B.A, LL.B. (Hons.

) / Second Semester
Law of Contract (2020-2021)
Research Topic:

ONGC
v
Saw Pipes Ltd

AIR 2003 SC 2629

(From the side of Defendant)

Submitted to: Dr. Mahahswheta Sengupta

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 Sap id: 81012019593

ONGC
Versus
Saw Pipes Ltd
AIR 2003 SC 2629
Facts of the case –

The ONGC had placed the an order with Saw Pipes Ltd for the delivery of rigs for
offshore explorations, which was to be sourced from recognised European
manufacturers. The shipment was delayed due to a strike by European steel factory
workers. The essence of the deal was prompt delivery. ONGC extended the
deadline, but triggered the clause for recovery of Liquidated Damages by
withholding the sum from the payment to the supplier. ONGC withdrew
$3,04,970.20 and Rs 15,75,560 from the payment to cover customs duty, sales tax,
and freight costs. The deduction was challenged by saw pipes, and the dispute was
referred to arbitration. While the arbitral tribunal rejected Saw Pipe's defence of
force majeure, it needed ONGC to present proof to prove the loss caused by the
breach and held, in the lack of evidence of monetary losses, that the reduction of
Liquidated damages was improper. ONGC contested the award on the grounds that
it violated public policy, among other arguments. ONGC argued that the arbitral
tribunal failed to resolve the dispute by not adopting the prevailing substantive law,
ignoring the wording of the contract, and disregarding the usage of trade in such
transactions. ONGC contested the award since it was manifestly unlawful. The
single judge and division bench of Bombay High Court ruled against the challenge.
The Supreme Court vacated an arbitration judgement requiring ONGC to return
$3,04,970.20 and Rs 15,76 Lakhs in liquidated damages withheld when paying the
firm.

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Issues Raised

 Whether ONGC had the right to Liquidated Damages.

Rules

Section 34 of the Arbitration and reconciliation Act,1996

Breach of contract

s. 73 of the Contract Act.

s. 74 is to be read along with s. 73 and, therefore, in

every case of breach of contract, the person aggrieved by the breach is not required to prove

actual loss or damage suffered by him before he can claim a decree. The Court is competent to

award reasonable compensation in case of breach even if no actual damage is proved to have

been in consequences of the breach of a contract.

Section 28 in The Arbitration Act, 1940

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Power to Court only to enlarge time for making award.
(1)The Court may, if it thinks fit, whether the time for making the award has expired or not and
whether the award has been made or not enlarge from time to time the time for making the
award.
(2) Any provision in an arbitration agreement whereby the arbitrators or umpire may, except
with the consent of all the parties to the agreement, enlarge the time for making the award, shall
be void and of no effect.

Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of
any doubt, that an award is in conflict with the public policy of India if the making of the award
was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81.

Analysis (caselaw facts ) comparison

Patent Illegality used as a ground to assail the award under section 34.

The court determined that the jurisdiction or power of the arbitral tribunal is prescribed by the
Act, and if the award is de hors the aforementioned requirements, it would appear to be unlawful.
The aim of the legislature could not be that even if the award violates a provision of the statute,
the court could not set it aside. The tribunal's ruling must be within the limits of its jurisdiction as
granted by the statute or the contract. In exercising its jurisdiction, the tribunal cannot violate
substantive law or the terms of the Act. If the tribunal has not complied with the mandatory
provisions of the Act, then it has exceeded its authority, and the award could be set aside under
section 34 as a result.

The Arbitration and Conciliation Act of 1996 was inspired by globalisation, which led to the
adoption of the UNCTRAL model law. This Act is, for the most part, an integrated version of the
1940 Act, which governed domestic arbitration, the Arbitration (protocol and convention) Act of
1937, and the foreign award (recognition and enforcement) Act of 1961, which governed into
arbitral awards. In UNCTRAL, the provisions are apparently referred to as "Article," although in
the act they are referred to as "section." "to reduce the supervisory function of courts in the
arbitral process" and "to ensure that every final arbitral award is enforced in the same manner as
if it were a court decree" are the primary goals outlined in the statement of purposes and reasons
for the 1996 Act.

Public Policy refers to the legal idea that no subject may be pursued if it has a propensity to be
harmful to the public or against the public good. It is also known as policy of the law or public
policy in reference to the administration of the law. Public Policy refers to an issue that concerns
the public good and public interest. Public Policy is a concept that fluctuates over time.

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The decision broadened the notion of Public Policy to include the notion that an award is adverse
to public policy if it is "obviously unlawful." An earlier Supreme Court judgement of a three-
judge (bigger bench) court, in the case of Renu Sagar Power Co v. General Electrical
Corporation, had narrowly defined the public policy ground as being limited to the "basic policy
of Indian law, the interest of India, justice, or morality."

While analysing the ratio of the Renusagar case, the court determined that it should be
interpreted in the context of foreign awards. The Renusagar ratio could not be applied to the
interpretation of section 34(2)(b)(ii) of the 1996 Act, despite its applicability in the context of a
challenge to a foreign award. It was noted that section 48(2)(b) could be viewed differently in
light of the double equator notion recognised in the context of a challenge to foreign awards.

The Supreme Court ruled that the phrase "public policy of India" must be given a broader
interpretation in the context of section 34. One may say that a concept of public policy refers to
an issue that affects the public good and public interest. This has fluctuated over time. The award
cannot, however, be deemed to be in the public interest if it is manifestly in breach of legislative
prohibitions. This award/judgment/decision will likely have a negative effect on the
administration of justice. In addition to the narrower understanding of the word "public policy"
in Renusagar's case, which included a foreign award, it must be held that the award can be set
aside if it is "patently unconstitutional." Now, the award may be revoked if it violates the
statute.:-

1. (I)  Fundamental policy of Indian law; or

Cases referred:

1. Renu Sagar Power Co v General Electrical Corporation

2. Union of India v Rampur

Conclusion

From the preceding research, it is clear that the ONGC ltd v. Union of India case is highly
pertinent and significant. Essentially, it established two legal principles. The first is the patent
illegality as a reason to contest an award under section 34 of the Arbitration and Conciliation Act
of 1996, and the second is the broadening of the public policy's scope. As in subsequent judicial
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rulings, the judiciary did not depart from its position in this case, and the fact that the
Parliamentary Arbitration and Conciliation Bill, 2003 has not yet been adopted leads us to
conclude that the court's decision remains in effect. Consequently, the verdict is not only
pertinent but also significant.

Judgement
The arbitral tribunal held that as the appellant has failed to prove the loss suffered because of
delay in supply of goods as set out in the contract between the parties, it is required to refund
the amount deducted by way of liquidated damages from the specified amount payable to the
respondent.

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