National Highways Authority Of ... vs Andhra Expressway Limited
2010 Latest Caselaw 2284 Del

*             HIGH COURT OF DELHI: NEW DELHI

+             FAO (OS)No.230/2010 & CM No.6478/2010

                    Judgment reserved on: 13th April, 2010
%                   Judgment delivered on: 29th April, 2010

NATIONAL HIGHWAYS                             ..... Appellant
AUTHORITY OF INDIA

                         Through:    Mr. Ramji Sriniasan, Sr.
                                     Adv. with Mr. Sumit
                                     Gahlot and Ms. Padma
                                     Priya, Advs.
                    Versus

ANDHRA EXPRESSWAY LIMITED                    ..... Respondent

                         Through:    Mr. Sumeet Lal, Adv.

       Coram:

       HON'BLE MR. JUSTICE VIKRAMAJIT SEN
       HON'BLE MR. JUSTICE A.K. PATHAK

     1. Whether the Reporters of local papers may
        be allowed to see the judgment?        Not necessary

     2. To be referred to Reporter or not?       Not necessary

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



A.K. PATHAK, J.

1. Appellant assails the judgement dated 29th January,

2010 passed by the learned Single Judge whereby objections

under Section 34 of the Arbitration and Conciliation Act,

1996 (for short hereinafter referred to as A & C Act) against

the award dated 14th September, 2009 passed by the Arbitral

Tribunal, have been dismissed.

2. The brief background of the case, leading to the

passing of the impugned order, is that the Respondent was

incorporated by a consortium of M/s. Gammon India Ltd. &

Punj Llyod Ltd., the two joint venture partners. Respondent

entered into a Concession Agreement (hereinafter referred

to as "Agreement") with the Appellant on 30th October, 2001

for the work of strengthening the existing two lane

carriageway between Dharamvaram and Tuni from 253

Kilometers to 300 Kilometers, on N.H. 5 in the state of

Andhra Pradesh and for widening thereof to four lanes dual

carriageway. The concession period was to start from 30th

May, 2002 and end on 29th November, 2019. As per the

Agreement, Respondent was to construct the carriageway

within the stipulated period and had to operate and maintain

the same thereafter. In return, the Respondent was to

receive Annuity to the tune of Rs.279.12 million on each

Annuity Payment Date as specified in Schedule „J‟ of the

Agreement. The first instalment of Annuity payment was to

be released to the Respondent on 30th May, 2005.

Agreement envisaged appointment of an Independent

Engineer for supervision and monitoring of the contracted

work, carried out by the Respondent. M/s. Zaidun Leeng

SDN. BHD-Acrtefact Projects (JV) was appointed as the

Independent Engineer. In addition to the payment of

Annuity under Article 8 of the agreement, Respondent was

also entitled to bonus if project was completed before the

stipulated date, that is, 29th November, 2004, as certified by

the Independent Engineer. Bonus amount was to be

determined on the basis of a formula, as contained in clause

8.3 of the Agreement.

3. During execution of the project, there were delays and

hindrances at various stages, inasmuch as, the project sites

were not handed over to the Respondent in time even

though, the same was Appellant‟s obligation as envisaged

under Article 3 of the Agreement. That apart, villagers had

also obstructed the work at the sites in various stretches.

Inspite of these obstructions, delays and hindrances,

Respondent succeeded in completing almost the entire

construction work by July, 2004, except with respect to the

certain parts of the Project Sites, which were not handed

over to it by the Appellant. Under the Agreement it was

open to the Independent Engineer to issue Provisional

Certificate to the Respondent if the project facilities could be

opened for commercial operations notwithstanding the fact

that certain incomplete items of work referred to as "Punch

List" items were not complete. More over according to the

Agreement the date of issue of such certificate was deemed

to be the Commercial Operation Date (COD).

4. By a letter dated 16th July, 2004 Respondent requested

the Independent Engineer for its concurrence for exclusion

of incomplete work from COD requirement. Said request had

to be made as payment of annuity could not have

commenced from 30th May, 2005 i.e. first Annuity Payment

Date, resulting in Respondent being unable to repay

outstanding loans taken by it, inasmuch as, the Appellant

would have also incurred liability to extend time for

completion of project work, thus pay bigger amount of bonus

later because of delay, as the „X‟ factor in the formula for

determination of bonus would have become operative. In

these circumstances, keeping in mind the far reaching

ramifications that would have ensued on both the parties, a

supplementary agreement dated 12th May, 2005 was

executed between Appellant and the Respondent whereby

incomplete part of work was delinked from the COD

requirement and pursuant thereof a Provisional Certificate

was issued.

