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Whether time is of the essence in a contract is not dependent only a clause in the contract

In WELSPUN SPECIALTY SOLUTIONS LIMITED (FORMERLY KNOWN AS REMI METALS GUJARAT LTD.) vs OIL AND NATURAL GAS CORPORATION LTD., appeal was filed against the  judgment of High Court of Uttarakhand at Nainital setting aside an arbitration award.

The entire dispute and claim before the Arbitrator revolved around the question whether time is of the essence in a contract.

The Tribunal noted that the supply of material in the instant case was not for any specific purpose or urgent requirement. The tender was a global tender for general requirement. Besides, the contract provides for imposition of LD and/or termination of the contract. It may also be noticed that ONGC could extend the time for delivery and in fact ONGC did extend the delivery period without levying any LD. These and other stipulations in the contract are a clear indication that the time was not the essence of contract.

The Arbitral Tribunal, at the outset, had held that merely having a clause in the contract making time the essence of it would not be determinative; rather, an overall view having regard to all the terms of contract are to be taken into consideration. Further, they 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 imbuing time as essence of the contract ineffective. Additionally, the Arbitral Tribunal also noted that generally, under construction contracts, time is not the essence.

The Supreme Court agreeing with the Tribunal held that it is now settled that ‘whether time is of the essence in a contract’, has to be culled out from the reading of the entire contract as well as the surrounding circumstances. Merely having an explicit clause may not be sufficient to make time the essence of the contract. As the contract was spread over a long tenure, the intention of the parties to provide for extensions surely reinforces the fact that timely performance was necessary. The fact that such extensions were granted indicates ONGC’s effort to uphold the integrity of the contract instead of repudiating the same.

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