
(Mob. No. 9717911677)

CORAM:
HON’BLE MR. JUSTICE NAJMI WAZIRI
HON’BLE MR. JUSTICE SUDHIR KUMAR JAIN

NAJMI WAZIRI, J (ORAL)

The hearing has been conducted through hybrid mode (physical and virtual hearing).
1. This appeal under section 37 of the Arbitration and Conciliation Act, 1996 has been pending for the last 5 years. It impugns the judgment passed on 01.06.2018 by the learned Single Judge in O.M.P. (COMM) 366/2017 which has upheld the arbitral award dated 18.05.2017 awarding Rs.115,11,28,129/- along with simple interest @9% p.a., to the respondent along with costs from the date commencing on expiry of 84 days from 18.05.2012. The said amounts were deposited before this court by the appellant and have been released to the respondent. Notice is yet to be issued in this appeal.
2. Mr. Sandeep Sethi, the learned Senior Advocate for the appellant contends that the delay on account of the respondent/claimant/L&T, having been noted both by the Arbitral Tribunal as well as in the impugned order, has not been effectively apportioned to L&T. Instead, the entire delay has been held to be on account of the appellant/IOCL resulting in erroneous apportionment of liabilities and costs upon the appellant.
3. The facts of the case are that under a contract an infrastructure was to be created by L&T for the benefit of IOCL, within a certain time period. There was a delay in supply of the main fuel- RLNG, which led to the delay in completion of part of the project. This delay has been noted in the award as under:

�283. That L&T has raised Formats is not in dispute. The question is, whether the date of raising the Formats can be taken as the only date for readiness of the System/Sub-System/Equipment with regard to which such Format(s) has/have been issued. In Tribunal’s view, in order to decide such controversy, Article 7 and Article 8.17.1.0 have no application at all. How can a procedural formality, particularly the date of submission of Format-III be treated as the date of commissioning of a System/Sub-System/Equipment when in fact such System/Sub-System/Equipment has been commissioned earlier to that date. The date of submission of such Format-Ill, in our view, for the reasons already noted above would not be conclusive when actually and factually the System/Sub-System/Equipment relating thereto has been commissioned earlier in point of time and had become operational prior to that date.
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298. That there was delay on the part of L&T in relation to diverse portion of the works is established by voluminous documentary evidence produced by IOCL. The question for consideration before the Tribunal, however is, whether such delay on the part of L&T is sufficient to deny L&T the benefit of extension of time?

Whether delay on the part of L&T is sufficient to deny L&T the benefit of extension of time?

299. As. per the Contract between the parties, IOCL was under an obligation to furnish complete ECS data to L&T within three months of the letter of acceptance dated 15.09.2006. That this compliance was not done by IOCL, (it is not necessary to go into the reasons thereof), is not in dispute. According to IOCL, there was delay in supply of ECS data but L&T has been granted time upto 06.04.2010 already on this count.

300. In a contract such as this where there was delay in completion of diverse Works/Systems by L&T but at the same time there was delay on the part of IOCL as well in supply of ECS data, certain stipulations in the contract being mutually dependent, the delay in completion of works on the part of L&T cannot be held to be the sole cause for timelines fixed in L2 Schedule not being maintained. Since, the delay in supply of ECS data by IOCL to L&T was continuing from December 2006 until it was supplied, the delay on the part of L&T of certain works during this period cannot be used against L&T.

301. While delay and default on the part of IOCL in furnishing ECS data to L&T was ongoing, IOCL also delayed the supply of three fuels namely HSD, BFO and RLNG. In the Tribunal�s view, this is a peculiar case where there is delay in performance of certain works by the Claimant and so also there is delay in performance of obligations by the Respondent relating to very important components such as furnishing of ECS data and supply of the three fuels. As a matter of fact, delay in performance of certain works by L&T and also delay in discharge of obligations by IOCL led to further spiral of delays.

302. There is merit in the submission of the learned senior counsel for L&T that delay on the part of L&T in performing its part of the contract did not result in any additional time being required to complete the work as there was delay and default on the part of IOCL in furnishing ECS data and supply of the three fuels. As a matter of fact delay on die part of IOCL to supply complete ECS data effectively subsumed the delay on the part of L&T.