5. On delinking the incomplete work by 30th October,

2004, road was ready for commercial operations; meaning

thereby that COD had been achieved thirty days prior to the

Stipulated Project Completion Date (SPCD) which was 29th

November, 2004. On 6th May, 2005, Respondent requested

the Independent Engineer to issue a Provisional Certificate

and also approve Respondent‟s invoice in terms of clause 8.5

(a) of the Agreement and also requested the Appellant to pay

first annuity of Rs.279.12 million along with bonus of Rs.

4,65,20,000/- for achieving the COD on 30th October, 2004.

6. Appellant communicated its approval to the

Independent Engineer on 13th May, 2005 for issuing a

Provisional Certificate with effect from 30th October, 2004.

In turn, Independent Engineer issued a Provisional

Certificate dated 14th May, 2005 mentioning COD as 30th

October, 2004. In spite of issuance of Provisional

Certificate, Appellant did the not pay bonus amount.

Consequently, Respondent invoked arbitration proceedings

in terms of Article 17.1 of the Agreement. Respondent

appointed Hon‟ble Mr. Justice G.T. Nanavati. Former Judge,

Supreme Court of India; whereas Appellant appointed

Lieutenant General Y.P. Khurana (Retired) as its Arbitrator.

Two Arbitrators then appointed Justice A.M. Ahmadi, Former

Chief Justice of India as the Presiding Arbitrator. Three

Arbitrators constituted an Arbitral Tribunal, which published

its Award on 14th September, 2009 thereby directing

Appellant to pay Rs.4,65,20,000/- as bonus to the

Respondent for early completion of the work together with

interest @ 9% per annum with effect from 30th May, 2005 till

the awarded amount was paid by the Appellant along with

cost of arbitration amounting to Rs.5,00,000/-.

7. The question raised before the Arbitral Tribunal was

whether Respondent was entitled to claim bonus for early

completion of work or not.

8. Before the Arbitral Tribunal Respondent contended

that the work was to commence from 30th May, 2002 and to

be completed on 29th November, 2004 in terms of the

Agreement dated 30th October, 2001. The first date of

payment of annuity was 30th May, 2005. For the reasons

beyond the control of either party to the contract, certain

items of work could not be completed before SPCD,

therefore, both the parties, in terms of Article 19.7 of the

Agreement, entered into Supplementary Agreement on 12th

May, 2005 to provide for various situations which were not

foreseen by the parties at the time of signing the Original

Agreement dated 30th October 2001. By virtue of

Supplementary Agreement certain terms in the main

contract were modified and it was decided to delink certain

items which could not be completed due to obstructions and

hindrances in the project work which were beyond the

control of either of the parties.

9. Relevant clauses of Article 5.4 of the Agreement reads

as under :-

"Project Implementation

(a) Construction Works

(i) xxxxxxxxx

(ii) xxxxxxxxx

(iii) xxxxxxxxx

(iv) xxxxxxxxx

(v) xxxxxxxxx

(vi) xxxxxxxxx

(vii) All Tests shall be conducted in accordance with Construction Requirements. If the Tests are successful and all parts of Project Facilities can be safely and reliably opend for commercial operation, the Independent Engineer shall issue Completion Certificate:

Provided, notwithstanding that certain works or things forming part of Construction Works are not complete, if following Tests the Independent Engineer determines that the Project Facilities can be safely and reliably opened for operations, the Independent Engineer may issue the Provisional Certificate to the Concessionaire. The Provisional Certificate shall have appended thereto a list of outstanding items signed jointly by the Independent Engineer and the Concessionaire ("Punch List"). All Punch List items shall be completed by the Concessionaire within such time as may be determined by the Independent Engineer, not exceeding 90 (ninety) days of the date of issue of the Provisional Certificate. Upon satisfactory completion of all Punch List items, the Independent Engineer, shall promptly and in any case within 15 days thereof, issue Completion Certificate.

(viii) xxxxxxxxx

(ix) xxxxxxxxx

(x) The Project shall be deemed to be completed and open to traffic only when the Provisional certificate or the completion is issued

by the Independent Engineer in accordance with the provisions hereof".

