Delhi High Court
The National Highways Authority ... vs M/S. Jivanlal Joitaram Patel on 17 January, 2017
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 22nd December, 2016
Date of Decision: 17, January, 2017
+ O.M.P. (COMM.) 201/2016
THE NATIONAL HIGHWAYS AUTHORITY OF INDIA ..... Petitioner
Through: Mr. Arun Kumar Varma, Senior Advocate
with Mr. Ashish Joshi, Mr. Sumit Gupta &
Mr. Rohit Jain, Advocates.
versus
M/S. JIVANLAL JOITARAM PATEL ..... Respondent
Through: Mr. Harin P. Raval, Senior Advocate with
Mr. Ritin Rai, Mr. Sidhartha Jha & Mr.
Aabhas Kshetarpal, Advocates.
CORAM: JUSTICE S. MURALIDHAR
JUDGMENT
% 17.01.2017
1. The National Highways Authority of India („NHAI‟) has filed this
petition under Section 34 of the Arbitration & Conciliation Act, 1996 („Act‟)
challenging an Award dated 24th March, 2011 passed by the Arbitral
Tribunal („AT‟).
2. The disputes between the parties arose out of an Agreement dated 17th
November, 2004 whereby the work of „Short-term Improvement and
Routine Maintenance of Samakhiyali - Gandhidham Section (from KM 306
to 362.160) of NH-8A and Toll Collection at Samakhiyali Toll Plaza‟ for 24
months was awarded by NHAI to the Respondent, M/s. Jivanlal Joitaram
Patel („JJP‟).
3. At the outset, it has been clarified by Mr. Arun Kumar Varma, learned
Senior counsel appearing for NHAI that the objections in this petition are
confined to the Award in relation to NHAI‟s claim No. 1 and JJP‟s counter-
claim Nos. 2, 5, 7 to 10 and 15.
The background facts
4. The contract price was Rs. 7,98,43,090 and the date of commencement of
contract was 1st December, 2004. The scheduled date of completion was
30th November, 2006. The „Scope of Works‟ comprised of six types of
works including collection of toll fee at Samakhiyali Toll Plaza.
5. NHAI states that it got decoy checks conducted at the Samakhiyali Toll
Plaza between February and September, 2005. It is stated that the decoy
agency reported a big pilferage in the toll fee collection. This led to NHAI
issuing to JJP a show cause notice (SCN) dated 7th August, 2006 seeking to
withdraw the tolling operation. After JJP submitted its reply on 14th August,
2006 and 12th September, 2006, NHAI withdrew the work of toll collection
from JJP on 21st September, 2006 and awarded it to another agency viz.,
M/s. Bimla Enterprises (BE) on 30th September, 2006 for tolling operation at
Samakhiyali Toll Plaza for a period of six months. It is stated that on 28 th
December, 2006, JJP submitted the last Running Account Bill 24 for
November, 2006.
6. The Project Director of NHAI assessed the loss for NHAI at Rs.
10,97,63,406 on account of pilferage in toll fees. On 2nd June, 2007, NHAI
issued a demand notice to JJP for recovery of the aforementioned sum. In
turn, JJP on 9th June, 2007 sent a notice demanding Rs. 2,84,27,729 against
the 23rd and 24th interim bills and final bill.
7. On 18th July, 2007, NHAI invoked bank guarantee (BG) dated 20th
October, 2004 furnished by JJP as performance security. The other BGs both
dated 10th January, 2005 furnished by JJP as performance security under
another contract for Abu Road - Deesa Section of NH-14 in the sum of Rs.
20,25,700 and Rs. 50,07,500 were also encashed by NHAI.
8. Both NHAI and JJP issued notices on 21st August, 2007 invoking the
arbitration clause. A three-member AT was constituted. NHAI submitted its
claim statement and raised three claims mainly for damages for
pilferage/short deposit of toll fee by JJP. Apart from submitting its defence
statement, JJP raised 16 counter-claims essentially towards payment of
outstanding bills and premature withdrawal of tolling operation.
Findings of the AT
9. The AT framed 28 issues. Both parties adduced oral and documentary
evidence. Col. Khushwant Singh, Project Director was examined by NHAI
as CW-1. JJP examined Mr. Satish Patel, Project Director of JJP (as RW-1)
and Mr. Vrajesh Shah, Accountant, JJP (as RW-2).
10. By an unanimous Award dated 24th March, 2011, the AT decided the
claims and counter-claims as under:
Nature of Claims Claims (Rs.) Allowed by AT (Rs.)
