Delhi High Court
National Highways Authority Of ... vs Pcl  Suncon (Jv) on 30 January, 2017
$~R-263
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P. 524/2009
NATIONAL HIGHWAYS AUTHORITY OF INDIA ..... Petitioner
Through: Ms. Gunjan Sinha Jain & Mr. Mukesh Kumar,
Advocates.
versus
PCL - SUNCON (JV) ..... Respondent
Through: Dr. Amit George & Mr. Swaroop George,
Advocates.
CORAM: JUSTICE S.MURALIDHAR
ORDER
% 30.01.2017
1. This petition under Section 34 of the Arbitration & Conciliation Act, 1996
(Act) by the National Highways Authority of India („NHAI‟) challenges an
Award dated 9th May, 2009 passed by the Arbitral Tribunal („AT‟) in the
disputes between the NHAI and the Respondent PCL-SUNCON JV arising out
of a Contract Agreement (CA) dated 28th March 2002 for the work of four-
laning and strengthening of the existing two lanes between km 317 and km 65
on NH-2 in the States of Uttar Pradesh and Bihar, which was awarded by
NHAI to the Respondent.
2. The contract was an item rate contract. The Respondent had quoted its rates
for various items as per the details given in the Technical Specifications („TS‟)
and Bill of Quantities („BOQ‟), which formed the part of the Contract
Agreement („CA‟) between the parties. The dispute pertained to the rate
payable for a non-BOQ item i.e., Granular Sub-Base („GSB‟) for emergency
repairs and maintenance of shoulders and main carriageway. It is not in dispute
that the work of the GSB was a non-BOQ item for which rates were not
specified elsewhere in the CA.
3. The genesis of the claim of the Respondent was a letter dated 11th
September 2002 by which the Team Leader i.e. the Engineer ordered
emergency repairs and maintenance of shoulders and carriageway with GSB
from the existing stockpiles of Chunar from the Ram Nagar Camp situated at a
distance of 40 km from the Chunar quarry. By a letter dated 29th October 2002,
the Team Leader decided that the applicable rate for doing the non-BOQ work
of GSB would be as per the BOQ Item 3.02 i.e., at Rs. 720 per cum.
Subsequently a new rate of Rs. 665 per cum was finalised by the Team Leader
after discussions with the Respondent. This according to the Respondent was a
rate derived from the rate for BOQ Item 3.02. This was also consistent with
the procedure envisaged under Clause 52.1 of the General Conditions of
Contract (GCC). It is sought to be explained by the Respondent that the
reduction of Rs. 55 per cum from the quoted rate of Rs. 7620 per cum for BOQ
Item No. 3.02 was by way of adjustment for not so proper compaction, grading
of surface and less quality control. By letter dated 1st July 2003 the Team
Leader stated that deductions would be carried out in the invoice for the month
of June 2003.
4. After nearly two years, a new Team Leader by a letter dated 24th May 2005
determined unilaterally that the rate would be Rs. 479.58 per cum based on
'market rates and laying charges'. By letter dated 16th September 2005 the
Team Leader informed the Respondent that recoveries would now be effected
on the basis of the new rate from the Interim Payment Certificate (IPC). By a
letter dated 20th September 2005 the Respondent raised objections to the above
proposal. Thereafter the Team Leader undertook a further review and by letter
dated 28th November 2005 recommended another rate of Rs. 488.69 per cum.
This letter was forwarded to NHAI, which by letter dated 15th February 2006
reduced the rate further to Rs. 476.18 per cum.