(Emphasis Supplied)

10. Clause 3 of the Supplementary Agreement reads as

under:

"3. That in consideration of the following items, having been de-linked by the NHAI from the COD requirement, the concessionaire shall not claim additional time, additional annuity or bonus for the delays like delay in delivery of the sites, stoppages of construction works by villagers etc., and that they shall complete all the remaining works with due expedition as per provisions and as and when the site is made available after the COD, issue of Provisional Certificate.

            (a)     xxxxxxxxxxx

            (b)     xxxxxxxxxxx

            (c)     xxxxxxxxxxx

            (d)     xxxxxxxxxxx

11. In view of the supplementary agreement, Provisional

Certificate was issued on 14th May, 2005 by the Independent

Engineer mentioning therein the date of completion of

project as 30th October, 2004 which was prior to the SPCD,

i.e. 29th November, 2004. The work was completed one

month prior thereto; thereby making Respondent available to

the benefit of bonus in terms of clause 8.3 of the Agreement

read with Supplementary Agreement.

12. As per the Appellant, as the project work was not

completed in all respect, therefore, Respondent was not

entitled to bonus in terms of the Agreement only on the basis

of a Provisional Certificate in spite of the Supplementary

Agreement. Respondent was entitled to bonus, had it

completed the entire project before the stipulated SPCD.

13. After scrutinizing the relevant clauses of the

Agreement as well as Supplementary Agreement Arbitral

Tribunal concluded as under:

"16. This provision of the contract and the above formula make it clear that early completion of the Project i.e. SPCD-COD and positive „X‟ factor because of delays mentioned in that provision would entitle the Concessionaire to get bonus. In this case bonus is not claimed on the basis that there were delays of the type entitling the Concessionaire to get the Bonus. It is claimed because the claimant/concessionaire was able

to complete the project work before SPCD. As stated earlier the project work was successfully completed by the claimant over the site which were made available to it. It was not possible for the respondent to hand over other sites to the claimant. As the whole project work was not completed, the Independent Engineer could not have issued Completion Certificate, in absence of which the claimant would not have got his request for payment of Annuity processed by the Respondent and would have suffered financial difficulties. The Respondent would have incurred liability to extend time for completion of the Project and also pay more bonus because of the delay which was likely to be caused. Thus a situation had arisen for both the parties to find some solution and as the Supplementary Agreement states it was decided to de-link the incomplete part and provide for it separately. Article-(iii) of the Supplementary Agreement if read carefully makes it clear that in consideration of de- linking the incomplete works from COD, the claimant gave up its right to claim additional time for the delays referred to in that Article and also the higher amount of bonus. It is a matter of fact that there was considerable delay of the type contemplated by Article (iii)

and even when Provisional Certificate was granted, some obstructions and hindrances still existed. The claimant was not responsible for the delay and he could not have completed the work because of those obstructions and hindrances. That would have entitled the claimant to ask for extension of time and other consequential entitlements including more bonus. It was this benefit which the claimant gave up. It had not given up the right accrued to get bonus which had accrued earlier on early completion of the project work. In our opinion, this is the correct reading of that article and therefore the contention raised by the learned counsel Mr. Ramaswamy has to be rejected as misconceived as it is based upon misreading of that article."

(Emphasis supplied)

14. Learned Single Judge was of the view that the Arbitral

Tribunal had rendered findings after construing the merits of

the case and scrutinising the relevant clauses of the

Agreement read with Supplementary Agreement and that no

manifest error or perversity could be found therein; that the

interpretation put by the Arbitral Tribunal on the relevant

Clauses of Agreement and Supplementary Agreement was

justified, equitable and valid interpretation of the said

Clauses. Hence the courts‟ interference was not required.

15. It was contended by the Appellant before the learned

Single Judge, by placing reliance on clauses 3 and 7 of the

Supplementary Agreement, that merely on the basis of

Provisional Certificate, Respondent was not entitled to

receive bonus, since by virtue of Clauses 3 and 7 of the

Supplementary Agreement, the respondent had relinquished

its right to claim additional annuity and bonus as contained

in Original Concession Agreement because certain items of

work remained incomplete. Learned Single Judge negated

this argument on the ground that in a commercial contract

such as the present one, on the commencement of the toll

road, on issuing of a Provisional Certificate, Appellant

started earning toll from the road built by the Respondent.

