Delhi High Court
M/S National Highways Authority ... vs M/S R.N. Shetty & Company on 9 June, 2014
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Pronounced on: June 09, 2014
+ O.M.P. No.249/2014
M/S NATIONAL HIGHWAYS AUTHORITY OF INDIA
.....Petitioner
Through Ms.Preeti Mechan, Adv.
versus
M/S R.N SHETTY & COMPANY ..... Respondent
Through Mr.T.S.Doabia, Sr.Adv. with
Mr.Sharan Thakur, Mr.Siddhartha
Barua, Ms.Natasha Thakur &
Mr.Siddharth Thakur, Advs.
CORAM:
HON'BLE MR.JUSTICE MANMOHAN SINGH
MANMOHAN SINGH, J.
1. The petitioner has filed the present petition under Section 34 of
Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the
Act"), arising from the Arbitral Award (Majority) dated 13th November,
2013.
2. The petitioner NHAI and respondent/contractor, M/s. R.N.
Shetty & Company, joint venture with Sunway Construction BHD
entered into a Contract Agreement dated 28th February, 2002 for a
sum of Rs.204.84 crores for the work of four laning and strengthening
of 433 km to 495 km of Dharwad-Belgaum section of NH-4 in the
State of Karnataka. As per the terms of agreement the date of
commencement of work was 12th April, 2002 and the date of
completion was 11th October, 2004. As per the agreement, the
contractor was to complete the construction of new two-lane carriage
way along with the structures (Major and Minor bridges) on it and
open the same for traffic by intended completion date of 11th October,
2004, i.e. 30 months from the date of commencement of the project
work.
3. During the execution of work, disputes arose between the
petitioner and the respondent contractor regarding additional cost
arising from the compensation events as per Clause 44 and
deduction of new royalty rates. The work could not be completed
within the initial contract period but was completed on 10th June,
2007 (about 62 months from commencement date) and extension of
time due to delays have been granted seven times till the completion
of work without levying any liquidated damages, in the interest and
early completion of the project to the respondent contractor as per
the terms of the Contract Agreement.
4. The disputes between the petitioner and respondent contractor
could not be resolved and the dispute on the claim of additional cost
arising from the compensation events as per Clause 24.1 under
Clause 24 of conditions of contract and the dispute on deduction of
new royalty charges as per clause 24.1 under Clause 24 of
conditions of contract were referred by the respondent contractors to
the Dispute Resolution Board (DRB) and subsequently to the Arbitral
Tribunal (Sh. N.R. Venkatesha Prasad, Presiding Arbitrator) for the
purpose of adjudication of claims of respondent. The learned
presiding Arbitrator and Sh. K.S. Anantharamajah ('Majority') jointly
have passed the impugned award dated 13th November, 2013 and
Sh. K.N. Agrawal ('Minority') has passed a separate Award dated 13th
November, 2013.
5. The claims raised by the respondent, first before the DRB and
subsequently before the learned Arbitral Tribunal are as follow:
(i) Claim 1: Cost of overstay of equipments, towards the
addition expenditure made and not recovered from the contract
price and the price adjustment received towards the fixed
charges of the machinery and plant for using the same in the
extended period beyond the original intended date of
completion.
(ii) Claim 2: (i) Additional overheads during the extended period
beyond the original intended date of completion; and (ii) Loss of
Profit at 10% for the extended period beyond the original
intended date of completion.
(iii) Claim 3: Incremental Rates for certain BOQ items on
account of being on site for an extended period beyond the
original intended date of completion being the difference
between the prime cost of actual rates worked out on the date
of expiry of the original date of completion, minus the payment
already received as per the rates in force during the original
period.
(iv) Claim 4: Interest on the amounts allowed and determined
by the Arbitral Tribunal
(v) Claim 5: (i) Refund of Royalty charges recovered in excess
of the rates that prevailed at the time of tendering in December,
2001; and (ii) Payment of interest on the above refund amount
from the date of claim to the date of payment.
6. After having gone through the pleadings of the parties and oral
submissions, the learned Arbitral Tribunal was pleased to partly allow
the claims of the respondent and passed the Arbitral Award on 13th
November, 2013.
7. The claims raised by respondent/contractor and the amount
awarded by the Arbitral Tribunal is as under :
Claim Brief of Claim Amount in Rs.in Crore
No.
Claimed by the By Majority Award By
Respondent Contractor (In Rs.) Minority
(In Rs.) Award
(In Rs.)
1. Cost of overstay of Rs.35,57,01,412/- This Rs.26,54,16,956/-
equipments amount was reduced to
Rs.26,54,16,956/-
2. (i) Additional overhead Rs.22,95,00,000/- Rs.13.316 crores
cost
Rs.21,84,90,000/- Rs.2,01,37,012/-
(ii) Loss of profit
3. Payment of incremental Rs.66,92,05,495/- This Rs.23,15,00,058/-
rates for certain BOQ amount was reduced to
items Rs.65,43,12,894/-
during the Arbitral
proceedings by the
Respondent Contractors
4. (i) Payment of interest @ - Payment at 12%
12% p.a. on claimed simple interest
amounts in items 1 to 3 p.a. on claimed
from the date of claim to amounts in items
the date of award. 1 to 3 from the
date of claim to
the date of award.
