National Highways Authority Of ... vs Emas Expressway Pvtltd
2017 Latest Caselaw 1842 Del

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*      IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                Reserved on: 6thMarch, 2017
                                            Date of decision: 17th April, 2017

+                        O.M.P. (COMM) 176/2016

NATIONAL HIGHWAYS AUTHORITY OF INDIA               ....Petitioner
                Through: Mr. Arun Batta, Advocate.

                                   versus

EMAS EXPRESSWAY PVTLTD                       ...   Respondent
                 Through: Mr. Harish Malhotra, Senior Advocate
                 with Mr. S.K. Chandwani and Mr. Sameer
                 Chandwani, Advocates.

       CORAM: JUSTICE S.MURALIDHAR

                               ORDER

% 17.04.2017

1. The challenge by the National Highways Authority of India („NHAI‟) in this petition under Section 34 of the Arbitration & Conciliation Act, 1996 against the Respondent - Emas Expressway Private Limited is to the Award dated 31st December, 2013 passed by the Arbitral Tribunal („AT‟) in the disputes between the parties arising out of a Concession Agreement („CA‟) dated 27th March, 2002 for the work awarded by NHAI to the Respondent for "Four Laning including strengthening of existing two lane pavement of National Highway No. 2 from Palsit (Km 581.457) to Dankuni (Km 646) Section in the State of West Bengal".

2. The Respondent is a limited liability company/special purpose vehicle

incorporated for the purpose of the Project by Consortium of M/s Gamuda Bhd & WCT Engineering Bhd. The Concession was for a period of 17 years and 4 months including a construction period of 28 months. Rs.399.98 million was the Annuity payable by NHAI to the Respondent as per Schedule - J to the CA. The Respondent appointed M/s Gamuda-WCT (India) Pvt. Ltd. as the (Engineering, Procurement and Construction) EPC Contractor.

3. The commencement date of the work in terms of the CA was 27th October, 2002. The scheduled completion date was 26th February, 2005. It is stated that the commercial operation date (COD) was achieved on 20th June, 2005 after a delay of 114 days. The concession period was to end on 26th February, 2020.

4. On 28th December, 2006, the Respondent submitted its claims which were then referred to an Independent Engineer („IE‟) by NHAI on 3rd January, 2007 for detailed observation. A meeting was held between the parties on 11th April, 2007. The Chief General Manager, NHAI directed IE to submit his recommendations about the Respondent‟s claims within six weeks.

5. On 16th June, 2007 the IE made his recommendations in respect of Claim Nos.1 and 2 of the Respondent. By a separate letter on 18th June, 2007, IE opined for payment of Claim Nos. 3 and 4 of the Respondent. The Respondent was asked to submit a certificate of the CA in support of the amount claimed. On 13th November, 2007, the IE opined that NHAI had to pay to the Respondent in respect of Claim No.6.

6. Arbitration was invoked by Respondent by a letter dated 22nd March 2008. By the same letter signed and submitted on behalf of the Respondent by its CEO informed NHAI of appointment of an arbitrator on its part. Pursuant to this letter, NHAI also appointed its arbitrator by letter dated 25 th April 2008. On 23rd May, 2008, the Presiding Arbitrator was appointed by the two nominee arbitrators.

7. On 4th July, 2009, the Respondent filed before the AT the affidavits by way of evidence of Shri Chiranjeev Ghosh, its Accounts Manager and Shri Abhijit Ghosh, a Partner of M/s KRAG &Associates, Chartered Accountants (CA). Both the witnesses were cross-examined by NHAI. On 12th April 2011 the parties concluded their arguments. On 3rd November, 2011, the AT appointed M/s K.L. Chatrath & Co. to certify the Respondent‟s Claim Nos.1, 2, 3 and 6 from the records/books of account of the Respondent and also of the EPC Contractor.

8. On 3rd May, 2012 M/s K.L. Chatrath & Co. submitted its report certifying the Respondent‟s Claim Nos. 1,2, 3 and 6.

9. On 31st December 2013, the AT published its Award. The AT was unanimous as regards Claim No.7 and as regards the rate of interest under Claim No.5. However, the Minority Award rejected Claim Nos. 1, 2 and 6 and awarded a lesser amount in relation to Claim No.3.

10. On 29th March 2014, NHAI filed the present petition under Section 34 of the Act for setting aside the majority Award dated 31st December, 2013.