5. The Respondent contended that the above unilateral reduction of the rate to
Rs. 479.58 per cum by the Team Leader was illegal. It is contended that once a
rate had been determined in terms of Condition 2.1 (e) of the Conditions of
Particular Application (COPA), it could only be reconsidered in terms of
Clause 2.6 of GCC and Clause 67.1 of COPA as there are no other provisions
in the GCC other than Clause 52.1 and 52.2 for determination of variation. The
Respondent sent a notice dated 3rd April 2006 to the NHAI under Para 9(b) of
the Annexure 'B' to COPA (Disputes Review Board's Rules and Procedures)
seeking a decision on the rates for the GSB work. With no response
forthcoming, a second notice was sent on 24th April 2006 under Para 9 (c) of
the above Rules. With no response even to this notice, the Respondent invoked
Sub-clause 67.1 of COPA and sought a decision from the Dispute Review
Board (DRB) within the stipulated period of 56 days.
6. Before the DRB it was contended by the NHAI that the material
specifications for the GSB work were not in conformity with that specified for
BOQ Item 3.02. Included in the documents submitted before the DRB by the
NHAI was the report of a Committee which got the materials used in the GSB
work tested through an independent laboratory. The Committee observed that
"the material used for such works are generally comparable to closely graded
GSB material (except for marginal variation with regard to percentage passing
through IS Sieve size 0.42 mm and 0.07 mm) as specified in the MOST
Specifications outlined in the Contract Agreement." In its recommendation
dated 7th September, 2006 the DRB referred to the Committee's aforementioned
report and concluded that "the GSB material used met the requirements of the
Specifications." However, the procedure in carrying out the GSB work in
accordance with BOQ Item 3.02 "was probably not wholly adhered to." The
DRB analyzed the rates based on a comparative statement furnished by NHAI
and recommended that a rate of Rs. 596 per cum be paid to the Respondent for
the GSB work together with interest for any delay in terms of Clause 60. 8 (b)
of COPA.
7. The Respondent points out that although the basic rate of Chunar quarry
considered by the DRB was Rs. 128.75 per ton, while converting it to arrive at
the rate per cubic meter from per ton, the figure of Rs.128.75 was multiplied by
1.65 instead of 2.12 as required in light of the fact that the density of the GSB
being 2.12. If so multiplied the rate worked out to Rs. 693 per cum. Pointing
out this 'inadvertent error', the Respondent again approached the DRB by
letters dated 7th and 15th September 2006. Since no response was received
from the DRB, the Respondent invoked the arbitration clause and the AT was
constituted.
8. The claims filed by the Respondent before the AT were as under:
Claim No. 1: Work of GSB done in emergency repairs, maintenance of
shoulders and main carriageway as ordered by the Engineer in the sum of Rs.
1,03,19,827.50.
Claim No.2(a): Past interest at 12% per annum in the sum of Rs. 28,81,393.03.
Claim No.2(b): Pendente lite interest @ 18% per annum on awarded the
amount of claim.
Claim No.2(c): Future interest @ 18% per annum on awarded amount of claim
plus amount of past and pendente lite interest.
Claim No.3: Cost of Arbitration in the sum of Rs. 10,00,000.
9. By the impugned Award, the AT held that the Respondents were entitled to
payment at Rs. 665 per cum for the GSB work and a further premium of 2.7%
above the said rate along with interest at 12% per annum. Both parties were
directed to bear their own costs of arbitration.
10. Ms. Gunjan Sinha Jain, learned counsel appearing for NHAI, submitted that
despite noting in the Award that the Respondent had itself agreed for a rate of
Rs. 665 per cubic metre, the AT awarded it a premium of 2.7% over the said
rate, which was not even asked for by the Respondent. She submitted that there
was no basis for the AT to fix a rate for GSB much higher than that
recommended by the DRB, which was comprised of technical personnel, unless
there were sound reasons for doing so. She further submitted that the decision
of the AT was also inconsistent with the engineering practice. She submitted
that there were no reasons afforded by the AT for proceeding on the basis that
the maximum input for compaction in the cost of a GSB work was 16.794%.
Ms Sinha further submitted that the claim was time barred as the since it had
not been made within 28 days of the first recovery made from the IPC as
required by Clause 53.1. Finally, she submitted that the Award of interest at
12% was uncalled for and excessive.