Road became operational and toll started flowing resulting

earnings to the Appellant rendering corresponding benefit to

the Respondent as well. Learned Single Judge, inter alia,

observed as under:

"Keeping in view the aforesaid parameters, I do not find any illegality or violation of the contractual provisions or any perversity by the Arbitration Tribunal. The

interpretation put by the Arbitration Tribunal on the clauses of the Supplementary Agreement is a justified, equitable and valid interpretation of the clauses of the Supplementary Agreement. In any case the interpretation is one plausible interpretation of a reasonable person, such interpretation cannot be interfered with while hearing objections to an Award under Section 34. In fact, I find the opposition of the petitioner to be very surprising because I cannot understand how the petitioner can claim commercial benefits from an earlier completion of the contract but deny the commercial benefits to the contractor for early completion viz the bonus payable for early completion. The scales of justice in commercial contracts of this nature, in my opinion, have been very evenly balanced by the Arbitrator and I do not find any fault whatsoever in the Award."

16. Arguments advanced by the Appellant before the

learned Single Judge have been reiterated before us but we

are not convinced with the same. The scope of interference

by the court under Section 34 of the A & C Act is very

limited. Unless the action of the Arbitrator is illegal, that is,

it is beyond the law of the land or that the same is beyond

the contractual provisions or that the findings/conclusions

are so perverse which shocks the judicial conscience, award

cannot be interfered with. In other words, if the action of

Arbitrator is illegal the court would interfere with an award.

The court does not sit as an Appellate Court over the

findings and conclusions of the Arbitrator and if two views

are possible, the court will not interfere with the award

merely if it is of another view than the view taken by the

Arbitrator. There is no doubt in mentioning that the

Arbitrator is entitled to interpret the relevant clauses of the

contract. Unless there is gross perversity in such

interpretation, the court would refrain itself from the

interfering in the award in exercise of its jurisdiction under

Section 34 of the A & C Act.

17. In Delhi Development Authority vs. R.S. Sharma and

Company, New Delhi, reported in (2008) 13 Supreme Court

Cases 80, it was held that interference by the court under

Section 34(2) of the A & C Act is open only if an award is (i)

contrary to substantive provisions of law; or (ii) the

provisions of the Arbitration and Conciliation Act, 1996; or

(iii) against the terms of the respective contract; or (iv)

patently illegal; or (v) prejudicial to the rights of the parties;

the award could be set aside if it is contrary to: (a)

fundamental policy of Indian law; or (b) the interest of India;

or (c) justice or morality. The award could also be set aside

if it is so unfair and unreasonable that it shocks the

conscience of the court.

18. In the backdrop of above settled legal position, we

have examined the award and do not find any perversity

therein. Facts are not in dispute. Concession Agreement

was entered into on 30th October, 2001; work was to

commence from 30th May, 2002 and was to be completed on

29th November, 2004. Majority of the substantial work was

completed on 30th October, 2004, i.e., much prior to the

stipulated date of completion of work. However, entire work

could not be done for the reasons which were beyond the

control of both the parties, inasmuch as, the site could not be

handed over by the Appellant to the Respondent in time. In

these circumstances, both the parties sat across the table

and decided to delink such incomplete items vide

Supplementary Agreement executed between the parties on

12th May, 2005, pursuant whereof a Provisional Certificate

was issued mentioning the date of completion as 30th

October, 2004, which admittedly was one month prior to the

stipulated date of completion. The said certificate was

issued by the Independent Engineer only after obtaining

approval of the competent authority. Work having been

completed prior to the stipulated date of completion

Respondent became entitled to bonus as has been held by

the Arbitral Tribunal. We do not find any perversity in the

view taken by the Arbitral Tribunal.

19. After having scrutinized the relevant clauses of the

Agreement and the Supplementary Agreement, in the facts

of this case, the Arbitral Tribunal as also the learned Single

Judge have arrived at a conclusion that Respondent was

entitled to bonus, which is a possible view. We also do not

find any justifiable reason to interfere with the same.

20. In the light of the above discussions, we find the

present appeal to be devoid of merits and the same is

dismissed.

A.K. PATHAK, J

VIKRAMAJIT SEN, J.

April 29, 2010 rb