Claim No. 1: Damages towards 10,97,63,406 19,30,502
pilferage in toll collection
Claim No. 2: Past interest @ 2,79,89,669 2,45,623
Claim No. 3: Cost of Arbitration To be Nil
quantified
SUMMARY OF COUNTER-CLAIMS (CC) OF JJP
CC No. 1: Payment of Running 61,19,315 61,19,315
Bill-23
CC No. 2: Payment of Running 2,46,35,530 2,46,35,530
Bill-24
CC No. 3: Price escalation for 3,04,00,866 Rejected
delayed indent for laying
bituminous concrete work
CC No. 4: Damages arising 8,40,000 Rejected
from illegal withdrawal of
tolling work
CC No. 5: Payment of Final Bill 24,87,770 24,87,770
CC No. 6: Illegal withholding of 31,45,081 31,45,081
retention money
CC No. 7: BG of Rs. 79,85,000 79,93,904 79,93,904
illegally encashed plus bank
charge of Rs. 8,904
CC No. 8: Cost incurred in 76,190 76,190
furnishing BG from Bank of
Baroda
CC No. 9: Cost incurred in 2,32,581 2,32,581
extending the BG from ICICI
Bank
CC No. 10: Cost incurred in 1,87,842 1,87,842
furnishing BGs from ICICI
Bank in relation to Abu Road -
Deesa Contract
CC No. 11: TDS not remitted 51,300 Rejected
CC No. 12: Legal fees and To be assessed Rejected
expenses incurred to restrain
illegal invocation of Bank
Guarantees
CC No. 13: Loss of Business 50,00,000 Rejected
Opportunities and loss of profit
CC No. 14: Loss of Goodwill 50,00,000 Rejected
CC No. 15: Declaration for -- Allowed
prohibiting NHAI from
withholding any amount due to
JJP and from taking any action
against JJP under any other
contract
CC No. 16: Cost of Arbitration To be assessed Nil
proceedings
Total 8,61,70,379 4,49,29,513
Interest for delayed payment of 39,54,043
RA Bills and Final Bill
Total for counter-claims 4,88,32,256
11. As regards Claim No. 1, the case of NHAI was that M/s. Group-4
Securitas, a private detective agency was engaged in July, 2004 for
conducting surprise checks at 25 toll plazas including Samakhiyali Toll
Plaza. These surprise checks were conducted during 13th February, 2005 and
23rd February, 2005 and again between 31st August, 2005 and 9th September,
2005. The agency submitted reports, Report-1 and Report-2, in May, 2005
and February, 2006 respectively. Both reports stated that there existed big
pilferage and various discrepancies in respect of toll fee collection. Based on
the said report, NHAI issued an SCN dated 7 th August, 2006. In its reply
dated 14th August, 2006, JJP inter alia sought some more time to furnish a
reply since it was necessary to identify the defaulting personnel from
incumbency charts at toll gates mentioned in the observation report and
obtain information from the defaulting personnel. It is further pointed out
inter alia as under:
"4. We agree that incidences of irregularity as pointed by the
Observation Team might have occurred. However, to avert and to
avoid, such incidences, herein we submit that we as our contractual
obligation in the interest of NHAI, have deployed our own vigilance
team to detect any such wrong incidences.
5. As is known to you, toll collection being a cash transaction,
spanning over a minute for every vehicles, it s hardly possible for us,
the partners of the company, to scrupulously follow and maintain vigil
on every personnel employed at Toll Booth round the clock.
6. However, to avoid and avert Incidence of such type, to which it is
likely that toll booth operators may get induced to have short term so
called no risk money when they get experience of the behaviour of
vehicle drivers and probable illegal advantage they can earn in
collusion with vehicle operators, since beginning, we have
implemented a practice of discontinuing toll booth operators from
their work after a period of about one month.
In spite of vigil and preventive action as above being implemented by
us since beginning it might as observed by the observation team might
have committed by our toll booth operators. But you will agree that
for the act of such personnel employed on petty services, we cannot
be punished out-rightly as such action will be totally unjust. We,
therefore, though provided under contract, urge you to provide us
opportunity to improve our working by differing penal action of
withdrawing Tolling Item from our contract and oblige.
Herein we take this opportunity to assure you of our sincere efforts in
averting such incidence in future and of our best services to NHAI."
12. This was followed by another letter dated 12th September, 2006 written
by JJP to NHAI indicating the corrective action taken by it. The letter stated
inter alia as under:
"1. You will agree that for we, partners of the Company, it is
impossible to supervise toll collection round the clock during contract
period. As such we have to depend upon employed persons for the
work and trust their honesty and integrity to us and in turn to the
assigned job and NHAI. When we came across incidence of pilferage
in toll collection by our employees, to have vigil on them we have
been taken action as under:
a. Changing the staff, their duties revolving their tollbooths and even
removing the persons of doubtful integrity very immediately.
b. We have made a practice to visit the toll plaza at odd hours of the
day as has been done by the Investigation Team of NHAI since then.
c. We were dismissing the persons of doubtful integrity, if observed
so, immediately to set example and to create atmosphere of strict
discipline, threat and integrity among the remaining personnel.
d. We have deployed more supervisory staff to enforce discipline and
integrity in collection.
e. We have employed supervisory staff also for vigilance checking to
identify pilferage, if any, and persons involved therein.
f. We partners have increased our visits to Toll Plaza to improve on
collections and enforcement of integrity.
g. We have erected close circuit cameras and are maintaining records
of the activities at all Toll Plaza for subsequent checking.
We have to inform you that in view of above stringent measures being
practiced by us toll collection has improved as can be seen from the
records.
We further assure you to be more vigilant in future to guard the
interest of NHAI."
13. Before the AT, the case of NHAI was that the above two letters
constituted an unambiguous admission of the pilferage by the employees of
JJP. NHAI maintained that the Engineer had every justification for seeking
to recover from JJP the loss dues against the bills. The following two issues
framed by the AT on this aspect as under:
"Issue No. 1: Whether the Claimant proves pilferage or shortfall in
toll collection by the Respondent? If so, to what extent?
