Holding

A partial award under the Arbitration and Conciliation Act, 1996 is an interim award that, for the issues it decides, is a final award and therefore validly subject to challenge under Section 34, and the arbitrator possessed jurisdiction to determine the parties' claims, including damages without invoice, the use of the Emden formula, and the application of contract provisions such as non‑essential time, clause 37, novation, and the AISC code.

Summary

The Supreme Court examined a dispute between McDermott International Inc. (appellant) and Burn Standard Co. Ltd. (respondent) arising from a complex offshore construction contract with ONGC, where the arbitrator had issued a "partial award" deferring certain claims and later an additional and final award. The Court held that under the Arbitration and Conciliation Act, 1996 a partial award is an interim award within the meaning of Section 31(6) and, for the matters it decides, functions as a final award, thus being subject to challenge under Section 34. It further ruled that the arbitrator had jurisdiction to entertain claims for damages even without an invoice, to apply the Emden formula for quantifying overhead and loss of profit, and that time was not of the essence of the contract, making damages payable under Section 55 of the Indian Contract Act. The Court rejected the respondent's contention that clause 37 barred direct loss claims, upheld the arbitrator's use of the AISC code for measurement, affirmed the novation and acceptance sub‑silentio principles, and confirmed the applicability of the fixed foreign‑exchange rate clause. Accordingly, the appeal was allowed in part, modifying the award as directed.

Issues considered

The nature and legal status of a "partial award" under the Arbitration and Conciliation Act, 1996
Whether the arbitrator had jurisdiction to make a partial award and later an additional award
Whether the award could be challenged under Section 34 of the 1996 Act
If time was of the essence of the contract under Section 55 of the Indian Contract Act
The permissibility of quantifying damages without an invoice and using the Emden formula
Whether the claim constituted direct loss or consequential damage under clause 37
The effect of novation and acceptance sub‑silentio on the parties' obligations
The appropriateness of using the AISC code for measurement of fabricated tonnage
The applicability of the fixed foreign‑exchange rate clause to the various claims

Legislation cited

Arbitration and Conciliation Act, 1996s. 16, s. 2(c), s. 31(6), s. 33, s. 34
Indian Contract Act, 1872s. 55, s. 73

Subjects

arbitrationpartial awardinterim awardSection 34 challengeIndian Contract Acttime of essencedamages quantificationEmden formulaconsequential damagesnovationacceptance sub silentioforeign exchange clauseAISC codeconstruction contract

Judgment

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

MAY 12, 2006

[B.P. SINGH AND S.B. SINHA, JJ.] B
Arbitration and conciliation Act, 1996:

Sections 31, 33 and 34-Partial award made by deferring some
claims-Nature and character of-Held: It is same as of interim award
envisaged in the Act, even though expression "partial award" is not used
c
therein-If it answered definition of award under Section 2(c), for all intent
and purport, it would be a final award-It is not akin to a preliminary
decree-It is final in all respects with regard to disputes referred to
arbitrator which are subject matter of such award-By such an award no
prejudice is caused as both partial and final awards are subject matter of D
challenge under Section 34-Additional award is not vitiated in law,
especially keeping in view powers of arbitral tribunal under Section 33.

Section 16-Plea that a claim was arbitrary or beyond its authority--
Held: It has to be raised before arbitrator.
E
Contract-Construction of-Held: It is within jurisdiction ofarbitrators
even if it gives rise to determination of a question of law-In this regard
conduct of parties and correspondences exchanged by them are relevant
factors.
F
Denial of claim-Held-Jn every case claim is not required to be
followed_ by 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.
G
Parties to arbitration-:-Reduction of claim of party to contract by one
who was not party to it-Held: Latter was involved in the matter and had
a direct nexus with claim of former.

Contract Act, 1872: H
409
410 SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.

A Section 55-Time being essence ofconstruction contract-Specific date
for performance set by contract at time when it was entered into-Notice
invoking arbitration agreement therein served much after expiry of those
dates-Held: Service of notice would not mean that party repudiated the
contract as soon as schedule fixed by contract expired-Delay and disruptions
might have occurred for various reasons-Parties did not intend time to be
B ofessence ofcontract as (i) contract itselfprovided for extension of time and
payment of damages in case of delay in execution of contract (ii) party
claiming that time was ofessence did not raise that plea before the Arbitrator
(iii) contract being a construction contract wherein generally time was not
essence unless special features existed therefor, which in facts of the case
c were not brought to notice of Court.

Sections 55 and 73-Quantification of claim for damages-Held-
Amount for damages is not required to be quantified as that is merely a
matter of proof-Different formulas for quantification can be applied in
different circumstances--Formulae evolved over the years and accepted
D
internationally can be adopted as that is neither prohibited nor inconsistent
with Indian law-However, court or arbitrator may insist on some proof of
actual damages, and may not allow the parties to take recourse formula-
One formula may be preferred as against ano!her--Jn facts of the case,
choice of formula by arbitrator not interfered by Court-Section 16 of
E Arbitration and Conciliation Act, 1996.

Section 73-Claim for damages for breach of contract--Held: Invoice
is not the only base where under such claim be made as it is drawn only
in respect ofa claim made in terms ofcontract-Claim for breach ofcontract
F can be made through correspondence or in meetings-Jn facts of the case,
held that the claim for overhead costs resulting in decrease in profit or
additional management costs was a claim for damages, and it could be
claimed in arbitration proceedings without invoice being drawn for it.

Section 73---Consequential damages-}vfain contract providing that
G neither ofparties thereto were liable to other for such damages--Applicability
to sub-contract with one of those parties with another party-Held: Main
contract was a matter of an agreement between parties thereto and in law
it could not be extended to obligations assumed by another party to sub-
contract ft was nut subsumed in sub-contract irrespective of latter providing
H for !Is application---Party common to it and sub-contract was not absolved
MCDERMOIT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. 411

ofits liability for breach of terms and conditions ofsub-contract with another A
party.

Section 73-Consequential damages-Failure to perforl'l contractual
time bound commitments leading to claim for Damages on account of
increased overhead cost and decreased profit and additional management
costs-Held-Claim was related for direct losses and they were not
B
consequential damages.

Novation-Acceptance sub-Silentio-Contract providing that one party
was to procure material which was to be reimbursed by other party-Extra
amount incurred for procuring materials with extra thickness-Claim for- C
Held: Extra amount was not payable, and to that extent there was novation
of contract-It was especially so as correspondences between parties
indicated that party that procured materials with extra thickness had
accepted that it would not be entitled to any extra amount in that behalf-
Principle of acceptance sub-silentio found applicable. D

With a view to achieve exploration of production programme,
ONGC appointed contractors to fulfill substantial portions of its off-
shore construction requirements. Respondents were awarded contracts
for fabrication, transportation and installation of six platforms and
associated pipelines. Respondent and appellant entered into Technical E
Collaboration Agreement in terms whereof the latter agreed to transfer
technology to the former with regard to design, construction and
operation of a fabrication yard. The said agreement had an arbitration
clause. Disputes and differences having arisen between the parties,
appellant invoked the arbitration clause by a legal notice. A sole
F
arbitrator was appointed by the Court. Before him, appellant raised
their claims under several heads and respondent filed counter statements
as also counter-claims. It was.agreed between the counsel for the parties
that the Arbitration and Conciliation Act, 1996 instead and in place of
Arbitration Act, 1940 shall apply.
G
The arbitrator having heard the parties inter a/ia on jurisdictional
question initially passed a partial award determining the same in favour
of appellant. The decision on some other points were deferred for a
period of four months so as to enable respondent to dispose of all claims
raised by appellant in the meanwhile which had arisen before reference H
412 SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.

A to the arbitration. The said claims were rejected. A detailed reasoned
statement by ONGC/respondent referring to each individual document
relied upon were filed in the arbitral proceedings. However, by reason
of the said partial award, as regards other points appellant became
entitled to payment from respondent amounts as determined therein.

B The pitrties thereafter filed applications under Section 33 of the
1996 Act alleging that certain claims made by them had not been dealt
with and/or were omitted from consideration by the arbitrator in his
partial award. Respondent raised a preliminary objection that there was
no provision for making a partial award in the 1996 Act. Arbitrator
c passed an additional award and also rejected the respondent's objection
in regard to the maintainability of the said proceeding stating that the
same can be a subject matter for determination of jurisdictional question
in a proceeding under Section 33 of the 1996 Act.

Respondent filed an application under Section 34 of the Act
D questioning the said partial award as also the additional award.

The Arbitrator thereafter took up the left over matters for his
consideration, observing that ONGC in the meantime had expressed no
interest in participating in the decision making process at the inter-
E' party level and, thus, arrived at an inference that the machinery set up
under the sub-contract has broken down and it would be for him to
determine the same. The final award was thereupon passed holding the
appellants to be entitled to various amounts quantified therein.

Respondent filed an application under Section 34 of the Act
F praying for setting aside the final award contending that (i) the arbitrator
had no jurisdiction to make a partial award (ii) the time was of the
essence of contract and in terms of Section 55 of the Contract Act only
remedy was to revoke the contract upon giving a notice therefor, and
in absence of such a notice, damages could not be claimed (iii) as no
G invoice in respect of the claim on account of certain amounts, the
Arbitrator had no jurisdiction to decide the same (iv) the Arbitrator was
bound to determine the actual loss suffered by the parties and as the
same was not determined, the award cannot be enforced (v) mechanical
application of Emden Formula was wholly uncalled for and no award
could be made relying on or on the basis thereof (vi) in terms of Clause
H
MCDERMOTT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. 413

37 of the contract entered into by and between ONGC and respondent, A
no award by way of damage was payable, and similar provision was also
contained in the subcontract entered into by and between the parties
/(vii) for relying on the basis of American Institute of Steel Construction
(AISC) Code as a base for measurement being contrary to the contract,
the award is liable to be set aside (viii) regarding Buoyancy Tanks in
respect of ED and EE Jackets respondent had paid appellant for
B
fabrication of them and they were the same which were used for WIS,,,/ · ·
Wl9 and WllO and N3 Platform, claim on the said account once over
again was not maintainable (ix) regarding Tie Down and S,ea Fastening
as they are required for safe transportation of-strucfores allotted on
transportation barge, the Ai:bitrator cried in allowing the claim of C
appellant-as tliey are not permanent part of jacket decks of any
platform (x) regarding substitution of materials the Arbitrator committed
a serious error in not taking into account the material evidence adduced
by respondent to the effect that appellant was instructed to substitute
the specified material with available material at no additional cost of D
fabrication; in terms of the contract, it was for the appellant to procure
the materials which were to be reimbursed by respondent (xi) appellant's
claim of "exchange loss" was wrongly allowed without any amendment
to the statement of claim, for entire value of the invoices without any
deduction as delay in making payment by respondent to appellant on
a count of delay in receiving payment from ONGC has no relevance and E
, in any event was contrary to the terms of the contract.

