Delhi High Court
National Highways Authority Of ... vs Hindustan Construction Co. Ltd on 24 January, 2017
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ OMP No. 260 of 2015
Reserved on: December 03, 2016
Date of decision: January 24, 2017
NATIONAL HIGHWAYS AUTHORITY OF INDIA ..... Petitioner
Through: Mr.. Rajiv Kapoor & Mr.. Srikant
Sharma, Advocates
versus
HINDUSTAN CONSTRUCTION CO. LTD ..... Respondent
Through: Mr. Dayan Krishnan, Senior
Advocate with Ms. Malavika Lal,
Mr.. Karan Luthra & Ms. Aakashi
Lodha, Advocates.
CORAM: JUSTICE S.MURALIDHAR
J U D G M E NT
% 24.01.2017
1. 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‟).
2. The background facts are that an Agreement dated 29 th January, 2004 was
entered into between the parties whereby 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-PARADIP) was awarded by NHAI to HCC.
3. 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 ('EOT') on account of 'compensation events' which it
notified to the Engineer. However, NHAI was not in a position to hand over
the land for the Chandikhol Intersection.
4. After review and consideration of the compensation events, the Engineer
gave his recommendation for EOT from time to time. The Engineer treated
the whole of the work as substantially completed as on 15th June, 2009.
However, NHAI was not in a position to hand over the land for the
Chandikhol Intersection. The Engineer recommended EOT till 27th August,
2009 for completion of whole of the remaining work during the Defect
Liability Period („DLP‟). This included the work at the Chandikhol
Intersection. The Engineer issued a substantial Completion Certificate
(„CC‟) to that effect. Based on the CC, NHAI approved the EOT till 15 th
June, 2009 in terms of Clause 28 of the General Conditions of Contract
(GCC).
5. That the works under the contract were completed under the DLP is not in
dispute. HCC submitted its claim for payment of additional costs incurred
on account of EOT. 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.
6. The three-member AT comprised the Presiding Arbitrator, one Member
nominated by NHAI and the other 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.
7. In the impugned Award by the majority of the AT, it was 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."
8. The case of the HCC was that it was prevented from completing the work
due to „compensation events‟. The majority Award 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 in the contract
price. On completion of the work, HCC submitted a claim for additional
costs for the extended period in the sum of Rs. 142.73 crores.
9. The majority Award held as under:
(i) 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 costs in the contract price
such as equipment ownership charges, overhead expenses, financing charges
etc. could cater only to the original time of 36 months and not for the
extended period. With the EOT, HCC was exposed to losses and injuries.
Since 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 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.
(ii) As regards the 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 comply with certain procedures. Its claim
on account of compensation events was not barred under Item No. 110. 6 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 the majority Award
because delay in removal of the encumbrances was attributable only to
NHAI. In this the majority found such a stipulation in the said clause to be
void in terms of Sections 53 and 73 Indian Contract Act 1872 (ICA) and
contrary to Clauses 21, 28 and 44 of the contract.
(iii) On the question of the issuance of an 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.
The majority further found that HCC had taken action to ensure that
additional costs on account of compensation events were mitigated to the
extent possible.
(iv) The majority Award also rejected the plea of NHAI that HCC had failed
to submit adequate evidence required for the assessment of its claim.
Nevertheless, the majority undertook its own assessment based on the
documents submitted to it in that regard.
(v) Ultimately the majority Award held that NHAI should pay HCC Rs.
69,98,36,300 along with interest of Rs. 44,50,95,800 under various sub-
heads of claims on additional costs totalling Rs. 1,14,49,32,100. The said
sum was to be paid within 90 days failing which simple interest at 18% per
annum was payable on the principal amount of Rs. 69,98,36,300 from the
date of the Award till the date of payment. Further NHAI was to pay HCC
Rs. 3,30,000 within 15 days failing which simple interest at 18% per annum
was payable thereon. The counter -claim of NHAI was rejected.