(ii) Payment of interest @
18% p.a. from the date of Payment @ 18%
-
award to the date of simple interest
payment on all the p.a. from the date
amounts claimed at items of award to the
1 to 3 and 4 (i), from the date of payment
date of award to the date on all the
of payment. amounts claimed
at item 1 to 3 and
4 (i) from the date
of award to the
date of payment
in accordance
with the provision
under section
31(7)(b) of
Arbitration &
Conciliation Act,
1996.
5. (i) Refund of Royalty Rs.1,79,78,915/- Rs.77,90,375/-
amount recovered in
excess of the royalty rates
which were prevailing at
the time of bidding.
- 12% on
(ii) Payment of interest at Rs.77,90,375/-
12% p.a. on the amount
of Rs.1,79,78,915/- from
the date of claim to the
date of award.
(iii) Payment of interest at -
18% p.a. on all the 18% simple
amounts awarded under interest p.a. from
items 5(i) and (ii) above, the date of award
from the date of award to to the date of
the date of payment. payment on the
awarded amounts
for claims 5(i) and
5(ii).
8. At the time of hearing, petitioner's counsel has mainly argued
that in the absence of evidence, additional cost as compensation to
the respondent ought not to have been granted. There is no
justification for allowing the claims of additional cost. The impugned
award, thus, is liable to be set-aside on this ground. On other claims,
hardly any submissions are addressed by the learned counsel for the
petitioner.
On the other hand, Mr.T.S.Doabia, learned Senior counsel
appearing on behalf of respondent has refuted the submissions of the
petitioner's counsel and argued that there is sufficient evidence
produced by the respondent before the learned Arbitral Tribunal who
have very carefully dealt with the same and then rendered their
finding.
9. Let me now discuss the issue in hand in this regard. Firstly, I
shall take the issue of additional cost. The said claim was allowed
partly towards additional cost. The learned Arbitral Tribunal has
given the following findings after discussion of evidence available on
record:
The delay in the completion of the work was caused on
account of the failures and defaults of the petitioner in
fulfilling its contractual obligations.
The learned Arbitral Tribunal has arrived at a finding of fact at
several instances in the arbitral award that the responsibility for the
delay in the completion of the work of the failure and defaults of the
petitioner. The said findings have been concisely summarized at
paragraph 4.5.0 of the arbitral award which is as under:
"In view of our findings at paras 4.3.1, 4.3.2, 4.3.3 'C'
and 4.4.0, the Respondents failed to hand over the site
to the Claimants as stipulated in Clause 21 of the
conditions of contract read with Clause 18 of contract
data, instead, the site was made available in bits and
pieces both in the contract period and in the extended
period, and the Respondents had to withdraw a portion
of the work in the contract due to the Respondents
failure to solve land problems in those reaches at the
time of granting fourth extension of time. The
extension of time belatedly granted in four spells are
attributable to the Respondents. The Claimants had to
work with un-certainty and had to move men and
machinery from one location to other as and when the
work fronts were made available resulting in low
productivity and idling. The Claimants had no other
option. Under the circumstances and in
view of foregoing findings the Respondents are
responsible for delays, i.e. breaches of contract,
preventing performance of contract leading to
abnormal extension of time of 32 months
and making good consequent losses to the
Contractor by way of turn over etc., and therefore we
hold that the Respondents are responsible for several
breaches of contract as discussed above..."
(Emphasis supplied)
10. The additional cost suffered in the extended period is payable
to the respondent both under the express conditions of the contract
agreement as also the law of the land.
The learned Arbitral Tribunal has come to its conclusion that
the respondent is entitled to be compensated the 'additional cost' or
increased contract price in the extended period of the contract as the
defaults committed by the petitioner led to the emergence of
'compensation events' that entitled the respondent to be
recompensed. The claims for over-stay of machinery, over-heads,
incremental rates for certain BOQ items etc., have all been claimed
only on the basis of the additional cost that has been caused. The
learned Arbitral Tribunal has recorded in the Award that specific
provisions in the contract expressly entitle the Respondent to this
'additional cost'. The said findings are mentioned in para 5.0.1 of the
Arbitral Award; the same are as under:
"In view of our findings in paras herein before we are
of the view that the Claimants are entitled for
increased contract price in the form of compensation
under clauses 28.1, 28.2, 44.2 of conditions of contract
and sections 53, 54, 55 and 73 of the Indian Contract
Act, 1872....." (Emphasis supplied)
The relevant contract clause in this regard is clause 44.2 which
is reproduced hereunder:
"If a compensation event would cause additional cost
or would prevent the work being completed before the
intended Completion Date the Contract price shall be
increased and/ or the intended Completion Date is
extended. The Engineer shall decide whether and by
how much the contract price shall be increased and
whether and by how much the intended Completion
Date shall be extended." (Emphasis supplied)
11. The submission of the petitioner is that the learned Arbitral
Tribunal has come to the conclusion that the respondent to certain
extent is also responsible for delaying the work as its performance
was not up to the mark and despite of said finding the claim was
awarded in favour of the respondent. There is no force in the
submission because of the reason that at the same time, it was also
recorded that extension of time has been granted by the petitioner
itself till the date of completion of the work and without imposition of
any liquidated damages on the respondent. The land was not made
available to the respondent by the petitioner, then the delay in
handing over the land is the 'governing delay' and no other alleged
contemporaneous short-fall on the part of the respondent is of any
relevance in determining as to who is at fault. In case the respondent
were to perform all its obligations under the contract without any short
fall or default, the work could still not be proceeded with on account
of the non-availability of land. Therefore, the said findings are correct
as governing delay of the non-availability of land, the burden of delay
and its consequences cannot be put upon the respondent when the
responsibility for the delay in the completion of the work lay at the
doorstep of the petitioner. The said details are available.