11. Replying to the above submissions, Dr. Amit George, learned counsel for
the Respondent, pointed out that the contract was essentially a unit rate
contract. The rates had to be quoted for the BOQ items. Dr. George also
pointed out that in the grounds of challenge in the petition, there was no plea
taken regarding the AT having awarded a premium of 2.7% over and above the
rate accepted by the Respondent. In fact all that was urged in Ground D was
that the AT erred in simply applying the percentage of non-compliance of
specifications in relation to the compaction (30%) and quality control measures
(2%) to the BOQ rate. In fact the AT had given cogent reasons for arriving at
the figure of 669.32 per cum which it limited to Rs. 665 per cum since the
Respondent had accepted that figure even before the Team Leader.
As noted by the AT, even for the BOQ rates, the Respondent had claimed a
uniform premium of 2.7% which had been accepted by NHAI. The award of
interest was according to the recommendations of the DRB and consistent with
Clause 60.8 (b) COPA. He accordingly submitted that there were no grounds
made out under Section 34 of the Act for interference with the well-reasoned
Award of the AT which comprised technical experts.
12. Before proceeding to deal with the above submissions the Court would like
to recapitulate the well-settled legal position regarding the limited scope of its
powers under Section 34 of the Act to interfere with a reasoned Award. The
high threshold of the Award being contrary to the fundamental policy of Indian
law has to be met by the applicant, which in this case is NHAI.
13. The Court would also like to emphasise that an applicant has to clearly state
in the petition the precise grounds of challenge to the impugned Award. A
broad plea that the Award is opposed to the fundamental policy of Indian law
will be a mere repetition of the language of Section 34 (2) (d) (ii) of the Act
and does not help the Court of limited jurisdiction in undertaking the task of
reviewing the Award within the narrow parameters of Section 34. The very
nature of the arbitration proceedings and the legislative intent behind Section
34 of the Act mandate the laying down of a strict procedural regimen
concerning pleadings. The Petitioner should be clear about the grounds of
challenge and the Respondent should be made aware of the precise case it has
to meet.
14. In other words, in the normal course, the Court should not permit a party to
urge during the course of arguments pleas or grounds that are not specifically
raised before the Arbitrator or AT as the case may be or in the petition. A party
wishing to raise a plea that has not earlier been urged as such in the arbitral
proceedings or the petition under Section 34 should seek the leave of the Court
by filing an application. The grant of such application cannot obviously be a
mechanical ritual. For instance, depending on when such application is filed,
the Court might have to consider whether such a prayer can be granted from the
point of view of limitation. Also, such a plea may be refused if the Court finds
it to be vexatious, or with a view to interminably delaying the proceedings or
defeating the ends of justice. In short a party should generally be made to
adhere to the pleadings as far as the challenge to an Award is concerned.
15. As far as the present petition by NHAI is concerned, to begin with, it is
required to be noted that the points urged during arguments by Ms. Gunjan
Sinha Jain to attack the impugned Award do not find mention in the petition. In
other words, there is no ground urged in the petition that (a) the AT erred in
awarding a premium of 2.7% over Rs. 665 per cum which was not even sought
by the Petitioner (b) that the AT erred in proceeding on the premise the
maximum input for compaction in the cost of a GSB work was 16.794% and
(c) the AT ought not to have fixed a rate much higher than that fixed by the
DRB unless there were good grounds for doing so.
16. The attempt by Ms. Sinha Jain to refer to Ground D of the petition to cover
this lapse is an exercise in futility. The said ground reads thus:
"Because the Ld. AT has erred in working out the rate based on BOQ
Item No. 3.02 even after taking into account the objections of the
Employer/Respondent regarding non compliance of specifications
relating to compaction done for this work to the extent of 30% and non
compliance of quality control measures amounting to 2% of the cost.
The Ld. AT has erred in simply applying these percentages to the BOQ
rate of 3.02 and worked out the rate for this work, which is improper."
