Larsen & Toubro Limited vs National Highways Authority Of ...
2009 Latest Caselaw 3649 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+           OMP No.514/2009

%                      Date of decision: 9th September, 2009

LARSEN & TOUBRO LIMITED                                 ....Petitioner

                       Through:    Mr. Sumit Bansal with Mr. Ajay
                                  Monga, Mr. Ateev Mathur & Mr.
                                  Manish Paliwal, Advocates

                               Versus

NATIONAL HIGHWAYS AUTHORITY
OF INDIA                                               .....Respondent

                       Through: None


CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1.    Whether reporters of Local papers may
      be allowed to see the judgment?   Yes

2.    To be referred to the reporter or not?     Yes

3.    Whether the judgment should be reported
      in the Digest?  Yes


RAJIV SAHAI ENDLAW, J.

1 The petition under Section 34 of the Arbitration Act,1996 with

respect to the arbitral award dated 13th May, 2009 is for admission.

After hearing counsel for the petitioner for one and a half hour, the

petition was dismissed with reasons to follow.

2 The Arbitral Tribunal comprised of three arbitrators in

accordance with the agreement of the parties. This petition is

preferred with respect to the award dismissing the claims No.1, 2(i),

3, 5, 6 and 8 of the petitioner. As far as the award on claim No.1 is

concerned, the same is split; the majority of the arbitrators have

dismissed the claim while the minority award is in favour of the

petitioner. The award dismissing the other claims aforesaid is

unanimous. The counsel for the petitioner has addressed to the

maximum length with respect to the challenge to the majority award

dismissing the claim No.1 and also stated that the petition is mainly

with respect to the dismissal of the said claim.

3 Claim No.1 of the petitioner was for "reimbursement of

enhanced royalty charges" in the sum of Rs 65,61,664/-. Shorn of

legalese, the claim was, i) that the contract was an item rate

contract; (ii) it provides in clause 70 of COPA (Conditions of

Particular Application Part II) for "changes in cost and legislation";

(iii) that royalty charges for boulders and ordinary sand used in the

contract had been enhanced by an amendment to the Karnataka

Minor Mineral Concession Rules 1994; (iv) that the petitioner was

entitled to such enhancement of royalty borne by the petitioner,

under clause 70.8 of COPA.

4. Clause 70.8 (supra) is as under

"Sub-Clause 70.8 : subsequent legislation

If, after the date 28 days prior to, the latest date for submission of bids for the Contract there are changes to any national or State Statue, Ordinance, Decree or other Law or any regulation or by-law of any local or other duly constituted authority, or the introduction of any such State Statute, Ordinance, Decree, Law, regulation or by-law in India or States of India which causes additional or reduced cost to the Contractor, other than under the preceding Sub-Clauses of this Clause, in the execution of the Contract, such additional or reduced cost shall, after due consultation with the Employer and the Contractor, be determined by the Engineer and shall be added to or deducted from the Contract Price and the Engineer shall notify the contractor accordingly, with a copy to the Employer. Notwithstanding the foregoing, such additional or reduced cost shall not be separately paid or credited if the same shall already have taken into account in the indexing of any inputs to the price Adjustment Formulae in accordance with the provisions of sub-Clauses 70.1 to 70.7."

5. The Arbitral Tribunal has held that though the aforesaid

amendment to the Karnataka Minor Mineral Concession Rules 1994

is a subsequent legislation within the meaning of clause 70.8

aforesaid but still the plaintiff is not entitled to the claim owing to

the last part of clause 70.8 i.e. because the same has already been

taken into account in the price adjustment in accordance with earlier

sub-clauses of clause 70, i.e., 70.1 to 70.7.

6. Clause 70.1 provides that the amounts payable to petitioner/

contractors are valued at base rates as defined and shall be adjusted

in respect of rise or fall in the indexed costs of labour, equipment

and plant, materials and other inputs to the work, by addition or

subtraction of the amounts determined by the formula prescribed in

clause 70; clause 70.2 provides that to the extent the full

compensation for any rise or fall in costs is not covered in the

contract, the unit rates/price included in the contract shall be

deemed to include the amount to cover the contingency of such rise

or fall in costs; Clause 70.3A provides for variation in price of local

labour; clause 70.3B provides for variation in price of general

materials- it provides for variation in price of "all materials other

than specifically provided in sub-clause 70.5" - such variation has

been linked to the fluctuation in Whole Sale Price Index (WPI) of all

commodities; clause 70.3C deals with variation in price of petroleum,

oil and lubricants, with which we are not concerned; Clause 70.3D

deals with variation in price of Plant and Equipment and clause

70.3E with variation in price of foreign inputs, with both of which

we are not concerned; clause 70.5 deals with variation in price of

specified materials, with which we are again not concerned.

