IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO(s). 4368 OF 2005

Oil and Natural Gas Corporation Ltd.              ……..Appellant

Versus Off-Shore Enterprises Inc.                       ….. Respondent

O R D E R

R. V. Raveendran J.,

Under  a  contract  dated  14.7.1981  between  appellant  and  the  

respondent,  the  respondent  agreed  to  supply  the  equipment  and  

engineering  drawings  and  provide  the  project  management  and  

construction supervision to M/s Paul Lindenau GmbH to assist  with the  

design, building, equipping and launching of a drillship known as ‘Sagar  

Prabhat’  purchased  by  the  appellant.  The  appellant  had  simultaneously  

entered into an agreement with M/s Paul Nindenau GmbH for purchase of  

the  said  drillship.  The  said  drillship  equipped  and  mobilised  by  the  

respondent  reached Bombay on 5.6.1982. American Bureau of Shipping  

(“ABS”  for  short)  vide  certificate  dated  25.6.1982  certified  that  the  

machinery  of  the  drillship  and  the  stability  of  the  drillship  were  in  

accordance with its rules and standards. On the basis of the said certificate

dated 25.6.1982, the appellant took delivery of the Drill-ship on 29.6.1982.  

The appellant thereafter found some defects in the drill-ship and therefore  

withheld  the  payment  to  the  respondent.  ABS revised  its  certificate  on  

18.6.1985, stating that its earlier certificate dated 25.6.1982 was based on  

incorrect data supplied by Paul Lindenau GmbH (builder of the drillship)  

and  the  respondent  (designer,  equipment  supplier  and  construction  

supervisor of the drillship).

2. The  respondent  initiated  arbitration  proceedings  in  respect  of  the  

dispute relating to non payment of the balance price.  An award was made  

against  ONGC,  in  regard  to  the  balance  price  due  to  the  respondent.  

Certain  counter  claims  by  ONGC  were  also  allowed.  It  is  stated  that  

challenge by ONGC to the said award is  pending adjudication in court.  

During  the  pendency of  the said  arbitration,  ONGC sought  to  raise  the  

issue of defective stability of the Drill-ship. As that issue was beyond the  

reference  of  the  ongoing  arbitration,  it  was  decided  that  a  separate  

reference  would  be  made  in  regard  to  dispute  relating  to  the  

stability/defects of the drillship.  

3. As the respondent disputed the claim of ONGC that the Drill-ship  

was defective and the defects affected its stability, it issued a notice dated  

1.8.1986  stating  that  a  dispute  had arisen  in  regard  to  the  claim of the  

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appellant  about the defects/deficiencies in the stability of the Drill-ship.  

The said dispute was referred to arbitration by an Arbitral Tribunal with  

Shri K.H. Bhabha, Senior Advocate and Vice-Admiral Shri N.P. Datta as  

members.   The  said  Arbitral  Tribunal  entered  upon  the  reference  on  

4.9.1986.

4. ONGC filed its  Statement  of Claim on 2.12.1987 in  regard  to  its  

claim relating to defects/deficiencies in regard to the stability of the Drill-

ship. Para 27 thereof containing the claim and prayer of the appellant is  

extracted below:

“27. The Respondents submit that the consequences arising from  the entire situation aforesaid would be either that the drillship be  directed to be returned to the claimants on the conditions that the  claimants  return  all  the  amounts  received  by  them  from  the  Respondents  including  US $  55  million/and  interest  @ 12% per  annum under the contract dated 14th July, 1981 in addition they pay  adequate damages to the Respondent or that the claimants bring the  drillship to the required state and condition as indicated hereinabove.  The Respondents state and submit that tentatively and on prima facie  considerations  the  amounts  required  to  bring  the  drillship  to  the  desired state and condition would be Rs.3.50 crores which does not  include non-use of the Drillship for the period during which the said  adjustment, alterations or necessary things required to be done to the  Drillship to bring it to the proper state and conditions would involve.  This  costs  would  be  calculated  at  the  the  rates  current  when the  modifications  are  carried  out.   However,  the  same  is  tentatively  estimated as per the current  prevailing rate of U.S.$ 20,000/-  per  day,  So calculated for 90 days the same would work out to U.S.$  1,80,000/-.

