Delhi High Court Upholds Arbitral Award Allowing BSNL's 12.63 Crores Counterclaim In Optical Fibre Cable Dispute

The Delhi High Court refused to interfere with an arbitral award allowing counterclaims to BSNL amounting to Rs. 12.63 crores in a dispute arising out of supply of optical fibre cables, holding that the supplier remained bound by its assurance regarding the life of the cables

A single bench of Justice Harish Vaidyanathan Shankar observed that when the supplier had assured that the life of the cables supplied by it was 32.8 years, which was beyond the tender requirement of 20 years then it was bound by the assurance.

The court held that the arbitrator was correct in holding that “The mere expiry of the warranty period could not absolve the Petitioner of its responsibility in respect of the defective cables, particularly when the failure occurred much prior to the assured life period.”

The award being well-reasoned warranted no interference.

The present petition was filed by the Petitioner i.e. RPG Cables Limited (“RPG”) under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an arbitral award dated 05.11.2008 (“Award”) passed in its dispute against Bharat Sanchar Nigam Limited (“BSNL”).

Between 1998-1999, tenders were issued for procurement of Optical Fibre Cables (“OFCs”), pursuant to which five purchase orders were placed on RPG for the supply of OFCs.

Accordingly, the OFCs were supplied to various circles of BSNL. However, sometime after commissioning, BSNL observed that in certain stretches, the OFCs supplied by RPG were exhibiting abnormally high attenuation. From 25.06.2001, BSNL lodged complaints with RPG.

When RPG conducted its technical assessment, it concluded that the degradation in performance was not because of any manufacturing defect in the OFCs. Rather it was a result of poor installation, handling and maintenance by BSNL. Simultaneously, BSNL constituted an expert committee, to independently examine the issue.

The committee, inter alia, concluded that the deterioration was confined exclusively to coloured fibres, whereas the natural colour fibres did not exhibit similar degradation, despite being laid under similar conditions. As the disputes between the parties continued to subsist, the matter was referred to arbitration.

In the award, the arbitrator rejected the claims of RPG and also disallowed a significant portion of the counter-claims raised by BSNL. However, BSNL's counterclaims relating to the cost of unusable OFCs were allowed to the extent of Rs. 12.63 crores. The present petition challenged the award on the limited point of RPG's liability to pay the aforesaid amount.

RPG submitted that all complaints relating to alleged deterioration of the OFCs were raised beyond the contractual twelve-month warranty period. It was argued that the Arbitrator overlooked material evidences such as the terms of the purchase order which nowhere contemplated a warranty co-extensive with the product's life span.

RPG also submitted that its investigation had conclusively established that the underperformance was solely attributable to installation related factors and not to any defect on the part of RPG.

BSNL contended that RPG has represented the life of the OFC as 32.8 years while the tender prescribed a minimum service of 20 years. Accordingly, the Arbitrator was correct in relying upon this representation in determining liability.

It was highlighted by BSNL that the cables of other manufacturers installed under identical conditions did not deteriorate, a fact duly noted by the Arbitrator. Additionally, BSNL submitted that RPG never denied attenuation and, on the contrary, admitted that only coloured fibres were affected. In fact, RPG offered to replace cable where colouring was carried out through an external agency, which was relied upon by the Arbitrator while assessing liability.

On the issue of claims beyond the warranty period, the Court observed that the tender conditions provided that the minimum life of the cable shall be at least twenty years. However, it was RPG itself that had furnished an assurance stating that the life of the OFCs supplied by it was 32.8 years.

The Court observed that the Arbitrator had carefully considered all relevant materials on record before holding that the assurance furnished by RPG was not merely incidental but constituted a binding contractual obligation. This enforceable obligation continued to operate independent of and beyond the stipulated warranty period.

The Court agreed with the view taken by the Arbitrator that mere expiry of the warranty period would not absolve RPG of its responsibility in respect of the defective cables especially when the failure occurred much prior to the assured life period. Since the view taken by the Arbitrator was a plausible one, the Court held that it warranted no interference.

On the issue whether the underperformance was because of defects in the supplied cables, the Court held that the Arbitrator has undertaken a comprehensive evaluation of multiple interrelated factors. The Arbitrator had made note of the fact that no similar complaints were received in respect of similarly placed ongoing projects by different manufacturers. He had also observed that attenuation was predominantly reported in coloured fibres only.

Analysing the material placed on record, the Arbitrator had specifically rejected RPG's contention that the deterioration was attributable to improper laying or handling. Carrying out a fair assessment of rival technical reports, the Arbitrator had concluded that the deterioration was attributable to defective colouring material.

The faulty colouring material underwent degradation over time and led to attenuation. The Court found no infirmity with Arbitrator's conclusion that the fault was attributable to the manufacturing process and not the installation. The Court observed that conclusion arrived by the Arbitrator was scientifically plausible and did not warrant any interference.

The court found no ground to interfere with the award passed by the arbitrator. Accordingly, the present petition was dismissed.