Jagson International Ltd. Vs. Oil and Natural Gas Corporation Ltd. - Court Judgment

Excerpt:
contract - compensation - section 73 of contract act - oil and natural gas corporation ltd.( ongc) invited bids - bidders required to furnish bid bond of rs. 60000 with bid - successful bidder subsequently committed breach of contract - whether ongc entitled to invoke bank guarantee furnished by company for breach of contract without proving exact damage caused to it by breach of contract - ongc admittedly suffered loss by breach of contract - pre-estimated amount of damage mentioned in contract - party committed breach of contract liable to pay other party such pre-determined amount by virtue of section 73 - held, breach of contract by company renders ongc entitled to invoke bank guarantee. - code of criminal procedure, 1973 [c.a. no. 2/1974]. section 41: [ swatanter kumar, cj, smt ranjana desai & d.b. bhosale, jj] arrest of accused - held, a police officer or a person empowered to arrest may arrest a person without intervention of the court subject to the limitations specified under the provisions of the code. the provisions of section 41 of the code provides for arrest by a police officer without an order from a magistrate and without a warrant. a distinct and different power under section 44 of the code empowers the magistrate to arrest or order any person to arrest the offender. under section 44 of the code, that power is vested in the court of the magistrate when an offence is committed in his presence. if the legislature has taken care of providing such specific power under section 44 of the code, then there could be no reason for such a power not to be specified under the provisions of chapter xii of the code. in terms of section 41, a police officer may arrest a person without a warrant or order from the magistrate for any or all of the conditions specified in that provision. language of this provision clearly suggested that the police officer can arrest a person without an order from the magistrate. thus, there appears to be no reason why on the strength of section 156(3) of the code, any restriction should be read into the power specifically granted by the legislature to the police officer. of course, freedom of investigation is the essence of these provisions but in order to suppress the mischief it is sufficiently indicated under different provisions of the code that the arresting officer should exercise his power or discretion judiciously and should be free of motive. some kind of inbuilt safeguard is available to the accused in the cases where the magistrate directs investigation under section 156 (3) of the code by taking recourse to the provisions of section 438 of the code by approaching the court of session or the high court for such relief. thus, during the course of investigation of a criminal case, an accused is not remediless and that would further buttress the above view. [jagannath singh v dr. ajay upadyay & anr 2006 cri lj 4274; 2006 (5) air bom r held per incuriam]. - in order to carry out its business, it requires to take on charter from various indian as well as foreign companies different types of oil rigs from time to time for various periods. the ongc has failed to produce evidence on record to establish that and therefore, the arbitrators were not justified in making the award in favour of the ongc. compensation for failure to discharge obligation resembling those created by contract. -when an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract. in case of foreign bidders, the same must be either issued by branch of indian public sector banks operating in their countries or issued by any of the banks listed at annexure 8. ongc will have the unqualified option to invoke the bid bond in the event, the bidder withdraws his offer on any grounds, during the validity period of tender or any extention thereof and/or bidder fails to enter into contract despite their being selected as a successful bidder against this tender and/or have failed to mobilise the rig at the location within the time as may be prescribed by ongc. when the company submitted its bid pursuant to the tender notice, it clearly accepted this condition. it was not the case of the company that the pre-estimated damages mentioned in the contract was either unreasonable or was by way of penalty and therefore, in terms of provisions of section 73 of the contract act, in my opinion, the ongc was entitled to the full amount and the arbitrators were not justified in reducing the amount of damages on the ground that the ongc has failed to establish as to what is the exact amount of loss suffered by it.d.k. deshumukh, j. 1. these two petitions are directed against the same award made by the arbitrators dated 13th november, 2000, therefore, both these petitions can be conveniently disposed off by a common judgment. the facts that are material and relevant are as under.2. oil and natural gas corporation ltd. is a government company, engaged in the business of offshore and on-shore oil drilling and exploration activities. in order to carry out its business, it requires to take on charter from various indian as well as foreign companies different