Issue No. 2: Whether the Claimant proves the contents, authenticity
and accuracy of the reports at Annexure C-4 and Annexure C-5 of the
Statement of Claim? (SOC) [Claim No.1]"
14. The findings of the AT on the above issues were as under:
i. Apart from the two decoy reports submitted by M/s. Group-4 Securitas,
there was no direct or indirect evidence of pilferage on record. However, the
possibility of shortfall on account of dishonest conduct of some of the
employees of JJP could not be ruled out as admitted by JJP in its reply to
NHAI.
ii. The routine checks carried out by the Project Director of NHAI, the
consultants, Epicon Consultant Pvt. Ltd., and the Chartered Accountant
(„CA‟), Patel & Patel Associates, did not indicate any discrepancy.
iii. The details of vehicle types and tickets furnished by JJP were
incomplete. Except for producing 46 computerized box files, no other
records were maintained by them. The AT, accordingly, observed that "...
this is serious negligence of both the parties in not maintaining the records
of important activity of Tolling operation in terms of the contract."
iv. There was no clarification as to which of the reports of M/s. Group-4
Securitas was the interim and which was the draft.
v. The casual approach of NHAI that the note for initiating action against
JJP was put up after about one and a half months after getting the second
decoy report and after about ten months after the first report. Even
thereafter, the approval by the Chairman for initiating action took about four
months.
vi. The only witness of NHAI viz., Col. K. Singh was unable to prove
authenticity of the decoy reports. Since the said witness took over as the
Project Director only in July, 2006, he was in no position to give direct
evidence as to the contents‟ authenticity or accuracy of the said report.
vii. The reports on their face appeared to be unreliable and did not inspire
enough confidence. The persons, who prepared the reports were not
produced for cross-examination. JJP had demonstrated major discrepancies
in the decoy reports. Accordingly, Issue No.2 was decided against NHAI
and in favour of JJP.
viii. As regards Issue No. 1, it was held that since the decoy report had not
been proved, NHAI was unable to prove any pilferage by JJP. The AT,
however, concluded "on the basis of the material on record that the
possibility of shortfall in toll collection cannot be ruled out." What weighed
with the AT in this regard was that after the issuance of the SCN, JJP
showed increase in toll collection although such increase could be for
various reasons including JJP having strengthened its system of checks and
balances and having improved its surveillance on staff.
15. As regards the claim of NHAI for damages on account of
pilferage/shortfall in toll collection, issue No. 3 was framed by the AT.
Here, the subsequent agreement entered into by NHAI with BE and the
figure of toll collection by the said agency for the month of December, 2006
became relevant and were taken into account by the AT. It was noticed that
the monthly increase in toll collection by JJP for the corresponding period in
2005 was far less than the collections made by BE for the same period in
2006. The AT found that the factual position that was emanating from the
perusal of the two decoy reports was that the amount of pilferage/shortfall
collection worked out at 33.75% of the total collection deposited by JJP with
NHAI. Further, when compared with the collection made by BE, the average
monthly increase in three months worked out at 17.85%. Therefore, the plea
that the shortfall could be because of rainy season was viewed by the AT
only a pretext to negate an unduly 40.43% of monthly increase from
September, 2006 to October, 2006.
16. The AT referred to a letter dated 29th March, 2007 written by the Project
Director (PD), Palanpur to the General Manager (GM), NHAI setting out the
manner of calculation of damages. The said calculation was approved by
the letter dated 7th May, 2007 and on that basis a notice for recovery was
issued to JJP on 2nd June, 2007. The two main factors on the basis of which
NHAI calculated damages was - (i) Average collection during December,
2006 by BE (ii) the average yearly increase in traffic @ 7.5% in terms of
clause 3.3.2 of "IRC-37:2001 - Guidelines for the design of flexible
pavements." The AT noted that in the letter dated 29 th March, 2007 of the
PD, Palanpur, a reference was made to a letter dated 28th November, 2006
wherein details of an earlier calculation of shortfall had been submitted for
approval of the competent authority. However, the said letter was not
actually enclosed with the letter dated 29th March, 2007. Accordingly, the
AT drew an adverse inference that it was deliberately withheld by NHAI.
The AT also observed that it is only pursuant to the directions and insistence
of the AT that the said letter was filed by NHAI on 4th May, 2010. The said
letter quantified the recovery amount at either Rs. 18,33,942 or Rs.
19,30,502.
17. The AT then proceeded to discuss the data submitted to it by NHAI as
under:
"1) Monthly vehicle passing and AVCC compliance report of Samakhiyali
Toll Plaza. (Ref: CD7, Page 1340 to 1352),
2) Month wise traffic data of Samakhiyali Toll Plaza for Nov. 2005 to Dec.
2009. (CD-I3, Pg. 1414)
3) Agency wise by toll collection from 01/06/2003 to 30/09/2006. (CD-13,
Pg. 1410 to 1413"
18. The AT undertook a detailed analysis of the said data and concluded that
it showed why the collection of BE may have been higher than that of JJP.
The fifty-fold increase in the EME category of vehicles was indicative of a
large scale industrial project further along the highway (such as
development of a port or a Special Economic Zone). There was also a
corresponding but less proportionate increase in other vehicle categories.