Sections 51 and 52 of the Contract Act

303. Learned senior counsel for L&T placed reliance on Section 51 and Section 52 of the Contract Act. It was argued that the promise of IOCL to supply fuel on a given date had to be performed simultaneously with the promise of L&T to be ready to receive fuel on that day. Since on the date fixed, IOCL was not ready to supply fuel, to L&T, L&T was not under an obligation to be ready to receive the fuel. L&T’s case is that it was ready to receive each of the fuels before the date on which IOCL was ready to supply the respective fuels. According to learned senior counsel for L&T, as per Section 51, L&T was required to be ready to receive fuel when IOCL was ready to supply the same, and L&T was so ready. According to him, IOCL was also similarly required to be ready to supply fuel on the date when L&T was ready to receive the fuel. IOCL failed in this obligation.
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4. Apropos the issue of delay, the learned Single Judge has observed as under:
�36. I have considered the submissions made by the counsels for the parties. Clause 4.3.0.0 provides for time for completion. Clause 4.3.2.0 casts an obligation on the contractor to submit for approval a detailed Progress Schedule. The said clause is reproduced hereinunder:-
�4.3.2.0 Within 28 (Twenty Eight) days from the date of receipt of notification of acceptance of Bid the CONTRACTOR shall submit to the OWNER for approval a detailed Progress Schedule in graphical or other suitable form, giving dates of starting and finishing of various operations and works within the scope of work, providing sufficient margin to cover for contingencies and for final testing and commissioning and consequential repairation, replacement and/or supply. The Engineer-in-Charge and the CONTRACTOR shall thereafter within another 14 (Fourteen) days settle the Progress Schedule and the Progress Schedule so settled shall be the approved Progress Schedule and shall form part of the contract with attendant obligations upon the CONTRACTOR to commence the various works/operations involved on or before date(s) mentioned in this behalf in the approved Progress Schedule and to conclude the said works/operations on or before date mentioned in this behalf in the approved Progress Schedule and default by CONTRACTOR to commence or complete within prescribed date(s) any work or operation shall be deemed to be a breach by the CONTRACTOR to which the provisions of clause 7.0.1.0 hereof relating to termination of contract shall apply, but without prejudice to any other rights or remedies which the OWNER may have in this behalf. �
37. Clauses 4.3.5.0 and 4.3.6.0 which provide for extension of time are all related to this Progress Schedule which is duly approved by the owner. Therefore, the contention of the counsel for the petitioner that the Progress Schedule has no relevance to the issue of extension of time or for levy of price discount cannot be accepted.
38. As far as reliance on clauses 1.0.60.0 and 3.0.1.0 of the GCC is concerned, the Tribunal rejects the same observing as under:-
�293. However, IOCL has taken the position that L&T could have completed commissioning of Module-1 and 2 using only the alternate fuel for each sub-Unit. This position of IOCL is not supported by its witness RW-l. In answer to question 26 in the cross examination, RW-1 stated that commissioning was actually taking the fuel in and start the equipment. The equipment definitely needed to check its performance with all the three fuels. Also, the answer to the next question immediately following answer given by RW-l to question 26 was apparently contradictory. The Tribunal accordingly sought clarification by putting to her the question, “In answer to Question No. 26, you have stated that the equipment needs to check its performance with all the three fuels while in answer to Question No.27, you have stated that commissioning can be done using any fuel. Can you explain the difference in use of fuel in checking the performance of the equipment and commissioning?” To this question, RW-l answered, “Commissioning means fuel and feed into the equipment and start the equipment with production of the product of the equipment. Hoverer, if there are more than one number of fuels, the equipments requires to be checked with each fuel’s each performance so that the equipment performs in all the fuels as per the specification.�
294. RW-1 has admitted in her cross examination that RLNG Skid/Fuel Conditioning Skid could be commissioned only with the use of RLNG. RW-1 also admitted that BOP could not be commissioned till RLNG was made available to L&T.
295. The testimony of RW-1 demolishes IOCL�s stand that commissioning could have been completed by L&T using only the alternate fuels. Even otherwise, this stand of IOCL is contrary to the provisions made in the Technical Specifications, particularly Clause 15.0, Clause 15.5, Section C1-21 of Technical Specifications.
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No merit in IOCL’s argument that unless and until L&T had completed all obligations upto the stage of Module 1 and Module 2, IOCL had no obligation to supply the concerned fuel
330. The Tribunal finds it difficult to accept the argument advanced on behalf of IOCL that unless and until L&T had completed all obligations of Module 1 upto the stage of commissioning, the question of IOCL’s obligation to supply fuel to fire the UB for commissioning Module 1 would not arise and likewise until L&T had completed all obligations of Module 2, upto the stage of commissioning, the question of IOCL being obliged to supply fuel to firing the GTGs or the HRSGs for commissioning Module 2 would not arise. This argument cannot be accepted principally for five reasons.
331. First, neither the Contract nor L2 Schedule or any other document forming part of Contract suggests so.
332. Second, a contract, such as the one, under consideration by the Tribunal, before it is entered into by the parties, is preceded by comprehensive submission and exchange of documents touching upon all material aspects and requirements of the project that brings complete clarity on all relevant matters so that parties are well aware of the respective obligations right from the commencement until completion of the project. All requirements are fully envisaged in such contract as both parties being well versed with a subject would not leave anything to chance or scope of interpretation that may make it difficult to maintain timelines resulting the project not being completed on time. Viewed thus, nothing is found in the contract documents that supports the argument of the Respondent that unless and until L&T had completed all its obligations of Module 1 and Module 2 upto the stage of commissioning, IOCL was not obliged to supply for firing UB (for commissioning of Module 1) and for firing of GTGs or HRSGs (for commissioning Module 2).
333. Third, the necessity of supply of fuel for firing UB for commissioning Module 1 and supply of fuel for firing GTGs or HRSGs for commissioning of Module 2 cannot be overlooked. A condition cannot be read into the contract which does not exist. There is no stipulation in the Contract that unless and until the Claimant had completed all obligations of Module 1 and Module 2 upto the stage of commissioning, the obligation of IOCL to supply fuel would not arise. How can the stage of commissioning of Module 1 or Module 2 be reached without completion of pre-commissioning activities which necessarily required making available fuel by IOCL to L&T.
334. Fourth, IOCL having accepted the responsibility of making available the requisite fuel on particular dates cannot dishonor its obligations under the pretext that unless and until L&T had completed its obligation of Module 1 and 2 upto the stage of commissioning, it had no obligation to supply fuel for the purposes of firing UB for commissioning Module 1 and for the purposes of firing GTGs or HRSGs for commissioning of Module 2.
335. Fifth, IOCL had at no time stated or expressed that its acceptance of obligation of making available fuel for commissioning of Module 1 and Module 2 was dependant on completion of all obligations by L&T of Module 1 and Module 2 upto the stage of commissioning.
336. It also appears from the record that steam or condensate was also not made available by IOCL to L&T when requested and that resulted in delay of completion of project.�

39. I do not find the above reasoning of the Arbitral Tribunal to be unreasonable or perverse so as to warrant interference of this Court in exercise of its powers under Section 34 of the Act.
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44. I do not find any such case warranting an interference with the Impugned Arbitral Award having been made out by the petitioner in the present case.
45. Counsel for the petitioner has made further submissions on the alleged delays of the respondent in commissioning Module 1 and 2. He submits that Module 1 includes RLNG�s Skid, which was part of the Balance of Plant and was commissioned only on 28th August, 2010. He submits that the delay up to 28th August, 2010 in commissioning Module 1 was, therefore, attributable only to the respondent. Similarly, for mechanical completion of Module 2, as RLNG was not required, delay till the date of completion, that is 30th June, 2010, was attributable solely to the respondent.
46. The Arbitral Tribunal has considered the above submissions of the petitioner and has held that in terms of L2 Progress Schedule, there was an obligation on the petitioner to provide/make available the diverse components/activities and some of the components/activities which the petitioner was to provide were critical components and commissioning of Modules 1 and 2 were dependent on them. The Arbitral Tribunal further found that there was delay on part of the respondent in completion of diverse tasks, however, at the same time, there was delay on part of the petitioner in making available/providing some of the components/activities which led to the delay in commissioning of Modules 1 and 2. The Tribunal holds that the delay therefore, was not fully attributable to the respondent alone. Paras 311 and 312 of the Impugned Award are relevant and are reproduced hereinbelow:-
�311. It is true that under the Contract, the obligation is upon the Contractor (L&T) to design supply and construct CPP. However, from the perusal of the Contract, it is clear that the Contract does comprise of reciprocal promises. L2 Schedule which is part of the Contract, when carefully seen, also indicates the order in which owner (IOCL) is required to make available diverse components. There remains no doubt that IOCL had obligation to provide /make available the diverse components /activities. It goes without saying that some of the components/activities which IOCL was obliged to provide/make available to L&T as per the timelines given in L2 Schedule were critical components and commissioning of Modules 1 and 2 and Mechanical completion of Module 3 were dependent on the tasks to be completed by L&T in time.
312. The material on record produced by IOCL does show delay on the part of the L&T in completion of diverse tasks on time as per timelines fixed under L2 Schedule, however, as there was delay on the part of IOCL in making available/providing some of the components/activities noted above, the Claimant-L&T could not commission Modules 1 and 2 in time and Mechanical Completion of Module 3 also could not be achieved in time. Thus, delay is established to be contributory and not attributable to L&T alone.�
47. The above being a finding of fact, this Court in exercise of its powers under Section 34 of the Act cannot sit as a Court of appeal to arrive at a different conclusion. The Arbitral Tribunal further observed as under:-
�273. IOCL�s witness RW-1 has deposed, that RLNG was made available to L&T upon request on 04.08.2010 and the RLNG Skid/Fuel Gas System at the CPP was commissioned by using it to supply RLNG to various Systems and Sub-Systems which could be fired by RLNG on 28.08.2010 and consequently commissioning certificate for Module-1 was issued showing commissioning of Module on 28.08.2010. Thereafter, RLNG Skid/Fuel Gas System and piping was progressively commissioned with respect to the equipments comprised in Module 2 and Module 3. On completion of the commissioning with regard to the equipment covered by Module 2, commissioning certificate for Module 2 was issued to the Claimant as of 29.09.2010.
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293. However, IOCL has taken the position that L&T could have completed commissioning of Module-1 and 2 using only the alternate fuel for each sub-Unit. This position of IOCL is not supported by its witness RW-1. In answer to question 26 in the cross examination, RW-1 stated that commissioning was actually taking the fuel in and start the equipment. The equipment definitely needed to check its performance with all the three fuels. Also, the answer to the next question immediately following answer given by RW-1 to question 26 was apparently contradictory. The Tribunal accordingly sought clarification by putting to her the question, �In answer to Question No.26, you have stated that the equipment needs to check its performance with all the three fuels while in answer to Question No.27, you have stated that commissioning can be done using any fuel. Can you explain the difference in use of fuel in checking the performance of the equipment and commissioning?” To this question, RW-1 answered, �Commissioning means fuel and feed into the equipment and start the equipment with production of the product of the equipment. However, if there are more than one number of fuels, the equipments requires to be checked with each fuel’s each performance so that the equipment performs in all the fuels as per the specification.�
294. RW-1 has admitted in her cross examination that RLNG Skid/Fuel Conditioning Skid could be commissioned only with the use of RLNG. RW-1 also admitted that BOP could not be commissioned till RLNG was made available to L&T.
295. The testimony of RW-1 demolishes IOCL�s stand that commissioning could have been completed by L&T using only the alternate fuels. Even otherwise, this stand of IOCL is contrary to the provisions made in the Technical Specifications, particularly Clause 15.0, Clause 15.5, Section C1-21 of Technical Specifications.�
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5. The contention now raised was never an issue before the Arbitral Tribunal nor was it argued before the learned Single Judge. It is an evident afterthought, on the basis of which the appellant would want interference of the court u/s 37 of the Act. However, the jurisdiction of this court under section 37 of Arbitration and Conciliation Act is limited and would not extend to deciding an issue for the first time. In any case, the view taken both by the Tribunal and by the learned Single Judge is a plausible view and it has taken into consideration the fact that the delay in discharge of obligations by IOCL led to further spiral of delays. This view apropos spiralling on cascading effect of delay occasioned, in the first instance, by the IOCL is a plausible view and cannot be said to be contrary to public policy.