12. The other submission of the petitioner before the learned
Arbitral Tribunal was that the minute the notification under section
3(a) of the National Highway Act, 1956 was issued, the land vested
with the petitioner was handed over to the respondent at that very
instant. Therefore, the respondent cannot complain that the site was
not handed over to in time by the petitioner.
The learned Arbitral Tribunal has found that in some areas the
notification themselves were issued later in time. The Arbitral Tribunal
has also come to the finding that despite the requisite notifications
having been issued, the land was not in the possession of the
petitioner due to lapses on the part of the petitioner in performing
fundamental obligations under the land acquisition process like
paying compensation to the affected land owners. The Arbitral
Tribunal has referred admitted joint statements signed by the
petitioner, the respondent and the Engineer where the petitioner has
categorically admitted the fact that land disputes plagued various
stretches of the land whereby the respondent was prevented from
carrying out the work. The Arbitral Tribunal has noticed that even the
grant of the majority of the extension of time was explicitly on account
of land problems. The findings of the Arbitral Tribunal in this regard
are available at paragraph No. 4.3.1 of the Arbitral Award. The
relevant findings arrived at by the Arbitral Award are being
reproduced hereunder for ease of reference:
"As on 15.4.2002, 10 Km. stretch of land had not been
handed over by the Respondents to the Claimants as
seen in the minutes of the meeting held on 15.4.2002,
drawn by the Engineer vide page 699 of Rejoinder-2.
Even on 7th May 2002, the said 10 kilometers had not
been handed over by the Respondents as seen in the
minutes of the meeting held on 7th May 2002 drawn on
8th May 2002 by the Engineer page 750 of Rejoinder-
Volume 2. As seen in the letter dated 22nd July 2002
page 787 of Rejoinder Volume-2 addressed to the PD,
NHAI, Dharwad, the villagers at Km. 436 near
Mummigatti had stopped the work of clearing the
grubbing activities for want of payment of
compensation for the land acquired and the Engineer
has requested the Respondents to pay compensation
for the land acquired and the Engineer has requested
the Respondents to pay compensation to the
concerned villagers so that the Claimants can proceed
with work at site. As per the contract agreement, the
Respondents should have handed over a stretch of 10
Kms length of road on 12.4.2002, another stretch of
10 Kms length of road on 12.7.2002, and another
stretch of 30 Kms length of road on 12.10.2002, and
the balance stretch of 12 Kms length of road on
12.1.2003. Whereas the first and second 10 KIms
length of road in bits totaling to 10 Kms lengths were
handed over on 11.12.2002 and 28.2.2003, 30 Kms
length of road was considered as handed over on
10.7.2033 being the date of payment of compensation
and the balance 12 Kms length of road was handed
over on 31.12.2003 page 1106 of Rejoinder-3. The
joint statement signed by Respondents, Engineer and
the Claimants showing the status of land problems etc
as on 15.1.2003 pages 1123 to 1127 of Rejoinder
Volume-3 indicate that land problems were existing of
several stretches of the road from 434 Km to 495 Km.
