Introduction 

• This is a landmark judgment where the Supreme Court laid down the principles to determine if time is essence of the contract.  
• The Judgment was delivered by a 2- judge Bench consisting of Justice NV Ramana and Justice Surya Kant.   

Facts   

• ONGC floated a global tender for purchase of 3,93,297 metres of seamless steel casing pipes. 
• Remi Metals (now Welspun Specialty Solutions Limited) was the successful bidder and claimed to supply pipes on behalf of Volski Tube Mills, Russia. 
• Four purchase orders (POs) numbered 275, 276, 277 and 286 were issued with delivery to be completed within 40 weeks from the date of PO. 
• The purchase orders contained clauses stating that time and date of delivery was the essence of the supply order. 
• The contract included liquidated damages provisions at 0.5% of contract price per week for delays, capped at 5% of total contract price. 
• During contract execution, there were delays and ONGC granted several extensions to Remi Metals for fulfilling obligations. 
• ONGC deducted US $8,07,804.03 and Rs.1,05,367/- as liquidated damages from various bills submitted by Remi Metals. 
• Remi Metals disputed these deductions and raised additional claims totaling significant amounts including refund of liquidated damages, customs duty reimbursement, and interest on delayed payments. 
• The matter went to arbitration where the Arbitral Tribunal held that time was not the essence of the contract and awarded actual damages instead of liquidated damages. 
• The Arbitral Tribunal calculated ONGC's actual losses at Rs.3,80,64,830/- but excluded losses during extended periods where liquidated damages were waived. 
• ONGC challenged the arbitral award in District Court, which upheld the Tribunal's decision with minor modifications. 
• The High Court of Uttarakhand reversed both the arbitral award and District Court order, holding that time was indeed the essence of the contract. 
• Both parties filed appeals in the Supreme Court challenging the High Court's decision. 

Issues Involved  

• Whether the arbitral award should be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 (A & C Act)? 

Observations 

• The Supreme Court upheld the Arbitral Tribunal's finding that time was not the essence of the contract between ONGC and Remi Metals. 
• The Court held that whether time is of the essence must be determined from reading the entire contract and surrounding circumstances, not merely from explicit clauses stating so. 
• The Court laid down the following principles: 
  • Subject to the nature of contract, general rule is that promisor is bound to complete the obligation by the date for completion stated in the contract. 
  • That is subject to the exception that the promisee is not entitled to liquidated damages, if by his act or omissions he has prevented the promisor from completing the work by the completion date. 
  • These general principles may be amended by the express terms of the contract as stipulated in this case 
• The existence of extension clauses in the contract diluted the requirement of timely performance and indicated that time was not truly essential. 
• The Court found that ONGC's conduct of granting extensions without liquidated damages initially constituted a waiver of strict time requirements. 
• The Court ruled that once liquidated damages were waived in early extensions, they could not be reimposed in subsequent extensions unless clearly accepted by both parties. 
• Since time was not the essence, the Court held that liquidated damages could not be granted, and only actual damages based on proven losses were appropriate. 
• The Court emphasized that ONGC's effort to grant extensions showed intention to uphold contract integrity rather than repudiate it, further supporting that time was not essential. 
• The Supreme Court concluded that the Arbitral Tribunal's interpretation was reasonable and plausible, and the High Court exceeded its jurisdiction under Sections 34 and 37 of the Arbitration Act by interfering with this finding. 
• The Court set aside both the High Court and District Court orders and restored the original arbitral award in favor of Remi Metals (Welspun). 
• Civil Appeals filed by Welspun were allowed and ONGC's appeal was dismissed, upholding the arbitral tribunal's decision on time not being the essence of contract. 

Conclusion 

• The Supreme Court laid down the principles to determine if time is the essence of the contract. 
• The Supreme Court finally refused to interfere with the award of the arbitral tribunal on the ground that the interpretation was reasonable as well as plausible.