Only having an explicit clause not sufficient to indicate Time as the Essence of Contract: Supreme Court

Only having an explicit clause not sufficient to indicate Time as the Essence of Contract: Supreme Court

Whether Time is the Essence of the Contract has to be derived from reading the entire contract – Merely having an explicit clause may not be sufficient

Supreme Court in its decision on November 13, observed that, merely having an explicit clause may not be sufficient to make time the Essence of Contract. [Welspun Speciality Solutions v. ONGC, Civil Appeal 2826-2827 of 2016]

A Division Bench of Chief Justice NV Ramana and Justice Surya Kant, while upholding order of the Arbitral Tribunal, said, "The Arbitral Tribunal's interpretation of contractual clauses having extension procedure and imposition of liquidated damages are good indicators that time was not the essence of the contract."

In the given case, the Arbitral Tribunal held that merely having a clause indicating time as the essence would not be a conclusive factor rather an overall reading of the terms of contract, must be undertaken.

It was further noted that contracts containing provision for extension of time or payment of penalty on default would dilute the obligation of timely performance and render the clauses having time as essence of the contract, ineffective.

Out of 17 issues dealt by the Arbitral Tribunal, following 8 issues were dealt by the Top Court:

(i) Was time the essence of the Agreement to make supplies under the four Purchase Orders and was the delivery date to be reckoned from the date of the supply order?

(ii) Was ONGC justified in recovering liquidated damages of US $807804.03 and Rs.105367?

(iii) Was the Claimant entitled to extension of delivery dates without levy of liquidated damages on account of force majeure condition?

(iv) Was ONGC entitled to impose liquidated damages on the basis of the entire value of the Purchase Orders?

(v) Is the Claimant entitled to refund of any part of the amount recovered by ONGC as liquidated damages?

(vi) Is the Claimant entitled to US $244121.03 and Rs.576244.21 as interest on delayed payment as in Exhibit 'H' to the Statement of Claim?

(vii) Whether the Claimant is entitled to any interest? If so, at what rate and for what period?

In the petition filed under Section 34 of the Arbitration and Conciliation Act, the District Court upheld the view of the Tribunal.

In appeal, the Uttarakhand High Court disagreed with the view of Tribunal and set aside the Arbitration award.

Before the Top Court, the appellant contended that the view taken by the Arbitral Tribunal was reasonable and can be sustained while the respondent opposed the same arguing that the terms unequivocally disclosed that time was the essence of Contract.