The Respondent, therefore, pray:

(a) That the claimants be directed to pay to the Respondent a  sum of US $ 55 Million with further interest thereon at 12% per  annum being the amount paid by the Respondents to the claimants  for the acquisition of the said drillship by the Respondents from the  claimants and that on the said amount being paid or in any manner  

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secured to the Respondents the claimants may be directed to take  back the said drillship “SAGAR PRABHAT”.

(b) That  as  an  alternative  to  prayer  (a)  hereinabove,  the  claimants be directed to pay to the Respondents (i) a sum of Rs.3.5  crores converted to U.S. Dollars at the convertible rate prevailing on  or about the date of the award to enable the Respondent to bring  about necessary changes and/or alterations and additions in drillship  in order that it may be put to enable the Respondent to operate the  same as held out in the agreement between the parties hereto dated  14th July, 1981:  and (ii)  a further sum of U.S.  Dollars 1,80,000/-  being the amount of damages for non-use of the drillship at the rate  of  U.S.  Dollars  20,000/-  per  day for  90  days  required to  set  the  drillship right.

xxx xxx xxx

5. The  respondent  participated  in  the  initial  stages  of  the  second  

arbitration  and  filed  a  reply  dated  29.11.1988  denying  the  claim  and  

arbitrability  on  four  grounds:  (i)  the  claim  was  beyond  the  scope  of  

arbitration  agreement  contained  in  Article  13.2  of  the  agreement  dated  

14.7.1981;  (ii)  the  claim  related  to  a  technical  matter  falling  under  

clause  13.1  of  the  contract,  and  therefore  to  be  concluded  only  by  the  

decision of ABS. (iii)  the claim having been made beyond the warranty  

period of  twelve months prescribed in clause  9.2.1 of  the contract,  was  

deemed to have been waived and not maintainable; and (iv) the claim was  

barred by limitation as it was made beyond three years from the date of  

taking over the drillship.

6. At  the  meeting  of  Arbitrators  on  17th &  18th January,  1989  the  

respondent  raised  a  preliminary  objection  that  the  dispute  related  to  a  

technical   matter   and  therefore   was  an  excepted   matter    beyond  

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the  scope  of  the  Arbitration  Agreement.  ONGC  submitted  that  the  

technical  question  of  stability  of  the drillship  be referred to  ABS, New  

York for its opinion and it was willing to accept its opinion as evidence.  

Respondent  submitted  that  it  will  settle  the  dispute  in  accordance  with  

such opinion of ABS. The Arbitral Tribunal referred the dispute relating to  

stability of the drillship to the opinion of the ABS, Bombay which gave its  

report  dated  18.5.1990.  According  to  respondent,  the  parties  to  the  

arbitration had agreed that the claim should be referred to ABS, New York,  

for its opinion as provided by Article 13.1 of the contract, but instead, the  

matter was referred to ABS, Bombay. However thereafter the respondent  

did  not  participate  in  the  arbitration  proceeding.  In  the  arbitration  

proceedings, Mr. Pramod Seth, Dy. General Manager of ONGC filed an  

affidavit  dated  6.4.1995  as  the  evidence  on  behalf  of  ONGC.   As  the  

respondent was not contesting the proceedings, the Arbitrators themselves  

examined  Mr.  Pramod  Seth  in  detail.   Thereafter  on  15.9.1995,  the  

concluding  date  of  the  arguments,  ONGC  submitted  a  comparative  

statement explaining its claim, giving various alternative calculations.  

