National Highways Authority Of ... vs Hindustan Construction Co. Ltd
2015 Latest Caselaw 3200 Del

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*      IN THE HIGH COURT OF DELHI AT NEW DELHI
30
+                           O.M.P. 260/2015


       NATIONAL HIGHWAYS AUTHORITY OF
       INDIA                                     ....Petitioner
                    Through: Mr. Rajiv Kapoor and Mr. Rahul
                               Ranjan, Advocates.


                            versus


       HINDUSTAN CONSTRUCTION CO. LTD ..... Respondent
               Through: Ms. Malavika Lal, Advocate.


       CORAM: JUSTICE S.MURALIDHAR
                            ORDER

%                           21.04.2015
Caveat No. 385 of 2015

Since learned counsel for the Respondent has put in appearance, the caveat stands discharged.

IA No. 8073 of 2015(exemption)

1. Allowed subject to all just exceptions.

2. The application is disposed of.

OMP No. 260 of 2015

3. The challenge in this petition by the National Highways Authority of India (NHAI) under Section 34 of the Arbitration and Conciliation Act, 1996 („Act‟) is to an Award dated 29th November 2014 as well as its corrected version dated 15th December 2014 passed by the Arbitral Tribunal (AT) by a 2:1 majority in the disputes between NHAI and the Respondent, Hindustan Construction Co. Ltd. („HCC‟).

4. The work of „Development of Adequate Road connectivity to Paradip Port (4 laning of Chandikhol-Paradip km 0.0 to km 77.0 Section of NH-5A) in the state of Orissa (Contract Package -OR- PAADIP) was awarded by NHAI to HCC. Under the contract dated 29th January 2004 the date of commencement of the project was 19 th February 2004 and the stipulated date of completion was 18 th February 2007. It is stated that it was a unit rate contract. The bidding documents contained a detailed document „Bill of Quantities‟ („BOQ‟) setting out the items of work with the estimated quantities to be executed by the contractor. The parties also adopted the terms and conditions of contract as contained in the general conditions of contract („GCC‟) and special conditions of contract („SCC‟).

5. The disputes between the parties were referred to a three-member AT comprising Mr. D. Sree Rama Murthy, the Presiding Arbitrator, Mr. K. B. Lal Singal (nominated by NHAI) and Mr. A.B. Desai,

(nominated by HCC). The impugned Award was in respect of Dispute No.6. i.e. „payment of additional costs‟ incurred /losses suffered in the extended period of the contract from 19th February 2007 to 15th June 2009 on account of delays and compensation events not attributable to HCC.

6. It is not in dispute that the work could not be completed within the stipulated time limit of thirty six months. HCC from time to time applied for extension of time on account of „compensation events‟ which it notified to the Engineer. After review and consideration of the compensation events the Engineer gave his recommendation for extension of time („EOT‟) from time to time. The overall EOT recommended was till 27th August 2009 for completion of whole of the work. However, NHAI was not in a position to hand over the land for Chandikhol Intersection. The Engineer treated the whole of the work as substantially completed as on 15 th June 2009. The remaining work of Chandikhol Intersection was included in the work to be completed during the defect liability period („DLP‟). The Engineer issued a substantial completion certificate („CC‟) to that effect. Based on the CC, NHAI approved the EOT till 15th June 2009 in terms of Clause 28 of the GCC.

7. It is not in dispute that the works under the contract were completed under the DLP. HCC submitted its claim for payment of additional costs incurred on account of EOT to the Engineer. While the Engineer

made a recommendation to NHAI for approval of the claim, his recommendation was not made available to HCC. With no response from the Engineer, HCC issued a notice of dispute to NHAI and thereafter had the matter referred to the Dispute Resolution Board („DRB‟). When the DRB failed to issue its recommendations within the specified period, HCC issued a notice invoking arbitration and that is how the AT came to be constituted.

8. In the impugned Award the AT noted that the whole of the work was divided into three milestones as under:

"Milestone-1: Complete minimum length of 25 Km (anywhere in the entire stretch) in all respects of new carriage way within 18 months from the start date excluding major bridges falling in between i.e. on 18.08.2005.