11. There were 7 claims preferred by the Respondent before the AT. Claim No.1 was for Time-Related (Prolongation) Costs of the EPC Contractor which worked out to be Rs.45,471,727/-. This calculation was revised to Rs.39,099,636/-. Of this, the amount awarded by the majority Award was Rs.35,297,431/-, which was based on the report of the expert.

12. Claim No.2 for Rs.10,480,171/- , revised to Rs.10,630,100/-. This was on account of Concessionaire‟s Time-related (Prolongation) Costs. The amount awarded was Rs.10,388,674/- based on the expert‟s report.

13. Claim No.3 was for additional cost arising from change in law for a sum of Rs.146,592,575/- which was revised to 154,236,720/-. Against this revised amount, a sum of 133, 782, 038 was awarded. Claim No.4 for financing cost was rejected and Claim No.5 for interest was allowed in part by directing that the interest awarded shall be 13.5% per annum up to the date of the Award.

14. Claim No.6 was for Reimbursement of Electricity Charges and Cost of Diesel for standby Generation Sets supplied during operation period of the Project Facilities etc. The majority awarded Rs. 1,77,86,305. Claim No.7 was for Refund of Rs.12,69,000/- deducted from first Annuity Payment and interest thereon @18% per annum from 2nd September, 2005 till the date of payment. This was allowed by the majority with interest at 13.5% per annum from 2nd September 2005 till the date of the Award.

15. This Court has heard the submissions of Mr Arun Batta, learned counsel appearing for NHAI and Mr. Harish Malhotra, learned Senior Advocate

appearing for the Respondent.

16. The first ground raised by NHAI to assail the majority Award is that it failed to appreciate that the Respondent/Concessionaire and the EPC Contractor/Third Party were two different Companies and distinct legal entities. There was no privity of contract between the NHAI and the Sub- contractor. In case the Sub-contractor had to recover any amount from the Respondent/Concessionaire, it should have been reflected in the books of account as receivable in the books of accounts of the Sub-contractor and as liabilities in the books of the accounts of the Respondent/Concessionaire. No such evidence was produced and therefore the report of the expert could not have been relied upon. Inasmuch as Claim No.1 pertains to the damages allegedly suffered by the Respondent/Concessionaire on account of the Sub- Contractor's time related prolongation cost, Claim No.2 was towards Respondent/Concessionaire's time related prolongation cost on account of hindrances and they are overlapped claims. They were not payable for the above reasons in absence of any contract between NHAI and the Sub Contractor. It is further submitted that in awarding Rs.3,52,97,431/- on account of Claim No.1 and Rs. 1, 03,88,674/- under Claim No.2, the majority AT has wrongly interpreted Article 19.3 (a) (ii). It is further pointed out that under Article 5.4 (XI), it was stated that in the event of delay in the implementation of the Project, Article 8.3 would apply. It is further stated that the Respondent could not have been unaware of the remedy available to it as a result of the prolongation of the implementation period. By now raising these claims on account of expenditure incurred of its own and that of the EPC contractor's, the Respondent was seeking to

change the agreed terms of the Contract.

17. In response, it is pointed out by Mr Harish Malhotra, learned Senior Counsel appearing for the Respondent that the Project was on build, operate and transfer basis („BOT‟) on annuity approach. In terms of in Article 8.1 of the CA, NHAI was to pay to the Concessionaire on each Annuity Payment Date the sum of Rs.399.98 million as the Annuity in respect of each period of six months for the Annuity Payment Period from 27th August, 2005 to 27th February, 2020. The COD was to be the date on which the IE issued the Provisional Certificate or Completion Certificate in accordance with the provisions of Article 5.4. In terms of Article 5.4 (x), the Project shall be deemed to be complete and open to traffic only when the Provisional Certificate or Completion Certificate was issued by the IE.

18. The above submissions have been considered. It is seen that both of the Respondent‟s witnesses i.e. Shri Abhijit Ghosh, a partner of M/s KRAG & Associates was cross examined on 19th August, 2009 and 20th August, 2009. Its Accounts Manager Shri Chiranjeev Ghosh was examined and cross examined on 11th September and 12th September, 2009. The evidence of the Respondent's Accounts Manager Shri Chiranjeev Ghosh related to the originals of Electricity Bills and material issue slips for diesel produced for the inspection of the AT and these were also seen by NHAI.