7.   On 18.9.1995  the  Arbitrators  made an Award  for  Rs.36,38,50,000/-  

(Rupees Thirty six crores thirty eight  lakhs fifty thousand)  in favour of  

ONGC, with interest at the rate of 12% per annum on the said sum from  

the date of award. The award set out the contentions of ONGC and the  

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respondent  in  brief  and then  proceeded  to  direct  respondent  to  pay the  

following amounts  (being  the  break  up  of  Rs.36.385  crores)  by a  non-

speaking award:

             Rs. In lakhs

(a) For Cost of Anchors  225.00 (b) For Cost of Anchor chains  938.00 (c) For procuring & fitting new

  motion Compensator  900.00 (d) For additional sponsons   700.00 (e) For Lay up charges  870.00 (f) Cost of Arbitration   13.50

               ---------------- Total                Rs.3638.50 Lakhs

          ========

8. The said award was challenged by the respondent. A learned Single  

Judge of the Bombay High Court by judgment dated 2/3-9-1996 set aside  

the said award. The learned Single Judge inter alia held that the issue being  

a  technical  matter,  the  same  was  not  arbitrable  and  that  the  Arbitral  

Tribunal exceeded its jurisdiction in deciding a issue which related to the  

report  of  the  American  Bureau  of  Shipping.  Feeling  aggrieved,  ONGC  

filed an appeal.  A Division Bench of the High Court by judgment dated  

28.7.2004 dismissed the appeal confirming the final decision of the learned  

Single Judge.  It however, set aside the finding of the learned Single Judge  

on the issue of jurisdiction.  The Division Bench was of the view that the  

award could not be sustained for the following reasons:

(a) ONGC had made only a claim for Rs.3,50,00,000/- (Three crore fifty  

lakhs) plus US $ 1,80,000 in the claims statement. It did not reserve  

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the right to add or alter the claim. Therefore it could not make any  

higher claim.

(b) The claim was sought to be increased by ONGC without amending  

the pleadings,  that  is  its  claim statement.  The claim was also not  

supported by any evidence.

(c) The  claim  of  ONGC  as  originally  made  and  as  altered  in  the  

affidavit were both barred by limitation.

(d) The claim made beyond the warranty period of twelve months, was  

contrary to Article 9.2.1 of the contract (warranty clause) and was  

prohibited by the contract.  

(e) That the Award was arbitrary, capricious, irrational and beyond the  

claim of ONGC.

The said judgment is challenged by the appellant ONGC in this appeal.  

On the contentions urged, the only question that arises for consideration is  

whether the interference with the award by the High Court is justified. On  

a careful consideration of the award with reference to the claim, we are of  

the view that the learned Arbitrators have acted beyond the reference and  

exceeded their jurisdiction in awarding Rs.36,38,50,000/-.  

9. In Rajasthan State Mines & Minerals Ltd. vs. Eastern Engineering   

Enterprises –  (1999)  9  SCC 283,  this  Court  summarized  the  principles  

relating to interference with arbitral awards under Arbitration Act, 1940.  

Paras (e) to (i) which are relevant are extracted below :

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“(e) In a case of non-speaking award, the jurisdiction of the Court is  limited. The award can be set aside if the arbitrator acts beyond his  jurisdiction.

(f) To find out whether the arbitrator has travelled beyond his juris- diction, it would be necessary to consider the agreement between the  parties containing the arbitration clause. Arbitrator acting beyond his  jurisdiction--Is a different ground from the error apparent on the face  of the award.

(g) In order to determine whether arbitrator has acted in excess of his  jurisdiction what has to be seen is whether the claimant could raise a  particular claim before the arbitrator. If there is a specific term in the  contract or the law which does not permit or give the arbitrator the  power to decide the dispute raised by the claimant or there is a spe- cific bar in the contract to the raising of the particular claim, then the  award passed by the arbitrator in respect thereof would be in excess  of jurisdiction.