Appellant contended (i) that no case has been made out for setting
aside the award of the Arbitrator (ii) partial award is in effect and
substance an interim award within the meaning of Section 31(6) and 2(c) F
of the Act and, thus, the validity of the partial award is not open to
question (iii) time was not the essence of contract and in terms of Section
SS of the Indian Contract Act, damages were payable (iv) invoice is
merely a basis for claim and such a claim may be raised in
correspondences as also in the meetings (v) the quantification of damages
being a matter of evidence and proof, no case has been made out for G
interference with the award (v) reliance on the Emden Formula cannot
be said to be against the law prevailing in India as Sections SS and and
73 of the Indian Contract Act provided only for entitlement to
compensation and not the mode and manner in which'such compensation
is to be quantified (vi) Clause 37 of the Main Contract between ONGC H

1---··-----·-···- -~------~----
414 SUPREME COURT REPORTS [2006) SUPP. 2 S.C.R.

A and respondent bas no application as appellant's claim is not for any
consequential damage but for the direct losses occasioned by respondent's
breach of contractual duty to honour its time bound commitments; the
said clause cannot be extended to the obligations towards appellant
under the sub-contract as ONGC has no role to play in respect of the
breach of its obligations towards it by respondent under the sub-
B contract (vii) regarding method of measurement, clause. 23.1.1 (a) & (c)
of the Main ContraCt between respondent and ONGC has no application
as the same covers payment for 'structural material' which is an
altogether different claim; the claim was towards labour charges for
fabrication of structures and not claim for cost of material; AISC Code
c applied in relation to the fabrication job (viii) regarding Buoyancy
Tanks for ED and EE Jackets, appellant's claim is for labour cost for
fabrication work in the refurbishment of the Buoyancy Tanks; the
finding of the Arbitrator is a finding of fact inter alia based on the
admission of the witness examined on behalf of respondent (ix) regarding
Ti~ Down and Sea Fastening, in offshore construction, jackets and decks
D
arf fabricated onshore and then they are transported on barges to the
offshore location for installation; jobs pertaining to Tie Down and Sea
Fastening required substantial fabrication work and no claim has been
made towards costs of welding the Tie Downs and Sea Fasteners to the
deck; clause 2 of the Contract would have no application to the instant
E case as it provides only for a stage payment on milestone basis; but
clause 2.1(a)(i) which substantially covers sea fastening job as part of
the fabrication contract would be applicable; respondent had not been
able to show that the fabrication of Tie Down and Sea Fastening
materials were included within the scope of transportation and not as
F a separate item under the head 'fabrication' (x) regarding substitution,
it was for respondent in terms of the sub-contract to procure and supply
all materials but as it was not in a position to do· so, appellant on
instructions of respondent used available materials which was having
larger thickness and weight vis-a-vis those specified in the ONGC's
specifications; the same having been approved both by the Engineer and
G ONGC, appellant was entitled to compensation towards the labour
charges (xi) regarding Exchange Loss, clause 4.0 of contract only relates
to payment for transportation and installation and respondent did not
make_.any payment to appellant despite receipt of the whole amount
from ONGC except a small amount; Clause 4.0 had no relevance to the
H exchange loss dispute; respondent acted contrary to the agreed terms
MCDERMOIT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. 415 "

as it made payment upon applying the fixed exchange rate of Rs. A
100=US$8.575; respon.dent was to pay to ap.pellant the amount as per
the current rate, only on reconciliation appellant. was to refund the
excess amount to respondent which ensured that exchange loss would
be shared by both the parties.

HELD : 1. The 1996 Act does not use the expression "partial B
award". It uses interim award or final award. An award has been
defined under Section 2(c) to include an interim award. Sub-section (6)
of section 31 contemplates an interim award. An interim award in terms
a
of the said provision is not one in respect of which final award can
be made, but it may be a final award on the matters covered thereby, c
but made at an interim stage. The arbitrator evolved the aforementioned
procedure so as to enable the parties to address themselves as regard
certain disputes at the first instance. As would appear from the partial
award of the arbitrator, he deferred some claims. He further expressed· ...;..
his hope and trust that in relation to some claims, the parties would
arrive at some sort of settlement having regard to the fact that ONGC
D

' directly or indirectly was involved therein. While in relation to some of
the claims, a finality was attached to the award, certain claims were
deferred so as to enable the arbitrator to advert thereto at a later stage.
If the partial award answers the definition of the award, as envisaged
under Section 2(c) of the 1996 Act, for all intent and purport, it would E
be a final award. In fact, the validity of the said award had also been ,,
questioned by resp.ondent by filing an objection in. relation thereto. A
partial award is not akin to a preliminary decree. It is, final in all
respects .with regard to disputes referred to the arbitrator which are·
subject matter of such award. Some arbitrators instead and in place of
F
using the expression "interim award" use the expression "Partial award".,
By reason thereof the nature and character of an award is not changed.
In any view of the matter, respondent is not in any way prejudiced. Both
the partial award and the final award are subject matter of challenge
under Section 34 of the Act. The additional award is not vitiated in lalv,
especially keeping in view powers of arbitral. tribunal under section 33 G
of the Act. (450-B-H, 451-B, C, FJ

2.1. At that time when the contract was entered into it was
supposed to be performed by 30th December, 1985. In terms of the
provisions of the contract the jobs in respect ofWI-8, WI-9, WI-10, and H
•'
416 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A N-3 were to be performed within the said period. A stipulation for
commissioning of ED and EE platforms within a time frame has also
been mentioned, i.e., February, 1986. [451-H, 452-A-D)

2.2. Appellant served a notice on 10th April, 1998 invoking the
arbitration agreement. The same would not mean that it should have
B repudiated the contract as soon as 20 months schedule fixed by the
contract expired. Delay and disruptions might have occurred for various
reasons. In the instant case, therefore, the matter would be covered by
the second part of section 55 of the Indian contract Act providing that
where the parties did not intend time to be the essence of the contract,
C the contract was not voidable, but the promisee was entitled to
compensation for loss occasioned. For the aforementioned purpose, no
notice was required to be served. In any event, the contract provided for
extension of time, as would appear from clause 27(ii) and the relevant
portions of clause 28. The parties, furthermore, agreed for payment of
liquidated damages, as would appear from clause 28(v)(a). Moreover,
D the contract itself contains provisions for extension of its terms and
payment of damages in case of delay in execution of the contract.
Therefore the second part of Section 55 of the Indian Contract Act
would be attracted and not the first part. [452-E-F, 453-D, F, 458-D)

E Arosan Enterprises Ltd v. Union of India, [1999) 9 sec 449 and
Hind Construction v. State of Maharashtra, (1979) 2 SCC 70, referred to.

2.3. The question which, further, arises for consideration is as to
whether the respondents having proceeded on the basis that time was
the essence of the contract, it was bound to issue a notice of repudiating
F the contract subject to reservation as regards its claim of damages.
Appellant, 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
G sub-contract did not adequately cover increased costs expended by
appellant. 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. The
H
MCDERMOTT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. 417

respondent had never pleaded before the Arbitrator that the time was A
the essence of the contract. In Construction contracts generally time is
not the essence of the contract unless special features exist therefor. No
such special features, in the instant case, was brought to notice of the
Court. [458-E-G, H, 459-A]

3. It is not correct to contend that the invoice is the only base B
whereby and whereunder 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. 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 c
contract. For raising claim based on breach of contract, no invoice is
required to be drawn. 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. [463-G-H, 464-A-C]
D
4.1. While claiming damages, the amount therefor was not required
to be quantified. Quantification of a claim is merely a matter of proof.
In fact respondent 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 respondent before the arbitrator in terms of E
Section 16 of the 1996 Act. It is an accepted position that different
formulas can be applied in different circumstances and 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 arbitrator, therefore, applied the Emden Formula in assessing the
F
amount of damages, he cannot be said to have committed an error
warranting interference by this Court. [464-C-D, 467-C-D]

Norwest Holst Construction Ltd. v. Cooperative Wholesale Society
Ltd., decided on 17 February, 1998; Beechwood Development Company G
(Scotland) Ltd. v. Mitchell, decided on 21 February, 2001;
Harvey Shoplifters Ltd. v. Adi Ltd., decided on 6 March, 2003; Nicon Inc.
v. United States, decided on 10 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.3rd 1055,
H
418 SUPREME COURT REPORTS [2006) SUPP. 2 S.C.R.

A referred to.

4.2. 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
B prohibited in law or the same would be inconsistent with the law
prevailing in India. As computation depends on circumstances and
methods to compute damage, how the quantum thereof should be
determined is a matter which would fall for the decision of the arbitrator.
There is no reason to interfere with that part of the award in view of
C the fact that the aforementioned formula evolved over the years, is
accepted internationally and, therefore, cannot be said to be wholly
contrary to the provisions of the Indian law. It is trite that the terms
of the contract can be express or implied. The conduct of the parties
would also be a relevant factor in the matter of construction of a
contract. The construction of the contract agreement, is within the
D 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
E
matter for the arbitrator to determine, even if it gives rise to
determination of a question of law. (467-G-H, 468-A-B, H, 469-A-BJ

Pure Helium India (P) Ltd v. Oil & Natural Gas Commission, (20031
8 SCC 593 and D.D. Sharma v. Union of India, (2004] 5 SCC 325, relied
F on.

4.3. 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. A court of law or an arbitrator may insist on some proof
G of actual damages, and may not allow the parties to take recourse to
one formula or 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 arbitrator in the facts and circumstances of the case has
allowed appellant to prove its claim relying on or on the basis of Emden
H Formula, the same by itself would not lead to the conclusion that it was
MCDERMOTT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. 419

in breach of section 55 or Section 73 of the Indian Contract Act. A
[469-C, E, F)

State of UP. v. Allied Constructions, [2003) 7 SCC 396; Chairman
and MD, NTPC Ltd v. Reshmi Constructions, Builders & Contractors,
[2004) 2 SCC 663; Union of India v. Banwari Lal & Sons (P) Ltd, [2004)
5 SCC 304; Continental Construction Ltd v, State of UP., [2003) 8 SCC B
4 and State of UP. v. Allied Constructions, [2003) 7 SCC 396, relied on.

5. In every case the claim is not required to 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 c
otherwise interested in referring the dispute to the arbitrator. [470-D-E)

Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority,
[1988) 2 sec 338, distinguished.

