The Delhi High Court has upheld the arbitrator’s directions to BSNL refunding the amounts deducted towards price reduction to BWL along with pendente lite and post-award interest at 9% per annum on the principal amount, and left intact the costs awarded by the arbitrator. The Court held that where a supply contract fixes a firm price and permits reduction only on account of reduction in statutory levies/taxes, the purchaser cannot unilaterally impose price reduction merely because deliveries are made during an extended period at lower prevailing market rates.
For novation under Section 62 of the Indian Contract Act, 1872, there must be clear mutual agreement; and for acceptance by conduct under Section 8, the conduct must show unequivocal acceptance without reservation. The Court also clarified that where the supplier continues performance while consistently protesting the revised price condition, there is no novation and no acceptance by conduct. In such a case, an arbitral award holding unilateral price reduction to be unauthorized is a plausible view based on the contract and evidence, and cannot be interfered with under Section 34 of the Arbitration and Conciliation Act, 1996.
A Single Judge Bench of Justice Jasmeet Singh first rejected BWL’s limitation objection. It found from the arbitral record that signed copies of both awards were received by BSNL on April 21, 2008, and since the petitions were filed on July 18, 2008, they were within the limitation period prescribed under Section 34(3) of the Arbitration and Conciliation Act, 1996.
On merits, the Bench reiterated the settled scope of interference under Section 34: the Court cannot sit in appeal over an arbitral award, reappreciate evidence, or reinterpret contractual terms if the arbitrator’s view is a possible and plausible one. Interference is confined only to the limited grounds under Section 34(2) and Section 34(2A) of the Arbitration and Conciliation Act, 1996.
The Bench held that the central issue in both matters was whether the conditional extensions granted by BSNL had novated the original contracts so as to permit price reduction. It noted that under Section 62 of the Contract Act, novation requires mutual agreement and consensus ad idem; no unilateral alteration can bind the other party. The arbitrator had examined Clause 12 of the GCC, Clause 13 of the GCC, the advance purchase orders, purchase orders, and the correspondence between the parties, and had concluded that the contracts were on a firm-price basis. Under Clause 12.1(i)(b) and Clause 12.1(ii)(b), price reduction was permissible only in cases of revision or reduction of statutory levies/taxes, not merely because the market price had fallen during the extended period.
The Bench accepted the arbitrator’s finding that BWL had consistently resisted the proposed price reduction through its letters and had never unequivocally agreed to a unilateral amendment of the price term. Because the evidence showed continuous protest and reservation, continued supply of goods did not amount to unconditional acceptance by conduct under Section 8 of the Contract Act. The Bench also held that estoppel could not be used to create novation where consent was absent. In the second matter specifically, the Bench noted that BWL’s performance after the final extension was “under protest and without prejudice to its rights.”
The Bench further held that BSNL’s reliance on Section 9 of the Sale of Goods Act, 1930 was misplaced because the contracts had already fixed the price and did not leave the matter open for fresh negotiation.
Briefly, the petitions were filed by Bharat Sanchar Nigam Ltd. (BSNL) challenging arbitral awards passed in favour of M/s BWL Ltd. in two supply contracts for optical fibre cables. In the first matter, DOT/BSNL had floated a tender on Sep 27, 1996 for 12F optical fibre cable; BWL received the purchase order for 552 kms, but supplied only 418 kms by the original delivery date of Feb 28, 1997. Extensions were granted from time to time, subject to liquidated damages and price reduction, and BSNL recovered Rs. 4 lakhs as liquidated damages and Rs. 19.30 lakhs towards price reduction. In the second matter, BSNL floated a tender on Feb 20, 1997 for 24F optical fibre cable; BWL was awarded a purchase order for 610 kms, but supplied only 12 kms by Jan 15, 1998. Multiple extensions followed, and BSNL imposed liquidated damages of Rs. 25.42 lakhs and price reduction of Rs. 44.94 lakhs. In both arbitrations, the sole arbitrator upheld BSNL’s right to recover liquidated damages, but held that BSNL was not entitled to unilaterally reduce the contract price, and directed refund of the price reduction amounts with 9% interest and costs of Rs. 2 lakhs in each case.
BSNL challenged both awards mainly on the ground that once BWL accepted extension of time and continued supplies, the original contracts stood modified or novated under Section 62 of the Indian Contract Act, 1872; alternatively, BWL had accepted the extension conditions by conduct under Section 8 of the Contract Act. BSNL also argued that Section 9 of the Sale of Goods Act, 1930 permitted determination of price for supplies made after the original delivery period on the basis of prevailing market rates. BWL opposed the petitions by arguing limitation, and by contending that the arbitrator had merely interpreted the contract and evidence, which could not be reopened under Section 34 of the Arbitration and Conciliation Act, 1996.