7. It was the accepted position before the Arbitral Tribunal that

determination of WPI is on the basis of prices of 58 commodities,

just like sensex in a stock exchange is determined on the prices each

day of a select number of shares and not on the basis of prices of all

the listed/traded shares/stocks. It was further the established

position before the Arbitral Tribunal that neither boulder nor

ordinary sand on account of increase in royalty whereon, claim No.1

was made were included in the said 58 commodities, fluctuation in

price whereof determined the WPI.

8. The contention of the petitioner before the Arbitral Tribunal

was that since boulders and ordinary sand were not in the basket of

58 commodities determining WPI, the enhanced royalty thereon was

not taken into account in the indexing of inputs to the Price

Adjustment Formula in clause 70.3 B relating to "General Materials",

in which category boulders and ordinary sand otherwise fell and thus

they became entitled to such increased royalty under clause 70.8

(supra).

9. The Arbitral Tribunal did not accept the aforesaid contention of

petitioner, hence this challenge.

10. Not only do I find the interpretation of aforesaid clauses by the

Arbitral Tribunal to be a plausible one, but also the only correct

interpretation.

11. Any other interpretation would be anomalous. Clause 70.3B

aforesaid is with respect to "all materials" used in the contract and

not only those materials included in the basket of 58 commodities

determining WPI. As per the formula provided therein, the

petitioner/contractors will get variation in price of all materials

irrespective of whether the price of materials used in contract have

varied or not, as long as WPI has varied. In a given case say of

increase in prices, it is possible that WPI has gone up owing to

increase in prices of 58 commodities included in basket determining

the same, but there is no increase in prices of material used in the

works under the contract, say boulders and ordinary sand. The

petitioner will thus benefit from increase in WPI, though has not

suffered any increase in costs. A reading of the formula given in

clause 70.3B does not have any doubt as to the same. Can then it be

said that if there is increase in price of boulders and ordinary sand,

but WPI has not varied, the petitioner would be still entitled to

increase, this time under clause 70.8 because increase is on account

of subsequent legislation. The answer has to be no.

12. It is further the admitted position that had the increase in

royalty been with respect to any of the minerals included in the

basket of 58 commodities determining the WPI, the impact thereof

would be visible on the WPI. The question which arises is, whether

WPI is to be confined to the 58 items in the basket determining the

same only or generally for determination of variation in price of all

materials. Not only does the contract in the present case makes it

the index of variation in price of all materials but WPI by its very

nature is representative. It tracks the movement of price of each

(articles on google say it includes 435 commodities in its basket and

not 58 as mentioned in the award) commodity individually and based

on this individual movement, WPI is determined through averaging

principle. It captures the price movement.

13. The parties in the present case have agreed to variation in

prices of all materials as per WPI, the petitioner cannot be heard

that variation in price of boulders and ordinary sand on account of

subsequent legislation is not covered by clause 70.3B (supra) merely

for the reason of boulders and ordinary sand being not included in

the basket determining WPI. Clause 70.8, not only in the non

obstante part towards its end, but also by use of words "other than

under the proceeding sub-clauses of this clause" excludes increase in

cost of materials, even on account of subsequent legislation from the

purview of clause 70.8. Clause 70.2 expressly provides that even if

the petitioner is not fully compensated for increase in cost on

account of increase in royalty of boulders and ordinary sand, for the

reason of such increase being not reflected in WPI, such increase

shall be deemed to be included in the prices thereof stipulated in the

contract.