6.1. In terms of Clause 37 of the main contract neither of the
D
parties are liable to the other for any consequential damages. The claim
for damages raised by appellant cannot be said 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 respondent and to honour the time bound commitments. Such a E
loss, according to appellant occurred on account of increased overhead
cost and decreased profit and additional management costs by reason
of respondent's delays and disruptions. It is only in that view of the
matter, the Emden formula was taken recourse to. [471-C-D)

Bharat Coking Coal Ltd. v. L.K. Ahuja, [2004) 5 SCC 109, F
distinguished.

6.2. Clause 37 of the main contract was a matter of an agreement
by and between ONGC and respondent. In law, it could not have been
extended to the obligations assumed by respondent towards appellant G
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 the event of breach of obligation on the part of the respondent
towards its sub-contractor. By reason of Article 3.1 of the sub-contract
the Main Contract between ONGC and respondent would apply to the
H
420 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R

A relevant sub-contract work and appellant was enjoined with a duty
towards respondent to fulfill its obligations and responsibilities. But,
thereby, respondent cannot absolve itself from its liability 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 respondent has not been subsumed in the sub-contract so
B as to absolve the respondent from its own contractual liability for
breach of contract or otherwise. 1471-D-E, 472-A-B]

7.1. Submission of respondents that a combined reading of the
Clauses 5, 11 and 23. l.l(a) and (c) would go to show that the method
C of measurement was the subject matter of the contract is not acceptable.
Clause 23.I.I has no application in the present case as it covers payment
for structural material which has no nexus with the Claim No. 4. The
claim of appellant was for labour charges due under the sub-contract
for fabricat:ng the structures. The use of AISC Code relates to the claim
for fabrication charges being Claim No. I. The said claim was for labour
D 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. 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
E
ONGC/EIL, respondent and appellant 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 tonnage,
the excess payment received by appellant through monthly bills was to
be refunded. If the "as fabricated tonnage" was found to be more than
F the estimated tonnage, appellant 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". 1473-F, 474-E-F, G-H, 475-AI

Gangappa v. Atmakur Nagbhushanam Setty & Co., (1973] 3 SCC 406,
G referred to.

lavarack v. Woods of Colchester ltd.. 1196711 QB 278, referred to.

7.2. Clause 1.1.13 defined specifications to mean Industry Standard
Codes (JSC). In the absence of a contractually specified method of
H
MCDERMOTT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. 421

calculation, the appellant applied the AISC Manual of Steel Construction A
for calculating the fabricated tonnage. AISC is an industry standard.
It has been applied by ONGC in other contracts. Ev('.n the Arbitrator
has noted that the respondent has also accepted the validity of the AISC
Code. Now the respondent cannot turn 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 B
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 fabricated weight. If before the
arbitrator, the said mode of calculation was accepted, the respondent
should not be permitted to raise the said question before the Court.
[475-B-C, D, G]
c
8. Claim for Buoyancy Tanks for ED and EE Jackets involves a
question of fact. It was a part of Claim No. 1 for fabrication. The
"llrbitrator in his partial award found as of fact that substantial fabrication
work had been done by appellant in the refurbishment of the said D
Buoyancy Tanks. It has further been held by the arbitrator that
appellant 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-
S Jackets and the weight of those tanks when used in ED and EE
Jackets. In fact, the arbitrator in arriving at the said conclusion had
taken into consideration the admission of witness examined on behalf E
of respondent 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 arbitrator
cannot, thus, be said to be perverse. (475-H, 476-A-C, F-G(

9. The claim regarding Tie-Downs and Sea-Fastening relates to the F
question whether appellant was entitled to payment for fabrication :is
the tie-downs and sea-fastening require substantial fabrication job in
regard whereof there did not exist any provision in the contract. The
arbitrator has accepted the claim of appellant holding that offshore
construction contracts, jackets and decks are fabricated onshore and G
then they are transported on barges to the offshore location for
installation where for 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 for their journey to the offshore location.
Appellant had merely claimed payment for fabrication of tie-downs and H
422 SUPREME COURT REPORTS [2006) SUPP. 2 S.C.R.

A sea-fastening as part of the fabrication scope of work. Clause 2 of the
contract 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). It specifically
covers sea-fastening as part of the scope of fabrication contract work.
WI-8, Wl-9, Wl-10 and N-3 fabrication contract also contains a similar
B clause in Clause 2.1. The arbitrator in para 12.24 of his award noticed
that respondent 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 cannot take a stand which is contrary thereto
c and inconsistent therewith. Thus, by reason of the award, the arbitrator
was of the opinion that the sea-fastening and tie-down were part of the
transportation and installation scope and respondent 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 head of fabrication.
Again, the findings of the arbitrator were within his domain, being
D findings of fact. [476-H, 477-A-B-H, 478-A-Cf

10. The arbitrator held that appellant would be entitled to receive
the entire amount as respondent, despite receipt of payment from
ONGC, did not pay the amount to appellant. For the purpose of
applicability of the exchange rates, the same is irrelevant. The award
E 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, 1984. The parties were bound by the said terms of contract.
It may be noticed that the sub-contract was entered into on 1st January,
1986. The execution of the contract had started much earlier, i.e., much
F before the date of entering into the contract. The purpose for which the
Rupees-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 of
appellant. It is in the aforementioned situation that a letter of intent was
served. It cannot be said that the exchange variation provision does not
G relate to the payments in respect of Claim Nos. 1, 2 and 3. The objection
raised by the claimant to the said extent is accepted. (481-A-C, 483-Hf

I I.I. Clause 5 of the contract categorically states that appellant
was to procure the l'laterial which was to be reimbursed by respondent.
H The extra amount incurred by appellant for procuring materials having
MCDERMOIT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. 423

extra thickness, therefore, was not payable. To the aforementioned extent, A
there has been a novation of contract. Appellant had never asserted,
despite forwarding of the contention ofONGC, 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. (484-H, 485-A-B)

B
11.2. The exchange of letters categorically proves that appellant
had accpeted that it would not be entitled to any extra amount in that
behalf, appellant by necessary implication accepted the said contention.
The principle of acceptance sub-silentio shall be attracted in the instant
case. Appellant was, therefore, not entitled to raise a claim to the extent
of fabrication on account of the increased charges for substitution of C
material used for WI-8, Wl-9, WI-10 and N-3 Jackets and piles. To the
aforementioned extent, the claim of appellant was beyond the terms of
the contract. (485-E-F)

12. It is one thing to say that some more amount might have been D
spent towards fabrication but the arbitrator has awarded the exact
amount claimed by appellant. 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 respondent
in this behalf, a fortiori having regard to the tripartite agreement, the E
arbitrator could have. no jurisdiction to determine the claim in favour
of appellant only because at one point of time respondent had raised its
own claim with ONGC. In other words, any reduction of the claim of
the respondent by ONGC had a direct nexus with the claim of appellant.
It was, therefore, not a case where ONGC was not involved in the
inatter. (485-B, C-D) F

13. The 1996 Act provides for award for 18% interest. The
arbitrator in his wisdom has granted 10% interest both for the principal
amount as also for the interim. By reason of the award, interest was
awarded on the principal amount. An interest thereon was upto the date G
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 this case, given the long lapse of time, it will be in furtherance of
justice to reduce the rate of interest to 7%. (486-C-D, HJ H
424 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A CIVIL APPELLATE JURJSDICTION : I.A. No. 2-3 in Civil Appeal
No. 4492 of 1998.

From the Judgment and Order dated 8.5.1998 of the High Court of
Calcutta in A.P. No. 237/1997.

B Dipankar Gupta, Sr. Adv., Anil Bhatnagar, O.P. Khaitan, Mrs. Bharti
Badesra for M/s. O.P. Khaitan & Co., Advs., with him for the Appellant.

Jayanto Mitra, Debal Banerjee, Sr. Advs., Pallav Sisodia. Rudgaman
Bhattacharya, Ms. Shipra Ghose, Adv., with them for the Respondents.·

c The Judgment of the Court was delivered by

S.B. SINHA, J. :

INTRODUCTION
D
Oil was discovered in the Bombay High Region in 1974 whereupon
a plan of rapid development of off-shore oil and gas production was
embarked by the Government of India through Oil and Natural Gas
Commission (ONGC). With a view to achieve exploration of production
programme, ONGC appointed contractors to fulfill substantial portions of its
E off-shore construction requirements. Bum Standard Company Limited (for
short "BSCL") was interested in the second stage of platform construction
of ONGC, i.e., structural and progress fabrication and material procurement.
Four contracts were thereafter awarded in favour of BSCL for fabrication,
transportation and installation of six platforms bearing No. ED, EE, WI-8,
F WI-9, WI- I 0 and N3 and associated pipelines. They were to be installed
in ONGC's Bombay High Sea.

CONTRACT

The said contracts covered:
G
(i) Material procurement and fabrication of the ED and EE jackets, piles
and decks.

(ii) Transportation and installation of the ED and EE jackets. piles and
decks.
H
MCDERMOTT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. [SINHA, J.] 425

(iii) Material Procurement and fabrication of the WI-8, WI-9, WI-10 ar.d A
N-3 Jackets, piles, temporary decks and decks (the "Four Platform
Fabrication Main Contract") and

(iv) Transportation and installation of the WI-8, WI-9, WI-10 and N-3
jackets, piles, temporary decks and decks, and installation of four
pipelines and eight risers (the "Four Platform Installation Main B
Contract").

The said contracts contained arbitration agreements ..

BSCL and Mcdermott International Inc. (for short "MII") entered into
Technical Collaboration Agreement on 25th September, 1984 in terms c
whereof the latter agreed to transfer technology to the former with regard
to design, construction and operation of a fabrication yard. The said
agreement contains a separate arbitration clause between the parties.

However, with regard to the fabrication and installation of off-shore
platforms, BSCL decided to give a sub-contract of the work to Mll on a D
project by project basis. BSCL while retained the job of fabrication of the
ED and EE decks, six helidecks and procurement of materials for the overall
project other than pipeline materials and some process equipment which was
issued by ONGC sub-contracted the remaining work.
E
In terms of a letter of intent dated 14th September, 1984 a contract was
entered into by and between BSCL and ON GC for fabrication and installation
of offshore platforms ED, EE, Wl-8, WI-9, WI- I 0 and N-3 and laying of
WI-8 to WI-9, WI-9 to WI-10, WI-9 to WIS and N-3 to NO pipelines and
8 associated risers as well as WI-7 to WI-8, Wl-9 to SD, WI-10 to SV, EB
to SCI, EC to SHP, ED to SHP, EE to SHP pipelines and 11 associated risers. F
A part of the said contract work was assigned to MI! in respect of fabrication,
transportation and installation of structures, modules, platforms and pipeline
components on or about 1st January, 1986. The work under the said
agreement was to be completed within 24 months but in all respects it was
completed in early 1989.
G
TERMS OF THE CONTRACT

The relevant covenants between the parties contained in the said
agreement are as under:
H
426 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A "Article 2. Mil shall unless inconsistent with the provisions of this
Sub-contract perform fulfill and observe all the obligations, covenants
and agreements required on the part of BSCL to be performed,
fulfilled and observed in terms of the Main Contracts to the extent
these obligations, covenants and agreements relate to the Sub-
contract Work including such obligations, agreements and covenants
B as may in future be added, modified or provided in the Main
Contracts between the Buyer and BSCL with concurrence of MII
to the extent thereof. These obligations, covenants and agreements,
as have been agreed to be perfonned, fulfilled and observed by Mii
shall include the perfonnance of the Sub-contract work in the
c manner and to the specifications as provided in the respective Main
Contracts.