types of oil rigs from time to time for various periods. for that purpose, ongc invites tenders from foreign and indian companies. the indian companies are allowed to offer rigs which may not be owned by them but in respect of which they have entered into arrangements for charter with the owners thereof. m/s jagson international ltd. is a company incorporated under the belgium companies act. one of its business is to take on charger oil rigs from foreign owners. m/s jagson international ltd. is hereinafter referred to as the company for the sake of brevity.3. for charter hiring, cantilever type jack up rigs suitable for drilling in the offshore near mumbai, ongc floated notification no. 38 of 1992 in july 1992 inviting competitive bids for rigs on terms and conditions set out in that tender notification. as per the conditions of the tender, the bidders were required to furnish with the bids, unqualified bid bonds for rs. 30,00,000/- for each of the jack up rigs offered and such bid bond was to be in the form of an irrevocable bank guarantee drawn on a nationalised indian bank for a period of 120 days from the last date of agreement. the ongc had an unconditional option to invoke this bank guarantee. as per the tender terms, the successful bidder was required to furnish within 15 days from the date of signing of the contract an irrevocable and unconditional letter of guarantee from a nationalised indian bank for a sum of 5% of one year operating day rate to secure satisfactory performance of the agreement. the guarantee was in the form of a bank guarantee. in the event of contractor failing to honour any of the commitments entered into under this contract, the ongc had an unconditional option to invoke the performance guarantee and claim the amount from the bank. the successful bidder was required to execute a formal contract with the respondents within 30 days of the letter of intent. the successful bidder was also required to offer for inspection within 30 days of the letter of intent and to mobilise the rigs at the site specified by the ongc within 120 days of the letter of intent. the company submitted bid pursuant to the notice issued by the ongc. on 28th november 1992, the ongc by its letter intimated the acceptance of bid of the claimants and placed a firm order for charter hire of two rigs which were mentioned in the bid of the company viz. 'marine 301 and marine 303' and called upon the claimants to furnish within 15 days from the date of contract, a performance guarantee. they were also called upon to keep the bid bonds current till the performance bond was submitted. the company was also asked to mobilise the two rigs within 180 days of the date of the letter. the company was asked to offer the two rigs for inspection in 28th december 1992. there was correspondence exchanged between the parties, but ultimately the company was not in a position to furnish the performance bond. it also could not offer the two rigs for inspection. the bank guarantee with the bind bond was kept valid till 31st may 1993. ultimately, it appears that the two rigs which were named at the time of submitting bid were not available. the company sought permission from the ongc to substitute the rigs, that permission was not granted. ultimately on 17th may 1993, the ongc invoked the bank guarantees and received the amount of rs. 60,00,000/- pursuant to the two bank guarantees. by telex dated 25th june 1993 addressed to the claimants, the ongc cancelled the letter of intent. according to the company, the ongc was not justified in invoking the bank guarantees. thus, disputes arose between the parties as per article 28 of the bid document, the arbitration clause was invoked and two arbitrators were appointed. after the appointment of the arbitrators, the company submitted its claim before the arbitrators in the form of a statement of claim. it appears from the statement of claim that the company's case was that the company did not commit any breach of the contract and therefore, ongc was not justified in invoking the bank guarantees. it was also their case that the ongc could not have invoked the bank guarantees. according to the company, the ongc has not suffered any damages. reply was filed to the statement of claim on behalf of the ongc. the ongc submitted that the company had committed breach of the contract. therefore, in terms of the contract, it was entitled to invoke the bank guarantees. it was also the case of the ongc that because of the breach of contract committed by the company, it had suffered damages and therefore, it was entitled to appropriate the amount of rs. 60,00,000/- which was the predetermined amount of damages as a result of the contract being cancelled. it appears that on behalf of the company, there was a rejoinder filed after the reply was filed by the ongc.4. before the arbitrators, the company which was the claimant, did not examine any witness. the ongc however, adduced oral evidence by producing affidavit of one of its senior officer n. e. rakesh, who was cross-examined by the company. by the award, the arbitrators have recorded a clear finding that the company has committed breach of the contract and the breach of