The Claimants references from 20th July 2002 to 17th
November 2003 with enclosures, pages 1133 to 1227
quoted at page 1107 of Rejoinder Volume III indicate
that there were land problems etc on account of non-
payment of compensation to the land owners and the
contractors were prevented from carrying out the
work. The minutes of the meeting Variation Committee
dated 9.1.2005 C-2 page 105 enclosed to the letter
dated 8th April 2005 C-2 page 102 communicating the
extension of time up to 18.11.2005 indicates that the
major delay of 158 days caused was due to the land
acquisition and temporary obstructions among other
events. The recommendation of the Engineer for
extension to time up to 15th May 2006 C-2 Pages 113
to 115 enclosed to the minutes of variation committee
of NHAI C-2 page 114 which granted extension of time
up to 15th May 2006, C-2 page 114, indicates that the
land disputes on the obstruction of service road and
diversion, was cleared on 6th December 2005 which is
after the expiry of 18 days from the first extension of
time granted up to 18.11.2005. The recommendations
of the Engineer dated 24.5.2006 C-4 pages 121 which
granted extension of time upto 22.11.2006, indicates
that there was land problem at nine locations as on
24.5.2006. The Engineers letter dated 15.12.2006
addressed to the Claimants C-5 pages 129-130
indicate that the Engineer has admitted that there was
land compensation disputes at seven locations as on
15th December 2006. The letter dated 26th May 2007
of the Engineer addressed to the Respondents C-6
Page 132 indicates that the work of a portion of the
service road was deleted where outstanding land
disputes existed while recommending extension of
time up to 10th June 200. Therefore, the contention of
the Respondents that they had handed over the ROW
along with the land for construction of new
carriageway of the entire work to the Claimants
on12.4.2002 and 12.6.2002 does not deserve any
credence as the said dates are prior to the dates of 3D
notification i.e. 17.5.2002 and 10.7.2003 and in the
absence of records for having taken over the
possession of land from the land owners legally or
otherwise, as also the admissions made by the
Engineer about the obstruction by the land owners
during execution of the work to the land owners and
consequent delay in making available the land as per
terms of agreement, and the Respondents contention
is rejected." (Emphasis supplied)
13. Under the contract, the petitioner has an obligation to hand
over the site on which the work is to be performed. The petitioner,
due to various reasons as mentioned in the award, was not able to
handover the land in question to the respondent in time. The Arbitral
Tribunal held that the respondent is not responsible for un-
encumbering the land and removal of encroachments but it is only
responsible to 'co-ordinate' which includes initial and frequent follow
up meetings/actions/ discussions with each involved service
provider/concerned authorities.
14. The said findings are mentioned at paragraph 4.3.2 (a) of the
arbitral award. The same are read as under:
"As per para 2 under item No. 18 of the contract data
the contractor is responsible only to coordinate with
service provider/concerned authorities for cutting of
trees shifting of utilities and removal of encroachments
and making the site unencumbered from the project
construction area for completion of work, which
includes initial and request follow up meetings/
actions/discussions with, each involved service
provider/concerned authorities. Payment for removal
encroachments etc by the service providers will be
made by the Employer (Respondents). Therefore the
Claimants are not responsible for un-encumbering the
land and removal of encroachments but there are
responsible only to co-ordinate which includes initial
and frequent follow up meetings/ actions/ discussions
with each involved service provider/concerned
authorities, on which activity the Respondents have
not complained against the Claimants. The contention
of the Respondents that the Claimants are responsible
to remove the encroachments etc., when once the
land is handed over, as per clause 21 of the contract
agreement read with item 18 of contract data is not
correct."
15. The learned Arbitral Tribunal has discussed the claims raised
by the respondent after long discussion of evidence. The relevant
item wise claim raised and conclusion arrived at are mentioned
below.
16. i) Claim No.1: Cost of Overstay of Equipment
For the claim towards cost incurred towards over-stay of
equipment, the Ld. Arbitral Tribunal has traversed the evidence in
detail. The aspect of the existence of the relevant evidence has been
concisely stated at paragraph 5.1.4 (b) (E) of the arbitral award as
under:
"Regarding the stand taken by the respondents that
the claimants have not adduced any evidence to prove
that only the essential machinery required to execute
the balance work as per scope of work was positioned
at site and was removed from site when not required,
we observe that the Claimants have submitted the
number of machinery and equipment that would be
deployed on the work if the offer is accepted in
application Form No.6 page 274-A-3 along with the bid
documents. Subsequently, after the award of work, the
Claimants have worked out the machinery and
equipment required as per the program approved by
the Engineer and accepted by the Engineer as seen in
the monthly progress report of May 2002 prepared and
reported. R-19 page 319. The number of machinery
and equipment deployed on the work is enclosed to
the monthly progress reports stating from November
2004 to 2006 furnished by the Engineer to the
Employer vide C-12 at pages 167 -191. The joint
statement of the machinery deployed at the site
prepared jointly by the Respondents and Claimants
and signed by them shows the number of machinery
deployed from June 2002 to May 2007 vide R-16 at
pages 1-5. It is seen that the number of machinery at
site has increased from June 2002 to up to January
2005 and decreased from February 2005 to May 2007
and the extension of time up to 110th June 2007 vide
C-5 on pages 124 -131 is granted. The respondents
have failed to substantiate their contention with any
proof. We are therefore unable to agree that there is
no evidence so far as the quantum of deployment of
machinery is concerned. (Emphasis supplied)
ii) Claim No.2(a): Cost of additional over-heads
For the claim towards cost incurred towards additional over-
heads, the Ld. Arbitral Tribunal has traversed the evidence in detail.
The said aspect of the existence of the relevant evidence has been
concisely stated at paragraph 5.2(a)(3)(10) of the arbitral award as
under:
"We have considered the arguments and the counter
arguments made by both the parties and also the
documents placed before us by them including the
Hudson's formula. The MORTH Data book published
by the I.R.C. on behalf of the MORTH, Government of
India gives the rate analysis for road and bridge works
as also overhead component. The information
regarding the constituents of the overheads is also
submitted by the Respondents. We have come to the
conclusion that there have been serious delays and
defaults committed by the Respondents and as a
result, the Claimant was forced to stay on the work for
a much longer period of 32 months after the expiry of
initial contract period of 30 months as already stated.