(h) The award made by the Arbitrator disregarding the terms of the  reference or the arbitration agreement or the terms of the contract  would be a jurisdictional error which requires ultimately to be decid- ed by the Court. He cannot award an amount which is ruled out or  prohibited by the terms of the agreement. Because of specific bar  stipulated by the parties in the agreement, that claim could not be  raised.  Even if  it  is  raised  and referred  to  arbitration  because  of  wider arbitration clause such claim amount cannot be awarded as  agreement is binding between the parties and the arbitrator has to ad- judicate as per the agreement. This aspect is absolutely made clear in  Continental Construction Co. Ltd. (supra) by relying upon the fol- lowing  passage  from  M/s.  Alopi  Parshad  v.  Union  of  India  :  [1988]3SCR103 which is to the following effect:

There it was observed that a contract is not frustrated  merely  because  the  circumstances  in  which  the  contract was made, altered. The Contract Act does not  enable  a  party  to  a  contract  to  ignore  the  express  covenants  thereof,  and  to  claim  payment  of  consideration for performance of the contract at rates  different from the stipulated rates, on some vague plea  of  equity.  The  parties  to  an  executory contract  are  often faced, in the course of carrying it out, with a turn  of event which they did not at all anticipate, a wholly  abnormal rise or fall in prices, a sudden depreciation  of currency, an unexpected obstacle to execution, or  the  like.  There  is  no  general  liberty reserved to  the  courts to absolve a party from liability to perform his  part of the contract merely because on account of an  uncontemplated turn of events, the performance of the  contract may become onerous.

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(i) The arbitrator could not act arbitrarily, irrationally, capriciously  or independently of the contract. A deliberate departure or conscious  disregard of the contract not only manifests the disregard of his au- thority or misconduct on his part but it may tantamount to mala fide  action.”

10. Clause 9.2.1 and 9.2.2 of the agreement dated 14.7.1981 between  

ONGC and respondent relating to warranty are extracted below :   

9.2.1 Warranty  of  material  and  workmanship :  Subject  to  the  provisions  hereinafter  set  forth  in  this  Article  Contractor  ‘B  ‘  undertakes to remedy free of charge to the purchaser any defect in  the  Drill  ship  which  is  due  to  defective  design,  material  or  workmanship  or  poor  or  underrated  performance/efficiency   of  operation. Provided that such defects are discovered within a period  of twelve months after the date of arrival of Bombay and a notice  thereof is duly given to contractor ‘B’ as hereinafter provided. Any  defect caused by normal wear and tear of  operation of equipment  beyond  the  manufacturer’s  prescribed  limit  in  manuals  will  not  apply for this cause.  

9.2.2 The Purchaser shall notify contractor ‘B’ in writing within  seven working days after discovery of any defect for which claim is  made  under  this  warranty.  The  purchaser’s  written  notice  shall  describe the nature of defect  and the extent  of damage caused or  likely to be caused thereby. Cable/telex advice within seven working  days that the claim is forthcoming will be sufficient to comply with  the requirements as to time.”  

[Note : ‘Contractor B’ refers to respondent]  

11. As noticed above, the drillship arrived at (off) Bombay on 5.6.1982  

ONGC took delivery of the ship on 29.6.1982. Having regard to clause  

9.2.1  of  the  contract,  the  warranty  period  of  12  months  expired  on  

29.6.1983. Clause 9.2.1 of the contract barred any claim made beyond 12  

months.  The High Court  after exhaustive consideration rightly held that  

the claim made on 2.12.1987, beyond the warranty period of one year, was  

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barred  by  clause  9.2.1  of  the  contract  and  therefore  Arbitral  tribunal  

committed a jurisdictional error in awarding the cost repairs/replacement  

by accepting such a claim.  ONGC contends that its claim was not based  

upon  breach  of  warranty,  but  on  total  failure  of  consideration.  This  

contention has no merit. The claim of the appellant, as noticed above was  

for payment of US $ 55 millions with interest at 12% per annum being cost  

of acquisition of the drill ship or alternatively for payment of Rs.3.5 crores  

towards  the  cost  of  alteration  in  the  drill  ship  and  US  $  1,80,000  as  

damages for non use of the drill ship during a period of 90 days required  

for repairing the drill ship.  The appellant did not pursue its main claim for  

US $ 55 million being the acquisition cost.  This is apparently due to the  

fact that in the first round of arbitration, the Arbitrators had already made  

an award for the payment of the cost of the ship by the appellant to the  

respondent.  (It is stated that the appellant is contesting the said claim.  Be  

that  as it  may.)  The claim for  the cost  of  acquisition  of the drill  ship,  

ceased to be the subject matter of the arbitration and what was considered  

and decided  by the  arbitrators  was  the  claim for  making  additions  and  

alterations in the drill  ship to make it operatable. Therefore clause 9.2.1  

was clearly attracted.