Milestone-2: Complete a length of 25 Km of old carriageway in all respect of Milestone No.1 and additional 20 Km length of new carriage way in all respect so that total completed stretch would be 45 km of new carriage way and 25 Km of old carriage way within 28 months from the start date. This also excludes major bridges i.e. on 18.08.2005.

Milestone-3: Remaining length including all Bridges (complete work) shall be completed by the end of the contract period i.e. 36 months from the start date i.e. on 18.08.2005."

9. The case of the HCC was that it was prevented from completing the work due to „compensation events‟. The AT noted that while EOT was not approved by NHAI as regards Milestones 1 and 2, EOT for 848 days till 15th June 2009 was approved for Milestone 3. It was further pointed out by HCC that EOT was granted under Clause 28 of the contract i.e., on account of compensation events not caused by HCC. It was contended by HCC that as a result of the EOT, it was compelled to remain at the project site with all its manpower, equipments, machineries and other resources to complete the balance works in the extended period. Thus, HCC had to incur additional costs which were not compensated for contract price. On completion of the work the HCC submitted a claim for additional costs for the extended period in the sum of Rs. 142.73 crores.

10. The operative portion of the majority (2:1) Award read as under:

"We, therefore, make the following Award:

The Respondent do pay to the Claimant,

(A) Sum of Rs.1,14,49,32,100 (Rs.One Hundred Fourteen Crore Forty Nine Lakhs Thirty Two thousand One Hundred Only), which sum shall be paid by the Respondent to the Claimant within 90 (Ninety) days from the dates of this Award. In case the Respondent fails to pay the said amount within the aforesaid period specified, the Respondent shall be further liable to pay interest at the simple rate of 18% per annum on the principal

amount of Rs.69,98,36,300/- (Rs. Sixty Nine Crore Eight Lac Thirty Six Thousoand Three Hundred Only) from the date of this Award till the payment thereof is made and

(B) Sum of Rs.3,30,000/- (Rs. Three Lac Thirty Thousand only) which shall be paid by the Respondent to the Claimant within 15 (Fifteen ) days from the dates of this Award. In case the Respondent fails to pay the said amount within the aforesaid period specified, the Respondent shall be further liable to pay interest at the simple rate of 18% per annum on this amount of Rs. 3,30,000/- (Rs. Three Lac Thirty Thousand only) from the date of this Award till the payment thereof is made.

(C) There is no order as to costs.

(D) The arbitral proceedings shall stand terminated.

(E) The Award in original with all original documents shall remain with the Presiding Arbitrator for 120 days from the date of this Award, after which it be handed over to the Claimant."

11. Clause 47.1 provided for price adjustment in respect of the inputs to the works based on the agreed formulae. However, once the time was set at large on account of delay and default of NHAI, the disclaimer clause would not be binding on HCC. Further the time

related to costs built in the contract price like equipment ownership charges, overhead expenses, financing charges etc. could cater only for original time of 36 months and not for the extended period. With the EOT, HCC was exposed to losses and injuries. When HCC was tied down at the project site due to the delays and defaults of NHAI, it lost the opportunity to move to other work sites and earn revenue. The majority came to the conclusion that the events causing extension of intended completion period of the work from 19th February 2007 to 15th June 2009 was on account of compensation events in terms of Clauses 21.1 and 44.1. The reasons for the EOT were not attributable to HCC.

12. As regards delay in handing over of the site, after discussing the statutory provisions of the contract, the majority concluded that HCC‟s responsibility was limited only to coordinate with certain procedures and its claim on account of compensation events was not barred under Item No. 1.06 of BOQ as well as Item No. 18 of the contract data. The plea of NHAI that under Item No.18 and No. 1.06 of BOQ the responsibility was of HCC to coordinate in the cutting of trees, shifting of utilities and removal of encroachments etc. and that if any of these works get delayed HCC would not be entitled to any compensation was negatived by AT because delay in removal of the encumbrances was attributable only to NHAI. It is in this context the majority found such stipulation in clause to be void in terms of Sections 53 and 73 of

Indian Contract Act and contrary to Clauses 21, 28 and 44 of the contract.