Obviously, the Claimant was required to incur
expenditure on overheads both in the offices and also
at the site for a longer period than actually required. If
the Respondents had fulfilled the contractual
obligations, this avoidable situation would not have
arisen at all." (Emphasis supplied)
The learned Arbitral Tribunal has awarded a lesser amount
under the over-heads as claimed by the respondent. In this regard,
the learned Arbitral Tribunal has held as under in paragraphs 10, 11
and 12 as under:
"The MORTH data book stipulates overhead
percentages of 8% for roads and 25% for bridges. In
the instant case, the work consists of both road work
as well as minor and major bridges. In respect of the
minor bridges, the percentage of overhead is given as
20% and in respect of rehabilitation of bridges, it is
mentioned as 30%.
Considering all the above factors in totality, we are of
the view that the contractor is entitled to over head
expenditure at 8%.
In view of the diversified stands taken by the
Claimants and the Respondents on the quantification
of the claim we have computed the amount on this
claim. The computations are at Annexure - CAL-4 of
Vol. II. The additional expenditure computed as above
is Rs. 13.31 Crores against the claimed amount of Rs.
22.95 Crores and the expenditure of Rs. 34.50 Crores
shown in Chartered Accountants certificate which
amount was reduced to Rs. 23.85 Crores after review,
based on the Respondents observations."
(Emphasis supplied)
iii) Claim No.2 (b): Loss of Profit
The learned Arbitral Tribunal has only awarded the relief of
damages in the form of interest as there was delay in earning the
profit by the respondent as the work had to be executed beyond the
original date of completion, for which the petitioner alone was
responsible as held by the Arbitral Tribunal.
iv) Claim No.3: Cost of Incremental Rates:
For the claim towards incremental rates for certain BOQ items,
the Ld. Arbitral Tribunal has discussed the evidence in detail who
have noticed the validity of the claim of the respondent at paragraph
5.3.3 (7) of the arbitral award, the same are as under:
"While recommending for grant of extension of time,
the Engineer has not said that the extension of time is
granted without any financial implication. Both the
Respondents and the Engineer were fully aware that
the Claimants have mentioned about the claim
regarding the financial implication. None of the
communications in which EOT is accorded, contained
rebuttal of this claim compensation. The loss has been
substantiated and quantified. The clause 47 of the
conditions of contract provides for the contract price
adjustment as per the formula which is a function of
increase or decrease in WPI. The difference between
the adjusted price of the BOQ rates according to the
formula and the actual rise or fall in the rate has to be
absolved by either party accordingly only in the original
stipulated completion period of 30 months. The
Claimants are not expected to factor for any
contingency either directly or indirectly to take care of
these changes and nor expressed in the contract, nor
the Claimant is deemed to absolve for any contingency
beyond the intended date of completion. The
stipulation in Clause 47 of conditions of contract, that
"The contract price shall be adjusted for increase or
decrease in rates and price of labour etc., "means that
the C.P. will be increased or decreased as the WPI
increases or decreases. Whereas the stipulation in
clause 44.2 of conditions of contract, that "If a
Compensation Event would cause additional cost or
would prevent the work being completed before the
intended completion date the contract price shall be
increased and/or the intended completion date is
extended, "Which means that increasing of the
contract price is mandatory, if a compensation event
would cause additional cost, even within the stipulated
intended date of completion or "would prevent the
work being completed before intended completion
date." Any event or circumstance, as per clause 32 of
condition of contract requires increase of the contract
price or even if the contractor accelerates the work by
putting additional efforts / resources to complete the
work within the intended completion period. The
Clause 47 of conditions of contract does not
have any relationship to the Clause 44 of conditions of
contract." (Emphasis supplied)
The aspect of the existence of the relevant evidence and the
admission of the petitioner is mentioned at paragraph 5.3.3 (13) of
the arbitral award, which read as under:
"The Claimants have claimed Rs.66,92,05,459/-Vide
C-17 on page 257. The Respondents have furnished a
statement for 18 BOQ items, showing the BOQ rates,
the rates worked out by the Respondents with
reference to Dharwar NH circle for the year 2003-
2004 stating that the rates worked out by the
Claimants are very much on the higher side. Based on
the observations of the AT, the Respondents have
work out the new rates for 18 BOQ items, for the year
2003-2004 without prejudice to their stand that the
claim is not supported by any provisions of the
contract and have furnished the comparative
statement showing the rate as in BOQ, as worked out
by NHAI and as worked out by the Claimants vide R-
30 on page 488. The Claimants modified their Claim of
Rs.66,92,05,459/- vide C-17 on page 257 to
Rs.65,43,12,894/- vide C-81 on page 2604 by the
Claimants based on the oral comments of the
Respondents and the AT. As per the observations of
the AT in its 14th and 15th meetings, the Respondents
have furnished the rates for the 18 BOQ items
considering the observations of AT R-37 page 760-
806. A comparative statement of BOQ rates,
Claimants rates as claimed in C-17 page 260, the
rates calculated by NHAI in R-30 and the rates
calculated by NHAI as in R-37 is also furnished by
Respondents R-37 page 761. The Respondents have
furnished their observations on the submissions of the
Respondents in C-79 pages 2543-2544. The
Respondents have furnished the joint statement of
incremental rates and the amount of claim which
works out to Rs.23,15,00,058/- in R-42 pages 950-991
duly signed by both the parties as desired by the AT,
and this is without prejudice to the stand of the
Respondents' that the claim of the Claimants is not
admissible, and the stand of the Claimants that their
claim of Rs.65,43,12,894/- is just and reasonable and
deserves to be awarded. The Claimants have also
cited instances to show that the prices that had
prevailed at the time of bidding and the prices
that prevailed beyond the original contract
period. This reveals that there are increases of prices
after the expiry of the original contract period of 30
months." (Emphasis supplied)
For the claim towards cost incurred towards increased rate of
royalty, the Ld. Arbitral Tribunal has discussed the evidence in detail.