10. The present petition by NHAI confines the challenge to the impugned
majority Award in respect of Claim sub-head Nos. 1, 2 and 3 and the
rejection of its counter-claim. The amounts claimed by HCC, the amounts
determined as payable by the Engineer and the amount awarded by the AT
in respect of the above claims are depicted by it in a tabular form as under:
Subhead Particulars Paragraph of Amount Amount Amount
No. Award claimed by determined by awarded by
HCC (Rs.) the Engineer AT
(crores) (Rs.) (crores)
Claim Additional 27.3.2(a) 62.119 27.3898 32.527
Sub- overhead 28.1.1, Accepted in
head expenses 28.1.2 principle by
No. 1 incurred over the the Engineer
extended period
Claim Additional 27.3.2(b) 37.95 17.58 32.96
Sub- expenses on 28.2 Accepted in
head account of principle by
No. 2 extended stay of the Engineer
plant and
equipment on
site during the
extended period
Claim Financing 27.3.2(c) 8.96 Rejected in 4.49
Sub- charges (interest) 28.3 principle by
head on account of the Engineer
No. 3 delayed recovery
of overheads and
profits
Claim Claim of loss of 27.3.2(d) 25.35 2.74 Nil
Sub- earning capacity 28.4 accepted in Rejected
head and profits principle since HCC
No. 4 had been
awarded the
interest for
the delay in
the recovery
of the profit
Claim Claim of 6.75 Rejected Allowed.
Sub- additional labour However,
head cost in the no amounts
No. 5 extended period awarded
since the
interest on
the delayed
recovery of
profits was
granted in
Claim sub-
head No. 1.
11. On 21st April, 2015, this Court passed a detailed order dismissing the
petition. The first part of the said order dealt with the challenge to the
majority Award by NHAI on the ground that there was no consultation or
meeting of mind of the three Arbitrators at the time when the majority
Award was rendered. This Court rejected the said ground of challenge. The
second part of the order dealt with the challenge to the impugned Award on
merits. The Court rejected that challenge as well.
12. The order dated 21st April, 2015 of this Court was carried in appeal by
NHAI to the Division Bench (DB) in FAO(OS) 383/2015. By its judgment
dated 17th February, 2016 the DB affirmed the conclusion of this Court that
the challenge to the majority Award on the ground that there was no
consultation amongst the three Arbitrators must fail. However on merits the
DB was of the view that the findings were "token in nature" and that the
Court had failed to deal with the challenge to the majority Award on merits
as is warranted in proceedings under Section 34 of the Act. Consequently,
this petition was restored for adjudication afresh on merits.
13. Mr. Rajiv Kapoor, learned counsel for NHAI made the following
submissions:
(i) The grant of EOT by NHAI did not necessarily warrant increase in the
contractual price on the ground that NHAI was responsible for causing delay
in completion of work at various stages. Reliance was placed on the
observations in the decision of the Supreme Court in Kailash Nath &
Associates v. New Delhi Municipal Committee 2002 (3) Arb. LR 631 (Del)
(DB) to urge that mere grant of EOT could not lead to the inference that it
was NHAI that was responsible for the delay. Reliance was also placed on
the decision in M/s Chugh Kathuria Engineers (P) Ltd. v. Delhi
Development Authority 2012 (1) RAJ 64 (Del).
(ii) Paras 1, 3 and 6 of the terms of the Bill of Quantity (BOQ) provided that
the contractor shall cover all risks and activities express and implied.
Referring to Item No. 18 of the Contract Data and replies given to question
Nos. 39, 59 and 60 of the pre-bid meeting, it was pointed out that the replies
given thereto were limited to the question of land acquisition. The word
„unencumbered‟ was used in relation to a particular clause and not the
shifting of utilities. In particular, it is submitted that the shifting of utilities,
counter press etc. do not constitute a „compensation event‟. The process of
shifting of utility/cutting of trees and removal of „encumbrances‟ were the
contractual activities of the contractor and cannot, therefore, be termed a
'compensation event'.
(iii) Referring to Clause 1.06 of the Technical Specification („TS‟), it was
pointed out that HCC had tendered for a lumpsum amount per km or part
thereto for coordination, which was deemed to cover all coordination work
including any risk associated with the delay under the disruption and even
the need to adjust the programme due to delay including cutting of trees,
shifting of utilities, removal of encroachment etc. In other words, the latter
would not qualify as a „compensation event‟.
(iv) In terms of Clauses 10, 11 and 12 of the contract, in case some event
occurred that was not foreseen or some activities took a long time, the
consequent effects were to be borne by HCC. In any event, there was no
certificate by an independent chartered accountant (CA) in relation to the
notification of the claims of HCC. The claims were based on unsubstantiated
numbers and the data submitted by HCC was without evidence as no
logbooks were supplied to support the claims. The managerial reports were
administrative, managerial reports and could not form the basis for financial
claims.