the contract has resulted in losses to the ongc. the arbitrators thereafter in order to ascertain the amount of damages, have discussed the evidence on record in detail and found that the ongc has not placed before the arbitrators enough material for exact assessment of quantum of losses suffered by the ongc. but they found that some loss is definitely suffered by the ongc and therefore, they found that rs. 30,00,000/- would be a reasonable compensation (rs. 15,00,000/- for each bid). the ongc was therefore directed to refund the amount of rs. 30,00,000/-out of the amount of rs. 60,00,000/- received by it by invoking the bank guarantees. both the parties felt aggrieved by this award and therefore they have filed these two petitions challenging the said award. the company feels aggrieved by the finding that it is guilty of committing breach of the terms of the contract and therefore it is liable to pay damages to the ongc. it also feels aggrieved by the amount of rs. 30,00,000/- fixed by the arbitrators as the amount of losses. the ongc feels aggrieved by the award, quantum of damages is fixed at rs. 30,00,000/- and because its contention that as rs. 60,00,000/- was the amount of damages fixed by the parties is rejected. it being a predetermined amount towards losses, it was entitled to that amount without being required to prove as to what is the exact amount of losses suffered by them.5. the learned counsel appearing for company took me through the record and submitted that the finding of the arbitrators that it is the company which has committed breach of the contract is a wrong finding. however, the learned counsel could not dispute that the finding recorded by the arbitrators on this aspect of the matter is based on appreciation of evidence on record. he also could not dispute that it was within the jurisdiction of the arbitrators to record such a finding. in my opinion, considering that the finding is within the jurisdiction of the arbitrators and it is based on appreciation of material on record and as no error is apparent from the record in that finding, the finding of the arbitrators that it is company which has committed breach of the contract cannot be disturbed.6. the next objection that is to be determined is whether the award made by the arbitrators regarding the amount of damages is a valid award or not. the learned counsel appearing for petitioners submits that the burden to prove whether the ongc had suffered any losses and if yes, what is the quantum of that losses was on the ongc. the arbitrators have recorded that the ongc has not been able to prove what is the exact amount of losses suffered by them and therefore, according to the learned counsel, the arbitrators had no jurisdiction to fix any lump sum amount of compensation which is not supported by the evidence on record. the learned counsel submits that the amount of rs. 60,00,000/- also cannot be taken as the predetermination of the damages by contract between the parties. according to the learned counsel, in terms of the provisions of section 74 of the contract act, the burden of proof entirely lies on the ongc to establish the amount of damages suffered by them so that the arbitrators could determine the amount of reasonable compensation. the ongc has failed to produce evidence on record to establish that and therefore, the arbitrators were not justified in making the award in favour of the ongc. the learned counsel in support of this submission relies on a judgment of the supreme court in the case of fateh chand vs . balkishan dass, reported in : [1964]1scr515 as also a judgment of the supreme court in the case of maula bux vs . union of india, reported in : [1970]1scr928 . the learned counsel also relies on a judgment of the division bench of kerala high court in the case of state of kerala and others v. united shippers and dredgers ltd., reported in : air1982ker281 . on the other hand, according to the learned counsel appearing for ongc, the matter was covered by the provisions of section 73 of the contract act inasmuch as it was not even the case of the company that the ongc had not suffered any loss. it was also not the case of the company that the loss suffered by the ongc is not capable of being computed and therefore, according to the learned counsel, as rs. 60,00,000/- was a genuine pre-estimate of damages by the parties to the contract, the ongc was entitled to that amount without being required to prove what is the exact quantum of loss suffered by it. the learned counsel in support of this submission, relies on a judgment of the supreme court in the case of sir chunilal v. mehta and sons ltd. v. century spinning and ., reported in : air1962sc1314 . he also relies on a judgment of the supreme court in the case of union of india vs. rampur distillery and chemical co. ltd., reported in : air1973sc1098 . the learned counsel also heavily relies on a recent judgment of the supreme court in the case of oil and natural gas corporation ltd. vs. saw pipes ltd., reported in : [2003]3scr691 . the learned counsel also submits that the amount of rs. 60,00,000/- as bank guarantees was to be given by the company with the bid was in the nature of earnest