Delhi High Court

National Highways Authority Of ... vs Unitech-Ncc Joint Venture on 30 August, 2010

Author: Vikramajit Sen

*     IN THE HIGH COURT OF DELHI AT NEW DELHI

+     FAO(OS) No.338/2010 & CM No.8828/2010

NATIONAL HIGHWAYS
AUTHORITY OF INDIA                .....Appellant through
                                  Mr. Parag P. Tripathi, ASG
                                  with Ms. Aparajita Swarup &
                                  Mr. Anuj Bhandari, Advs.

                  versus

UNITECH-NCC JOINT VENTURE         .....Respondent through
                                  Ms.Priya Kumar, Adv.
                                  for the Respondent

%                            Date of Hearing : July 23, 2010

                             Date of Decision : August 30, 2010

      CORAM:
*     HON'BLE MR. JUSTICE VIKRAMAJIT SEN
      HON'BLE MS. JUSTICE MUKTA GUPTA
      1. Whether reporters of local papers may be
         allowed to see the Judgment?               No
      2. To be referred to the Reporter or not?     Yes
      3. Whether the Judgment should be reported
         in the Digest?                             Yes

VIKRAMAJIT SEN, J.

1. This Appeal impeaches the decision of the learned Single

Judge by which the Objections of the Appellants under Section

34 of the Arbitration & Conciliation Act, 1996 („A&C Act‟ for

short) came to be dismissed. We think it relevant to record, at

the very threshold, that the Appellants have concurrently and

consecutively lost at all the four tiers that have preceded this

Appeal.

2. The Appellants firstly lost before the „Engineers‟ who they

have themselves selected pursuant to a Global Tender. The

„Engineers‟ are an independent entity, namely, SHELADIA-

RITES [JV], Vishakhapatnam. SHELADIA ASSOCIATES is

incorporated in United States, whereas the other Joint Venturer

is RITES Limited, a well-known and reputed Indian engineering

corporation. It is these Consultant/Engineers who, by virtue of

Clause 5.2.1 of the Contract, are empowered to resolve

ambiguities, omissions, errors, faults and other defects in the

Drawings or any other Contract Document as perceived by the

Contractor (Respondents before us). The Contractor had

approached the said „Engineers‟ to decide the question of

whether the Contractors/Respondents were entitled to claim

escalation on the Contract Work. The Appellants had adopted

the view that they were not liable to pay escalation and price

variation on the original quantity of work contracted as per Bill

of Quantity (BoQ) items but only on deviation in work provided

for in Clause 60.1(d). This stand is taken even though

indubitably the period within which the Contract was to be

completed was spread over thirty-two months and was for

a value of ` 1,46,00,000,00/-. The Engineers had, on an

interpretation of the Contract, decided that the

Contractors/Respondents were entitled to escalation even on

BoQ items. The Respondents had, in accordance with the

re-worked formula for calculating the escalation, claimed a

sum of ` 1,55,87,88,905/-; but the Engineers had quantified

and found due and payable by the Appellants to the

Respondents only on the sum of ` 17,27,18,420/-.

3. The second tier is the Dispute Resolution Board which,

poignantly, had been approached not by the Appellants but by

the Respondents. This was for the reason that, predicated on the

original formula contained in the Agreement, the Respondents

had laid a claim for approximately ` 1,55,00,00,000/-. In other

words, the Appellants were even till this stage satisfied with

the correctness of the computation whereby the escalation

was restricted to ` 17,27,18,420/- by the „Engineers‟.

4. The third stage of adjudication was before the Arbitral

Tribunal which was approached by the Respondents once again

underscoring the position that the Appellants had no grievance

or opposition to the grant of ` 17,27,18,420/- + ` 57,04,914/-

The Arbitral Tribunal, by means of a detailed Award, upheld the

decision of the previous two entities and allowed interest at the

rate of 10 per cent per annum.

5. Undaunted by these findings, the Appellants have invoked

Section 34 of the A&C Act by filing Objections before the

learned Single Judge. Once again, its contentions have been

roundly and soundly rejected. The learned Single Judge found

the attitude of the Appellants obdurate and stubborn, contrary

to the stand taken by the Appellants themselves for the major

part of the Contract, and keeping the frivolity of the Objections

in perspective, ordered that the actual costs, as quantified on

Affidavits be paid by the Appellants to the Respondents,

together with interest at the rate of nine per cent per annum in

case the costs were not paid within 45 days.

6. We have already highlighted the fact that it was

the Respondents who had approached the Dispute

Resolution Board, assailing the quantification of escalation of

` 17,00,00,000/- as calculated by the „Engineers‟. We have

underscored the obvious inference that the Appellants were

satisfied with this calculation. What is of added relevance is that

payments were made without demur by the Appellants until the

27th Running Bill. The Respondents had billed under Clause 60.1

which included escalation on the Running Contract Bills. These

Bills did not pertain to any „variation‟ or „extra work‟ ordered by

the Appellants. The conduct of parties is indicative of their

understanding of the contract which governed their dealings.