The learned Arbitral Tribunal has noticed the basis for awarding the
claim of the Respondent at paragraph 5.5.3 (6) of the arbitral award.
The same is as under:
"We have determined the extra liability of the
claimants, towards the Royalty charges on account of
the delay in completion of the work for the reasons
attributable to the Respondents, by working out the
difference between the amount of liability of the
claimants towards the royalty, that has been incurred
due to grant of extension of time for the reasons
attributable to the Respondents and the amount of
liability towards royalty, if he was allowed to carry out
the work without any hindrance and completed the
work within original date of completion as per program
as under..." (Emphasis supplied)
v) Claim No.5: Refund of Royalty Rates:
For the claim towards refund of the cost incurred towards
increase in the rates of royalty over and above the rates prevailing at
the time of tendering, the Ld. Arbitral Tribunal has referred the
evidence in detail. The Ld. Arbitral Tribunal has awarded only the
difference between the amount of liability of the respondent towards
the royalty that had been incurred due to grant of extension of time
for the reasons attributable to the petitioner and the amount of liability
towards royalty, if the respondent had been allowed to carry out the
work without any hindrance. The learned Arbitral Tribunal has given
the reasons on the basis for awarding the claim of the respondent at
paragraph 5.5.3 (6) of the arbitral award. The same are referred as
under:
"We have determined the extra liability of the
claimants, towards the Royalty charges on account of
the delay in completion of the work for the reasons
attributable to the Respondents, by working out the
difference between the amount of liability of the
claimants towards the royalty, that has been incurred
due to grant of extension of time for the reasons
attributable to the Respondents and the amount of
liability towards royalty, if he was allowed to carry out
the work without any hindrance and completed the
work within original date of completion as per program
as under..." (Emphasis supplied)
The learned Arbitral Tribunal has held in this regard at
paragraph 5.3.3 (12) of the arbitral award as under:
"We agree that there is no provision in the agreement
to revise the BOQ rates but to determine the loss on
account of compensation events there is provision for
increasing the contract price under Clause 44.2 of
conditions of contract by the Engineer. As the
Engineer failed to determine the loss on account of
compensation events to increase the contract price,
the Claimants approached the DRB which gave the
guide lines for determining the loss on account of
compensation events. Accordingly the Claimants have
determined the loss in the form of incremental cost, by
working out the rates for BOQ items using MORTH
standard Data analysis adopting market rates
excluding the overheads and profits and deducting the
BOQ rates as in the contract agreement as also the
overheads and profits. The incremental cost thus
derived is towards the increase in the contract price."
(Emphasis supplied)
17. The respondent had restricted the claim only to the additional
cost suffered by it. As per award, the Arbitral Tribunal has awarded
only the amount which has been verified by the petitioner itself as the
correct estimation of the additional cost incurred by the respondent
and filed as Exhibit R-42 before the learned Arbitral Tribunal. The
respondent had excluded from the claim the elements of overheads
and profits in order to avoid duplication in the claims. The petitioner
had objections only towards the maintainability of the claim, which
objection was rejected in view of provision in clause 44.2 of the
contract agreement.