money and therefore, the ongc was entitled to forfeit that amount.7. now, to appreciate the rival contentions, it is necessary to refer to the provisions of section 73 of the contract act. it reads as under:--'73. compensation for loss or damage caused by breach of contract. --when a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. compensation for failure to discharge obligation resembling those created by contract. --when an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.' now, from the perusal of the above quoted provisions of section 73, it is clear that when a party to a contract commits breach of that contract, it becomes liable to pay to the other party to the contract compensation for any loss or damages suffered by the other party. according to section 73, the amount of damages in such a case can either be determined by considering the circumstances of the case to find out what would be the loss suffered by the first party in the usual course of things or the amount of damages can be that amount which is determined by the parties to the contract as the amount of damages payable in the event of breach. after referring to the provisions of section 73, the supreme court in its judgment in oil and natural gas corporation ltd. 's case referred to above, in paragraph 46, has observed thus:--'46. from the aforesaid sections, it can be held that when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss which naturally arise in the usual course of things from such breach. these sections further contemplate that if parties knew when they made the contract that a particular loss is likely to result from such breach, they can agree for payment of such compensation. in such a case, there may not be any necessity of leading evidence for proving damages, unless the court arrives at the conclusion that no loss is likely to occur because of such breach.'thus, as a result of the above quoted observations, insofar as section 73 of the contract act, is concerned, in my opinion, it can be taken as a settled law insofar as the contract where the parties to the contract have at the time of entering into the contract determined the amount of damages that in case such a contract is breached, the party which has committed the breach, becomes liable to pay such predetermined amount to the other party without it being necessary for that party to lead evidence to prove what is the amount of damages suffered by it unless the party which has committed the breach comes to the court with a case that as a result of the breach of the contract, the first party has not suffered any loss.8. if from this point of view the record of the case is perused, from perusal of the claim statement filed by the company, it becomes clear that it is nowhere the company's case that as a result of the breach of the contract committed by it, the ongc has not suffered any loss. the only statement in this regard made in the statement of claim is to be found in paragraph 8 which reads as under:--'in the event the respondent's alleged claim did not result on account of any of the grounds specified in the said clause 15 of the bid document as entitling the respondent to encash the bid bonds, the respondent could not have encashed the bid bonds but had a recourse only in damages whichthey would have to alleged, plead and prove before a forum of competent jurisdiction. the liquidated sum of the bid bonds could not be available to the respondent or be a measure of damages in such an event.' thus, really speaking, as the company did not come with the case that as result of breach of contract, the ongc did not suffer any loss, there was no question of arbitrators holding any enquiry to find out whether any loss issuffered by the ongc because of the breach of the contract and therefore, in terms of the observations of the supreme court quoted above, the ongc would have been entitled to the predetermined amount of damages without it being required to lead evidence to show the extent of loss suffered by it. in fact, there is a finding recorded by the arbitrators after appreciating the evidence lead on behalf of the ongc that the ongc has in fact suffered loss and that loss is substantial. now, so far as the question whether the amount of rs. 60,00,000/- can be said to be predetermined amount of compensation by the parties is concerned, the relevant clause in the tender notice is clause 15 which reads as under:--'15.0 bid bond --bidders are required to furnish with their bids, unqualified bid-bonds for us $1,00,000 (us dollars one lakh only) (for foreign bidders) or rs. 30,00,000/- (indian rupees thirty lakhs only) (for indian bidders) for each of the jack up rig offered (strictly as per annexure - ii) valid for a period of 120 days. this bid-bond shall be in form of an irrevocable bank guarantee from a nationalised indian bank. in case of foreign bidders, the same must be either issued by branch of indian public sector banks operating in their countries or issued by any of the banks listed at annexure 8. ongc will have the unqualified option to invoke the bid bond in the event, the bidder withdraws his offer on any grounds, during the validity period of tender or any