6. The learned Senior Advocate for the appellant refers to a decision of this court in CCI Ltd. vs. Alstom Power Boilers Ltd. 2011 SCC Online Del 735. He refers to para 19 which reads as under:

�19. No doubt, the findings of fact returned by them with regard to the delay on both the sides would not be interfered by this court as they are based on evidence brought before them. However, that is not the end of the matter. Clauses 10.5 and 6.2, as aforesaid, entitle the respondent-contractor for extension of time for the period for which the petitioner has caused the delay. The liquidated damages to which the petitioner is entitled has been set out in Clause 10 of the contract, as extracted above. The learned Arbitrators have themselves returned a finding that the respondent was also liable for some delays. However, the learned Arbitrators have disallowed the claim for liquidated damages on the assumption that the said damages could be awarded to the petitioner only if the respondent was solely responsible for the delay. With due respect to the Tribunal, there is no basis for such an assumption. The meaning of the expression �delay� in the context of Clause 10.5 & 6.2, as aforesaid, would mean the delay over and above the delay for which the petitioner was responsible, i.e., the total delay vis-�-vis the contractual period minus the delay for which the petitioner was responsible. As the Tribunal has proceeded on the assumption that liquidated damages would be payable by the respondent-contractor only if the contractor was solely responsible for the delay, even though the tribunal finds that the delay was on both sides, it has not proceeded to apportion the delays for which the petitioner was responsible and the delays for which the respondent was responsible. The claim of the petitioner for liquidated damages ought to have been considered after quantification of the quantum of delay for which the respondent was responsible, and for which the petitioner was not responsible. For the sake of clarity, I may take an illustration. Supposing, under the contract, a particular aspect of the work had to be completed in a span of four weeks. The petitioner by not performing its obligations (which, in turn, prevented the respondent from performing its obligations) caused a delay of two weeks, and the said aspect of work gets completed in eight weeks, then by application of clauses 10.5 and 6.2, the respondent contractor would be entitled to extension of time by two weeks. The delay attributable to the respondent would then be: total time taken, i.e. eight weeks minus (originally stipulated period, i.e. four weeks plus the extension of time granted, i.e. two weeks), equal to two weeks.�

7. The court is of the view that it is in the facts and circumstances of the complex nature of the case, that the view was taken by the Tribunal and has been rightly upheld by the learned Single Judge. Therefore, we see no cause to interfere with it. The said contention is therefore rejected. Indeed, the aforesaid judgment of CCI Ltd. (supra) itself refers to a decision of the Supreme Court in K.V. Mohammed Zakir vs. Regional Sports Centre, 2009 9 SCC 357, which observed as under:
�23. In K.V. Mohammed (supra), the Supreme Court observed that a court cannot scrutinize the reasonableness of the reasons given by the Arbitrator. However, if the reasons are such that no person of ordinary prudence could ever approve of, or if the reasons are so outrageous in their defiance of logic, that they shock the conscious of the court, then it would be a different situation and in an appropriate case, the court may interfere.�

8. For the aforesaid reasons, the court is not persuaded by the arguments on behalf of the appellant. We see no reason to interfere with the impugned award or the judgment dated 01.06.2018. The appeal is without merit and is dismissed.

NAJMI WAZIRI, J

SUDHIR KUMAR JAIN, J
JANUARY 25, 2023
RW

2023/DHC/001550

FAO(OS) (COMM) 171/2018 Page 12 of 16