However, since NHAI had adequate data in its possession, there was no
occasion for it to take recourse to IRC-37 since the said guideline offered a
7.5% increase only where adequate data was not available.
19. The AT then concluded that the methodology adopted by NHAI to
quantify damages was arbitrary. It was based on decoy reports, which were
unreliable. There was no basis for calculating damages based on IRC
publication. Additionally, the retrogression methodology employed was
"extremely speculative" and "not a methodology known to law to compute
damages, which must be actual damages". The AT, therefore, was unable to
agree with the revised calculation as worked out by the PD, PIU, Palanpur.
20. In para 232 of the Award, the AT set out the calculations worked out by
the PD, PIU, Palanpur "for LCV vehicles only" for the period between
February, 2005 to September, 2006 and came to the conclusion that the data
indicated that the Petitioner had suffered damages on account of the shortfall
on the total collection by the JJP. The three columns in the said table set out
by the AT read "Months" (column 1), "As per Agency" (column 2) and "As
per Special Team Decoy report-PD, PLN‟s letter Dt. 27.11.2016" (column
3). The total sum shown was Rs. 19,30,502.40. On the basis of the above
conclusion, the AT was "persuaded to accept the figure of shortfall as
contained in the letter of PD, PIU, NHAI, Palanpur, dated 27 th November,
2006, which is Rs. 19,30,502.40."
21. The next issue i.e., Issue No. 3A was "whether the claimant proves that
the Respondent breached any of the provisions of the contract." The AT held
that NHAI had been able to establish that "JJP did not maintain the records
of tolling operations and thereby breached the basic provisions of contract."
22. Issue No. 4 was "whether the Claimant was justified in partially
terminating/withdrawing the work of toll collection in terms of the
Agreement?" and Issue No. 5 was "if issue No. 4 is answered in the
negative, what is its effect?" On issue No. 4, the AT came to the conclusion
that the item of tolling operation was severable and divisible from the rest of
the four items of work entrusted to JJP and that it was open to NHAI to
continue with the other works even while withdrawing the tolling work. The
AT concluded that the withdrawal of the tolling work was absolutely
authorised, lawful and justified. Correspondingly, Issue No. 5 did not have
to be decided.
23. The AT also rejected counter-claim No. 4 of JJP, which was a claim for
damages in the sum of Rs. 8.4 lakh as a result of the withdrawal of the work
of toll collection.
Submissions of counsel for NHAI
24. Mr. Arun Kumar Varma, learned Senior Advocate appearing for NHAI
submitted that there were inherent internal contradictions in the findings of
the AT and this amounted to the lack of reason. According to him, on one
hand, the decoy reports were rejected as not having been proved and in the
same breath the AT concluded "on the basis of material on record that the
possibility of shortfall in toll collection cannot be ruled out."
25. Mr. Varma submitted that JJP never disputed the existence or
authenticity of decoy reports. Therefore, the finding that "the claimant has
not proved any pilferage by the Respondent" was a contradictory finding.
He pointed that that Issue No. 1 should have been first decided affirmatively
in favour of NHAI by holding that NHAI proved pilferage by JJP and only
thereafter should Issue No. 2 have been decided. He submitted that the
Indian Evidence Act, 1872 is not strictly not applicable to arbitration
proceedings. He relied upon the decisions in Satyanarayana Brothers (P.)
Ltd. v. Tamil Nadu Water Supply & Drainage Board (2004) 5 SCC 314
and R.K. Bhandari v. Satish Jassal 2008 (2) Arb.LR 513 (Del).
26. Mr. Varma then pointed out that the IRC-37 was a guideline and showed
an annual increase in traffic and clause 3.3.2.2 showed an average increase
at more than 7.5% if adequate data was not available. The data available
suggested an annual traffic increase at more than 8%. Even the average
monthly collection of toll by BE from October to December, 2006 was
17.85%. He further pointed out that the amount of loss was being calculated
by NHAI at 7.5% per annum in reverse order from September, 2006 to
December, 2004. He submitted that the letter dated 27th November, 2006
was misread. The case of NHAI was that the said letter had calculated the
loss of pilferage at Rs. 19,30,502 on the basis of comparison between the
number of vehicles that had crossed as per JJP data and those as per the
decoy reports. Moreover, that was limited to LCV category of vehicles. It
had failed to consider the average yearly increase in traffic at 7.5%.
Therefore, by a letter dated 18th December, 2006, the PD was asked to re-
assess the recovery on the basis of three documents namely, (a) the decoy
agency reports; (b) the collection given by BE (c) the average yearly
increase in traffic volume as recommended by IRC-37:2001 Clause 3.3.2.2.
It is on this basis that the loss was re-calculated at Rs. 14,53,99,479 and
demand notice dated 2nd June, 2007 was issued to JJP. Therefore, the finding
of the AT that NHAI offered no explanation regarding increase in loss was a
perverse finding and completely contrary to the record.
27. Mr. Varma insisted that the letters dated 28th November, 2006 and 29th
March, 2007 were internal communications of NHAI vis-a-vis its PD and
were not binding/conclusive and could not be relied upon by anyone unless
it was communicated to them. Reliance was placed on the decisions in
Union of India v. Vartak Labour Union 2011 (4) SCC 200; Union of
India v. Kartick Chandra Mondal 2010 (2) SCC 422; Sethi Auto Service
Station v. DDA 2009 (1) SCC 180 and Shanti Sports Club v. Union of
India 2009 (15) SCC 705.