According to Ms. Priya Kumar, learned counsel for the

Respondents, the sharp turnaround was the consequence of the

advisory dated 20.5.2004 issued by National Highways

Authority of India that escalation/price variation "is not

available in those agreements where it is not found in the

express language". What transpires is that after making the

payments of escalation upto the 27th Running Bill, the

somersault of the Appellants led to their making recoveries of

amounts already paid from the subsequent Bills presented by

the Respondents.

7. It is obvious that the interpretation of the Contract forms

the fulcrum of the dispute between the two adversaries before

us. As already mentioned, the power to interpret the Contract

was reposed in the „Engineers‟ as per Clause 5.2.1. of the

Contract. The Engineers, on a thorougher and lucid examination

of the contract, have concluded that escalation was

contractually payable on the Contract itself as well as on any

variation thereto. Even under the regime of the repealed

Arbitration Act, 1940, their Lordships have opined in the

celebrated Judgment of Sudarsan Trading Company -vs-

Government of Kerala, (1989) 2 SCC 38 that -"Once there is no

dispute as to the contract, what is the interpretation of that

contract, is a matter for the arbitrator on which the court

cannot substitute its decision". The continuity of this opinion is

manifest from a reading of H.P. State Electricity Board -vs- R.J.

Shah, (1999) 4 SCC 214 inasmuch the Court reiterated the

position that - "when the arbitrator is required to construe a

contract then merely because another view may be possible the

court would not have justified in construing the contract in a

different manner and then to set aside the award by observing

that the arbitrator has acceded the jurisdiction in making the

award". Numaligarh Refinery Limited -vs- Daelim Industrial

Company Limited, (2007) 8 SCC 466 records that with regard to

the interpretation of a contract, the decision of the Arbitrator

should not be interfered with by the Court. After adverting to

Tarapore & Company -vs- Cochin Shipyard Limited, (1984) 2

SCC 680, their Lordships recorded that there can be no quarrel

with the proposition that - "if a question of law is specifically

referred to by the parties to the arbitrator for decision, award of

the arbitrator would be binding on the parties and court will

have no jurisdiction to interfere with the award even on ground

of error of law apparent on the face of award". Very recently, in

McDermott International Inc. -vs- Burn Standard Co. Ltd.,

(2006) 11 SCC 181 after perusal of a plethora of precedents,

their Lordships have enunciated this aspect of the law in the

following manner:-

112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract

agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. (See Pure Helium India (P) Ltd. v. ONGC, AIR 2003 SC 4519 and D.D. Sharma v. Union of Indi, (2004) 5 SCC 325.)

113. Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award.

114. The above principles have been reiterated in Chairman and MD, NTPC Ltd. v. Reshmi Constructions, Builders & Contractors, AIR 2004 SC 1330, Union of India v. Banwari Lal & Sons (P) Ltd, AIR 2004 SC 1983, Continental Construction Ltd. v. State of U.P., (2003) 8 SCC 4 and State of U.P. v. Allied Constructions, (2003) 7 SCC 396.

8. In the case before us, the Arbitral Tribunal has

unequivocally upheld the interpretation of the contract

expressed by the „Engineers‟ who have been contractually

empowered by the parties to impart meaning to the sundry

clauses of the subject Agreement.

9. It would be perilous and constitutionally unjustifiable to

ignore and lose sight of Parliament‟s endeavour to curtail curial

interference in arbitration awards. Section 34 of A&C Act does

not contemplate the existence of errors on the face of the

Award, which the Supreme Court has clarified to be beyond

judicial interference. The learned Single Judge has, in the

impugned Order, rendered a threadbare consideration of the

terms of the Contract and his conscience has not been provoked

in the least bit. The learned Single Judge has failed to find any

infraction of the public policy of India. However much we

stretch our thinking, we cannot conceive of a construction of the

contract contrary to that carried out by the Competent Authority

and more particularly by the learned Single Judge. Interference

by us will be justified if the views of the learned Single Judge

can be perceived as a perversity.

10. The learned Additional Solicitor General has reiterated the

argument made before the learned Single Judge, which,

succinctly stated, is that words cannot be added or taken away

from a contract and the only permissible interpretation is a

facial and literal interpretation of the terms delineated in the

Contract itself. Our attention has been drawn towards State

Bank of India -vs- Mula Sahakari Sakhar Karkhana Ltd., (2006)

6 SCC 293 where it has been observed that documents "must

primarily be construed on the basis of the terms and conditions

contained therein. While construing a document the court shall

not supply any words which the author thereof did not use".

