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PROJECT REPORT ON

Oil & Natural Gas Corporation Limited v. Saw Pipes:
An Analysis

SUBMITTED TO:
Ms. Tulika Shree
(Faculty Member in Law)
SUBMITTED BY :
Akshay Kr. Mankar
Roll No.: 16 Section C
Semester VI
(B.A., L.L.B (Hons.))

Date of Submission: 15 -02-2016
(2015-2016)

Hidayatullah National Law University
Uparwara Post, Abhanpur, New Raipur – 493661 (C.G.)

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Declaration

The researcher hereby declares that the project work entitled “Oil and Natural Gas
Company v. Saw Pipes: An Analysis” submitted to Hidayatullah National Law University,
Raipur, is a record of an original work done by the researcher under the guidance of Ms. Tulika
Shree, faculty member of Law, Hidayatullah National Law University, Raipur.
The research done by the researcher is his own work and wherever excerpts from the
works of different authors have been taken, they have been duly acknowledged.

_____________________
Akshay Kumar Mankar
ROLL NO. 16, Section C
Semester VI

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They act as a motivating and guiding force to me during the making of this project. Therefore. My special thank to Library Staff and IT staff for equipping me with the necessary data and websites from the internet. I would also like to thank my dear colleagues who had helped me a lot creating this project with their ideas and thoughts over the topic. She inspired me greatly to work in this project. I also owe my gratitude towards University Administration for providing me all kinds of required facilities with good Library and IT lab which helped me in making the project and completing it. I want to thank her for all his efforts and cooperation which she conferred me. Tulika Shree for offering this subject.Acknowledgement First and foremost. She also helped me in improving the perception regarding to the study of the topic in its vast resources and in a broader way clearing all the doubts and uncertainty towards this project. 16 SECTION: C Semester VI 3 . and for her valuable guidance and advice. “Oil & Natural Gas Company Limited v. I would like to thank my Faculty of Law. _____________________ Akshay Kumar Mankar ROLL NO. Saw Pipes: An Analysis”. Ms.

vs. Hindustan Copper ltd.Table of Cases ONGC v Saw Pipes1 Centrotrade Minerals &Metals Inc. Progetto Grano Spa. (2) SCR 146.2 Shri Lal Mahal Ltd. Vs. 3 2013 (3) Arb LR 1: 2013 (8) SCALE 489 4 .3 1 AIR 2003 SC 2629 2 2006 (3) Arb LR 201 SC: (2006) 11 SCC 245: [2006] Supp.

............................................................................................... 3......................................... 2.................6 Critical Appraisal..................................2 1........... Research Questions..................................................................................................... Scope & Limitation....4 Principles Established.......................................iii Introduction...................................................................................... Methodology.......................................................................................................................................................2 iv..................................................................................................i Acknowledgement........................................................................................................................................................................15 Introduction 5 ...............................................14 References.........................................................................................2 ii........................9 Ramification of Case...............................3 Understanding the case...................ii Table of Cases............. Mode of Citation.......................................................................... i.................................................................................. Statement of Problem..............11 Conclusion.................................2 iii........................................................................................................................................................................1 Research Methodology...................................................................3 vii......................................................................... 4..........................................................................................................................................Contents Declaration................................................................................................. Aims and objectives......................................2 v... Hypothesis.................................................................................................................................................................3 vi...............................................................................

4 AIR 2003 SC 2629 6 . This issue has been the focus of the case. Further. Though there are many articles available on the internet about the landmark principles established by this case. The lack of satisfactory research and work with respect of this case leaves a big gap in terms of understanding this case. This study aims to not only critically analyse the judgment and the principles established. The case was heard by M. There is a need of dealing with this case as a subject of critical analysis and bring forth the explanations regarding the ratio of this case. but also the critics that rose and the implications of the case in the legal development. there is confusion when it comes to deducing the concept and application of it. there is unavailability of a critical analysis done with regards to this case.B Shah and Arun Kumar JJ. and most of the books have mentioned this case. This case is considered as a landmark decision. the principles established by this case have not been analysed critically. The case involves application of Section 34 of the Arbitration and conciliation Act of 1996 and a very important issue of the public policy. As a result. and getting hold over the concept of principles established.The case ONGC v Saw Pipes4 arose out of a challenge to an arbitral award rendered with regard to a dispute relating to supply of equipment for off shore oil exploration by the respondent. The judgment was written by Shah J.