Article 3

3. l Mii shall be bound to BSCL by the tenns of this Sub-contract
D 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 have the benefit of all rights, remedies and redresses
E against BSCL which BSCL, by such Main Contract, has against
Buyer, insofar as applicable to this sub-contract Agreement, provided
that when any provision of the respective Main Contract between
Buyer and BSCL is inconsistent with this Sub-contract Agreement,
this Sub-contract Agreement shall govern and prevail over the Main
F Contract.

3.2 BSCL shall be bound to Mil by the tenns of this Sub-Contract
Agreement and to the extent that the provisions of the respective
Main Contracts between Buyer and BSCL apply to the relevant Sub-
contract work of Mil as defined in this Sub-contract Agreement,
G BSCL shall assume towards MII all the obligations and
responsibilities that Buyer, by such Main Contracts, assumes towards
BSCL, and shall have the benefit of all rights, remedies and redress
against Mil which Buyer, by such Main Contracts, has against
BSCL insofar as applicable to this sub-contract Agreement provided
that when any provisions of the Main Contract between Buyer and
H
MCDERMOTI INTERNATIONAL INC. 1•. BURN STANDARD CO. LTD. [SINHA, J.] 427

BSCL is inconsistent with any provisions of this Sub-contract A
Agreement, this Sub-contract Agreement shall govern and prevail
over the Main Contract.

Article - 5

5.1 Except as otherwise provided herein, all claims made by Buyer B
against BSCL shall be the responsibility of Mil when such claims
arise or are derived from Mil's Sub-contract Scope of Work;
similarly, all claims made by Buyer that arise or derive from
BSCL's Scope of Work shall be the responsibility of BSCL. To
the extent that BSCL, as Main Contractor vis-a-vis Buyer, would
be liable for any claims that arise or are derived from Mll's Sub-
c
contract Scope of Work, Mii shall hold harmless and keep
indemnified BSCL from any such claims to the extent analogous
with MII's Sub-contract.

Article - 6 - Arbitration D
6.1 Should there by any dispute or difference between BSCL and
Buyer in regard to any matter connected with BSCL relating to or
arising out of the Main Contract (s), which may involve Mil's
performance or affect Mii's interest under the subcontract, BSCL
shall keep Mil informed and shall act in consultation and coordination E
with Mii to ascertain the facts and agree on the appropriate action
to be taken. Mii shall render all assistance and cooperation that
BSCL may require in this regard. If it is determined that the dispute
or difference does not involve Mil's performance or affect Mil's
interests, Mii shall render such reasonable assistance and cooperation
F
as BSCL may require; provided, however, that MII shall be entitled
to reimbursement of costs, if any, incurred therefor with the prior
approval of BSCL.

6.2 If any dispute or difference arising between BSCL and Buyer
under or in respect of or relating to the Main Contract insofar as G
it relates to the work to be carried out by Mil is referred to
arbitration and any award/ judgment/ decree/ order is passed, or a
settlement is otherwise reached with Mll's consent, Mll shall be
bound to accept the same and bear all Mii's liability resulting
therefrom. MU shall, however, be assisted at all stages by BSCL
H
428 SUPREME COURT REPORTS L2006] SUPP 2 S.C.R.

with such arbitration proceedings and Mil shall bear all expenses
A
of such arbitration/ litigation and/ or negotiated settlement, if any.
However, expenses incurred by BSCL in deputing their officials
to attend such arbitration/ proceeding/ litigation would be to
BSCL/s accounts.

B 6.3 All disputes and differences in respect of any matter relating to
or arising out of or in connection with the execution or construction
of this subcontract document, if the same cannot be and/ or is not
the subject matter of dispute between BSCL and the Buyer under
the Main Contracts and is not settled mutually by negotiation, shall

c be referred to arbitration under the Indian Arbitration Act. 1940, as
amended from time to time, by appointing some agency acceptable
to both the parties as Arbitrators and if no agency is found
acceptable to both the parties, then by constituting a Board of
Arbitration consisting of three Arbitrators, one to be nominated/
appointed by each party and the third to be appointed by the two
D Arbitrators as Umpire. The arbitration proceeding shall be held at
New Delhi and the decision of the Arbitrators or the Umpire as the
case may be shall be final and binding on both parties hereto. The
arbitrators or the umpire, as the case may be, shall record their
reasons for passing awards, copies of which shall be sent to the
parties.
E
Article - 10

I 0.1 Any amendment and/ or modification of this Sub-contract shall
be valid only if it is in writing and signed by both the parties.
F
All other terms and conditions not specified in this sub-contract
shall be as stipulated in the Main Contracts.

10.2 This Sub-Contract Agreement shall be governed by the Laws
of the Republic of India."
G
DISPUTES

Disputes and differences having arisen between the parties, Mil
invoked the arbitration clause by a legal notice dated 10th April, 1989.

H Several proceedings as regards invocation of arbitration clause were
MCDERMOTI !NlERNATIONAL INC. '" BURN STANDARD CO. LID. [SINHA, J.] 429

initiated by the parties before the Calcutta High Court. The said proceedings A
ultimately ended in favour of Mil leading to appointment of two arbitrators
for determination of the disputes and differences between the parties. The
arbitrators who were earlier appointed were removed and Mr. Justice A.N.
Sen, a retired Judge of this Court was appointed as a sole arbitrator. It is
stated that Mr. Justice A.N. Sen declined to act as an Arbitrator and by an
order dated 28th August, 1998, Mr. Justice R.S. Pathak was appointed by
B
this Court as a sole arbitrator. The Arbitrator was to continue with the
proceedings from the stage it had reached. The said order is in the following
terms:

"I. Mr. Justice R.S. Pathak, retired Chief Justice of India is C
appointed as the sole Arbitrator. In the case to resolve the disputes
and differences which had been raised by the parties and were the
subject matter of the arbitration proceedings before the arbitrators
earlier appointed;

2) That the Learned Arbitrator shall enter upon the reference within
D
three weeks from the date of service of this order upon him.

3) That the arbitration proceedings shall be held at New Delhi.
However, in the event the learned Arbitrator considers it necessary
to hold any sitting at any other place, he may do so with the consent E
of the parties;

4) The learned Arbitrator shall continue with the proceedings from
the stage where the proceedings of the arbitration were on 8.5.1998,
when the impugned order came to be made by the Calcutta High F
Court;

5) All the proceedings held till 8.5.1998 shall be treated as the
arbitration proceedings held before the learned sole Arbitrator now
appointed;
G
6) It shall be in the discretion of the learned Arbitrator to take or
not to take oral evidence or to take oral evidence by way of
affidavits. The learned arbitrator would be at liberty to adopt
summary proceedings for concluding arbitration proceedings.
H
430 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A 7) That the learned Arbitrator shall publish his Award, as far as
possible, within a period of one year from the date of entering upon
the reference;

8) That the fees of the Arbitrator (which may be fixed by him) and
all expenses of arbitration proceedings shall be shared equally by
B the parties;

9) The learned Arbitrator shall file the Award in this Court.

1O) Any application which may become necessary to be filed during
or after the conclusion of arbitration proceedings, shall be filed only
C in this Court."

CLAIM OF Mii

Before the learned Arbitrator, Mil raised the following claims:

D I. For Fabrication of jackets,
Temporary Decks and Main Decks US$ 1,182,817.94
2. For Transportation and Installation
of jackets and Decks US$ 4,351,062.68
3. For Installation of Pipelines and Risers US$ 840,064.23
E 4. For Structural Material Procurement US$ 5,301,534.13
For Bulk Material Procurement US$ 84.919.14
UKL 262,296.43
S$ 680,764.29
5. For Transportation of Pipe US$ 1,231,415.00
F 6. For Reimbursables US$ 377,309.30
7. For Change Orders and Extra Work US$ 7,423,741.95
8. For Delays & Disruptions US$ 13,233,343.00
8A. For exchange Entitlements US$ 2,881,195.03
G 9. For Interest upto 21 August, 1989 US$ 10,909,772.19
UKL 148,254. 14
S$ 521, I02.56
Total US$47,8l7,174.59
UKL 410,550.57 -
H S$ 1,201,866.85''
MCDERMOTI INTERNATIONAL INC. v. BURN STANDARD CO.LTD. [SINHA, J.] 43 J

Before the Arbitrator, apart from the aforementioned amount, interest A
on the outstanding amount was also claimed at the rate of 15% per annum
on all claims for which invoices were not paid until the award, as well as
interest from 21st August, 1989 and future interest at the rate of fifteen per
cent.

BSCL filed counter statements as also counter-claims before the B
learned Arbitrator.

The learned arbitrator took up for his consideration the following
claims for his consideration:

1. Fabrication of Jackets, Temporary Decks and Main Decks
c
2. Transportation and Installation of Jackets, Decks (Permanent &
Temporary) and Helidecks

3. Pipelines and Risers Installation
D
4. Structural Material and Rolling

5. Bulk Material

6. Transportation of Pipes

7. Reimbursables E
8. Change Orders and Extra Works

9. Delays and Disruptions

9A. Whether Mil is entitled to an exchange loss as claimed in
paragraphs 4.74 to 4.78 of the Statement of Claims? Ifso, in what F
amount?

10. Interest

11. Jurisdiction

12. Did Mil commit breach of the contract? G
13. ls the Claim of Mii barred by limitation?

... 14 . Counter Claim

15. General
H
432 SUPREME COURT REPORTS [2006) SUPP. 2 S.C.R.

A It was agreed to by and between the learned counsel for the parties that
the 1996 Act instead and in place of 1940 Act shall apply.