18. The aspect of the existence of evidence and the admission of
the petitioner has been mentioned at paragraph 5.3.3 (13) of the
arbitral award, the details of the same are as under:
"The Claimants have claimed Rs.66,92,05,459/-Vide
C-17 on page 257. The Respondents have furnished a
statement for 18 BOQ items, showing the BOQ rates,
the rates worked out by the Respondents with
reference to Dharwar NH circle for the year 2003-
2004 stating that the rates worked out by the
Claimants are very much on the higher side. Based on
the observations of the AT, the Respondents have
work out the new rates for 18 BOQ items, for the year
2003-2004 without prejudice to their stand that the
claim is not supported by any provisions of the
contract and have furnished the comparative
statement showing the rate as in BOQ, as worked out
by NHAI and as worked out by the Claimants vide R-
30 on page 488. The Claimants modified their Claim of
Rs.66,92,05,459/- vide C-17 on page 257 to
Rs.65,43,12,894/- vide C-81 on page 2604 by the
Claimants based on the oral comments of the
Respondents and the AT. As per the observations of
the AT in its 14th and 15th meetings, the Respondents
have furnished the rates for the 18 BOQ items
considering the observations of AT. R-37 page 760-
806. A comparative statement of BOQ rates,
Claimants rates as claimed in C-17 page 260, the
rates calculated by NHAI in R-30 and the rates
calculated by NHAI as in R-37 is also furnished by
Respondents. R-37 page 761. The Respondents have
furnished their observations on the submissions of the
Respondents in C-79 pages 2543-2544. The
Respondents have furnished the joint statement of
incremental rates and the amount of claim which
works out to Rs.23,15,00,058/- in R-42 pages 950-991
duly signed by both the parties as desired by the AT,
and this is without prejudice to the stand of the
Respondents' that the claim of the Claimants is not
admissible, and the stand of the Claimants that their
claim of Rs.65,43,12,894/- is just and reasonable and
deserves to be awarded. The Claimants have also
cited instances to show that the prices that had
prevailed at the time of bidding and the prices that
prevailed beyond the original contract period. This
reveals that there are increases of prices after the
expiry of the original contract period of 30 months."
(Emphasis supplied)
19. It is submitted by the respondent that due to various defaults
and breaches of the contract agreement on the part of the petitioner,
the progress of the work was delayed and the work could not be
completed within the initial contract period but was finally completed
only on 10th June, 2007 (about 62 months from the commencement
date). The extension of time for completion of the work was granted
to the respondent by the petitioner till 10th June, 2007 as per the
terms of the contract agreement, without levy of any liquidated
damages. Disputes arose between the petitioner and the respondent
regarding additional cost arising from the compensation events as
per clause 44 in as much as the respondent had to stay and perform
work on the site for a total period of about 62 months i.e. more than
double the originally stipulated period of 30 months, resulting in
extended stay of about 32 months.
20. The dispute also arose pertaining to deduction of new royalty
rates by the petitioner from the payments being made to the
respondent. Since the disputes could not be amicably resolved, the
respondent invoked the dispute resolution procedure as contained in
the contract agreement.
21. The disputes were referred to a three member Dispute Review
Board (DRB) constituted by the parties, which resulted in unanimous
findings and recommendations in favour of the respondent. Since the
petitioner refused to accept the recommendations of the DRB, the
disputes were referred for the purpose of final adjudication of the
claims of the respondent to a three member arbitral tribunal which
was jointly constituted by the parties as provided for under the
contract agreement.
22. In nut-shell the following findings arrived at on record while
awarding the claims towards additional cost :
(i) Fault on the part of the petitioner causing delay in
the completion of the works and leading to extended
stay of the respondent on the site.
(ii) Entitlement for additional cost to the respondent
under explicit conditions of the contract agreement
as also the statutory entitlement under the relevant
sections of the Indian Contract Act, 1872, and
(iii) Existence of voluminous evidence on the record
justifying the claims made.
23. With regard to the objection of the petitioner as regards the
grant of interest is concerned, the learned Arbitral Tribunal has given
valid reasons for award of interest and the same cannot be faulted
with. The provision for payment of interest exists in the contract
agreement between the parties.
24. As regards the future interest, interest @18% is contemplated
by the Act itself. Further, there are various judgments where the rate
of interest @18% has been upheld by the Supreme Court. In the
case of Deepa Bhargava and Anr. vs. Mahesh Bhargava and Ors.,
(2009) 2 SCC 294, the Supreme Court has clearly recognized such
award of interest. The relevant portion of the same is reproduced as
under :
"There are a large number of decisions where interest
has been directed to be paid even at the rate of 18 per
cent or 21 per cent per annum."
25. It is also settled law and not necessary to repeat that the Court
is not expected to sit in appeal over the findings of the Arbitral
Tribunal or to re-appreciate evidence as an appellate court. Even if
the additional grounds under Section 34 of the Act, as laid down by
the Supreme Court in the case of Oil and Natural Gas Corporation
Ltd. vs. Saw Pipes Ltd., AIR 2003 SC 2629 are considered, which
are patent illegality arising from statutory provisions or contract
provisions or that the award shocks the conscience of the Court, no
such facts are narrated in the petition. The endeavour of the
petitioner is thus to convert the challenge to the arbitral award into an
appellate proceeding involving a total re-hearing of the matter and re-
appreciation of evidence, and which endeavour as per the consistent
dicta of the Supreme Court is impermissible in law. A recent
observation of the Supreme Court in the case of P.R. Shah, Shares
and Stock Brokers Private Limited vs. B.H.H. Securities Private
Limited and Others, (2012) 1 SCC 594, is apposite in this regard
and is reproduced as under:
"21. A Court does not sit in appeal over the award of an
Arbitral Tribunal by reassessing or re-appreciating the
evidence. An award can be challenged only under the
grounds mentioned in Section 34 (2) of the Act.