(v) The AT failed to notice that Clause 110.3 made it clear that the
Respondent was the one responsible for coordination and also for obtaining
and making requisite permission from the service provider and making the
site unencumbered, and yet the majority AT awarded compensation on
account of delay and shifting of utilities.
(vi) Both parties had agreed that the supplementary agreement would be a
separate contract. This amounted to revocation of the main contract
concerning the project. Under the supplementary agreement, there was no
question of the delay being a compensation event.
(vii) The majority had also failed to note that the wording of Clause 44.1
with „and/or‟, which meant that there could either be extension of time or
increase in the contract price or both.
(viii) The majority failed to appreciate the contention of NHAI that in a
situation beyond the control of the parties the responsibility for site
management continued to be that of HCC alone and that the grant of
extension of 878 days on this count by NHAI on sympathetic grounds was
not on account of any delay or breach of the contract by NHAI.
(ix) There was no occasion for the majority to come to the conclusion as it
did that Item No. 18 of the contract data would be hit by Section 23 of the
ICA and that in such event, NHAI would be liable to compensate HCC. This
amounted to rewriting the contract which is impermissible in law.
14. Mr. Dayan Krishnan, learned senior counsel for HCC submits that the
finding of the AT as regards Item No. 18 of the contract data being hit by
Section 23 ICA had no effect on the conclusion in the impugned majority
Award since, in any event, HCC had not claimed compensation on account
of the delay caused in getting approval for the shifting of the utility/cutting
of trees. He points out that the EOT determined by the Engineer, LEA
Associates, was on 14th May, 2009. The Engineer‟s letter dated 18th
February, 2010 of the determination of the account pointed out to HCC as
per the EOT granted on 14th May, 2009 would reveal that although HCC has
claimed EOT of 1142 days which included 242 days of delay in removal of
encumbrances due to operation of Item No. 18 of the contract, the Engineer,
in fact, had only approved EOT for 848 days. Thus, the EOT on account of
the delay of 242 days due to the operation of Item No. 18 of the contract
data was rejected by the Engineer. Accordingly, the Engineer had extended
the period of completion of work only from 19th February, 2007 to 15th June,
2009 which determination was accepted by HCC, and it had not asked for
compensation for the 242 days relatable to Item No. 18 of the Contract Data.
15. The above submissions have been considered. Clause 44.1 of the
Condition of the Contract stipulates as to what would be a compensation
event. Sub-clause (a) thereof prescribes one compensation event as when an
employer does not give access to a part of the site from the possession date
stated in the contract data. In case the employer or service provider
organization is restrained by a court from cutting of trees/shifting of
utility/removal of encroachment etc., it shall be a compensation event.
16. Clause 21.1 provides that the employer "shall give possession of all parts
of the site to the contractor. If the possession of a part is not given by the
date stated in the Contract Data the employer is deemed to have delayed the
start of the relevant activities and this will be compensation event". The AT,
on a harmonious reading of the above two clauses, came to the conclusion
that "if the cutting of trees, shifting of utilities and removal of encroachment
is delayed and the site is not made unencumbered by the employer, it shall
be considered that the work is delayed by the employer" i.e., NHAI. In
addition, Item No. 18 of the Contract Data provided that "the contractor will
not be entitled of any compensation for the delay in cutting of trees/shifting
of utilities and removal of encroachment by the service provider/concerned
authorities, arranging approvals and clearances from various authorities
including the Railways".
17. HCC appears to have been conscious of the permissions required for the
cutting of trees and shifting of utilities and wrote to the concerned
department for expediting and facilitating the process. Queries in this regard
were raised by it at the pre-bid meetings. The queries at serial number 39,
40, 59 and 60 related to Item No. 18 of the Contract Data. After noting the
clarifications/replies to the said queries, the majority came to the conclusion
that the clarifications were also made part of the contract by NHAI. The
majority further noted that Clause 110.3 of the TS was more or less similar
to Item No. 18 of the Contract Data. It was in the above context that the AT
undertook a further analysis and came to the conclusion that the contractor
could not be denied compensation on account of the delay caused in
completion of the work by NHAI.