12. We have extracted the reliefs sought by ONGC in arbitration, in para  

(4) above and it is evident therefrom that what was claimed was final and  

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not intended to be varied. The appellant stated that the claim for bringing  

the drillship to the desired state and condition, would be Rs.3.5 crores. The  

appellant used the word ‘tentatively’ with reference to the said claim, not  

with any reservation to change the claim as and when the actual cost was  

ascertained,  but  to  show that  it  was  not  based  on  actuals,  and  was  an  

estimate with reference to the prevailing rates/costs. Similarly the claim for  

US$ 1,80,000/- as compensation towards ‘non-use’ of the drillship during  

the ‘repair period’ was also final, though it was an estimate and therefore  

described as ‘tentative’. The appellant did not reserve the liberty to modify  

the claim of Rs.3.5 crores plus US $ 1,80,000. Further, the appellant did  

not  amend the  claim before  the  Arbitral  Tribunal  nor  did  they  seek  to  

amend  the  claim.  The  claim  continued  to  be  Rs.3.5  crores  plus  US$  

1,80,000. Therefore, any award by the Arbitrators in excess of 3.5 crores  

plus U $ 1,80,000  was wholly without jurisdiction as not being the subject  

matter of reference to the Arbitral tribunal and being an award beyond the  

pleadings.   

13. The learned counsel  for the appellant  however contended that  the  

claim  was  not  on  imaginary  figures,  and  that  ONGC  had  obtained  

quotations for the various items and on that basis calculated the claims. By  

way of illustration, we may refer to how the claim in regard to one of the  

items  (motion  compensator)  was  made.  According  to  the  appellant  it  

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obtained a quotation for the item from a US manufacturer in January 1993.  

The quotation was for US$ 19,50,000. When freight and insurance were  

added to it, the landing cost would have been US$ 19,94,508. By applying  

an exchange rate of Rs.33 per US$, the rupee equivalent was Rs.658.19  

lakhs. By adding customs duties and clearing and forwarding charges and  

other miscellaneous expenses, the cost became Rs.888.39 lakhs. When the  

cost of the item was to be calculated with reference to the year 1995,  12%  

per annum was added for two years, to arrive at the value as Rs.1114.40  

lakhs. The value of the item in the year 1982 and in the year 1986 was  

arrived  at  as  Rs.255.89  lakhs  and  Rs.401.86  lakhs  respectively,  by  

discounting the 1993 cost of Rs.888.39 lakhs at the rate of 12% per annum.  

Similar  method  was adopted  for  assessing  the  cost  of  other  items.  The  

claim based  on  such  a  method,  to  say the  least,  is  casual,  strange  and  

untenable. If the defect was noticed in 1985 and if the claim statement was  

made  in  the  year  1987,  it  is  ununderstandable  how  any  claim  for  

compensation for cost of repairs to set right the drillship, could be claimed  

at the rates prevailing in 1995 or with reference to the prices in 1993 by  

discounting  it  by  12%  to  arrive  at  the  price  in  1982  and  1986.  The  

appropriate course would be to place evidence of the actual cost in the year  

1982 or in the year 1985 with reference to then prevailing rates. In fact,  

that was done by ONGC itself in the year 1987. It calculated the cost of  

repairing/replacing the Anchors, Anchor Chains, Motion compensator and  

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sponsons to be Rs.3.5 crores in all, which was claimed in its pleading.  