extention thereof and/or bidder fails to enter into contract despite their being selected as a successful bidder against this tender and/or have failed to mobilise the rig at the location within the time as may be prescribed by ongc.it was one of the terms of the tender notice that the bidder had to submit bank guarantee of rs. 30,00,000/- for each rig for which he was submitting the bid and the ongc was entitled to invoke that bank guarantee if the successful bidder fails to enter into the contract or fails to mobilise the rig at the location fixed by the ongc. it is clear that the amount of rs. 30,00,000/- per rig was mentioned in the tender as the amount of loss which the ongc was likely to suffer if the bidder, whose bid has been accepted, fails to enter into the contract because then the ongc would be required to again invite bids and the time lost for following procedure second time is also taken into account. it goes without saying that if the successful bidder does not enter into the contract, the ongc has to again invite tenders. the process of inviting fresh tenders takes time. therefore, in such a situation, apart from additional expenditure required to be incurred by the ongc, valuable time is also lost. in these circumstances therefore, it can be safely said that whenever a successful bidder does not enter into contract, it results in loss to the ongc. when the company submitted its bid pursuant to the tender notice, it clearly accepted this condition. the supreme court in its judgment in the case of ongc v. saw pipes ltd. 's case has held that the intention of the parties is to be gathered from the words used in the agreement. it is clear from the above quoted clause that after reading that clause the only conclusion one can draw is that the amount of rs. 30,00,000/- per rig was the amount of liquidated damages in case of breach of the contract. in paragraph 68 of the above referred judgment, the supreme court has observed thus :--'if the terms are clear and unambiguous stipulating the liquidated damages in case of the breach of the contract unless it is held that such estimate of damages/compensation is unreasonable or is by way of penalty, party who has committed the breach is required to pay such compensation and that is what is provided in section 73 of the contract act.' insofar as the present case is concerned, it is not the case of the company that the amount of rs. 30,00,000/- fixed by the contract as the amount of damages is either unreasonable or is by way of a penalty. in the present case, there was pre-estimated amount mentioned in the contract between the parties. the arbitrators have recorded a clear finding, which cannot be disturbed by this court, that the company has breached the contract. it was not the case of the company that the pre-estimated damages mentioned in the contract was either unreasonable or was by way of penalty and therefore, in terms of provisions of section 73 of the contract act, in my opinion, the ongc was entitled to the full amount and the arbitrators were not justified in reducing the amount of damages on the ground that the ongc has failed to establish as to what is the exact amount of loss suffered by it. the evidence led by the ongc had to be considered only for two aspects viz. to find out whether the ongc has suffered loss and to find out whether that loss is capable of being computed in terms of money. when the arbitrators found that the ongc has suffered loss which is substantial, in my opinion, in terms of provisions of section 73, the only award that the arbitrators could have made was that the claim made by the company should have been rejected, holding that the ongc is entitled for the entire amount of the bank guarantee.9. all the judgments of the supreme court referred to by the learned counsel for both the sides have been considered by the supreme court in its judgment in the case of saw pipes ltd. 's case. in that case, the supreme court has considered the provisions of section 74 also because in that case, the party had alleged that the amount of damages which was mentioned in the contract was in the nature of penalty. therefore, really speaking, it is not necessary to refer to these judgments. so far as the judgment of the division bench of kerala high court in the case of state of kerala and others vs. m/s united shippers and dredgers ltd. is concerned, it has mainly considered the term 'whether or not actual damage or loss is proved to have been caused thereby' and held that as reasonable compensation is required to be paid, the party claiming the damages has to prove that it has suffered loss and it is incapable of being exactly computed. that law, in my opinion, has been laid down by the division bench of the kerala high court after referring to the judgments in the cases of mania bux, rampur distillery and chemical co. ltd. as also in the case of fateh chand. all these judgments have been considered by the supreme court in its judgment in the case of saw pipes ltd.'s case and therefore, in my opinion, it is not necessary to refer to the judgment of the kerala high court also. before me, submissions were made on the provisions of section 74 of the contract