High Court of Delhi was dealing with petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 impugning an Arbitral Award dated 24.09.2019 rendered by an Arbitral Tribunal constituted by three members.
Brief Facts:
NHAI awarded a contract for the work of ‘Widening to four lanes and strengthening of the existing two-lane carriageway to KMC. Subsequently, the parties entered into an agreement. It is KMC’s case that NHAI had failed to handover the site to it and had provided an incorrect Detailed Project Report (DPR). Despite this, KMC completed the project two months prior to the stipulated date of completion. It is KMC’s case that the Engineer did not process the payments due to it and extended the defect liability period. The Engineer issued a Statement at Completion proposing a recovery against the Final Bill. Further, the Engineer did not give its decision on the other sums payable to KMC. NHAI invoked the Performance Bank Guarantee furnished by KMC. In view of the disputes, KMC invoked the Arbitration Agreement by a letter. In the meanwhile, KMC also filed a Writ Petition before the HC of Andhra Pradesh seeking interdiction of the invocation of the Bank Guarantee. The HC restrained NHAI from encashing the aforesaid Bank Guarantee. NHAI appealed against the aforesaid order and the Court ordered KMC to keep the Bank Guarantee alive during the course of the arbitration proceedings. The Arbitral Tribunal delivered the impugned award. The Arbitral Tribunal rejected the counter-claims preferred by NHAI. KMC filed an application under Section 33 of the A&C Act seeking modification of the impugned award in respect of reimbursement of commission paid for the Bank Guarantee. KMC claimed that there was an error in its calculation of the Commission paid to the Bank. However, the Arbitral Tribunal rejected the same.
Petitioner’s Contention:
The counsel for the petitioner submitted that the Arbitral Tribunal had erred in disregarding that KMC had accepted the Variation Orders in respect of the extra items in question. The said Variation Orders included the rates for the items in question. Notwithstanding the above, the Arbitral Tribunal had awarded substantial amounts after reworking the rates determined by the Engineer and as accepted by KMC.
It was submitted that the Arbitral Tribunal had erred in awarding an amount on account of additional overheads as the total contract value had exceeded the Effective Contract Price by over 15%. However, there was no evidence or material on record to substantiate any increase in overheads. He submitted that even if it is accepted that KMC was entitled to an additional amount on account of overheads, it was nonetheless, required to prove the same.
It was submitted that the Arbitral Tribunal had erred in awarding costs for idling of men and machinery due to transporters strike and instructions issued by the Mining Department. He stated that KMC had not led any evidence to establish that it had paid or incurred any cost for men and machinery during the transporters strike and closure of quarry on the instructions issued by the Mining Department. He also submitted that the claim raised by KMC was barred by limitation.
Respondent’s Contention:
Learned Counsel for the respondent submitted that KMC’s claim for idling of men and machinery was awarded on the basis of the rates as published by Ministry of Road Transport and Highways in MoRTH Data Book for the year 2001.
HC’s Observations:
The question before the court was whether the decision of the Arbitral Tribunal in allowing KMC’s Claim for additional amounts in respect of certain items of work directed to be executed by the Engineer in addition to the Bill of Quantity (BOQ) items, is patently illegal.
Court stated that the Arbitral Tribunal examined the analysis of rates and found that there were apparent errors. The Arbitral Tribunal rejected NHAI’s contention that KMC was precluded from challenging the said rates. And, accepted KMC’s contention that it had signed the Variation Orders as there was an inordinate delay in determining the rates and it had to sign the same for its payments to be processed.
The next issue before the Court was whether KMC was bound by the Variation Orders as accepted by it is a contentious one. Court observed that the Arbitral Tribunal had evaluated the circumstances and material before it and had rejected NHAI’s contention that KMC was bound by the Variation Orders. Court stated that the decision of the Arbitral Tribunal is not amenable to a reevaluation on merits. It is trite law that the arbitral award cannot be interfered with except where it is found to be patently illegal or in conflict with the public policy of India.
HC relied upon the case of M/s PCL-Suncon (JV) v. National Highways Authority of India, where Court had observed that “Section 34 jurisdiction calls for judicial restraint and an awareness that the process is removed from appellate review”.
Court found that the KMC had claimed that it was entitled to additional expenditure on account of overheads and profit resulting from increase in the value of the Contract as it had exceeded 15% of the Effective Contract Price. Court observed that the Arbitral Tribunal had interpreted Clause 52.3 of the GCC and held that KMC was entitled to additional overheads on account of increase in the value of the Contract beyond the threshold limit of 15%. Court stated that NHAI’s contention that the impugned award is patently illegal as the Arbitral Tribunal erred in interpreting Clause 52.3 of GCC, is unsustainable.
The next question before the Court was whether the impugned award to the extent that KMC’s claim for idling of men and machinery due to transporters’ strike and due to instructions issued by the Mining Department is patently erroneous. Court found that the Arbitral Tribunal held that KMC was entitled to idling charges for men and machinery for a period of four days in respect of the instructions issued by the Mining Department and for a period of six days on account of transporters’ strike. Court stated that the decision of the Arbitral Tribunal that events such as transporters’ strike and instructions issued by the Mining Department fall within the scope of Clause 20.4 of COPA warrants no interference as the said view is a plausible one and construction of the contract is within the jurisdiction of the Arbitral Tribunal.
HC Held:
After evaluating submissions made by both the parties the Court held that “This Court finds no ground to interfere with the award of interest on the ground that the rate of interest is unreasonable. The Arbitral Tribunal has wide discretion in awarding interest under Section 31(7) of the A&C Act. If the measure is based on relevant material, the arbitral award cannot be called into question. An arbitral award may be impeached on the ground of patent illegality but “patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression ‘patent illegality’. In view of the above, the Court finds that the impugned award cannot be set aside on the grounds as urged by NHAI.”
Bench: Hon’ble Mr Justice Vibhu Bakhru
Case Title: National Highways Authority Of India v. KMC Construction Ltd.
Case Details: O.M.P. (COMM.) 461/2020, I.A. NOS. 7760/2020 & 2327/2021
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