14. In para 27 of the Statement of Claim, the appellant stated that the  

claim for Rs.3.5 crores was tentative as that was a prima facie calculation  

of  the  amount  required  to  bring  the  drill-ship  to  the  desired  state  and  

condition.  But  significantly,  the  appellant  did  not  make  any  

alteration/additions  to  the  drill-ship  to  bring  it  to  the  desired  state  and  

condition  as  alleged.   Therefore,  if  the  sum of  Rs.3.5  crores  is  to  be  

substituted by any higher figure, that would also be a tentative amount and  

not  an  actual  amount.  When  the  appellant,  on  the  basis  of  the  rates  

prevailing, calculated the cost for addition and altering the drillship at the  

relevant time (1987), obviously the same cannot be changed with reference  

to some other  tentative figures or hypothetical  figures  with reference to  

prices prevailing on a future date in 1995 when matter was argued before  

the Arbitral Tribunal. Therefore the award of Rs.27.63 crores (aggregate of  

items (a) to (d) extracted in para 7 above) as against the claim of Rs.3.5  

crores is unsustainable.

15. The  award  of  Rs.8.7  crores  (item (e)  extracted  in  para  7  above)  

towards “lay up” charges (the loss on account of non-use of the drillship  

during the period of repair) is equally unsustainable. In its claim statement,  

the claim of ONGC was for US$ 1,80,000 for a period of 90 days which  

was estimated to be the  period required for repairs. In the claim statement  

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it was alleged that the lay up charges was US$ 20,000 per day. If that is so,  

for 90 days, the claim ought to have been US$ 18,00,000. But the specific  

claim was only for US$ 1,80,000. This itself showed that the figures were  

not based on any acceptable basis and were imaginery. Further though the  

claim was for 90 days,  at  the  time of arguments  before Arbitrators,  the  

claim was increased to Rs.1306.80 lakhs for 180 days which works out to  

7.26 lakhs per day. There is absolutely no basis for such a claim. Further it  

should be remembered that  the drillship was never got  repaired and the  

claim which was an estimates was increased by several times on ‘guess-

estimates’  at  the  time  of  arguments  before  the  Arbitrators.  We  have  

referred  to  this  aspect  just  to  show  that  the  claims  were  increased  by  

ONGC without basis and accepted and awarded by the arbitral tribunal in a  

casual manner, which amounts to legal misconduct.       

16. The award proceeds on a legal principle which cannot be supported.  

It is not disputed that alterations and additions were never carried out to  

the  ship.   The  affidavit  filed  on  behalf  of  ONGC  before  the  Arbitral  

Tribunal and the award of the Tribunal clearly show that what was being  

claimed and what was being awarded were not the actual cost of additions  

and alterations, but an estimate of the cost of alterations and additions.  If  

the ship was delivered in the year 1982 and the appellant had found out  

that  the ship was defective either  in the year 1982 or in the year 1985,  

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the claim should have been based on the cost of repairing it in the year  

1985 or immediately thereafter.  If in 1987 the appellant had assessed such  

cost with reference to the then prevailing rates as Rs.3.5 crores, it is un-

understandable  how  without  actually  carrying  out  alterations  and  

additions,  the  appellant  could  substitute  the  said  tentative  cost  with  

reference to the alleged prices or cost in the year 1995.  The very fact that  

Arbitrators  have  accepted  the 1995 figures  as  the  basis,  shows that  the  

Arbitrators  have proceeding on an untenable  premises  that  in  regard  to  

1982 or 1985 repair, the rates prevailing in 1995 could be the basis.   

17. We may refer to another anomaly.  As noticed above, the tentative  

cost of alteration and additions stated in the Statement of Claim was Rs.3.5  

crores and the loss for lay up of the drillship as US$ 1,80,000. Without  

amending the said claim, evidence was let in by filing an affidavit before  

the Arbitrators wherein the ONGC claimed Rs.20,49,54,000/- as detailed  

below:

(a) New Anchors & Chains Rs.296.40 lakhs at 1982 prices

(b) New motion compensator Rs.256.39 lakhs at 1982 prices

(c) Addition of sponsons Rs.189.95 lakhs at 1982 prices

(d) Loss due to lay up of drillship Rs.1306.80 lakhs at current price      for 180 days      ----------------------- Total Rs.2049.54 lakhs

                                                           ----------------------

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Thus the claim for setting right the drill ship was increased from Rs. 3.5  

crores to Rs.742.74 lakhs towards the cost of items to be purchased and  

fitted  (that  is,  Anchors  &  chains,  Compensator  and  sponsons)  which  

according  to  ONGC  was  required  for  setting  the  drillship  right  and  

Rs.1306.80 lakhs as lay up charges for six months. The claim on account  

of loss due to non-use of the drill-ship during the period when it has to be  

repaired  was  increased  from  US  $  1,80,000  (claimed  in  the  claim  

statement) to Rs.1306.80 lakhs. Obviously there could be no such change  

as the ship was not actually repaired. The aforesaid increased claim was  

not supported by the pleading.

