Bombay High Court Upholds US$1.13 Million Standby Charges Award Against ONGC For Vessels Kept Ashore

On 2 November, the Bombay High Court dismissed Oil and Natural Gas Corporation Limited's (ONGC) challenge to a US$1.13 million arbitral award in favour of Great Eastern Shipping Company Limited for standby charges on vessels reserved for an offshore construction project delayed by ONGC.

Justice Arun R. Pedneker held that vessels reserved and available for contractual work can qualify for standby charges even if they remain ashore, where the employer's own actions prevent the work from commencing as scheduled. The Bench said:

“Since ONGC had withheld the work, there was no reason for the Claimant to mobilise the vessels to the site. The fact that the vessels remained at the shore did not alter their status, as they had been reserved for the contractual work, remained available for deployment, and were on standby.”

The dispute arose from a contract awarded to Great Eastern Shipping following tenders invited by ONGC on 23 July 1999 for replacing the NG Flare Tripod Structure at the Bombay High offshore oilfield.

The project involved fabricating a new structure at Ratnagiri, transporting it offshore, dismantling the existing structure and installing its replacement. The installation required a temporary shutdown of the offshore platform, suspending oil production.

Under the agreed schedule, fabrication was to be completed by 24 January 2000, transportation was to take place between 25 and 28 January, and offshore installation was to begin on 29 January, with the project scheduled for completion by 15 February 2000.

However, ONGC postponed the work to accommodate another contractor, Mazagon Dock Limited, whose separate project had fallen behind schedule. At a meeting on 27 January 2000, ONGC deferred the work until 10 March 2000.

The platform shutdown eventually took place on 10 February 2000, allowing offshore work to begin the following day. The work was completed on 22 February 2000. Great Eastern Shipping subsequently claimed US$1,185,500 in standby charges for its vessels, Bhagiratha III and GAL Constructor, for the period between 25 January and 10 February 2000.

On 14 October 2012, an Arbitral Tribunal comprising retired Supreme Court Judges M.H. Kania, P.N. Bhagwati and S.P. Kurdukar awarded US$1,134,500, with interest at 9% per annum from the date of the award and Rs. 10 lakh towards arbitration costs.

ONGC challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, arguing that Great Eastern Shipping had failed to issue the required contractual notices and submit the prescribed work plan. It also contended that the vessels could not qualify for standby charges while undertaking transportation activities or remaining away from the offshore worksite.

The Court rejected these objections, noting that the agreed construction schedule was already in force and that ONGC's decision to postpone the project had prevented the work from commencing as scheduled. It noted that the Tribunal had examined the vessels' deployment and made appropriate deductions to avoid overlapping compensation.

Further, the Bench held that physical presence at the worksite was not a contractual prerequisite for claiming standby charges, provided the vessels remained committed to and available for the project. It also refused to re-examine the Tribunal's factual findings, observing:

“Such re-appreciation of evidence is impermissible before this Court in proceedings under Section 34 of the Arbitration and Conciliation Act, 1996.”

Accordingly, the High Court dismissed ONGC's challenge to the arbitral award and Great Eastern Shipping's separate petition seeking pre-award interest, holding that the grant of such interest was discretionary.

Appearances for ONGC: Senior Advocate Pradeep Sancheti, Advocates Pallavi Bali, Subhash Bhalwal, Kundanlal M. Patil and Pritesh Haridas Bodekar.

Appearances for Great Eastern Shipping: Advocates Akshay Patil, Jatin Pore, Suddhasattwa Roy and Vishal Mandal.