Specific mention of price fluctuations is needed in contracts

Price fluctuations Contract

The Supreme Court in a recent judgment upheld the order of the Gauhati High Court, setting aside an award passed by the arbitral tribunal that was based on an impossible interpretation of a contract.

In South East Asia Marine Engineering and Constructions Ltd (SEAMEC Ltd) v Oil India Limited, the contractor, South East Asia Marine Engineering and Constructions, had been given a contract by Oil India for the purpose of well drilling and auxiliary operations in Assam, following a tender floated in 1994. The contract was initially for two years, however the same was extended for two successive periods of one year each.

The dispute arose when, during the subsistence of the contract, the prices of one of the essential materials – being high speed diesel (HSD) – increased significantly following a circular issued by the government. The contractor claimed that the increase in HSD price triggered the “change in law” clause of the contract (clause 23), and, as a result, Oil India were liable to reimburse the contractor.

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