18. The core issue is the extent to which HCC was entitled to compensation
as a result of the EOT granted. As rightly pointed out by Mr Krishnan
appearing for HCC, the Engineer had, in fact, not approved of the entire
EOT of 1142 days as claimed by HCC. The extended period of completion
was only from 19th February, 2007 to 15th June, 2009. Para 2.9 of the of
Statement of Claim filed by HCC makes it clear that HCC accepted the
reduced EOT for completion of Milestone 3 and whole of the works.
Paragraphs 2.9, 2.10 and 2.11 of the Statement of Claim make this plain:
"2.9. In the meanwhile, the Claimant completed the
whole of the works except Chandikhol intersection,
which was getting delayed due to delay in acquiring
land/handing over of site for work. The Respondent was
desirous of putting the completed works for commercial
use. In this regard, the Respondent and the Claimant
entered into a supplementary agreement to treat the
Chandikhol intersection as outstanding work to be
completed during defect liability period, and to issue the
substantial completion certificate for whole of the works.
Accordingly, the Engineer had issued the Substantial
Complete Certificate for whole of the works with effect
from 15.06.2009. Taking the above into consideration,
the Respondent reduced the Extension of Time
determined by the Engineer and approved the Extension
of Time determined by the Engineer and approved the
Extension of Time upto 15.06.2009 for completion of
Milestone 3 and whole of the works. Even though the
Claimant was to incur additional cost for the balance
works, the Claimant had agreed as a goodwill measure
and accepted the same to give quietus to the issue.
2.10. Thus, the Extension of Time determined by the
Engineer till 15.06.2009 for the delay/compensation
events. which has been also approved by the Respondent
was on account of the events not attributable to the
Claimant. Thus the same has become admitted/agreed
position in the present dispute.
2.11. As a direct consequence of the delays/compensation
events, the Claimant was compelled/forced to stay at the
project site with all his manpower and various other
resources to ensure satisfactory completion of the works
in the extended period. This had resulted in the Claimant
incurring substantial huge losses and additional costs,
which could not have been reasonably foreseen and or
provided for in the contract price at the time of bid
submission. But for the delays and preventions caused by
the Respondent, the Claimant would not have incurred
these huge additional costs."
19. The majority proceeded on the basis of the documents and calculations
produced by HCC which were supported by the certificate of a Chartered
Accountant (CA). In that view of the matter, the Court accepts the
contention of HCC that the observations of the AT that Item No. 18 of the
Contract Data was hit by Section 23 of the Contract Act makes no difference
to the decision on this aspect. The fact of the matter is that both NHAI and
HCC accepted the Engineer‟s determination of the EOT. It was not open to
NHAI to later challenge the determination of the EOT by the Engineer and
the compensation claimed on that basis. The decisions in Kailash Nath
Associates v. New Delhi Municipal Committee (supra) and M/s Chugh
Kathuria Engineers (P) Ltd. v. Delhi Development Authority (supra) relied
upon by Mr Kapoor turned on their own facts. Here there is no automatic
presumption that NHAI was responsible for the delay on account of the
grant of EOT. The majority Award is based on what was approved by the
Engineer as well as by the NHAI.
20. As explained by the Supreme Court in Kailash Nath Associates v. DDA
(2015) 4 SCC 136 and Associate Builders v. DDA (2015) 3 SCC 49 the
threshold for review of the arbitral Award by the Court with an Award in
exercise of its powers under Section 34 of the Act is high. Unless the Award
is perverse to the extent of shocking the judicial conscience, it should not be
interfered with. The challenge by the NHAI to the impugned majority
Award on this aspect fails to meet this threshold. The Court, therefore, does
not find any merit in the contention of NHAI as regards the grant of
compensation to HCC consequent upon the EOT as determined by the
Engineer.
21. The next ground urged by Mr. Kapoor, learned counsel for NHAI, was
that the majority Award failed to appreciate that the disputes raised were
barred under the provisions of Order II Rule 2 of the Code of Civil
Procedure (CPC). In particular, he pointed out that the AT in a earlier Award
had granted EOT for all the three milestones. Therefore, the claim to
compensation arising out of the same cause of action would be hit by Order
II Rule 2 CPC.
22. On the other hand, Mr. Dayan Krishnan, learned Senior counsel for HCC
pointed out that the earlier arbitration was with respect to Dispute No. 3. By
the Award dated 12th August, 2013, the AT had taken the EOT as 1349 days.