3. though criticised. its relevance and importance. this study has limited itself to the application of the concept in the Indian framework only. 2. HYPOTHESIS It is hypothesized by the researcher that the judgment given by the court in this case. To study the case and analyse the judgment. SCOPE AND LIMITATIONS The center of focus in this case being public policy. AIMS AND OBJECTIVES The primary aim of this research work is to critically analyse the judgment given in the case of ONGC ltd. the concept of which has developed all over the world in different legal systems. To critically analyse analyse the legal principles established in the judgment. V. the existing research works fail to have satisfactorily dealt with this case and have critically analysed the legal principles established by it.judgment impact. To understand the post..RESEARCH METHODOLOGY STATEMENT OF PROBLEM In India. 7 . but is relevant and established a very important principle in the legal system which has been followed by the court. To study the criticisms hat arose against the judgment and analyse them. OBJECTIVES 1. it is intended by the researcher to look into its impact on the later judicial decisions on the same matter. 4. Also. Saw Mills and highlight the developments made in the legal system by the principles of law established by the Court in this judgment.

8 . if any? METHODOLOGY “Doctrinal (Non-Empirical) Method of Research” has been relied upon for conducting the research. Who was the judgment viewed by the contemporary jurists and scholars? 4. What is the relevance and importance of the judgment. What are the legal principles established by this judgment in the Indian legal framework? 3. Books. For the purpose of research Encyclopaedias’.RESEARCH QUESTIONS 1. MODE OF CITATION A uniform system of NLS citation has been adopted throughout the project. Case laws etc have been relied upon. What is the background of the case and what were the issues rose and the judgment of the court? 2.

While the arbitral tribunal rejected Saw Pipe’s defence of force majure. Timely delivery was the essence of the contract.970. 2) Whether Patent illegality could be used as a ground to assail the award under section 34. Understanding the case Facts Oil and Natural Gas Commission had placed an order on Saw Pipes for supply of equipment for off shore exploration. Saw pipes disputed the deduction and matter was referred to arbitration. Issues Raised 1) Whether ONGC had the right to Liquidated Damages. ONGC challenged the award as being patently illegal.76 Lakhs towards liquidated damages retained by it while making payment to the company.557 towards customs duty. to be procured from approved European manufacturers. ONGC granted extension of time. The Supreme Court set aside an arbitration award directing ONGC to refund $3.04. that the deduction of Liquidated damages was wrongful. sales tax and freight charges.Chapter1. but it invoked the clause for recovery of Liquidated Damages by withholding the amount from the payment to the supplier. The single judge and division bench of Bombay High Court dismissed the challenge. The delivery was delayed due to general strike of steel mill workers in Europe.04. it required ONGC to lead evidence to establish the loss suffered by breach and proceed to hold. The award was challenged by ONGC. inter alia as being opposed to public policy ONGC’s case was that the arbitral tribunal failed to decide the dispute by not applying the prevailing substantive law. ignoring the terms of the contract and customary practices of usage of trade in such transactions. ONGC deducted from the payment $3.20 and Rs 15.75. 9 . in absence of evidence of financial losses.970.20 and Rs 15.

it can grant reasonable compensation upon proof of damage.Decision Of The Supreme Court The Hon’ble Court first extensively discussed the court’s jurisdiction to set aside an award under Section 34 of the Arbitration and Concilliation Act 1996 and the various grounds on which interference was permissible. It further opined that when the court concludes that stipulation for damages is by way of penalty. depending on the reasonableness of the amount to be forfeited. As regards forfeiture. SC 1955 10 . after considering its decision in Union of India v Rampur Distellery the court states the forfeiture clause can be construed either as liquidated damages or as a penalty. Therefore. the Hon’ble Court opined that when the words of the contracts are clear. the court should be slow to construe a clause providing for liquidated damages as penalty. while penalties should not. If the parties had agreed upon a sum as being preestimated genuine liquidated damages there was no reason for the tribunal to ask the purchaser to prove his loss. as regards Liquidated Damages and penalties. it also appears to have concluded in case of penalty damages will have to be proved. where an agreement has been executed by experts in the field. and it was not necessary for the appellant 5 AIR 1970. there is nothing that the court can do about it. Further. Passing over to the question of damages. At paragraph 49. There was no such contention raised in the instant case. citing Maula Bux v Union of India5 (the court concludes that this is especially true where the court is unable o assess compensation or such assessment is fraught with difficulties. The court took the view that the appellant had rightfully deducted the amount of liquidated damages from the amount claimed by the respondent. The Hon’ble Court reaffirms that no compensation at all be awarded if the court concludes that no loss is likely to occur because of the breach. However. the primary conclusion of the court appears to be that Liquidated Damages should be regarded as reasonable compensation. In such cases the burden of proof would be on party who contends that the stipulation amount is not reasonable. The Hon’ble Court first extensively discussed the court’s jurisdiction to set aside an award under Section 34 of the Arbitration and Concilliation Act 1996 and the various grounds on which interference was permissible.