PARTIAL AWARD

The learned arbitrator having heard the parties inter alia on jurisdictional
B question initially passed a partial award on 9th June, 2003 determining the
same in favour of MIL The decision on points Nos. 6, 8 and 9 were deferred
for a period of four months by the learned Arbitrator so as to enable BSCL
to dispose of all claims raised by Mil in the meanwhile which had arisen
before reference to the arbitration. The said claims were rejected. A detailed
c reasoned statement by ONGC/BSCL referring to each individual document
relied upon were filed in the arbitral proceedings. However, by reason of
the said partial award, as regards points Nos. I to 5, 7 and 9A, Mil became
entitled to payment from BSCL the following amounts:

"On Point No. 1 US$ LI 82,817.69
D On Point No. 2 US$ 3, 133,612.40 &
US$ 28,400.00
On Point No. 3 US$ 665,039 .41 &
US$ 54,000.00
On Point No. 4 US$ 2,809,100.54 &
E US$ 2,300,200.00
On Point No. 5 US$ 65,207.39
UK Pound 232,604.40 &
Singapore$ 548,271.81
On Point No. 7 US$ 322,351.87
US$ 52,422.51
F
US$ 1,573,466.00
US$ 512, 187.16
On Point No. 9A US$ 3,330,790.94"

PROCEEDINGS RE: ADDITIONAL AWARD
G
On point No. I0, Mii was held to be entitled to interest on the amount
awarded at the rate of I0% per annum from the date on which the amount
fell due for payment till the date of the partial award and the awarded amount
together with interest was directed to bear interest at the same rate from the
date of the award to the date of payment.
H
MCOERMOIT INlERNATIONAL INC. v. BURN STANDARD CO. LTD. [SINHA, J.) 433

The parties thereafter filed applications under Section 33 of the A
Arbitration and Conciliation Act, 1996 alleging that certain claims made by
them had not been dealt with and/ or were omitted from consideration by
the learned arbitrator in· his partial award.

Mii in its application contended:
B
"(i) While deciding Point No. 4 regarding Structural Material and
Rolling, Mii's claim for US$ 128,000.00 as contended in paragraph
4.29 of the Statement of Claim has not been dealt with and has been
omitted from the Award.
c
(ii). While deciding Point No. 7 regarding Corporate Income Tax,
Mii's claim that BSCL should be liable to the tax authorities for
all further liabilities for Indian Corporate Income Tax as may be
assessed in respect of the income received by MII under the Sub-
contract as also for all tax liabilities that may be assessed in respect D
ofany Award in favour ofMII in the.present arbitration proceedings
as contained in paragraph 4.84 of the Statement of Claim has not
been dealt with and has been omitted from the Award.

(iii) In deciding Point No. 7 regarding Corporate Income Tax, MII
has claimed two amounts one of US$ 804,789.36 being interest
E
@15% per annum up to 29 February, 1992 paid by MII in respect
of Corporate Income Tax liability to the Tax authority, and the other
on account of principal amount of tax payment of US$ 1,623,048.00.
In paragraphs 18.17 and 18.18 of the Award, the learned Arbitrator
has in respect of the principal claim allowed an amount of US$ F
1,573,466.00 on account of Corporate Income Tax and an amount
of US$ 512, 187.16 by way of interest. MII has also claimed interest
on these two amounts from 29 February 1992 till payment. This
claim for interest has not been dealt with in the Award and has been
omitted from the Award. G
(iv) While deciding Point No. 10 relating to interest, MII's claim
for interest on amounts paid but paid late as contained in paragraphs
5.1 and 5.2 has not been dealt with and has been omitted from the
Award."
H
A
434 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

BSCL raised a preliminary objection in regard to the Mil's claim under
Section 33 of the Act contending that there exists no provision for making
a partial award.
-
ADDITIONAL AWARD

B By reason of the additional award dated 29th September, 2003, the
learned Arbitrator, however, held:

"I. Mil's claim in respect of US$ 128,000.00 is not accepted.

C 2. Mil's claim for a declaration that BSCL is liable to the tax
authorities for all further liabilities for Indian Corporate Income-tax
as may be assessed in future in respect of income received by Mil
under the Sub-Contract is allowed only insofar as it related to Mil's
liability, if any, to Corporate Income-tax, on the amounts awarded
D to it by a Partial Award, an Additional Award and a Final Award.

3. Mil is entitled to interest at 10% per annum for the period from
1 March 1992 to the date of payment in respect of the principal
>1mount of US$ 1,573,466.00 on account of Corporate Income-tax
and the interest amount of US$ 512, 187 .16 calculated up to 29
E February, 1992.

4. Mil is entitled to interest at 10% per annum for the period of
delay in BSCL making payment of Mil's invoices, that it: for the
period from due date of payment to the date of actual payment.
F Such amount will carry interest at 10% per annum from the date
of the Partial Award to the date of its payment."

The learned Arbitrator rejected the BSCL' s objection in regard to the
maintainability of the said proceeding stating that the same can be a subject
G matter for determination of jurisdictional question in a proceeding under
Section 33 of the 1996 Act.

BSCL filed an application under Section 34 of the Act questioning the
said partial award dated 9th June, 2003 as also the additional award dated
H 29th September, 2003.
MCDERMOIT INTERNATIONAL INC.''- BURN STANDARD CO. LTD. [SINHA, J.] 435

FINAL A WARD A
The learned Arbitrator thereafter took up the left over matters for his
consideration, viz., points Nos. 6, 8 and 9 observing that ONGC in the
meantime had expressed no interest in participating in the decision making
process at the inter-party level and, thus, arrived at an inference that the
machinery set up under the sub-contract has broken down and it would be
B
for him to determine the same.

The final award was thereupon passed.

On point No. 6 which related to transportation of pipes, the learned C
arbitrator held Mll to be entitled to US$ 919, 194.32 against BSCL in respect
of the nine barge pipes for transporting them from Mangalore to Bombay.

Point No. 8 related to Change Orders and Extra Work. The learned
Arbitrator awarded MI! US$ 305,840.00 as regards Change Order No. 1. As
regards Change Order No. 6, MII was awarded US$72,000.00 against BSCL.
D
Furthermore, in respect of Change Order No. 9, MII was awarded US$
300,000.00 against BSCL. As regards Extra Work, Mii was awarded US$
4,870,290.96 against BSCL pursuant to the invoices covered under the said
point whereas MIT's claim for US $637,473.00 was rejected.
E
Point No. 9 related to delays and disruptions. MI! was awarded US$
574,000.00 against BSCL in respect of Change Order No. 2. Ml! was further
awarded US$1,271,820.00 and US$355,000.00 against BSCL under Change
Order Nos. 3 and 7 respectively. As regards increased cost and expenditure
incurred by MII, it was awarded US$8,973,03 l.OO. F

So far as the claim of interest is concerned, the learned arbitrator made
the following order:

"Mil is entitled to interest on the amounts awarded under various
heads by Final Award. In my opinion, having regard to the G
circumstances of the case, a rate of interest at 10 percent per annum
will be appropriate from the date on which the amount fell due for
payment to the date of this Final Award. The awarded amount
including interest shall bear the interest at the same rate from the
date of this Final Award to the date of the payment by BSCL." H
436 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A The learned arbitrator also awarded US$750,000.00 as costs of the·~
arbitration.

An application was filed by BSCL under Section 34 of the Act praying
for setting aside the final award.

B
SUBMISSIONS:

Mr. Jayanto Mitra, learned senior counsel and Mr. Pallav Sisodia,
learned counsel appearing on behalf ofBSCL made the following submissions:

c (i) The arbitrator had no jurisdiction to make a partial award which
is not postulated under the 1996 Act as an award in piecemeal
is impermissible in law.

(ii) While making the partial award, the learned Arbitrator opined
D that involvement of ONGC was imperative for determination
of point Nos. 6,8 and 9, i.e., claims relating to transportation
of pipes, Change Orders and Extra Work and delays and
disruptions and, thus, the final award must be held to be bad
in law.
E (iii) As the subcontract provided for a back to back contract,
determination of various claims depended upon determination
of interpretative application of the main contract by ONGC
wherefor directions of ONGC were binding on the parties.

F (iv) Although US $ 8.8 million has been awarded as regard alleged
delay and disruption of work, no reason, far less any cogent or
sufficient reason, as was mandatorily required in terms of
Section 31 of the Act having been assigned, the impugned
award is vitiated in law.
G
(v) In its award, the learned Arbitrator was bound to determine the
actual loss suffered by the parties and as the same was not
determined, the award cannot be enforced.

(vi) The award as regards loss of profit under various heads is based
H
MCDERMOTT INTERNATIONAL INC. v. BURN STANDARD CO. LTD. [SINHA, J.] 43 7

- (vii)
on ,110 evidence and, thus, wholly unreasonable.

The claims made by Mii were not only contrary to the terms
A

of contract but also substantive law oflndia and were otherwise
opposed to public policy.

(viii) As the contract did not contain any agreed schedule or any
B
stipulation as to whether the work was required to be finished
within a stipulated period, in view of the fact that the contention
of the Mii was that the time was of the essence of contract, the
only remedy available to it in terms of Section 55 of the Indian
Contract Act was to revoke the contract upon giving a notice C
therefor. In absence of such a notice, damages could not be
claimed. Reliance in this behalf has been placed on Arosan
Enterprises Ltd v. Union of India and Another, [1999] 9 SCC
449.

(ix) No amount towards extra work was payable to Mii having
D
regard to the payment clauses contained in the contract and in
particular the minutes of the meeting held by the parties on 9th
August, 1984.

(x) In view of the clear terms of the contract, ONGC was a E
necessary party and the learned Arbitrator committed an error
in refusinr to implead it in the proceeding.

(xi) The learned Arbitrator having rejected the claim of the Mil in
his partial award dated 9th June, 2003 on the ground that F
increased overhead decrease of profit and additional management
cost had not been raised before reference to arbitration and,
thus, was beyond the scope of arbitral reference, could not have
determined the self same question in his final award. The
objection and the award for US$ 8.8 million had not been taken
into consideration and, thus, the same is liable to be set aside. G

(xii) The learned Arbitrator could not have awarded the said sum
solely on the basis of the opinion of one Mr. D.J. Parson who
did not have any personal knowledge of the facts of the case,
particularly in view of the fact that no evidence was adduced H
438 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

as regards sufferance of actual loss by MIL Mechanical
A
application of Emden Formula was also wholly uncalled for
and no award could be made relying on or on the basis thereof.

(xiii) So far as the claim of extra work is concerned, the learned
Arbitrator has wrongly allowed the claim of Mil in respect of
B invoice Nos. 2806470 to 2806475 although due date for
payment of the said amount fell after the commencement of
reference to arbitration and, thus, as no dues existed on that
date, the Arbitrator had no jurisdiction to make an award in
relation thereto.
c
(xiv) As regards "exchange loss", Mii's claim was allowed without
any amendment to the statement of claim. Claim of Mil was
wrongly allowed by the learned Arbitrator for entire value of
the invoices without any deduction as delay in making payment
D by BSCL to Mil on account of delay in receiving payment from
ONGC has no relevance and in any event was contrary to the
terms of the contract.