That Award became necessary as a result of the failure of the Engineer to
determine the EOT. As far as the present arbitration was concerned, it was
after completion of the works and the determination by the Engineer of the
compensation to which HCC was entitled. A wrong determination of such
cost led to the present arbitration. Reliance is placed on the decision of the
Supreme Court in Infrastructure Leasing & Financial Services Ltd. v. BPL
Ltd. (2015) 3 SCC 363.
23. The Court is of the view that the entire submission of NHAI as regards
Order II Rule 2 CPC is misconceived. The majority has in paragraphs 14.2
and 14.3 of the Award dealt with the above issue and rejected it after finding
that Dispute No. 6 related to a claim for the additional extended period for
completion of the whole works. This claim arose only after the final
determination of the EOT for the whole of the work on 14th May 2009.
Dispute No.3 on the other hand arose as a result of the failure to determine
EOT for the whole works. HCC had gone before the Dispute Resolution
Board (DRB) who decided the EOT only in respect of Milestones 1 and 2.
Since the works under Milestone 3 were still in progress and impediments
still existed, the DRB directed the Engineer to determine the EOT for the
whole of the work after removing the impediments. Being dissatisfied with
the above recommendations of the DRB, NHAI invoked the arbitration and
that is how Dispute No. 3 was referred to arbitration. The reference of
Dispute No. 6 to arbitration was made much thereafter on 18th March, 2011.
24. The decision of the Supreme Court in Infrastructure Leasing &
Financial Services Ltd. v. BPL Ltd. (supra) supports the contention of HCC
in this regard. In the said decision the Court noticed its earlier decision in S.
Nazeer Ahmed v. State Bank of Mysore (2007) 11 SCC 75 and held that for
Order II Rule 2 CPC to apply, the cause of action in the two suits should
have been similar. The Court, therefore, concurs with the majority of the AT
that the cause of action for Dispute No. 6 is distinct and different from
Dispute No. 3 and, therefore, not be hit by the principle governing Order II
Rule 2 CPC.
25. Lastly, NHAI has challenged the quantification of claims of HCC as not
being based on any acceptable or credible evidence. As regards the claim
under sub-head No. 1 for Rs. 62.11 crores towards overhead costs for the
extended period, the Engineer had accepted the claim only to an extent of
Rs. 27.38 crores on the basis of the percentages of the overheads as specified
in the MORT&H data book. The majority reviewed the above quantification
by relying on the CA‟s certificate. The majority compared the overheads
against the value of the total work done. It allowed only 26% of the base
cost of the work done.
26. The claim under sub-head No. 2 was for additional expenses on account
of extended stay of plant and equipments for the extended period. HCC had
produced the extracts of the minutes of the meeting of the progressive
reports issued by the Engineer showing the list of equipments deployed at
the site on a month-to-month basis. NHAI did not question the veracity of
the above documents. The Engineer relied upon these documents to arrive at
the figure of Rs.17.58 crores. This was modified by the AT and after
rejecting HCC‟s head of claims and expenditure, the AT determined the
amount at Rs. 32.96 crores.
27. As regards the claim under sub-head no. 3, the AT considered overheads
at 26% and worked out the amount payable as Rs. 4.47 crores.
28. In examining each of the above claims, the majority has discussed the
evidence on record in great detail and arrived at a reasoned conclusion.
There is nothing pointed out by NHAI which even remotely meets the
threshold requirement of interference with the majority Award viz., the
Award having to be opposed to the fundamental policy of Indian Law.
29. On the issue of interest, Mr. Krishnan relied on the decision of this Court
in NHAI v. ITD Cementation Ltd. (2008) 100 DRJ 431 which was upheld
by the Supreme Court in NHAI v. ITD Cementation Ltd (2015) 14 SCC 21
dismissing NHAI's appeal. There, the interest granted was 12% to be
compounded monthly whereas in the present case, the AT has granted HCC
simple interest at 12% per annum.
30. For the above reasons, the Court is not persuaded to interfere with the
impugned majority Award on merits. The petition is, accordingly, dismissed
with costs of Rs. 50,000 which will be paid by NHAI to HCC within four
weeks.
S.MURALIDHAR, J
JANUARY 24, 2017
rd