14. There is yet another reason for me to hold so. Even if suppose

such increase in royalty were to be reflected in the WPI directly if

boulders and ordinary sand were included in the basket of

commodities determining WPI; the increase would not be of the

entire enhancement. Could in such a situation, the petitioner be

heard to say that the balance increase should be given under clause

70.8. The answer against has to be No. Once the variation is

covered by formula provided for variation of price of labour,

material, petroleum, oil lubricants, plant, equipment, foreign inputs,

the variation with respect thereto, even if on account of subsequent

legislation cannot be covered by clause 70.8. Else, it will amount to

variation under two clauses and which is not permitted.

15. The counsel for the petitioner has at the outset contended that

the aforesaid award is contrary to the dicta of the Division Bench of

this court in NHAI Vs. ITD Cementation India Limited

MANU/DE/9104/2007. In this case also there was an increase in

rates of royalty and which were held to be not covered by WPI. The

Arbitral Tribunal however made a declaratory award only holding

the contractor in that case to be entitled to the amounts for the

reason of such increase and leaving the same to be determined by

NHAI. The Division Bench of this court was not called upon to

pronounce on the finding of the arbitrator of the petitioner being

entitled to the increase. The challenge before the Division Bench

was only that the award was bad and incomplete for the reason of

not computing the amount due which the arbitrator had found due to

the contractor in that case. Thus this judgment cannot be said to be

the judgment on the contention raised by the petitioner before this

court. The Arbitral Tribunal in the present case has interpreted

Clause 70.8 and upon such interpretation held the petitioner not

entitled to the claim. In fact the Division Bench has in Para 13 of the

judgment held that simply because the interpretation placed by the

arbitrator has not favoured one or the other party can be no reason

for the court to interfere under Section 34 of the Act with the award

made on any such interpretation; it being settled by a long line

decisions that the court does not sit in an appeal over the award.

16. Thus all that can be said from the aforesaid judgment of the

Division Bench is that the Arbitral Tribunal in that case had

interpreted Clause 70.8 differently from the interpretation adopted

by the Arbitral Tribunal in this case. However since the

interpretation in that case was not under challenge and further since

I have on detailed analysis aforesaid found the interpretation of the

same clause by the Arbitral Tribunal in this case, to be correct, no

ground under Section 34 is made out. In fact I may notice that

Arbitral Tribunal in that case did not go into the question analysed

above and proceeded on the premise that if items on which

"Seigniorage Fee" in that case were not included in the items

determining Index, it would ipso facto fall under clause 70.8

17. It is not as if the Arbitral Tribunal in the present case was

oblivious of the judgment in ITD Cementation Limited (Supra).

The petitioner herein relied upon the judgment before the Arbitral

Tribunal also and the Arbitral Tribunal has in Para 21 of the award

dealt therewith.

18. The counsel for the petitioner has also contended that the

report of the Engineer Incharge of the respondent is also in favour of

the petitioner in this regard and in fact payments under the said

head were earlier being made to the petitioner and were

subsequently wrongly stopped. The Arbitral Tribunal has dealt with

this aspect also and held that the decision of the Engineer Incharge

was not binding and was challengeable in the arbitration

proceedings. Thus no reliance can be placed by the petitioner on the

decision of the Engineer Incharge or for the reason of some

payments having been released on the said decision of the Engineer

Incharge.

19. The counsel for the petitioner has next contended that the

Arbitral Tribunal has proceeded with the matter with the intent to

deny the said claim of the petitioner. On a reading of the entire

award qua the said claim, I do not find any such intent. The Arbitral

Tribunal has on the contrary dealt with each and every plea raised

by the petitioner and which same pleas has been raised before this

court also and given their findings with respect thereto.

20. The counsel for the petitioner has also urged that if the

interpretation adopted by the Arbitral Tribunal is to be accepted, the

same will result in the clause becoming otiose. I do not agree with

the said contention also. All that the Arbitral Tribunal has held is

that the increase under Clause 70.8 is not for increase in cost of

materials, provision wherefor has been made in accordance with the

preceding sub-clauses of clause 70.

21. The counsel for the petitioner has also read portions of the

minority award on the said claim to persuade this court to accept the

same. The Division Bench of this court in The Fertilizer

Corporation of India Ltd Vs IDI Management Inc. AIR 1984

Delhi 333 and the Division Bench in Chogule Brothers Vs

Rashtriya Chemicals & Fertilizers Ltd MANU/MH/0114/2006

have held that it is not permissible to look at the minority award

while dealing with a petition to set aside the majority award.