18. What is, however, surprising is that the award is neither based on the  

claim of Rs.3.5 crore plus US $ 180,000/- made in the claim statement or  

the  claim  of  Rs.2049.54  lakhs  that  was  made  in  the  affidavit.  The  

arbitrators referred to the claim of the ONGC as 4329.46 lakhs in para 5 of  

the award, and awarded Rs.3638.50 lakhs without any reasons as detailed  

below :

SNo. Particulars Claim of ONGC    (as  stated  in  the  award) (Rs. in lakhs)

Amount  awarded  by  Arbitrators  

(Rs. in lakhs)

(a) Cost of Anchors 238.00 225.00 (b) Cost of Anchor chains 938.97 938.00 (c) Cost  of  procuring  &  fitting  

new motion Compensator 1052.88 900.00

(d) Cost of additional sponsons 780.11 700.00 (e) Lay up charges for carrying out  

the above modifications 1306.00 870.00

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(f) Cost of Arbitration 13.50 13.50

Total 4329.46 3638.50

19. These amounts were far more than what was claimed in the claim  

statement or in the affidavit filed on behalf of ONGC by way of evidence.  

As the award is a non-reasoned award, it is not possible to ascertain how  

the Arbitrators awarded a sum of Rs.3638.50 lakhs which is more than the  

claim in the Statement of Claim and the claim in the affidavit evidence.  

This is one of the main ground on which the High Court  has chosen to  

interfere with  the arbitral  award.   It  has held that  the entire  award was  

arbitrary, whimsical and beyond the jurisdiction of the Arbitrators.

20.   To explain this conduct on the part of the Arbitrators, the learned  

counsel  for  the  appellant  submitted  that  the  increase  was  based  on  a  

comparative statement that was filed before the Arbitrators on 15.9.1995 at  

the final stages of hearing, where three alternatives were given in regard to  

the claim of ONGC. The first option was for a claim for Rs.2473.96 lakhs  

based  on  1986  prices  (arrived  at  by discounting  the  1995  prices).  The  

second option was for Rs.2049.55 lakhs based on 1982 prices (arrived at  

by discounting the 1995 prices).  The third option was a claim of 4543.42  

lakhs  with  reference  to  the  1995  prices.  The only  constant  in  all  three  

options is the claim of Rs.1306.80 lakhs towards the lay up charges for  

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180 days. The Arbitrators have choosen the third option of 1995 cost on  

the basis of the claim. It is un-understandable how such alternative claims  

could  be  made  during  arguments  with  reference  to  the  alleged  cost  of  

repair/additions/alterations  in  the  years  1982,  1985  and  1995  without  

actually repairing the  vessel,  particularly when ONGC had arrived it  as  

Rs.3.5  crore  plus  US  $  1.8  lakhs  in  the  year  1987  based  on  1985  

prices/rates. This again shows that the claim was casual, imaginary and not  

based on any facts, figures or actual rates. In regard to a drillship supplied  

in the year 1982 in which defects were allegedly found in 1985 but claim  

made in 1987, a hypothetical claim for cost of repairs based of 1995 rates,  

cannot be accepted. As the award apparently proceeds on a legal principle  

which is wholly erroneous, the award cannot be sustained.  The above also  

demonstrates that the Arbitrators have exceeded their jurisdiction and gone  

beyond the reference.

21.   In view of the above, there is no need to examine the other grounds  

of attack against the award.  We, therefore, dismiss the appeal as having no  

merit.

…………………………J. (R V Raveendran)

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……………………….J. (A K Patnaik)

New Delhi February 23, 2011.

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