28. Mr. Varma submitted that having agreed with NHAI that it was justified
in terminating the contract on account of pilferage, the AT contradicted its
own decision by not awarding damages for loss due to such pilferage.
Secondly, on one hand, the calculations of the PD, Palanpur were rejected
but, on the other hand, they were relied upon in toto for awarding NHAI the
restricted sum of Rs. 19,30,502. Mr. Varma submitted that the statistics
furnished to the AT substantiate the case of NHAI that the increase in traffic
was across all categories of vehicles and yet that was discarded by the AT.
29. Mr. Varma took exception to the finding in support of Issue No. 11 to
the effect that NHAI decided even prior to the issuance of SCN to withdraw
the tolling operation from JJP. According to him, the scheme formulated by
the Director General of Resettlement (DGR) to encourage awarding of
contracts to Ex-Service Men (ESM) was invoked since 1994 and not in 2006
as wrongly assumed by the AT. The DGR scheme was recommendatory and
not mandatory. JJP was not a DGR agency at the time the contract was
awarded to it. He also submitted that this contradicted the earlier finding of
the AT that there was sufficient material for NHAI to have terminated the
contract as there was pilferage in the toll collection. He, accordingly,
submitted that the decision in issue No. 11 was inconsistent with the
decision in issue Nos. 3A, 4 & 5.
30. As regards the decision in counter-claim Nos. 2, 5, 7 to 10 and 16, Mr.
Varma pointed out that by not allowing counter-claim No. 5 in its entirety,
the AT overlooked the fact that the JJP had withdrawn the first part of the
claim during the course of arbitration proceedings in the sum of Rs.
15,47,861. This was duly recorded in the minutes of the meeting of the AT
held on 2nd/3rd April, 2010. The second part in the sum of Rs. 9,39,909 was
modified to Rs. 6,08,295 by JJP in its written synopsis. Yet the entire
amount of Rs. 28,87,770 was allowed by the AT. As regards counter-claim
No. 2 in the sum of Rs. 2,46,35,530 towards outstanding Running Account
(RA) Bill No. 24, it was pointed out that the final bill was, in fact, submitted
only during the course of arguments before the AT and there was no
occasion for it to be verified by the Consultant Engineer (CE) and NHAI as
was required to be done under the agreement. This led to the AT requiring
the parties to reconcile the final statement and extending time for that
purpose. Mr. Varma pointed out that in a strange turn of events when
without approval of the variation order, the AT gave a vague Award
allowing the counter-claims subject to a note that in the event the said claims
which were still under consideration of NHAI were settled by "accord and
satisfaction of both the parties" then "necessary adjustment shall be made
accordingly." He submitted that there are, in fact, no reasons whatsoever
given by the AT for allowing the said counter-claims in the manner it has.
31. Dealing next with counter-claim Nos. 7 to 10 towards bank
charges/expenses, Mr Varma pointed out that once the AT held that NHAI
was justified in withdrawing the tolling activities from JJP, then there was
no reason to allow the expenses/bank charges/commission incurred in
obtaining/extending BGs. The BGs were given as part of the obligation
under the agreement. The contention of NHAI was based on the decision in
H.M. Kamaluddin vs. Union of India 1983 (4) SCC 417 that giving the
Government wider power to recover the amount under the contract by
appropriating any sum payable to the same contractor under another contract
was not even discussed by the AT.
32. Lastly, it was submitted that the award of interest on Bill No. 24 was not
justified when the Award in respect of the said bill itself was not sustainable
in law. It was also submitted that future interest at 18% per annum was
exorbitant.
Submissions of counsel for the Respondent
33. Countering the above submissions Mr. Harin P. Raval, learned Senior
Advocate appearing for the Respondent, supported the impugned Award.
He pointed out that the running bills stood admitted by NHAI in its
pleadings filed before the AT. In the letter dated 7 th May, 2007, while
according approval to the proposal of the PD, a noting stated that a notice
should be issued to JJP to deposit the "short collection of Rs. 10,97,63,406
within 20 days period failing which the available amount with NHAI i.e.,
Rs. 4,64,83,848 will be forfeited and further action under the provisions of
the contract will be taken to recover the balance amount." It was,
accordingly, submitted that but for the said adjustment the said amount was
admittedly payable by NHAI which it could not have sought to adjust in the
manner indicated.
34. Further, according to Mr. Raval, there was no challenge raised by NHAI
to the counter-claim in respect of running bill Nos. 24 and 25. He referred to
the cross-examination of CW-1 where had re-confirmed that the manner in
which the anticipated shortfall was adjusted against running bills had been
explained in the letter dated 29th March, 2007. The documents which were
sought to be verified did not include running bill Nos. 23 and 24. Even as
regards the illegal withholding of retention money under counter-claim No.
6 i.e., Rs. 31,45,081, there was no challenge whatsoever by NHAI even in
the present petition.
35. While not disputing that a substantial portion of counter-claim No. 5
had, in fact, been given up by JJP, Mr. Raval was keen to point out that the
allowing of counter-claims under issue Nos. 14 and 15 subject to the note
was, in fact, helpful to NHAI. He submitted that it was not as if all of the
counter-claims had been granted.