The learned Arbitrator had also not taken into consideration
that in terms of the contract, foreign exchange rate was frozen
E
at the rate of Rs. 100 X 8.575 Dollars as was applicable on 9th
August, 1984.

(xv) The claim for US$ 2.3 million was outside the scope of
reference to arbitration as no demand therefor was made. Such
F a claim was made for the first time only in the statement of
claim.

(xvi) In terms of Clause 37 of the contract entered into by and
between ONGC and BSCL, no award by way of damage was
G payable. Similar provision was also contained in the subcontract
entered into by and between the parties.

(xvii) As Mil was !o compensate for the suppl}' of materials by BSCL
subsequently, no award for a sum of US$ 2.3 million could be
H made.
439

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

(xviii) As no invoice in respect of the claim of US$ 28,400 on account A
of an additional barge trip to transport the ED Temporary Deck
had been raised, the learned Arbitrator had no jurisdiction to
decide the same.

(xix) The award under the said head for a sum of US$ 54,000 on
account of additional survey of WIS and WI9 pipeline was not
B
an arbitrable dispute being dearly outside the purview of the
arbitration proceedings.

(xx) Relying on or on the basis of American Institute of Steel
Construction (AISC) Code as a base for measurement being c
contrary to the contract, the award is liable to be set aside.

(xxi) (a) Re: Buoyancy Tanks in respect of ED and EE Jackets

As BSCL had paid MII for fabrication of the same buoyancy
tanks and the buoyancy tanks were the same which were used
D
for Wl8, W19 and Wl 10 and N3 Platform, claim on the said
account once over again was not maintainable ignoring the
evidence of Mr. S.K. Mukherjee (RW-1).

(b) Tie Down and Sea Fastening E

As Tie Down materials are required for safe transportation of
structures allotted on transportation barge, the learned Arbitrator
erred in allowing the claim of Mil as they are not permanent
part of jacket decks of any platform. F

(c ) Substitution of Materials

The learned Arbitrator committed a serious error in not taking
into account the material evidence adduced by BSCL to the
effect that Mil was instructed to substitute the specified G
materials with available material at no addi_tional cost of
fabrication.

In terms of the contract, it was for the Mil to procure the
materials which were to be reimbursed by BSCL. The claim H
440 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

for US$ 20832.108 was based on fabrication charges on
A
account of increased tonnage for material substitution for W 18,
Wl9, WI 10 and N3 jackets and piles as well as ED and EE
jackets and, thus, as the learned Arbitrator had allowed claim
only to the extent of fabrication, the amount claimed by Mii
could not have been allowed in toto.
B
Mr. Dipankar Gupta, learned senior counsel appearing on behalf of
Mii, on the other hand, submitted that no case has been made out for setting
aside the award of the learned Arbitrator.

C In reply to the submissions made on behalf of BSCL, it was urged:

Re. Increased Overhead Decrease of Profit and Additional Management
Cost

D The amount has been awarded on the basis of statement of Mr. D.J.
Parsons. Tile contract clearly provided that WIS, Wl9, WI 10 and N3
platforms were to be completed by 30th December, 1985 whereas ED and
EE platforms were to be commissioned in February, 1986. It is not the case
of Mii that the time was of the essence of contract and, thus, in terms of
Section 55 of the Indian Contract Act, damages were payable. Even in terms
E
of the main contract between BSCL and ONGC, time was not of the essence
of the contract. The contract contained clauses for extension of time and
liquidated damages which is also indicative of the fact that time was not of
the essence of the contract and, thus, damages for delay is permissible in law
in view of the decision of this Court in Hind Construction v. State of
F Maharashtra, [I 979] 2 SCC 70.

Change Order Nos. 2, 3 and 7 covered compensation under various
heads as specified therein. The award of the learned Arbitrator clearly shows
that additional costs had been incurred by Mii and, thus, the award cannot
G be faulted. The partial award did not deal with the said claims. The dispute
was specifically referred to arbitration in terms of notice dated 10th April,
1998. The quantification of damages being a matter of evidence and proof,
no case has been made out for interference with the award particularly in
view of the fact that BSCL had never raised any objection as regards the
H jurisdiction of the Arbitrator.
MCDERMOTT INTERNATIONAL INC.'" BURN STANDARD CO. LID. [SINHA, J.] 441

Reliance on the Emden Formula cannot be said to be against the law A
prevailing in India as Sections 55 and 73 of the Indian Contract Act provided
only for entitlement to compensation and not the mode and manner in which
such compensation is to be quantified.

Clause 37 of the Main Contract between ONGC and BSCL has no
application as Mii's claim is not for any consequential damage but for the
B
direct losses occasioned by BSCL's breach of contractual duty to honour its
time bound commitments. The said clause cannot be extended to the
obligations towards MI! under the sub-contract as ONGC has no role to play
in respect of the breach of its obligations towards it by BSCL under the sub-
contract. c
Re: Partial Award

A partial award is in effect and substance an interim award within the
meaning of Section 31 (6) and 2(c) of the Act and, thus, the validity of the D
partial award is not open to question. '

Re: Exchange Loss

Clause 4.0 of contract only relates to payment for transportation and
installation and BSCL did not make any payment to Mii despite receipt of E
the whole amount from ONGC except an amount of Rs. 12, 70,290. In any
event, Clause 4.0 has no relevance to the exchange loss dispute. BSCL acted
contrary to the agreed terms as it made payment upon applying the fixed
exchange rate of Rs. I 00 = US$8.575. BSCL was to pay to Mil the amount
as per the current rate,' only on reconciliation Mii was to refund the excess F
amount to BSCL which ensured that exchange loss would be shared by both
the parties.

... Re: Uninvoiced Claims

BSCL never raised any objection before the Arbitrator that the claim G
for US$ 2,300,200 for procurement of structural material could not be raised
in view of the provisions contained in Section 16 of the 1996 Act. Invoice
in any event, is merely a basis for claim and such a claim may be raised in
correspondences as also in the meetings. The claim for US$ 2,300,200 was
not strictly claim for damages, as in terms of the contract BSCL was required H
442 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A to procure the steel and as it being not in a position to do so, Mii agreed
to procure the same on its behalf if BSCL would agree to pay US$ 2,300,200
to cover Mil's cost for accelerated procurement and other costs. This offer
was the subject matter of correspondence between the parties. As no dispute
was raised to recover the same amount from BSCL, procurement job was
undertaken. The finding arrived at by the learned Arbitrator in this behalf
B is entirely a finding offact. Reference to Clause 5 of the Contract was wholly
irrelevant. This clause provides that BSCL shall procure suitable steel for
"jackets' on replacement basis for Mil purchased steel. BSCL did not
procure the required amount of steel to replace the structural materials that
Mil provided from its inventory as an accommodation to BSCL. Mil did so
c on the understanding that the structural material removed from Mii' s
inventory would be promptly replaced by BSCL. BSCL did not replace the
material.

Re: Method of Measurement

D Clause 23.1.1 (a)& (c) of the Main Contract between BSCL and ONGC
has no application as the same covers payment for 'structural material' which
is an altogether different claim being Claim No. 4. The claim was towards
labour charges for fabrication of structures, labour charges and not claim for
cost of material. AISC Code applied in relation to the fabrication job is as
E under:

"The scheme of the Contract provides in relation to Fabrication and
the application of AISC Code is explained below:

(i) the sub-contract provides total estimated tonnage of 18, 178
F ST with following break-up:

ED?EE Platforms 6078 ST (page 166 I.A. no.2 Vol.2)

G
WIS, WI9, WilO and N3 platforms

12,100 ST/ 18, 178 ST (page 371 I.A. no.2 Vol.2)"
-
Re: Buoyancy Tanks for ED and EE Jackets

Mil's claim is for labour cost at the rate of US$ 1067 per ST involved
H for fabrication work in the n:furbishment of the Buoyancy Tanks. The
MCDERMOTT INIERNATIONAL INC. 1·. BURN STANDARD CO. LTD. [SINHA, J.] 443

finding of the Arbitrator is a finding of fact inter alia based on the admission A
of the witness, namely, Shri S.K. Mukherjee, who was examined on behalf
of BSCL

Re: Tie Down and Sea Fastening

In offshore construction, jackets and decks are fabricated onshore and B
then they are transported on barges to the offshore location for installation.
Jobs pertaining to Tie Down and Sea Fastening required substantial fabrication
work and no claim has been made towards costs of welding the Tie Downs
and Sea Fasteners to the deck.
c
Clause 2 of the Contract would have no application to the instant case
as it provides only for a stage payment on milestone basis. But, clause
2.1 (a)(i) which substantially covers sea fastening job as part of the fabrication
contract would be applicable. BSCL had not been able to show that the
fabrication of Tie Down and Sea Fastening materials were included within
the scope of transportation and not as a separate item under the head
D
'fabrication'.

Re: Substitution

It was for BSCL in terms of the sub-contract to procure and supply all E
materials but as it was not in a position to do so, Mii on instructions ofBSCL.
used available materials which was having larger thickness and weight vis-
a-vis those specified in the ONGC's specifications. The same having been
approved both by the Engineer and ONGC, Mii was entitled to compensation
towards the labour charges at the rate of US$ 1067 per ST. F
Re: Extra Work Invoice Nos. 2806470 to 2806475

The invoices which were contained in Annexure 9 to Mil's statement
of claims were substituted by new documents in terms whereof the due date
of invoice was corrected to 9th March, 1989 and, thus, fall due for payment G
prior to the notice dated 10th April, 1989 invoking arbitration. The payment
of extra work became due when the work was performed and moreover, the
invoices in question did not specify any date for payment.

Re: Interest H
444 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

The ground has been taken only in the supplementary affidavit filed
A
on behalf ofBSCL on 2 lst September, 2004 beyond a period of three months
as specified in Section 34 of the Act. The Arbitrator has awarded the
principal amount and interest thereon upto the date of award and future
interest thereupon which do not amount to award on interest as interest
awarded on the principal amount upto the date of award became the principal
B amount which is permissible in law.

CHALLENGE TO A WARD: LEGAL SCOPE OF

Section 2(1 )(b) of the 1996 Act reads as under:
c
"2(1 )(b) "arbitration agreement" means an agreement referred
to in section 7"

In terms of the 1996 Act, a departure was made so far as the jurisdiction
of the court to set aside an arbitral award is concerned vis-a-vis the earlier
D
Act. Whereas under Sections 30 and 33 of the 1940 Act, the power of the
court was wide, Section 34 of the 1996 Act brings about certain changes
envisaged thereunder.

