BSNL Cannot Impose Price Reduction While Extending Delivery Time Under Supply Contracts: Delhi High Court

The Delhi High Court on Wednesday upheld two arbitral awards directing Bharat Sanchar Nigam Ltd. (BSNL) to refund nearly ₹19.31 lakh and ₹44.95 lakh deducted from telecom equipment contractor BWL Ltd. towards price reduction.

The court held that the original contracts did not permit BSNL to unilaterally impose a price reduction while granting extensions of time.

Justice Jasmeet Singh observed that novation of a contract requires mutual agreement and consensus ad idem between the parties. Holding that the original contract could not be novated merely because BSNL unilaterally imposed conditions while granting extensions of time, the Court said:

"From a conspectus of the aforesaid, it is clear that the most crucial element for effecting a novation of a contract is mutual agreement between the parties, no such novation/alteration can be effected unless the parties to an agreement are at consesnsus ad idem. Thus, in the present matter, the original Contract would only have been novated when the parties would have mutually agreed to discharge the old contract and accept the new one. No unilateral novation by imposing any condition can possibly be done by any party to bind the other."

The dispute arose from contracts awarded by the Department of Telecommunications to BWL for supply of optical fibre cables in December 1996 and September 1997. After BWL sought extensions in delivery, BSNL imposed liquidated damages and price reduction. While arbitral awards of April 3, 2008 upheld the levy of liquidated damages, they directed BSNL to refund the amounts deducted towards price reduction, leading BSNL to file petitions under Section 34.

The Court rejected BSNL's contention that the conditional extensions had novated the contracts, noting that the Arbitrator had categorically found the price reduction to be beyond the original contractual terms and that BWL had consistently objected to it.

"This contention, to my mind, does not support the case of the petitioner as in the present case, the Arbitrator has returned categorical findings that the price reduction was beyond the terms of the original Contract itself and the same was in fact resisted to by the BWL, when extensions were granted. Hence, it is not a case where BWL accepted the offer of BSNL unconditionally or without reservations. The Arbitrator in the present case has interpreted the terms of the Contract, and has taken a plausible view and the same cannot be reappreciated under the Section 34 jurisdiction."

BSNL had argued that BWL accepted the price reduction by its conduct and was estopped from disputing it. The Court disagreed, observing that estoppel cannot substitute mutual consent for novation and that BWL had consistently resisted the condition while performing the contract under protest.

"This contention of BSNL cannot be accepted, as estoppel being a rule of evidence cannot, in its effect, operate to enforce a novation of contract where consent/agreement is not there. The Arbitrator as discussed above has categorically appreciated the correspondences and found out that BWL consistently resisted the proposed price reduction and never unequivocally accepted the condition even by its conduct."

The Court concluded that the original contract was not novated by the conditional extensions and that BWL's continued performance, having been carried out under protest and without prejudice to its rights did not amount to acceptance of the price reduction.

Accordingly, the Court dismissed both petitions and upheld the arbitral awards in BWL's favour.

For Petitioner: Satvik Rai, Vineesh Tyagi, Kartik Rai, Advocates 

For Respondent: Ramesh Singh,Sr. Advocate, Monisha Handa, Arnav Chaudhary, Advocates