Arbitration – Principal of business efficacy” to interpret commercial contract

There was agreement for supply of pipes.   The contract provided for SPL to make delivery as per schedule.

There was no dispute to the amount payable by GAIL to SPL. 

However, the disputes arose when GAIL had withheld the payment of SPL under the contract as damages for the delay in delivery of the pipes.   

In all 33 issues as reproduced in para 38 of the judgment were framed.

The question as to who was responsible for the delay was one of the principal issues for decision.

The Tribunal held that GAIL was faulted for the delay and it had matching obligation to lift the stocks produced by SPL.   It was required to make arrangements for lifting the coated pipes “which ought to have been almost matching with the production of the coated pipes”.

The contention of the GAIL was that the award is illegal since it was contrary to the express terms of the Contract.

In that context, Section 37 Court held that the agreement between the parties has to be read as a whole and that the principle of interpretation of commercial contacts that the same must be interpreted in the manner as to give ‘business efficacy” to the transaction.

The principle of business efficacy for interpreting the commercial transactions.

A commercial transaction must be viewed in a reasonable manner and perspective that makes commercial sense.  

When the contract provided for delivery as per schedule, it must follow that GAIL had the obligation to take delivery in a reasonable manner.

Moreover, GAIL had accepted the delivery beyond stipulated period and therefore, waived the delivery schedule.

It was, therefore, held that the Arbitral Tribunal has interpreted the Contract in a reasonable manner as men of commerce would have intended.

Judgment dated 29.10.2024 of the Division Bench of the Delhi High Court in FAO (OS) (COMM) 313/2019 and CM APPL 34865/2024 of Gas Authority of India Ltd and Saw Pipes Ltd