The court held that the jurisdiction or the power of the arbitral tribunal is prescribed under the Act and if the award is de hors the said provisions. 11 . the tribunal can not act in breach of some provisions of substantive law or the provisions of the Act. In exercising jurisdiction. Principles Established Patent Illegality used as a ground to assail the award under section 34.to prove the loss suffered by it in view of the provisions in the contract for the payment of liquidated damages. Chapter2. therefore liable to be set aside on the ground that the patent error of law was included in the ground of public policy. however. on the face of it. illegal. If the tribunal has not followed the mandatory provisions of the Act it would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal which could be set aside under section 34. the court could still not set it aside. The legislative intent could not be that if that the award is in contravention of the provision of the Act. The decision of the tribunal must be within bounds of its jurisdiction conferred under the Act or the contract. it would be. and the impugned award thus suffered from patent illegality and was.

It also laid down guidelines to determine ‘reasonable compensation’ with reference to Section 74 of the Indian Contract Act. however. The Arbitration (protocol and convention) Act. flood the courts with challenges to awards suffering from negligible legal defects. The Court restricted its holding to circumstances where the contractual agreement runs contrary to an explicit and well defined public policy. In the former.“to minimize the supervisory role of courts in arbitral process and “ to provide that every final arbitral award is enforced in the same manner as if it were a decree of the court” Public Policy is that principle of law which holds that no subject can do. This Act is by and large an integrated version of the 1940 Act which governed domestic arbitration. 1937 and the foreign award (recognition and enforcement) Act. was conceived by the compulsions of globalization leading to adoption of the United Nation Commissions on International Trade Law (UNCTRAL) model law. Public Policy 12 . or as an award opposing the terms of the contract. with the difference that in UNCTRAL the provisions are called ‘Article’ whereas under the act they are called ‘section’. The wider connotation adopted in the latter. Apparently chapter I – VIII of the UNCTRAL are replicas of Chapter I – VII of the Part I of the 1996 Act. requiring something more than the violation of the law. might. rather than on general consideration of public interest. The court further clarified that an award is patently illegal if the illegality goes to the root of the matter. which has a tendency to be injurious to the public or against the public good. which may be termed as it sometimes has been policy of the law or public policy in relation to administration of the law. Concept of Public Policy Expanded The Arbitration and Conciliation Act 1996. as demonstrated by the positive statutory law of India. The in definability of the ‘public policy’ concept makes it all the more likely to be misused.The Hon’ble Court interpreted patent illegality as meaning any violation of the substantive law in force in India. 1961 which governed into arbitral awards. The main objectives set out in the statement of objects and reasons of 1996 Act are. the narrow view of public policy was adopted. The article also highlights the shift in the interpretation of public policy from the Renusagar to the Saw Pipes case.

The judgment expanded the concept of Public Policy to add that the award would be contrary to public policy if it is “patently illegal”. and that has varied from time to time. in the case of Renu Sagar Power Co v General Electrical Corporation 6 had construed the ground of public policy narrowly as confined to the “fundamental policy of Indian Law or the interest of India or justice or morality. it is required to be held that the award could be set aside if its ‘patently illegal’. An earlier Supreme Court decision of a three judge (larger bench) bench. the award which is. patently in violation of statutory provisions cannot to be said to be in public interest. or The interest of India. The concept of Public Policy varies from time to time. The ratio of Renusagar could not be applied while interpreting section 34(2)(b)(ii) of the 1996 Act. Such award/judgement/ decision is likely to adversely affect the administration of justice. if it is contrary to:(i) (ii) (iii) (iv) Fundamental policy of Indian law. However. or Justice or morality. the court held that it was to be understood in the context of foreign award. or In addition. It was observed that section 48(2)(b) was liable to be construed differently having regard to the concept of double exquator recognized in the context of a challenge to foreign awards. which was in context of a foreign award. The award could now be set aside. in addition to narrower interpretation given to the term “public policy” in Renusagar’s case. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest. It can be stated that a concept of public policy connotes some matter which concerns public good and the public interest. The Supreme Court specifically stated the phrase “public policy of India” used in section 34 context is required to be given wider meaning. though applicable in case of challenge to foreign awards. 6 AIR 1994 SC 860 13 . if it is patently illegal. on the face of it. Hence.” While analyzing the ratio of Renusagar case.connotes some matter which concerns public good and public interest.