19. As far as Claim Nos. 1 and 2 are concerned, the AT has found that as a matter of fact there was a delay of 599 days in handing over land for the Interchanges. This was an essential requirement and obligation of the NHAI. As per the IE's letter dated 16th June, 2007, the Project was beset by regular

forceful protracted stoppages and interruptions of the construction works by local residents bringing up various demands. The AT also found on scrutiny of the relevant documents that "Employer delayed in acquiring land and providing access to the site required for implementing the Project and that the Project was affected by numerous forced stoppages and interruptions of the construction works by local residents".

20. The Scheduled Project Completion Date ('SPCD') was specified as 26th February, 2005. The actual completion date certified by IE was 20th June, 2005, thus causing a delay of 114 days in the completion of the Project. A distinction is required to be drawn between the "Implementation Period" which begins from the Commencement Date and ends with the COD and the "Operation Period" which is the period commencing from COD and ending with the expiry of the CA.

21. It is pointed out that there was a delay of 9 months due to the acquisition of land along the main expressway. The AT noted that although the land was to be handed over within one month of the signing of the CA on 27th March, 2002, the whole land for the" mainline" Expressway along with its right of way was acquired only on 24th January, 2003. A further categorical finding is that there was a delay of 599 days (20 months) in handing over possession of 26.35 acres- of land for Interchanges at km 602.00 and km 628.00 which was handed over on 16th July 2004 (Exh. C-67) against the stipulated dated of 27th November 2002.

22. The AT also noted that the prolongation cost was claimed for a short period of 114 days from 27th February 2005 to 20th June, 2005. This period

had already been certified by the IE. It was further held that "for the said COS works, the Concessionaire is entitled to additional time to achieve COD under Article 7.2(b)(iii) of CA". It was categorically held that the delay of 114 days was on account of NHAI as a result of which the Respondent was compelled to stay at the site.

23. There was an issue as regards the failure to give notice and whether for that purpose, the 3rd proviso to Section 55 of the Indian Contract Act 1872 (ICA) would apply. The AT concluded that time was not the essence of the contract. Therefore, it was the second para of Section 55 of the ICA which would apply. Consequently, the AT held that the Respondent would be entitled to compensation from NHAI for the loss occasioned due to prolongation without the requirement of a notice. There was an express statement by the Respondent when it submitted its invoice to NHAI for the first time for payment that:

""For the avoidance of doubt, please note that this submission of our invoice is made without prejudice to any of our rights and/or entitlements under the Concession Agreement and nothing contained herein or in the invoice, or our submission herewith of the same, shall in any way be construed as a waiver of any of these rights and/or entitlements. We further expressly reserve all our rights under the Concession Agreement, in general, and in respect of any further payment to which we are entitled under the Concession Agreement, in particular."

24. The point regarding M/s Gamuda-WCT (India) Pvt. Ltd. not being a party to the arbitration clause has been discussed by the majority AT in para 1.20.3. A reference has been made to the definition of EPC Contractor in Article 1.1 of the CA. It was held that in terms of the said definition, the

EPC Contract was a back to back contract with all liabilities, obligations, and rights of the CA. It was further noted that "Concessionaire had contracted the construction works of the Project Gamuda-WCT (India) Pvt Ltd has been known to NHAI from the Commencement Date throughout".

25. The AT also referred to Article 19.3(a) (ii) of the CA which provided for indemnification of the Concessionaire against third party claim for loss and damages and expenditure arising out of breach by NHAI. It is on that basis that the majority AT has held that the Respondent is entitled to compensation for the additional costs suffered due to breach of the contract by NHAI. The majority AT also referred to Sections 55 and 73 of the ICA.

26. The above conclusions of majority AT are based on the record as well as certification of Claim Nos. 1,2, 3 and 6 by the M/s K.L. Chatrath & Co.. The AT also examined the certificate dated 3rd April, 2007 of the M/s KRAG & Associates, Chartered Accountants. There was variation in the prolongation costs in the report submitted by both the parties. It was found that 10% additional sum included in the certificates issued by M/s KRAG & Associates was not justified. It is on that basis that Claim No.1 for Rs.35,297,431/- was allowed.