13. On the question of issuance of earlier warning by HCC the majority was of the opinion that HCC had duly warned the Engineer even though it was not required to do so. The majority then found that there was no shred of evidence to support the argument of NHAI that the contract was extended not on account of compensation events but only to keep it alive. AT further found that HCC has taken action to ensure that additional costs on account of compensation events were mitigated to the extent possible. AT also rejected the plea of NHAI that HCC had failed to submit adequate evidence required for assessment of its claim. Nevertheless, AT undertook its own assessment based on the document submitted to it in that regard.

14. The majority of the Tribunal found a sum of Rs. 69,98,36,300 payable by NHAI to HCC along with interest of Rs. 44,50,95,800 under various sub-heads of claims on additional costs totaling Rs. 1,14,49,32,100. The counter claim of NHAI was rejected.

15. The majority noted in its Award that the third Arbitrator Mr. K.B. Lal Singal had not signed the majority Award. In para 32.2 it noted that the hearing of the matter was concluded on 5th April 2014. The internal meetings were held on 21st and 22nd August 2014. According

to the majority the discussions concluded on 22nd August 2014 with the understanding that Mr. Singal would give his minority Award in view of disagreement with the views of Presiding Arbitrator. Mr. Singal had informed the other two Arbitrators that he needed time up to 28th November 2014 to draft his minority Award. In these circumstances, it was decided to meet on 28 th November 2014 to finalise the Award and publish it on 29th November 2014. The majority Award referred to the minutes of meeting dated 22 nd August 2014 in this connection.

16. On 29th September 2014 Mr. Singal wrote to the Presiding Arbitrator claiming that neither NHAI had argued its counter claim nor HCC had opposed it in their oral submissions and therefore there was lapse on both sides. Mr. Singal suggested that it would be appropriate to convene a meeting of the parties to seek clarification. In response to the above letter, Mr. Desai wrote a separate letter on 7th October 2014 stating that he had referred to his notes of oral submissions and noticed that only one counter claim had been argued on 13th March 2014 and this had been responded to by HCC in its rejoinder. Since there were adequate pleadings of both the parties as regards the counter claim there was no lapse as such. The Presiding Arbitrator also referred to his notes of arguments and noticed that NHAI‟s counter-claims were indeed argued by its counsel. Accordingly, by a letter dated 13th October 2014, he informed Mr.

Singal that there was no lapse on the part of either party. Therefore, there was no need for any further hearing.

17. Mr. Singal then wrote a letter dated 30th October 2014 again raising certain issues. Mr. Singal informed the Presiding Arbitrator that he would not be able to finalize the Award. He, however, stated that the meeting scheduled on 28th and 29th November 2014 should stand. By a letter dated 10th November 2014, Mr. Singal informed that his Award would not be ready on 28th November 2014 but only thereafter. It is in these circumstances the two Arbitrators constituting the majority decided to go ahead with publishing their Award on 29 th November 2014.

18. To complete this narration it must be noted that certain corrections were carried out in the majority Award on 15th December 2014. However, this did not materially alter its sum and substance.

19. Mr. Rajiv Kapoor, learned counsel for the Petitioner first submitted that there was apparently no meeting of the Arbitrators to finalize the Award and therefore the majority Award was bad in the eyes of law. Considering the complexities of the issues as well as the fact that the case had been argued over 26 meetings and the majority Award was about 134 pages, it was impossible that only after holding two meetings the majority was able to prepare such an Award. He

alleged that this was a clear pointer that the majority of the Arbitrators had "colluded with each other as well as with the Respondent and were in a rush to somehow publish the Award despite the fact that the third arbitrator was not even consulted". Mr. Kapoor was, however, quick to add that he was not leveling any personal allegations and was only going by what was evident from the record.

20. The Court is unable to accept the above submissions of Mr. Kapoor for several reasons. The mere fact that two of the Arbitrators take a certain point of view which is not agreeable to the third Arbitrator cannot lead to an inference that the two Arbitrators had "colluded". Such an accusation apart from being unfair and unwarranted is not even legally tenable. Such an allegation cannot but be considered to be reckless and without any basis whatsoever.