36. Mr. Raval submitted that NHAI miserably failed to prove the decoy
reports by not producing the authors of those reports. There was inordinate
delay in taking action even on those reports. There was every justification
for rejecting the methodology adopted by NHAI based on IRC guidelines
since adequate data was, in fact, available. He referred to the annexure to the
letter dated 2nd June, 2007 which showed that the basis of the calculation of
the shortfall was only by adopting a 7.5% increase, which per se, was
arbitrary.
Scope of the powers of the Court under Section 34 of the Act
37. Before proceeding to discuss the above submissions, the law on the
scope of the powers of the Court under Section 34 of the Act requires
recapitulation. In Associate Builders v. Delhi Development Authority AIR
2015 SC 620, the Court summarised what constituted the fundamental
policy of Indian law. In that process, it extracted certain passages from the
earlier decision in ONGC Ltd. v. Western Geco International Ltd., 2014 (9)
SCC 263. In para 40 of that judgment, it was observed as under:
"40. It is neither necessary nor proper for us to attempt an
exhaustive enumeration of what would constitute the fundamental
policy of Indian law nor is it possible to place the expression in the
straitjacket of a definition. What is important in the context of the
case at hand is that if on facts proved before them the arbitrators
fail to draw an inference which ought to have been drawn or if they
have drawn an inference which is on the face of it, untenable resulting
in miscarriage of justice, the adjudication even when made by an
Arbitral Tribunal that enjoys considerable latitude and play at the
joints in making awards will be open to challenge and may be cast
away or modified depending upon whether the offending part is or is
not severable from the rest."
38. A reference was also made in Associate Builders v. Delhi Development
Authority (supra) to the decisions in Kuldeep Singh v. Commissioner of
Police (1999) 2 SCC 10 and P.R. Shah, Shares & Stock Brokers (P) Ltd. v.
B.H.H. Securities (P) Ltd., (2012) 1 SCC 594, where it was reiterated that
the Court does not sit in appeal over the Award of an Arbitral Tribunal by
reassessing or re-appreciating the evidence. It was reiterated that the Award
could be challenged only on the grounds mentioned under Section 34(2) of
the Act.
Analysis and reasons
39. There were three distinct facts that formed the basis of NHAI‟s claim
towards loss on account of pilferage/short collection. The first was that the
two letters of JJP dated 14th August, 2006 and 12th September, 2006 which
according to NHAI constituted a clear and unequivocal admission of
pilferage and short collection of toll fee by the employees of JJP. The said
two letters were also stated to constitute an admission as to the existence of
the two decoy reports. The second basis of the claim were the two decoy
reports. The third factor was the increase in the traffic volume at the
Samakhiyali Toll Plaza evidenced by the figures of vehicles crossing which
were furnished to the AT, which were exhibited as CD-7 and CD-13.
40. As far as the two letters of JJP are concerned, what is evident from a
reading of the two letters is definitely an admission about JJP having come
across "incidents of pilferage in toll collection by its employees." The letter
dated 12th September, 2006 lists out the action taken by JJP as a result
thereof. While it is true that the two letters by themselves do not constitute
an unequivocal admission, they do show that JJP did not deny that pilferage
was taking place and that a tighter supervision over the staff at the toll plaza
was required to avoid pilferage. In fact, the AT also appears to have come to
a similar conclusion in observing that "the possibility of shortfall in toll
collection cannot be ruled out."
41. The second piece of evidence relied upon by NHAI are the two decoy
reports. Insofar as the AT decided not to place reliance on the said two
decoy reports on the basis that NHAI did not produce any competent witness
to prove the said reports, there appears to be an inherent contradiction in the
Award. While dealing with issue Nos. 1 & 2, the AT appears to have been
categorical while answering issue No. 2 that NHAI had failed to prove the
"contents, authenticity and accuracy" of the two decoy reports. However,
while dealing with issue No. 1 regarding the extent of pilferage or shortfall
in collection, the AT said that it would be dealing with that question under
issue No. 3. From paras 180 to 183 of the Award, the AT proceeds to
discuss the very two decoy reports which it had in the previous paragraphs
held to be unreliable and not proved. In para 194, it acknowledges that by
the letter dated 27th November, 2006, the PD, PLN had worked out the loss
at Rs. 19,30,502 "on the basis of comparison between number of vehicles
cross as per contractor/agency and that as per decoy reports."
42. In rendering the finding on issue No. 3, what the AT proceeds to do is to
rely on this very letter dated 27th November, 2006. Here again, it does a flip-
flop. While in para 231 it states that "we are therefore unable to agree with
the revised calculation as worked out by PD, PIU, Palanpur" on the basis of
the IRC guidelines, in the very next paragraph i.e., para 232, it picks up the
very same document dated 27th November, 2006 and set out the calculation
contained therein which were on the basis of the decoy reports. In fact, Rs.
19,30,502, which was has been awarded by the AT to NHAI against claim
No. 1 was worked out on the basis of the decoy reports.
43. The Court fails to understand as to how on the one hand the AT was
rejecting the decoy reports as having not been proved and on the other
awarding NHAI a sum towards claim No. 1 based on those very decoy
reports. If indeed the decoy reports were being rejected, the question of
awarding any sum to NHAI on that basis did not arise. Add to this is the fact
that JJP is not aggrieved by the above conclusion. It is NHAI which has
come before the Court to object to the Award on the ground that claim No. 1
for the sum of Rs. 10,97,63,406 should have been allowed in its entirety.