Section 30 of the 1940 Act reads, thus:
E
"Grounds for setting aside award - An award shall not be set aside
except on one or more of the following grounds, namely:

(a) That an arbitrator or umpire has misconducted himself or the
F proceedings;

(b) That an award has been made after the issue of an order by
the Court superseding the arbitration or after arbitration
proceedings have become invalid under Sec 35;

G (c) That an award has been improperly procured or is otherwise
invalid."

The Section did not contain expression "error of law ....". The same
was added by judicial interpretation. While interpreting Section 30 of the
H 1940 Act, a question has been raised before the courts as to whether the
MCDERMOTI INTERNATIONAL INC. 1•. BURN STANDARD CO. LTD. [SINHA, J.] 445

principle of law applied by the arbitrator was (a) erroneous or otherwise or A
(b) wrong principle was applied. If, however,.no dispute existed as on the
date of invocation, the question could not have been gone intci by the
Arbitrator.

CHANGES UNDER THE NEW ACT
B
The 1996 Act makes a radical departure frcim the 1940 Act. It has
embodied the relevant rules of the modem law but does not contain all the
provisions thereof. The 1996 Act, however, is not as extensive as the English
I
Arbitration Act.
c
Different statutes operated in the field in respect of a domestic award
and a foreign award prior to coming into force of the 1996 Act, namely, the
1940 Act, the Arbitration (Protocol and Convention) Act, 1937 and the
Foreign Awards (Recognition and Enforcement) Act, 1961. All the
aforementioned statutes have been repealed by the 1996 Act and make D
provisions in two different parts, namely, matters relating to domestic award
and foreign award respectively.

Vis-a-vis Grounds for setting aside the award:

After the 1996 Act came' into force, under Section 16 of the Act the E
party questioning the jurisdiction of the arbitrator has an obligation to raise
the said question before the arbitrator. Such a question of jurisdiction could
be raised if it is beyond the scope of his authority. It was required to be
raised during arbitration proceedings or soon after initiation thereof. The
jurisdictional question is required to be determined as a preliminary ground.
F
A decision taken thereupon by the Arbitrator would be subject matter of
challenge under Section 34 of the Act. In the event, the arbitrator opined
that he had no jurisdiction in relation thereto an appeal thereagainst was
provided for under Section 37 of the Act.

The 1996 Act makes provision for the supervisory role of courts, for G
the review of the arbitral award only to ensure fairness. Intervention of the
court is envisaged in few circumstances only, like, in case of fraud or bias
by the arbitrators, violatiQ.n of natural justice, etc. The court cannot correct
errors of the arbitrators. It can only quash the award leaving the parties free
to begin the arbitration again if it is desired. So, scheme of the provision aims H
446 SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.

at keeping the supervisory role of the court at minimum level and this can
A
be justified as parties to the agreement make a conscious decision to exclude
the court's jurisdiction by opting for arbitration as they prefer the expediency
and finality offered by it.

However, this Court, as would be noticed hereinafter, has the occasion
B to consider the matter in great detail in some of its decisions.

In Primetrade A(J v. Ythun ltd., [2006] I All ER 367, jurisdictional
issue based on interpretation of documents executed by the parties fell for
consideration having regard to the provisions of the Carriage of Goods by
c Sea Act, 1992. It was held that as the appellant therein did not become holder
of the bills of lading and alternatively as the conditions laid down in Section
2(2) were not fulfilled, the arbitrator had no jurisdiction to arbitrate in the
disputes and differences between the parties.

Vis-a-vis the duty to assign reasons
D
Another important change which has been made by reason of the
provisions of the 1996 Act is that unlike the 1940 Act, the Arbitrator is
required to assign reasons in support of the award. A question may
invariably arise as to what would be meant by a reasoned award.
E
In Bachawat's Law of Arbitration and Conciliation, Fourth Edition,
pages 855-856, it is stated:

" ... 'Reason' is a ground or motive for a belief or a course of action,
a statement in justification or explanation of belief or action. It is
F
in this sense that the award must state reasons for the amount
awarded.

The rationale of the requirement of reasons is that reasons
assure that the arbitrator has not acted capriciously. Reasons reveal
G the grounds on which the arbitrator reached the conclusion which
adversely affects the interests of a party. The contractual stipulation
of reasons means, as held in Poyser and Mills' Arbitration In Re,
"proper. adequate reasons''. Such reasons shall not only be intelligible
but shall be a reason connected with the case which the court can
H see is proper. Contradictory n:asons an: equal to lack of reasons.
MCDERMOIT INIERNATIONAL INC. v. BURN STANDARD CO. LID. [SINHA, J.] 447

The meaning of the word " reason" was explained by the A
Kerala High Court in the contest of a reasoned award ...

"Reasons are the links between the materials on which certain
conclusions are based and the actual conclusions." ...

A mere statement ofreasons does not satisfy the requirements B
of s.31 (3) . Reasons must be based upon the materials submitted
before the arbitral tribunal. The tribunal has to give its reasons on
consideration of the relevant materials while the irrelevant material
may be ignored ...
c
Statement of reasons is mandatory requirement unless dispensed
with by the parties or by a statutory provision."

In Konkan Railway Corporation Ltd. v. Mehul Construction Company,
[2000] 7 SCC 20 l, this Court emphasized the mandatoriness of giving
reasons unless the arbitration agreement provides otherwise.
D

Public Policy

In Renusagar Power Co. Ltd. v. General Electric Co., [1994] Supp 1
SCC 644, this Court laid down that the arbitral award can be set aside if it E
is contrary to (a) fundamental policy oflndian Law, (b) the interests oflndia;
or (c) justice or morality. A narrower meaning to the expression 'public
policy' was given therein by confining judicial review of the arbitral award
only on the aforementioned three grounds. An apparent shift can, however,
be noticed from the decision of this Court in Oil and Natural Gas
F
Corporation Ltd. v. Saw Pipes Ltd., (for short 'ONGC') [2003] 5 SCC 705.
This Court therein referred to an earlier decision of this Court in Central
Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, [1986] 3
sec 156 wherein the applicability of the expression 'public policy' on the
touchstone of Section 23 of the Indian Contract Act and Article 14 of the
Constitution of India came to be considered. This Court therein was dealing G
with unequal bargaining power of the workmen and the employer and came
to the conclusion that any term of the agreement which is patently arbitrary
and/ or otherwise arrived at because of the unequal bargaining power would
not only be ultra vires Article 14 of the Constitution of India but also hit
by Section 23 of the Indian Contract Act. In ONGC (supra}, this Comt, apart H
448 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A from the three grounds stated in Renusagar (supra), added another ground
thereto for exercise of the court's jurisdiction in setting aside the award if
it is patently arbitrary.

Such patent illegality, however, must go to the roor of the matter. The
public policy violation, indisputably, should be so unfair and unreasonable
B as to shock the conscience of the court. Where the Arbitrator, however, has
gone contrary to or beyond the expressed law of the contract or granted relief
in the matter not in dispute would come within the purview of Section 34
of the Act. However, we would consider the applicability of the aforementioned
principles while noticing the merit of the matter.
c
What would constitute public policy is a matter dependant upon the
nature of transaction and nature of statute. For the said purpose, the
pleadings of the parties and the materials brought on record would be
relevant to enable the court to judge what is in public good or public interest,
D and what would otherwise be injurious to the public good at the relevant
point, as contradistinguished from the policy of a particular government.
[See: State of Rajasthan v. Basant Nahata, [2005] 12 SCC 77.

In ONGC (supra), this Court observed:
E
"31. Therefore, in our view, the phrase "public policy of India" used
in Section 34 in context is required to be given a wider meaning.
It can be stated that the concept of public policy connotes some
matter which concerns public good and the public interest. What is
for public good or in public interest or what would be injurious or
F harmful to the public good or public interest has varied from time
to time. However, the award which is, on the face of it, patently in
violation of statutory provisions cannot be said to be in public
interest. Such award/judgment/decision is likely to adversely affect
the administration of justice. Hence, in our view in addition to
G narrower meaning given to the term "public policy" in Renusagar
case' 0 it is required to be held that the award could be set aside if
it is patently illegal. The result would be - award could be set aside
if it is contrary to:

(a) fundamental policy of Indian law; or
H
MCDERMOIT INlERNATIONAL INC.'" BURN STANDARD CO. LTD. [SINHA, J.] 449

(b) the interest of India; or A
(c) justice or morality, or

(d) in addition, if it is patently illegal.

Illegality must go to the root of the matter and if the illegality is B
of trivial nature it cannot be held that award is against the public
policy. Award could also be set aside if it is so unfair and
unreasonable that it shocks the conscience of the court. Such award
is opposed to public policy arid is required to be adjudged void."
c
We are not unmindful that the decision of this Court in ONGC (supra)
had invited considerable adverse comments but the correctness or oth.erwise
of the said decision is not in question before us. It is only for a larger Bench
to consider the correctness or otherwise of the said decision. The said
decision is binding on us. The said decision has been followed in a large
number of cases. [See: The Law and Practice ofArbitration and Conciliation
D
by O.P. Malhotra, Second edition, page 1174.]

Before us, the correctness or otherwise of the aforesaid decision of this
Court is not in question. The learned counsel for both the parties referred
to the said decision in ex tenso. E

We, therefore, would proceed on the basis that ONGC (supra) lays
down the correct principles of law.

SUPERVISORY JURISDICTION
F
We may consider the submissions of the learned counsel for the parties
on the basis of the broad principl~s which may be attracted in the instant
case, i.e., (i) whether the award is· contrary to the terms of.contract and,
therefore, no arbitrable dispute arose between the parties; (ii) whether the
award is in any way violative of the public policy; (iii) whether the award G
is contrary to the substantive law in India, viz., Sections 55 and 73 of the
Indian Contract Act; (iv) whether the reasons are vitiated by perversity in
evidence in contract ; (v) whether adjudication of a claim has been made in
respect whereof there was no dispute or difference; or (vi) whether the award
is vitiated by internal contradictions. H
450 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A For the aforementioned purpose, it would be necessary to see as to what
law the arbitrator was required to apply.
-
We may, therefore, consider the legal submissions before adverting to
the merit of the matter.

B VALIDITY OF THE 'PARTIAL AWARD'

The 1996 Act does not use the expression "partial award". It uses
interim award or final award. An award has been defined under Section 2( c)
to include an interim award. Sub-section (6) of Section 31 contemplates an
C interim award. An interim award in terms of the said provision is not one
in respect of which a final award can be made, but it may be a final award
...
on the matters covered thereby, but made at an interim stage.