22. The claim No.2 of the petitioner was for reimbursement on

account of increased taxes. The award allows claim under five

components under this head and denies the claim for Rs.3,67,812/-

for "resale tax on bitumen". The Arbitral Tribunal has held that the

said claim was made on the basis of payment of central sales tax

though the sale of bitumen was for use in Karnataka State only; it

was thus held that there being no interstate sale, there could be no

question for compensation with respect to the same.

23. The counsel for the petitioner also upon it being inquired as to

how with respect to local sale in a state, claim for central sales tax

could be made, did not press the challenge with respect to the said

claim.

24. Claim No.3 of the petitioner before the Arbitral Tribunal was

for Rs.11,16,364/- for "price adjustment of bitumen on temporary

diversions and renewal coat". The claim was made under Clause

70.5.

25. The Arbitral Tribunal found that the adjustment of contract

price under clause 70.5 (2) (a) was for bitumen for use in the

permanent works only and not for temporary works. The contention

of the petitioner was that the items were POQ items and hence the

petitioner was entitled to price variation thereon. The Arbitral

Tribunal finding works with respect whereto price adjustment was

claimed to be of temporary nature, rejected the claim.

26. The counsel for the petitioner has taken me to page 222 of the

paper book, containing copy of Bill No.9 and with reference to items

9.02 and 9.03 thereof to show that the items are included in the

BOQ. However from item No.10.03 in Bill No.10 on Page 223 of the

paper book the nature of the work as temporary is apparent.

27. Again, it is a matter of appreciation of evidence as to what

works are permanent and what temporary. The award contains

reasons for holding the works to be temporary. The finding of the

Arbitral Tribunal is a finding of fact. Section 34 does not permit a

challenge to such finding of fact. This court cannot enter into

investigation whether the works were permanent, as contended by

the petitioner.

28. The Arbitral Tribunal comprised of experts in the field. It has

been held in Jagdish Chander Vs Hindustan Vegetable Oils

Corporation AIR 1990 Delhi 204 that the court should be slow in

interfering with the findings of such expert arbitrators.

29. The next challenge is to the award with respect to claim No.5

(Rs 67,00,521) "for payment of foreign currency component of

interim payment certificates". The counsel for the petitioner has

contended that under the contract 10% of the value thereof was

payable to the petitioner in foreign exchange and for fluctuation in

rates thereof provision was made in Clause 15.2. The counsel admits

that the fluctuation as on the date of payment to the petitioner has

been taken into account. The claim is for fluctuation between the

date of said payment and the date of reconversion thereof into Indian

currency by the petitioner. The counsel for the petitioner contends

that the purport of Clause 15.2 is that the petitioner is to be

unaffected by fluctuation in rate of foreign exchange; thus the

petitioner needs to be saved even for fluctuation at the time of

reconversion by the petitioner. On inquiry the counsel for the

petitioner admits that the time of reconversion was at the sole

discretion of the petitioner and the respondent had no control over

the date or time when the petitioner was to reconvert the foreign

exchange to Indian currency. That being the position, the

interpretation of the arbitrator that the fluctuation if any of the time

when the petitioner reconverts the foreign exchange is not to be

considered and was not part of contractual obligation cannot be

faulted with. The petitioner by its own act could not make the

respondent liable.

30. Claim No.6 of the petitioner was for Rs 2,06,47,791/- towards

"price adjustment of grade 60/70 bitumen". The price of bitumen

was to vary as provided in clause 70.5 of the agreement. The "basic

price" is defined in clause 70.5 as meaning the price indicated in

schedule 3 of Section IX of the bidding document, copy whereof is

filed at Page 238 of the paper book and wherein the basic price of

the bitumen 60/70 grade is given as Rs.12,000/- per MT. "Current

Price" is defined in clause 70.5 (ii) (a) as meaning the ex refinery

price inclusive of sales tax and excise duty from nearest refinery,

prevailing at the relevant time.

31. The Arbitral Tribunal found that the project being an Asian

Development Bank project, exemption from excise duty had been

granted to the petitioner. Thus the admitted component of Rs 1296

per MT was removed from the base price of Rs 12,000/- per MT

given by the petitioner and the basic price of Rs 10,344.83 per MT

taken. Similarly, excise duty was not included in the current price

computation as well.