The Court is unable to reconcile these two mutually inconsistent portions of
the Award.
44. Turning to the third factor that formed the basis of NHAI‟s claim and
which is perhaps the only important factor was the increase in the traffic
movement at Samakhiyali Toll Plaza. Both sides have relied upon the data in
CD-7 and CD-13 in this regard. In the first place, the Court would like to
refer to the letter dated 27th November, 2006. It must be recalled that the
said letter is based only on the figures of Light Commercial Vehicles (LCV).
The shortfall in the sum of Rs. 19,30,502 was arrived at by the PD, PLN by
increasing 32% of vehicles for the period from 1 st February, 2005 to 30th
September, 2006 and 26% from the period 1st October, 2005 to 30th
September, 2006. The recovery was worked out by increasing at 32% for
the entire period. Therefore, it is plain that the said figure pertains only to
LCV and not to all types of vehicles. This important distinction was
somehow totally missed by the AT.
45. The second aspect of the matter is that the revision of the above figure
was triggered by the decoy agency reports as well as the collection figures of
BE, which showed a much higher corresponding figure for the months of
November and December, 2006. This was not an arbitrary figure because as
is seen from the actual traffic data which was placed before the AT, there
was a marked increase in the number of vehicles across categories i.e., car,
jeep, van, LCV, Bus/Truck, HCM/EME vehicles. It was pointed out by Mr.
Varma that if the actual figures were taken into consideration, the
shortfall/pilferage just for LCV worked out to 32% and if that mode was
adopted across all vehicles then the shortfall would be much higher. All that
had been done was actually to limit it to 7.5% increase as per IRC-37. It was
on that basis that the total likely collection for the period between
December, 2004 and September, 2006 was worked out to be Rs.
34,27,52,085.
46. Mr Raval, in fact, offered an alternative calculation by applying 7.5% on
the actual collection month-wise from December, 2004 to September, 2006
and worked out the shortfall at Rs. 5,51,12,368.27. Be that as it may, it
appears to the Court that the approach of the AT to this actual traffic data is
somewhat intriguing. The AT used this data to discard the application of the
IRC guidelines. This is on the basis of the AT reading the IRC guidelines in
a way that would make them applicable only if no data is available. The
logic adopted here was that since data was available, the question of going
by the IRC guidelines did not arise. If indeed the IRC guidelines were to be
rejected, the actual figures of traffic data should have been relied upon.
However, while the data is discussed in para 230 of the Award and even
reasons are given for the-50 fold increase in the categories of certain
vehicles, strangely, the AT does not carry it to the logical end of requiring
the re-working of the loss figures as a result of the pilferage. It only uses this
data to hold that recourse to IRC-37 is wholly "without any basis or merit."
It then states in one line that the toll collection by BE "for a short duration
due to local factors, cannot be taken as a basis for working out
pilferage/shortfall of Respondent, JJP for a prior period in question."
47. If one actually looks at the figures available before the AT in the form of
CD-13 the traffic data was available for a much longer period up to
December, 2009. The patterns were clear therefore not just for the three
months in question but for a longer period. Interestingly, in the letter dated
29th March, 2007, NHAI has been able to explain the entire basis for re-
working of the loss figures. It takes the average traffic for the years 2003
and 2004. It is not as if some arbitrary figure was just picked up. The
detailed calculation was given as an annexure to the said letter by adopting
the average annual growth at 7.5%.
48. Why the AT overlooked this entire evidence is not clear. This, when
contrasted with the Award of Rs. 19,30,502 NHAI under claim No. 1 on the
basis of the calculations of NHAI for only the LCV based on the decoy
reports, brings about the glaring internal contradiction in the arbitral Award.
The Court is, therefore, unable to sustain the impugned Award as regards
Claim No. 1 in view of the irreconcilable inherent contradictions rendered
by the AT as pointed out hereinbefore. The Court is of the view that this
would be an instance of the AT drawing an inference from the evidence
which is untenable and failing to draw an inference which ought to have
been drawn thereby rendering the Award opposed to the fundamental policy
of Indian law. It would, therefore, be covered under Section 34(2)(b)(ii) read
with Explanation (1) and (2) of the Act.
49. There are other more serious problems with the impugned Award as
regards counter-claim Nos. 2, 5, 7 to 10 and 15. At the outset, it must be
noted that as far as the counter-claim No. 5 is concerned, Mr. Raval could
not dispute the fact that in the course of the arbitration proceedings, JJP
itself had given up a substantial portion thereof. The minutes of the meeting
held on 2nd/3rd April, 2010 recorded that counsel for the JJP was dropping
the counter-claim for Rs. 15,47,861. It stated, "now onwards
Respondent/JJP will not press for this counter-claim". This appears to have
been completely overlooked by the AT. Again, when the Respondent filed
its written synopsis before the AT specifically as regards issue No. 18 in
para 106, it modified the balance amount as Rs. 6,08,295. Even Mr. Raval
was unable to explain how despite the above the AT proceeded to allow
counter-claim No. 5 to the full extent.