27. Claim No.2 was for Concessionaire‟s Time-related (Prolongation) Costs to the tune of Rs.10,630,100/-. Here again the Concessionaire Prolongation Cost was certified by M/s KRAG & Associates for the aforesaid sum of Rs.10,630,100/-. On their part M/s K.L. Chatrath & Co. put this figure of Rs.10,388,674/-. It was held by majority AT that the Respondent would be entitled to Rs.10,388,674/- under Claim No.2.

28. The Court has not been able to be persuaded by learned counsel appearing for NHAI that any or part of the above finding is contrary to the evidence on record or perverse so as to attract any of the grounds under Section 34 (2) (b) (ii) of the Act. The impugned Award in respect of Claim Nos. 1 and 2, therefore, do not call for any interference.

29. Turning to Claim No.3 which was for additional cost arising from change in law whereby the revised figure claim came to Rs.154,236,720/-, the majority AT has discussed the relevant Article 11 as well as Articles 11.1, 11.2 and 11.3 which provide for reimbursement. The majority AT found that the Respondent had claimed reimbursement of additional cost in accordance with Article 11.2. The majority also examined the certificate dated 12th August, 2008 and affidavit dated 29th June, 2009 of M/s KRAG & Associates. The affidavit of Mr Abhijit Ghosh and the above certificate formed part of the evidence.

30. It was concluded by majority AT that the Respondent had fulfilled its obligations and followed the procedure under Article 11.3(a) & (b). It was also found that no discussion was held by NHAI or the Concessionaire along with the IE on the subject pursuant to Clause 11.3 (b) for certification by IE and determination of the additional cost to be borne by the Respondent. The majority AT found that the large number of vouchers submitted could hardly be doubted.

31. Under Article 1.1, taxes and levies if any payable in an accounting year and the increase in expenditure had to be borne by the Respondent. The remaining was to be compensated by NHAI. However, any increase in cost

to the EPC Contractor/Concessionaire on transportation of stone due to change in law could not be accepted. Therefore, the amount of Rs.1,48,88,267 was "not found to be admissible". The majority AT also discussed the increase in the minimum wages and accepted the recommendation for reduction of 25% of the said amount of Rs.17,55,704/-. Ultimately, it was found that as against a sum of Rs.15,42,36,718, the amount awarded the Respondent a sum of Rs.13,37,82,038/-.

32. The challenge to the majority Award is basically on the same grounds urged before it by the NHAI. The Court is unable to be persuaded to interfere with the impugned Award insofar as it has allowed Claim No.3.

33. Claim No.4 was rejected by the AT unanimously and, therefore, the Award to that extent is not interfered with. Claim No.5 was towards interest where the majority AT has gone by Article 19.2 and Section 31(7) of the Act. It has gone by Prime Lending Rates (PLR) fixed by Reserve Bank of India (RBI). It was considered that 2% above the PLR rates was considered to be reasonable. Thus effective interest would be 13.5% per annum.

34. The above determination of the interest cannot be stated to be contrary to the provisions of the Act. This again is based on careful analysis of the legal position.

35. Claim No.6 for reimbursement of electricity charges and cost of diesel for standby generator sets supplied during operation period of the project facilities. The revised figure for the claim was Rs.13,626,630/-. Interest @ 18% per annum was also claimed. The majority AT then discussed the

correspondence between the parties at some length. The majority AT held that the Respondent was entitled for reimbursement on account of electricity charges and cost of diesel for operation of the project facilities.

36. As far as Claim No.7, the majority AT‟s view was that the deduction made by the Respondent from first Annuity Payment is without justification and not as per terms of the CA. Therefore an amount of Rs.12,69,000/- was awarded to the Respondent with interest @ 13.5% per annum from 2nd September, 2005 till the date of the Award. There is no clause in the CA for any appropriation by NHAI from Annuity Payments'. Nor is there any term for any reduction from the amount payable or for imposition of any 'penalty', token or otherwise. There was also no notice to the Respondent as to the intention of NHAI to take action to recover any Annuity Amount or to impose any penalty.

37. Having considered the submissions of learned counsel for the parties and having perused the impugned Award in light of the documents forming part of the Arbitral record that has been requisitioned, it is seen that the majority AT based its findings on the supporting documents. The calculation of interest also has not been found to suffer from any patent illegality.

38. For all of the aforementioned reasons, the petition is dismissed, but in the circumstances with no orders as to costs.

S. MURALIDHAR, J APRIL 17, 2017 rd