‘The Indian Arbitration Law : Towards a New Jurisprudence’. Nariman at the inaugural session of “Legal Reforms in Infrastructure”. The division of 3 judge bench binding on a bench of 2 judges. 7 (1994) Supp 1 SCC 644 at p. 10(1). It has been criticized for both judicial indiscipline and violation of the binding precedent of a larger Bench. 671. The gravamen of all the comments is that this case has set the clock back to the pre 1996 era. Int. S. The decision of Supreme Court in Renusagar case gave a narrow meaning to the expression ‘Public Policy of India’ by confining judicial intervention with an arbitral award only to the three reasons set forth in it. 13-17 14 .L. 2 May. The purport of UNICITRAL Model Law a priori of the 1996 Act. New Delhi. Nariman. F. Sumeet. the Division Bench went ahead not considering the prior precedent and expanded the same to such an extent that arbitral awards could now be reviewed on their merits. although in a case of foreign award under the repealed foreign awards (Recognition and Enforcement Act) Act of 1961. remarks8 on the judgments as having ‘virtually set at naught the entire Arbitration and Concillation Act of 1996…. A common criticism of the Saw pipe judgment is that it has erroneously expanded the meaning of public policy in India. para 33. These reasons hitherto have been treated as exhaustive and incapable of expansion. While the Bench in Renusagar case held that the term ‘public policy of India’ was to be interpreted in a narrow sense.R.Chapter3. This is a huge step backwards in laws relating to alternate dispute resolution in the era of globalization. 2003 – quoted in Kachwaha. one of the greatest lawyers of our generation. The decision of the two judges Bench in ONGC has bypassed the ruling of the three judges Bench of Supreme Court in the Renusagar case. Mr Fali. S. 2007. was to leave that era behind. Critical Appraisal This decision has provoked considerable adverse comments. when parties could challenge arbitral awards on the grounds of error of law apparent on the face of the award. It was also contrary to the plain intent of the 1996 the new need of finality in alternative method of dispute resolution without court interference. A. 8 From transcript of speech delivered by Mr. which was given a narrow interpretation in the Renusagar case 7.To have introduced by judicial innovation – a fresh ground of challenge and placed it under the head of public policy was first contrary to the established doctrine of precedent.

Pp.it is relevant to note here that the three heads set ou in Renusagar were stated by the court for the first time. 9 O. 2014.The most common criticism of the ONGC case is that it has widened the scope of judicial intervention which is contrary to Section 5 which provides that no judicial authority shall intervene. 10 The three heads stated in Renusagar were taken from Cheshire and North. as is explicitly provided in the section 28 (1) (i) of the act. there is no justification to fault ONGC because another bench has added one more head to the three already existing as required by the situation. the parameters of public policy were not demarcated. the Law & Practice if Arbitration.P.Malhotra.10 Before this.9 The contra view in favour of ONGC is that there is no rational justification to fault ONGC merely because it had added one more head to thos who set forth in accordance with the substantive law in force in India.. 1360. by the same logic. 12th Edition. 15 . except where so provided in Part-1. Third Edition. 131-133. Privste International Law. pp.