50. As far as counter-claim No .2 of JJP is concerned, this pertained to RA
Bill No. 24 for Rs. 2,46,35,530. The fact remained that JJP did not submit
the final statement/bill prior to the commencement of arbitration. The final
bill was submitted during the course of arbitration. Consequently, there was
no occasion for any verification of any such final bill to have taken place
prior to the arbitration proceedings by NHAI or its Consultant Engineer.
51. From para 398, the AT recorded its findings and views for issue Nos. 14
and 15. It stated that it "waited sufficiently for more than six months
informing both the parties to settle these issues." It also set out in full a letter
dated 30th December, 2011 from the AT addressed to both parties. The letter
noted that the matter was still pending verification. The AT in para 3 of the
said letter observed that both the parties were "throwing responsibility on
each other for not resolving this issue" and in para 4 that if it was not
resolved by NHAI by 25th December, 2010, "the Award will be finalised and
declared on the basis of material on record on the assumption that those bills
have not been cleared." Finally, the parties were informed by the letter dated
5th February, 2011 about the "finalisation of award." In response thereto, the
PD, PIU, NHAI, Palanpur by the letter dated 23rd February, 2011, (a scanned
copy of which was set out immediately thereafter) informed that the
approval of the competent authority for variations was awaited and without
such approval the reconciliation could not go forward.
52. What the AT proceeded to do thereafter is inexplicable. It did not discuss
the tenability of the RA bill No.24 being cleared as it is. It simply stated that
subject to a noting appended to the Award under issue Nos. 14 and 15 it was
deciding counter-claim Nos.1, 2, 5 & 6 in favour of the Respondent/JJP.
The note sets out the contends of PD, PIU‟s letter dated 23rd February, 2011
and proceeds to state that in case counter-claim Nos.1, 2, 5 and 6 still under
consideration by NHAI are settled to the satisfaction of both the parties and
not "as awarded above", then "necessary adjustment shall be made
accordingly."
53. In deciding claim No. 2, the AT also appears to have overlooked the
settled legal position as explained in NHAI v. ITD Cementation India Ltd.,
2007 (4) Arb LR 555 (Del) that it was necessary for the AT to quantify the
amount instead of leaving it to NHAI to again decide it. Although it was
argued by Mr. Raval that, in fact, it was advantageous to NHAI, the Court
finds that this type of determination will not resolve the issue and can only
lead to further litigation defeating the very object of arbitration.
54. The Award in respect of issue Nos. 14 & 15 relatable to counter-claim
Nos. 1, 2, 5 & 6 are not based on any reasons.
55. As already noticed at the outset, the challenge in the present petition by
NHAI is not to the Award in respect of counter-claim Nos. 1 and 6. What
survives is the challenge to the Award to counter-claim Nos. 1 and 5. For
the reasons already noted, the Award in respect of counter-claim No. 5 is
wholly untenable as it suffers from non-application of mind for the fact that
JJP itself had given up a substantial portion of counter-claim No. 5 during
the course of arbitration.
56. As far as counter-claim No. 2 is concerned, the Award at best can be
termed as a vague Award which leaves the possibility of the AT‟s own
Award being discarded if the issue is settled by "satisfaction of both the
parties." There are no reasons why counter-claim No. 2 was being allowed
in toto without any verification thereof. If the AT was not going to be
waiting for reconciliation and verification to take place, then it should have
proceeded to discuss and decide the merits of counter-claim No. 2 instead of
simply allowing it in its entirety without reasons.
57. At this stage, the Court would also like to observe that the AT has
followed certain patterns in the discussion of certain claims and counter-
claims. First, it sets out the entire submissions of the claimant. Then it sets
out the entire submissions of the Respondent. Thereafter, under a separate
heading of „findings and views‟ it purports to give its conclusions on the
said issue. Even as regards issue Nos. 14 and 15, the same pattern has been
followed, viz., first the arguments for the claimant in respect of issue Nos.
14 and 15 have been set out in its entirety. Then arguments by the counsel
for the Respondents on both issue Nos. 14 & 15 are set out in its entirety.
Then in paras 385 to 397 the arguments of the claimant on issue No. 15 have
been set out. Thereafter, in para 398, findings and views of the AT in respect
of issue Nos. 14 & 15 have been set out. There are no reasons from para 398
onwards. There are only a series of conclusions. Consequently, this part of
the Award does not satisfy the requirement of Section 31(3) of the Act,
which makes it mandatory for the AT to give reasons. Such an Award
would, undoubtedly, be opposed to the fundamental policy of Indian law in
terms of the tests laid down in Associate Builders v. Delhi Development
Authority case (supra).
Conclusion
58. For the aforementioned reasons, the Court sets aside the impugned
Award insofar as NHAI‟s claim No. 1 and JJP‟s counter-claim Nos. 2, 5, 7
to 10 and 15 are concerned. As far as counter-claim No. 7 is concerned, in
view of the setting aside of the Award in respect of claim No. 1 and counter-
claim Nos. 2 and 5, the Award in respect of claim No. 7 towards bank
charges and expenses is required to be necessarily set aside. As regards issue
No. 15 pertaining to interest as a result of the above determination, the
corresponding interest awarded on JJP‟s counter-claim Nos. 2, 5, 7 to 10 is
also hereby set aside.
59. The petition is disposed of in the above terms.
S. MURALIDHAR, J.
JANUARY 17, 2017
b'nesh