Therefore, in the absence of any ground under section
34 (2) of the Act, it is not possible to re-examine the facts
to find out whether a different decision can be arrived at".
26. The Supreme Court has further expounded the said scope in
the case of Markfed Vanaspati and Allied Industries v. Union of
India, (2007) 7 SCC 679, wherein it was observed as under:
"17. Arbitration is a mechanism or a method of resolution
of disputes that unlike court takes place in private,
pursuant to agreement between the parties. The parties
agree to be bound by the decision rendered by a chosen
arbitrator after giving hearing. The endeavour of the
court should be to honour and support the award as far
as possible".
27. The petitioner has not been able to set out any ground in the
petition as to how the award is suffering from the provision of Section
34 of Act. Even, no grounds under Section 34, as laid down by the
Supreme Court and no such facts are narrated in the Petition. The
attempt of the petitioner is to convert the challenge to the arbitral
award into an appellate proceeding and re-appreciation of evidence
which is not permissible in law.
28. The Arbitral Tribunal is the final arbiter of the disputes between
the parties referred to it. In the present case, the parties by
themselves have agreed in the contract to accept the Award as final
and conclusive. The Supreme Court has expounded on the principle
as to the sanctity of the decision of the arbitrator in the case of
Markfed Vanaspati and Allied Industries Versus Union of India
[(2007) 7 SCC 679], where in paragraph 17 of the said judgment it
was observed as under:
"17. Arbitration is a mechanism or a method of
resolution of disputes that unlike court takes place in
private, pursuant to agreement between the parties.
The parties agree to be bound by the decision
rendered by a chosen arbitrator after giving hearing.
The endeavour of the court should be to honour and
support the award as far as possible".
29. Even otherwise, the Award is not open to challenge on the
ground that the Arbitral Tribunal has reached a wrong conclusion or
that the interpretation given by the Arbitral Tribunal to the provisions
of the contract is not correct. Nothing has been found from the
material placed on record by the petitioner that there is any patent
illegality that is apparent on the face of the arbitral award. It is a trite
proposition that finality is attached with the decision of the Arbitral
Tribunal which is the final judge of both the questions of fact and law
referred to it. When the petitioner has no such contention that the
Arbitral Tribunal has no jurisdiction to decide the claim, the merit of
the decision of the Arbitral Tribunal cannot be challenged by a party
to the contract merely because the interpretation given by the Arbitral
Tribunal to the contract terms is not to its liking. In this regard, the
Supreme Court has held in the case of Maharashtra State
Electricity Board vs. Sterilite Industries (India) and Anr., (2001) 8
SCC 482, in paragraph 9 of the said judgment, as under:
"9. ...the arbitrator's award both on facts and law is
final; that there is no appeal from this verdict; that the
court cannot review his award and correct any mistake
in his adjudication, unless the objection to the legality
of the award is apparent on the face of it."
30. The respondent's argument is that in the present case there
was only one interpretation possible and the same was decided to by
the Arbitral Tribunal in the arbitral award. However even if it were to
be assumed, without admitting, that an alternative interpretation is
possible, the Supreme Court has repeatedly held that even if two
interpretations are possible, if the interpretation given by the Arbitral
Tribunal is a possible view, even though the Court may have a
different view, the Award will not be interfered with by the Court under
Section 34 of the Act. The Supreme Court in the case of M/s. Arosan
Enterprises Ltd. Versus Union of India, (1999) 9 SCC 449, in
paragraph 39 of the said judgment, has held as under:
"39. ....The court as a matter of fact, cannot substitute
its evaluation and come to the conclusion that the
arbitrator had acted contrary to the bargain between
the parties. If the view of the arbitrator is a possible
view the award or the reasoning contained therein
cannot be examined."
31. It is also submitted by the respondent that there is no error in
the interpretation of the contract clauses by the Arbitral Tribunal.
However even if it were to be assumed, without admitting, that the
contention of the petitioner is correct even then this Court would not
interfere with the arbitral award for the reason that it is settled law that
an error relatable to interpretation of the contract by an arbitrator is an
error within his jurisdiction. The Supreme Court in the case of Steel
Authority of India Ltd. Vs. Gupta Brother Steel Tubes Ltd., (2009)
10 SCC 63 has summarized the law on this point, in paragraph 26 of
the said judgment, as under:
"26(ii). An error relatable to interpretation of the
contract by an arbitrator is an error within his
jurisdiction and such error is not amenable to
correction by Courts as such error is not an error on
the face of the award."
32. In view of the abovementioned reasons, the findings of the
learned Arbitral Tribunal are on the basis of facts and interpretation
of various clauses of the contract. The Arbitral Tribunal has given
valid reasons by discussing the relevant clauses of the contract. The
objections, thus, are without any merit and are dismissed.
33. No costs.
(MANMOHAN SINGH)
JUDGE
JUNE 09, 2014