21. The Court finds that the majority has taken great pains to explain in detail the various steps and stages in the arbitral proceedings and in particular the dates on which deliberations did take place amongst the Arbitrators i.e., the minutes of meetings dated 22nd August 2014 which has been signed by all the three Arbitrators. It clearly records that discussions were held on the issues arisen in the arbitration. It also records that the AT had decided to meet on 28th November 2014 to finalize the Award and that they decided to publish the Award "at 1200 hrs on 29th November 2014". There can be no doubt from the minutes of the said meetings that all three Arbitrators were ad idem

that the discussion on the first day i.e. 21stAugust 2014 remained inconclusive. The minutes record that "The AT continued the discussions on 22nd August 2014 and concluded the same". Mr. Singal at that stage does not appear to have raised the issue concerning NHAI‟s counterclaims. His letter more than one month later on 29 th September 2014 that the counter claim of NHAI had not even been argued appears to be contrary to the version of the other two arbitrators.

22. The Court is unable to be persuaded to hold that the Arbitrators constituting majority were not presenting the correct picture or that they committed any illegality in proceeding to pronounce the majority Award on 29th November 2014. It is not unusual that in a multi- member AT, there may be honest differences that crop up not only on the decision on claims but even on questions of procedure. Where the differences cannot easily be reconciled, it is impractical to insist on consensus on the contentious issues. To label such differences as a failure of the arbitral process would be to overlook the legislative scheme that accounts for such contingencies. Indeed, under Section 29(1) of the Act in a situation where the dissenting member declines to sign the majority Award, the majority can proceed to pronounce their Award.

23. The Court cannot in exercise of its powers under Section 34 of the Act be expected to undertake an investigation of whether the

grievance of Mr. Singal has any basis. Unless there is something terribly wrong in the procedure adopted by the AT, or something obviously untenable in the manner of conducting the arbitral proceedings, the Court should be constrained by rigid formality of regular court processes. Much less, can the manner of conducting internal meetings of arbitrators become the subject matter of judicial supervision.

24. Consequently, the Court rejects the challenge to the majority Award by NHAI on the ground that there was no consultation or meeting of the minds of the three Arbitrators.

25. As regards the challenge to majority Award on merits, the submissions of Mr. Kapoor centered around the interpretation of Item No.18 of the contract data as well as Clause 110 and Clause 21 of the GCC. Mr. Kapoor harped on the wording of Clause 110.3 that HCC was responsible not only for coordination but also for obtaining the requisite permissions from the service providers and making the site unencumbered.

26. It is not as if the above submissions were not noted by the majority of the AT in its impugned Award. A very exhaustive discussion was undertaken by it of not only clauses of the agreement but also of the factual position emanating from the documents placed on record.

Merely because the AT did not accept the contention of NHAI would not per se make the Award bad in the eyes of law. The interpretation placed on the clauses of the contract by the majority do not, in the considered view of the Court, appear to be erroneous or perverse. The view taken by the AT does appear to be plausible and cannot be said to attract any of the grounds under Section 34 of the Act.

27. It was then contended that in the earlier Award under references 2 and 3, the AT had granted extension not only for the first two mile stones but also for the whole of the works. It was alleged that the AT had somehow tried to find ways to defeat the law to cull out a fresh cause of action arising from the earlier cause of action which had already been adjudicated by them.

28. Dispute No.6 was a separate and distinct dispute which was the subject matter of the reference before AT. This was for additional costs that had to be incurred by the Respondent on account of compensation events. The majority had not mechanically accepted the determination by the Engineer but re-examined the entire evidence to come to an independent conclusion. Where the extension of time was necessitated due to omissions of NHAI, the Claimant could not be saddled with consequent additional costs and be denied compensation. As explained in Associate Builders v. Delhi Development Authority 215 (2014) DLT 204 (SC), even on the question of interpretation of the clauses of the contract, the view of the AT would be final unless it

is shown to be perverse or irrational. The Court is not persuaded to come to a conclusion of perversity or irrationality as far the majority Award of the AT is concerned.

29. As regards the claims under the individual sub-heads, a perusal of the majority Award itself shows that there is a very detailed discussion of the evidence as well as applicable clauses of the contract. It is not possible for the Court to sit in appeal over those findings which appear to be factual and are not shown to be perverse or irrational.

30. For all the above reasons the Court concludes that there is no merit in any of the grounds urged by NHAI to challenge the majority Award.

31. The petition is accordingly dismissed but, in the circumstances, with no order as to costs.

S.MURALIDHAR, J APRIL 21, 2015 mg