The learned arbitrator evolved the aforementioned procedure so as to
enable the parties to address themselves as regard certain disputes at the first
D instance. As would appear from the partial award of the learned arbitrator,
he deferred some claims. He further expressed his hope and trust that in
relation to some claims, the parties would arrive at some sort of settlement
having regard to the fact that ONGC directly or indirectly was involved
therein. While in relation to some of the claims, a finality was attached to
E the award, certain claims were deferred so as to enable the learned arbitrator
to advert thereto at a later stage. If the partial award answers the definition
of the award, as envisaged under Section 2(c) of the 1996 Act, for all intent
and purport,. it would be a final award. In fact, the validity of the said award
had also been questioned by BSCL by filing an objection in relation thereto.
F
We cannot also lose sight of the fact that BSCL did not raise any
objection before the arbitrator in relation to the jurisdiction of the Arbitrator.
A ground to that effect has also not been taken in its application under
Section 34 of the Act. We, however, even otherwise do not agree with the
contention of Mr. Mitra that a partial award is akin to a preliminary decree.
G On the other hand, we are of the opinion that it is final in all respects with
regard to disputes referred to the arbitrator which are subject matter of such
award. We may add that some arbitrators in stead and in place of using the
expression "interim a~rd" use the expression "partial award". By reason
thereof the nature and character of an award is not changed. As, for example,
H we may notice that in arbitral proceedings conducted under the Rules of
MCDERMOTI INTERNATIONAL INC. v. BURN STANDARD CO. LID. [SINHA, J.] 45 J
1
1...-,.. · Arbitration of the International Chamber of Commerce, the expression A
"partial award" is generally used by the arbitrators in place of interim award.
In any view of the matter, BSCL is not in any way prejudiced. We may
state that both the partial award and the final award are subject matter of
challenge under Section 34 of the Act.

Section 33 of the Act empowers the arbitral tribunal to make correction
B
of errors in arbitral award, to give interpretation of a specific point or a part
of the arbitral award, and to make an additional award as to claims, though
presented in the arbitral proceedings, but omitted from the arbitral award.
Subsection (4) empowers the arbitral tribunal to make additional arbitral

- award in respect of claims already presented to the tribunal in the arbitral
proceedings but omitted by the arbitral tribunal provided
C

I. There is no contrary agreement between the parties to the
reference;

2. A party to the reference, with notice to the other party
D
to the reference, requests the arbitral tribunal to make the
additional award;

3. Such request is made within thirty days from the receipt
of the arbitral award; E
4. The arbitral tribunal considers the request so made
justified; and

5. Additional arbitral award is made within sixty days from F
the receipt of such request by the arbitral tribunal

The additional award, in our opinion, is not vitiated in Jaw.

DELAY AND DISRUPTION
G
Operative facts

According to the applicants, the contract entered into by and between
Mii and BSCL did not provide for any period of completion. MII, on the
other hand, states that at that time when the contract was entered into it was H
452 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

supposed to be performed by 30th December, 1985 as would appear
A
hereinafter:

"For Jackets and Temporary Decks (for platforms WI-8, Wl-9, WI-
! O and N-3 ), the completion period is 30 April 1985 and for Decks

B
and Helidecks (for platforms WI -8, Wl-9, WI-IO and N-3) the
completion date is 30 December 1985. Clause (ii) in the 'Schedule
of Completion of Well Platforms' states: " ... the completion
--
dates .. .'.will be reckoned for purpose of Lid."

In terms of the provisions of the contract the jobs in respect of Wl-8,
C WI-9, WI-10 and N-3 were to be performed within the said period.

A stipulation for commissioning of ED and EE platforms within a time
-
frame has also been mentioned, i.e., February, 1986 as would appear from
the following:

D "!.The agreed for commissioning of platforms ED & EE is by end
of February 1986, subject to the provisions of this Contract."

Mil served a notice on I 0th April, 1998 invoking the arbitration
agreement. The same would not mean that it should have repudiated the
E contract as soon as 20 months schedule fixed by the contract expired. Delay
and disruptions might have occurred for various reasons. In the instant case,
therefore, the matter would be covered by the second part of Section 55 of
the Indian Contract Act providing that where the parties did not intend time
to be of the essence of the contract, the contract was not voidable, but the
F promisee was entitled to compensation for loss occasioned. For the
aforementioned purpose, no notice was required to be served. In any event,
the contract provided for extension of time, as would appear from clause
27(ii) and the relevant portions of clause 28 which read as under:

"27 (ii) Should be amount of extra work, if any, which Contractor
G is required to perform under clause 24 to 26 ants, fairly entitled
Co11tractor to extension of time beyond the scheduled date for
completion of either the whole or part of the works or for such extra
work as the case may be, Company and Contractor shall mutually
disrnss and decide extensions of time, to be granted to Contractor
H and th,; revised schedule for completion of the Works.
MCDERMOIT INTERNATIONAL INC. 1•. BURN STANDARD CO. LTD. [SINHA, J.] 453

...
1
28 (i) Subject any requirements in the Contract Specifications as to
the comp·letion of any portion of the work before completion of the
A

whole and subject to the other provisions contained in the Contract,
the Works shall be completed in accordance with the ·agreed
schedule as indicated in Appendix-JI. Company may, if the
exigencies of the works or other projects so required amend the
completion schedule and/or phase out completion.
B

28(iii) ... No extension in completion shall be permitted unless
authorized in writing by Company as a "Variation in completion
schedule" or as otherwise specified in the Contract. In any case,
no portion of the works shall extend beyond the commencement of c
the 1986 monsoon."

The parties, furthermore, agreed for payment of liquidated damages, as
would appear from clause 28(v)(a) which reads as under:

"a) recovery is its sole and only remedy for delayed
D
completion of work by Contractor, as ascertained and agreed
liquidated damages, and not by way of penalty, as sue .equivalent
to 2.5% of the Contract Price for the item which is delayed,
for each month of delay (or prorate thereof for part of a month),
beyond the scheduled completion date, subject to a maximum of E
7.5 % of the said Contract price. Such liquidated damages shall
be loveable after allowing a grace period of 15 days. The
monsoon peril requiring which no work can be carried out orders,
. shall be excluded for the purpose of determining the quantum of
delay in completion of work .. " F
Moreover, the contract itself contains provisions for extension of its
terms and payment of damages in case of delay in execution of the contract.

The claim for increased overhead and decreased profit and additional
project management cost flows out of the same operative facts as the delay G
and disruption change in r~spect of Change Order Nos. 2, 3, and 7.

We may at the outset point out that the question as regards the effect
of the said claims which were not considered in the first round of the arbitral
proceedings shall be dealt with a little later. H
454 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A So far as the Change Order No. 2 is concerned, the learned arbitrator
has accepted the contention of the Mll that it had to incur additional cost
due to delay in receipt of equipment and materials supplied. In his Final
Award, the learned arbitrator noticed:

B
" ... It appears that BSCL accepted and acknowledged that Mil had .
incurred additional cost on account of this delay occasioned by
BSCL. .. "

So far as, Change Order No. 3 is concerned, the learned arbitrator in
paragraph 67.2 of the Final award noticed as under:
c
" ... This was followed by a meeting on 7-8 October 1986 attended
.
by the representatives ofONGC, EIL, BSCL and Mil, during which
ONGC advised BSCL that BSCL should absorb one half the
mobilization and demobilization costs of Mll's marine equipment,
since the delay was occasioned by BSCL in completing the
D helidecks ... "

So far as Change Order No. 7 is concerned, the learned Arbitrator has
recorded in paragraph 68.1 of the Final Award as under:

E " ... This Change Order was accepted by BSCL and ONGC but Mll
has received no payment. . .''

It was further recorded in paragraph 68.4 of the Final Award:

" ... Even after the work was completed, there was a meeting on 16-
F
17 June, 1987 at which ONGC informed that the Change Order was
agreed to in principle ... "

So far as the claim of compensation in addition to the said Change
Order Nos. 2, 3 and 7 is concerned, the statement of claim of Mii is as under:
G
"4.65: The BSCL delays and disruptions required McDermott to
alter the fabrication and installation sequence to match deliveries of
equipment. This precluded McDermott performing certain activities
as planned in the Subcontract. Change order No.2 relates to
H additional cost incu1Ted by McDennott due to delay in receipt of
MCDERMOTT INTERNATIONAL INC. 1•. BURN STANDARD CO. LTD [SINHA, J.l 455

equipment and material supplied by BSCL. BSCL's delivery of the A
equipment was upto seventeen months late. During this period,
McDermott continued to fabricate the decks installing material as
it became available. The delay resulted in additional costs to
McDermott due to change order with cost effect ofUS$574,000.00.
BSCL has failed and neglected to make payment of the invoice for
this change order.
B

4.66: Change order no.3 relates to mobilization and demobilization
of Derrick Barge 26 to complete BSCL work in the 1986/1987
construction season. The Subcontract price was based on mobilization
and demobilization of a single barge in the 1984/1985 and 1985/ C
1986 construction seasons only and performance of the offshore
scope of work in a continuous sequence. Due to BSCL delays, the
Wl-8, WI-9, WI-10 and N3 decks andhelidecks were not completed
for installation during the 1985/1986 work season. Further, the WI-
7 to WI-8 pipeline and five risers could not be installed due to
D
unavailability of material and lack of access to the EB and EC
jackets, which were still under construction. In the 1986/1987
construction season, Mcdermott used Derrick Barge 27, which was
already in the field, to install the WI-8, WI-9, WI-10 and N3 decks.
Mcdermott also had to mobilize Derrick Barge.26 in the same
construction season for installation of the WI-7 to WI-8 pipeline E
and associated risers. On the instructions of BSCL, Mcdermott
mobilized Derrick Barge 26 in February 1987. Derrick Barge 26
installed the pipelines and risers and was demobilized from the field
on 10 March 1987. For the mobilization/demobilization of Derrick
Barge 26 for the 1986/1987 construction season work, McDermott F
submitted a change order to BSCL with cost effect of US $
1,271,820.00. BSCL has failed and neglected to make payment
of the invoices for this change order.

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

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
D 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
E 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
F 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
H 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 A
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
B
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 E
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 F
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 G
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
458 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

"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
F 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
G 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 A
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 B
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
SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

- 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
462 SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.

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
F
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
G 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
C 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
D 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
E 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
G 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
H 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 F
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.

-
466

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
G 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
H 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
F 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
G 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 A
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
B
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 C
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
F
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
G 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,
H 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 A
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
D 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
E 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
F
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
474 SUPREME COURT REPORTS [2006] SUPP 2 S.C.R.

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
H 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 A
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 C
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 D
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 E
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 F
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
F 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
G 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
H 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
D
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 E
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 C
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
D
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
E
of payment clause:

"I. Fabrication

Claims for structural fabrication work is to be billed by Mil duly
F 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 A
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
B
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
482 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

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
G 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
H 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 D
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 E
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
484 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

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
G 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
H 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 A
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
486 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

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
D 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
E 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
G 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
H 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 A
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 B
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