That very Judgment, however, notices that surrounding or

attending circumstances can be taken into consideration if

ambiguity is encountered. In Provash Chandra Dalui -vs-

Biswanath Banerjee, 1989 Supp. (1) SCC 487, their Lordships

have clarified that if the contract is to be construed with

reference to its objects and the whole of its terms and that "it is

legitimate in order to ascertain the true meaning of the words

used and if that be doubtful it is legitimate to have regard to the

circumstances surrounding their creation and the subject

matter to which it was designed and intended they should

apply". For the sake of brevity, we shall refrain from discussing

each precedents cited by learned counsel for the parties as it

would only be avoidable prolixity. We must constantly be

mindful of the fact that these dialectics are relevant before the

Arbitral Tribunal.

11. The following observations from the impugned Award

rendered by the Arbitral Tribunal, which has been affirmed

without reservation by the learned Single Judge, are worthy of

reproduction:-

1.10 Taking into account all the above arguments of the parties, we are of the considered view that on a conjoint reading of Bidding Date Sub-clause 14.4, ITB Sub-clauses 14.4 and 31.4, Sub-clauses 70.1, 70.2, 70.6 and 70.7 and 70.8, 60.1 and 60.2 of COPA, the conclusion is inevitable that all these clauses are consistent and provide that price adjustment is payable on the entire work comprising all BOQ items including variations and daywork except where such variations and daywork are otherwise subject to adjustment (that are valued at current prices). All these sub-clauses corroborate one another and are in complete harmony except for sub-clause 70.3 which has ambiguity and errors as explained in para 1.5.4.

1.12.3.5 We have considered the contentions of both the parties. In our view, the National Highways Authority of India (NHAI), the author of the Contract document, was conscious of the fact that tender documents are not perfect and mistakes may have occurred. Words used in clause 5.2.1 are "ambiguities", "omissions", "errors" "faults" and "other defects" in the Drawings or other Contract Documents. Under this clause the Engineer was given enabling power. The Engineer can resolve the ambiguity or correct the error or supply the omission to remove contradictions and inconsistencies. By doing this, the Engineer was not re- writing the contract but only exercising a contractual power.

According to Sub-clause 67.3 of the Contract "Any dispute in respect of which the Recommendation(s), if any, of the Board has not become final and binding

pursuant to Sub-clause 67.1 shall be finally settled by arbitration as set forth below. The arbitral tribunal shall have full power to open-up, review and revise any decision, opinion, instruction, determination, certificate or valuation of the Engineer and any Recommendation

(s) of the Board related to the dispute." The Arbitral Tribunal has the contractual power to resolve the ambiguity or correct the error or supply the omission in the contract document emanating from Sub-clauses 67.3 and 5.2.1 of the Contract and Section 28(3) of the Arbitration and Conciliation Act, 1996. Drafting error can be corrected and defect cured under this Clause to make the contract to conform to the true intention of the parties. Removing the drafting error is not to re-write the contract. The Arbitral Tribunal is not re-writing but only interpreting the contract.

...

"1.13.3 We find that the Engineer has throughout the execution of the Work firmly maintained that price escalation is payable on all BOQ items.

12. We need to constantly remind ourselves that we are not

experts in every field. In the present case, the Arbitral Tribunal

comprised of a former Director and Chief Engineer, appointed

by the Respondents, a former Engineer-in-Chief, PWD appointed

by the Claimant; both of them appointed a Chief Engineer

MORT&H as the Presiding Arbitrator. Before encapsulating the

operative part of the Award, these expert Engineers have

unanimously observed as follows:-

1.16.2 It is our experience that as per sound engineering practice based on FIDIC guidelines adopted in such civil construction contracts, price adjustment clause is included in the contracts to take care of the increase/decrease in the price of materials, bitumen, cement, labour, machinery and P.O.L.(Petrol/Diesel, Oil and Lubricants) during the period of execution. The Contractors are required to quote their rates prevailing at the time of preparation of their Bid. The price adjustment clause is applicable to all items of the work. The reason is that in long term contracts the increase in the price and cost of inputs into the BOQ items during the period of execution is so uncertain and the Contractors are not expected to bear such uncertain extra burden.

This factor of usage of the trade has also to be taken into account by the Arbitral Tribunal in making their decision as per Section 28(3) of the Arbitration and Conciliation Act."

13. Having articulated this appreciation of law, it would be

illogical for us to enter into a detailed dialectic upholding the

views of the Arbitral Tribunal with regard to the interpretation

of the contract vis-à-vis the claim for escalation on the BoQ

contained in the contract. We uphold the detailed reasoning of

the learned Single Judge in the impugned Order which, in turn,

had appreciated the conclusion of the Arbitral Tribunal. No

perversity has been detected by the learned Single Judge as also

by us. We affirm that the contract envisages payment of

escalation on BoQ spelt out in the contract as well as on

deviations and extra work subsequently placed by the

Appellants on the Respondents. For these reasons, the Appeal is