act also. section 74 reads as under :-'74. compensation for breach of contract where penalty stipulated for. --when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.'it becomes clear from the perusal of the provisions of section 74 quoted above that these provisions operate in relation to the contract (i) where an amount is mentioned in the contract as the amount to be paid in case of breach of contract; (ii) where the contract contains any other stipulation by way of penalty and (iii) where the actual amount of damages cannot be quantified. in the present case, in the contract it is provided that an amount of rs. 30,00,000/- for each rig was liable to be recovered for breach of the contract and it is also not anybody's case that in this matter that the amount of actual loss suffered by the ongc it was not capable of being computed and therefore, in my opinion, provisions of section 74 were not attracted in the present case. the supreme court has considered the provisions of section 74 in its judgment in the case of maula bux referred to above. in paragraph 8 of the said judgment, the supreme court observes thus:--'it is true that in every case of breach of contract the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree and the court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of contract. but the expression 'whether or not actual damage or loss is proved to have been caused thereby' is intended to cover different classes of contracts which come before the courts. in case of breach of some contracts it may be impossible for the court to assess compensation arising from breach, while in other cases compensation can be calculated in accordance with established rules. where the court is unable to assess the compensation, the sum named by the parties if it be regarded as a genuine pre-estimate may be taken into consideration as the measure of reasonable compensation, but not if the sum named is in the nature of a penalty. where loss in terms of money can be determined, the party claiming compensation must prove the loss suffered by him.'it is thus clear that section 74 comes into play in relation to a contract where it is impossible for the court to assess compensation arising from the breach as distinguished and as distinct from contract where the amount of compensation can be computed in accordance with established rules. in order to attract the provisions of section 74 of the contract act, the other party will have to claim and prove that the loss suffered by the first party is not capable of being computed. in the present case, it is nowhere even claimed by the company that the loss suffered by the ongc is not capable of being computed. therefore, theprovisions of section 74 of the contract act are not attracted in the present case. it is governed by the provisions of section 73 of the contract act. 10. insofar as the submission of the learned counsel appearing for ongc that the amount of rs. 60,00,000/- is the amount of earnest money is concerned, i do not propose to consider this submission in detail in view of the judgment of the supreme court in the case of ongc vs. sa w pipes ltd. (supra).11. insofar as the present case is concerned, it is nowhere the case of the company that in case of the present contract, it was impossible to assess the compensation arising from the breach. on the contrary, the observations of the arbitrators in the award show that according to the arbitrators, it was possible for the ongc to place before the court actual amount of damages suffered by the ongc and therefore, in my opinion, the provisions of section 74 were not attracted in the present case. on the basis of the pleadings of the parties and the material on record, the case was governed by the provisions of section 73 and therefore, the arbitrators were obliged to hold that the ongc was entitled to the amount of rs. 60,00,000/- which it had received by invoking the bank guarantees and therefore the claim made by the company was liable to be rejected. it is clear that for attracting the provisions of section 73 of the contract act, following three factors are to be established - (1) the contract has been breached and as a result one party has suffered loss; (2) that loss is capable of being computed in terms of money and (3) in the contract there is a pre-estimate of damages. once these factors are established, the matter is governed by the provisions of section 73 of the contract act and the party who has suffered loss become entitled to the amount of the pre-estimated damages mentioned in the contract. in the present case, all these factors have been established, therefore the ongc was entitled to the amount of rs. 30,00,000/- for each rig, which was the amount mentioned in the contract. in the result therefore, arbitration petition no. 53 of 2001 is rejected, arbitration petition no. 153 of 2001 is allowed, the award dated 13th november 2000 challenged in that petition is set aside and for the above mentioned reasons, the claim made by the company before the arbitrators is rejected.parties to act on the copy of this order duly authenticated by the associate/personal secretary as true copy.certified copy expedited.