32. The contention of the petitioner was/is that the basic price

should be taken as Rs 8100/- per MT, as the basic price of Rs

12,000/- given by him in schedule 3 (supra) was inclusive of, besides

excise duty aforesaid, sales tax of Rs 1183.90p per MT and

Transportation and Handling charges of Rs 1420.10p. per MT. Else

it was/is urged that transportation and handling charges should also

be added in the current price.

33. The Arbitral Tribunal held that Clause 70.5 clearly specifies

the modality of determining the current price as well as the meaning

of basic price. The Arbitral Tribunal also held the base price arrived

at by the Engineer Incharge to be in consonance with several other

clauses of the agreement. The Arbitral Tribunal further found that

there was no basis whatsoever for the transportation and handling

charges of Rs.1420.18p. per MT deemed to be included by the

petitioner in arriving at the total base price of Rs.12,000/- per MT in

the bid document. The Arbitral Tribunal also noticed that the

petitioner had with respect to another claim, accepted the

transportation cost as Rs.800/- per MT as rightly determined by the

Engineer Incharge and for this reason found the figure of Rs.1420/-

per MT to be arbitrary and to be only to be able to justify the rate

calculation of Rs.12,000/- per MT. Thus the only tinkering with the

base price of Rs.12,000/- per MT given in the schedule to the

agreement was to the extent of excluding excise duty component

therefrom, since the same was not leviable. Similarly the Arbitral

Tribunal found that the contract did not permit inclusion of

transportation and handling charges to the current price.

34. Neither do I find any ground under Section 34 of the Act to

have been made with respect to the aforesaid finding of the Arbitral

Tribunal nor has the counsel for the petitioner made any other

submissions with respect thereto.

35. Claim No.8 of the petitioner for Rs 3,00,00,000/- was on

account of "Extra rates for value of works executed during the

extended period. The original end date of the contract was 31 st

August, 2004 and was extended to 31st December, 2004 i.e. by four

months. It was also the admitted position that price variation in

respect of the work done during the said extended time had been

based on the agreed rates and paid by the respondent to the

petitioner. The contention of the petitioner was that the price

variation so paid to him did not compensate him for the increase in

rate or the prices and preferred the claim in this regard on the basis

of 10% of the value of the work executed during the said extended

term.

36. The Arbitral Tribunal found that the petitioner had not in

accordance with Clauses 52.1 and 52.2 given notice of any intention

to claim extra payment or a varied rate of price and held the

petitioner not entitled to any other increase than already paid. The

Arbitral Tribunal also found that the claim had not been made at any

time prior to 30th January, 2006 and that the petitioner had in fact

admitted that the price adjustment for the work done during the

extended period of four months had been paid and the parties had no

dispute on this. The Arbitral Tribunal also found that the claim was

not supported by any rate analysis or the prevalent rates during the

extended term. The claim was thus held to be without any basis

whatsoever and rejected.

37. The petitioner has in the OMP not challenged the finding of the

facts written by the Arbitral Tribunal of the petitioner having

accepted the increase paid and having confirmed that there were no

disputes with respect to the same. The petitioner has also not

challenged the finding of the Arbitral Tribunal of petitioner having

not furnished any basis for the said claim. In my view on the basis of

the said factual findings of the Arbitral Tribunal alone no fault can be

found with the finding of the Arbitral Tribunal rejecting the said

claim. Once the parties have agreed on a formula for payment of

increase, the petitioner cannot make a claim in addition thereto and

specially when the petitioner has not even given any notice, as the

arbitrators have held was required to be given in terms of the

contract. The petitioner has in the OMP challenged that the clauses

of the contract referred to by the Arbitral Tribunal in this regard are

not applicable. However it cannot be forgotten that the award is not

challengeable merely because the interpretation of the contract by

the arbitrator is found to be wrong by the court. The findings of the

Arbitral Tribunal in this regard is neither shown to be in the face of

any contractual provision nor shown to be contrary to any

substantial law. Thus no ground is made with respect to the

rejection of the said claim also.

38. No perversity or anything to shock the judicial conscience is

found in portions of the arbitral award challenged in this petition.

Resultantly, the petition is dismissed. No order as to costs.

RAJIV SAHAI ENDLAW (JUDGE) September 09, 2009 J