12 It was held that “the doctrine of Public Policy must be held to be ground for setting aside as arbitration agreement and consequently an award.Chapter4. the judgment sets the clock back to the old position where an award could be challenged on merit and indeed renders the court as a court of appeal. 71. para 33 :AIR 1994 SC 860: 1994 (2) Arb LR 405 (SC) 12 2006 (3) Arb LR 201 SC: (2006) 11 SCC 245: [2006] Supp. 1-24 16 . 13 In para 26 of this judgement. Progetto Grano Spa.” The judgement of ONGC v. Ramification of the Case The Supreme Court in Saw Pipes confined the expansion of public policy to domestic awards as an earlier larger bench decision of the court in case of Renusagar Power Co vs General Electricals11 had construed narrowly this ground as limited to fundamental policy of Indian Law. Do Egrigious Errors Amount to a breach of Public Policy? The Journal of the Chartered Institute of Arbitrators. Saw Pipes has now been affirmed by a three judge bench in the case of Shri Lal Mahal Ltd. 13 2013 (3) Arb LR 1: 2013 (8) SCALE 489 14 Michael Hwang and Amy Lai. 671. Vol. the principles laid down in Saw pipes would govern the scope of proceedings foe setting aside an award under section 34 is concerned. Read literally. (2) SCR 146. the judgement was followed by two judge bench of the Supreme Court in Centrotrade Minerals &Metals Inc. the principles laid down in the Saw Pipes would govern the scope of proceedings. pp. the court held that insofar as proceedings for setting aside an award under section 34 is concerned. Vs. The Saw pipes judgment has come in for sharp criticisms from several quarters . vs. (February 2005). Hindustan Copper ltd. It also finds support in comments of two eminent commentators Michael Hwang and Amy Lai in the following language14: 11 (1994) Supp 1 SCC 644 at p.

“Public policy is a ground for challenge has been historically viewed with much skepticism. It held that. for the review of the arbitral award only to ensure fairness. Parliamentary Arbitration and Concilliation (Amendment) Bill. To ignore suc errors would be to accept that the arbitral process can condone miscarriage of justice. It is only for a larger bench to consider the correctness or otherwise of the said decision the said decision is binding on us and has been followed in many cases. In few circumstances only. the scheme of this provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a consciousness decision to exclude the court’s jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.“1996 Act makes provision for supervisory roles of courts. often for good reason. Intervention of the court is envisaged. and the risk of arbitral error is inherent in the acceptance of the process. 2003 In light of the criticisms (as mentioned above) the Legislature has introduced in the parliament Arbitration and Conciliation (amendment) Bill. Where the court somewhat read down Saw Pipes. The court can not correct the errors of the arbitrators. It can only quash the award leaving the parties to begin the arbitration again if it is desired.” Commenting on Saw Pipes it held – “We are not unmindful that the decision of this court in ONGC had invited considerable adverse comments but the correctness or otherwise of the said decision is not in question before us. So. A supervisory or enforcing court should not second. While we do not advocate that it be used as catch-all provision to be applied whenever convenient. Burn Standard Co Ltd.” Some judicial decisions have tried to reign in this effect of Saw Pipes. like in case of fraud or bias by the arbitrators. violation of natural justices etc. uncorrected would undermine confidence in the integrity of the arbitral process. parties do not bargain for a perverse and manifest error that calls out for correction. it should be available for attacking awards that are fundamentally flawed.guess a tribunal. However. To allow such awards to stand. 2003 in order to clarify that public policy does 17 . One instance of this is the Supreme Court decision in case of McDermott International vs.

This Bill was withdrawn later but again in 2007 it was brought up and its implementation is yet to be done.not have extended meaning as given by the Supreme Court in ONGC v Saw Pipes. 18 . To remove doubts. thus retaining the meaning given by Supreme Court in Renusagar Power Co Ltd v General Electrical Co. This can be seen as a positive step in Arbitration law of India for future cases. iii) Justice and morality. the bill provides an explanation to the words contrary to public policy in section 34 to mean contrary to :i) Fundamental Policy of India ii) Interests of India or.

First being the patent illegality as a ground to assail award under section 34 of the Arbitration and Conciliation Act 1996 and second being expansion of the ambit of the public policy. Union of India is quite relevant and important. but important as well. the judiciary did not deviate from the stand took in this case. 19 . Thus. As in succeeding judicial decisions. and the fact that Parliamentary Arbitration and Counciliation Bill. 2003 has not being implemented yet leaves us with the conclusion that the decision of the court is still standing. It basically established the two legal principles. the judgment is not only relevant. it could be fairly understood that the case of ONGC ltd v.Conclusion From the above study.

12th Edition Michael Hwang and Amy Lai. (February 2005). Websites: www. Third Edition.R. 2014 Cheshire and North.legalservices. A.P. Vol. Privste International Law.Malhotra.References: Books: ‘The Indian Arbitration Law: Towards a New Jurisprudence’.L. 2007 O.indiakanoon.com www. Int. 71. the Law & Practice if Arbitration.com www.jsotre. Do Egrigious Errors Amount to a breach of Public Policy? The Journal of the Chartered Institute of Arbitrators.com 20 .