While dismissing Ratnagiri Gas and Power Pvt Ltd’s Section 34 challenge, the Delhi High Court has held that waiver of contractual timelines under Section 55 of the Indian Contract Act disentitles a seller from claiming liquidated damages, even where the contract specifies a genuine pre-estimate of loss. The Court also held that whether a party has waived a contractual right is essentially a question of fact to be determined from its conduct and surrounding circumstances, and the petitioner cannot be permitted to seek re-appreciation of evidence before the Court under Section 34.
The Court explained that the principle of liquidated damages under Section 74 and the general principle under Section 73 are both subject to Section 55 of the Contract Act. If a promisee is not entitled to claim damages for late performance on account of want of notice at the time of acceptance of such late performance, such disentitlement extends not merely to claims under Section 73 but also to liquidated damages specified under Section 74.
The Court emphasised that under Section 74 of the Contract Act, damage or loss caused is a sine qua non for applicability of the section, and while proof of exact quantum of loss is unnecessary, the claimant must establish that some loss or legal injury has resulted. The Court also reiterated that where a sum is named as liquidated damages, the party can receive such amount only if it is a genuine pre-estimate of damages, and otherwise only reasonable compensation not exceeding the named amount can be awarded.
A Single Judge Bench of Justice Mini Pushkarna noted that the present case involves an International Commercial Arbitration under Section 2(1)(f)(ii) of the Arbitration Act, since Dinowic is a company incorporated in Singapore. The Court observed that the scope of interference under Section 34 is significantly narrower for International Commercial Arbitrations as compared to purely domestic arbitrations. The ground of “patent illegality” under Section 34(2-A) is not available for challenging awards arising out of International Commercial Arbitrations, and only the grounds under Section 34(2)(a) and (b) can be invoked.
The Court observed that the Sole Arbitrator had recorded that there was, in fact, delay on the part of Dinowic in both remittance of payment and lifting of Naphtha. However, since RGPPL had accepted such delayed performance without reservation, RGPPL was held to have waived strict compliance with the contractual timelines. The Arbitrator applied Section 55 of the Indian Contract Act, 1872, holding that where a promisee accepts delayed performance, compensation cannot be claimed unless notice of intention to claim damages is given at the time of such acceptance. The Arbitrator also invoked Section 63 of the Contract Act, holding that RGPPL had dispensed with strict compliance of the contractual obligations.
The Court further observed that the Arbitrator held that the deduction of liquidated damages from the security deposit was contrary to the express contractual procedure contained in Clause 6.0 of the SCC read with Clause 9 of the Sale Order, which required first raising of a claim and grant of seven days to remit the amount before any deduction could be made. The Arbitrator also held that Clause 9 did not characterize the stipulated amount as a genuine pre-estimate of damages and that RGPPL had neither pleaded nor proved any actual loss arising from the delay.
The Court noted that the Arbitrator had rejected RGPPL’s application for placing additional documents on record, finding that the documents were sought to be produced belatedly at the stage of final arguments, which would prejudice Dinowic’s right to cross-examination. The Court observed that the rejection of counter claims was a logical consequence of the finding of waiver, since the counter claims arose from the same factual foundation of delay in remittance and lifting of Naphtha.
Briefly, the petitioner, Ratnagiri Gas and Power Private Limited (RGPPL), a joint venture between NTPC Limited and GAIL (India) Limited, operates a power plant at Dabhol, Maharashtra. The respondent, Dinowic Pte Ltd., is a Singapore-based company. On 19 March 2014, RGPPL floated an e-auction through MSTC Limited for sale of approximately 40,000 Metric Tonnes (MT) of Naphtha on an “as is where is” basis. Dinowic emerged as the successful bidder and deposited a total Earnest Money Deposit (EMD) of USD 16,66,000, which was converted into an interest-free security deposit.
A Sale Order dated 02 April 2014 was issued for a total consideration of Rs. 160.03 crores, payable through demand draft, RTGS, or an irrevocable confirmed Letter of Credit (LC) covering 110% of the sale consideration. The contract required lifting of Naphtha in two lots through RGPPL’s Single Point Mooring (SPM) facility at Dabhol. The first lot of 30,000 MT was to be lifted with LC opening by 07 April 2014 and delivery by 16 April 2014, while the second lot of 10,000 MT required LC opening by 12 April 2014 and delivery by 21 April 2014.
Clause 9 of the Sale Order provided for liquidated damages at 1% of the contract value per week of delay, subject to a maximum of 5%, payable within seven days of raising a claim, failing which the amount could be deducted from the buyer’s security deposit. There were delays in opening of LCs, nomination of vessels, and lifting of Naphtha. The first lot of 20,090.848 MT was lifted on 25 April 2014 and the second lot on 10 May 2014, both beyond the stipulated timelines. RGPPL deducted USD 714,960.74 from the security deposit towards liquidated damages, which Dinowic contested.
Dinowic invoked arbitration under Clause 14 of the Special Conditions of Contract, and Mr. Justice (Retd.) Anil Dev Singh was appointed as the Sole Arbitrator. By the Arbitral Award dated 03 September 2019, the Sole Arbitrator allowed Dinowic’s claims and directed RGPPL to refund USD 714,760.74 along with simple interest at 6% per annum from 17 June 2014, while rejecting all counter claims of RGPPL towards interest on delayed remittance, exchange rate variation, ground rent, and interest thereon.