17. Apart from the fact that the above ground cannot be read as even remotely
alluding to any of the grounds urged during arguments as noted above, Ground
D contains statements that are factually erroneous. It ignores the fact that a
Committee appointed by NHAI itself had given a report confirming that the
material used for the GSB work was "generally comparable to closely graded
GSB material (except for marginal variation with regard to percentage passing
through IS Sieve size 0.42 mm and 0.07 mm) as specified in the MOST
Specifications outlined in the Contract Agreement." The DRB relied on that
report to conclude in its recommendation dated 7th September, 2006 that "the
GSB material used met the requirements of the Specifications." The NHAI not
having questioned the findings of the DRB cannot now be heard to plead to the
contrary.
18. On its part the AT did account for the deviations from the specification as
pointed out by the NHAI. In para 5.5 of the impugned Award the AT notes:
"From the record submitted before us, including the Rate Analysis
approved by the Respondents, AT further observes that the Engineer /
Employer found the work of Non-BOQ Item deficient viz-a-viz BOQ
Item No. 3.02 in respect to the following:
(i) Non compliance of Specifications relating to compaction to the
extent of 30%.
(ii) Non compliance of Quality Control measures amounting to
2% of cost."
19. For ascertaining the percentage of input for compaction of GSB work, the
AT itself prepared a comparative statement (which forms part of the Award)
based on the Rates Analysis prepared by different authorities including the
Engineer, the subsequent Team Leader, the NHAI and the DRB.
20. The AT then invited comments from both parties. The AT observed that
NHAI had confirmed the percentages of inputs like labour, machinery,
materials etc., "which were also matching the inputs worked out by the AT". It
was then observed by the AT in para 5.9 of the Award as under:
"5.9 AT observes that Respondents have already stated in the Variation
Order that material used was GSB equivalent material. 'However, the
concern of Respondents was only about Compaction and Quality
Control measures.
We find that the maximum input for compaction, in the cost of GSB
work, comes to 16.794%. The Respondents have assessed that the
compaction of the non-BOQ item is lesser by 30% viz-a-viz a
compaction of the GSB work as per MORT&H specifications. So, when
we take 30% of 16.794% it comes to 5.038%. Further when we add 2%
on account of inadequate Quality Control measures as assessed by the
Respondents, the total comes to 7.038%.
So, when we reduce the BOQ item rate of 720/: per cum by 7.038%, it
comes to Rs. 669.32 per cum."
21. There has to be some basis for NHAI to question the above observation of
the AT that "the maximum input for compaction, in the cost of GSB work,
comes to 16.794%." It must be recalled that the members of the AT were
qualified engineers themselves. If according to NHAI, the maximum input for
compaction was a different percentage, then NHAI ought to have placed
material before the Court in support of such plea. This is apart from the fact
that no such specific plea has in fact been urged in the petition. A bald assertion
that the above determination is erroneous is not helpful for the Court to
conclude that the Award is against the fundamental policy of Indian law. The
AT has, in fact, accounted for the lesser compaction as well as inadequate
quality control and after factoring that it reduced the BOQ item rate of Rs. 720
by 7.038%. On this basis it worked out the rate as Rs. 669.32 per cubic metre.
22. There is merit in the contention of Dr. George that when the Respondents
agreed to the rate of Rs. 665 per cubic metre, they were basing their claim on
the BOQ rate itself. Further, even the NHAI did not dispute that the
Respondent entitled to a premium of 2.7% over and above the BOQ rates
quoted by them. In the circumstances, there is no legal error in the AT also
granting the Respondent a premium of 2.7% over the above the accepted rate of
Rs. 665 per cubic metre.
23. As regards the plea that the claim of the Respondent was barred by
limitation, the Court notices that the AT has dealt with this issue in para 5.2 of
the Award. It was noted that initially the Team Leader had by its letter dated 1 st
July, 2003 finalised the rate of Rs. 665 per cubic metre after discussions with
NHAI. This was in terms of clause 52.1 of the GCC. On this basis, payments
were made by NHAI to the Respondent till November 2005. This rate was
derived after making adjustments for the not-so-proper compaction, grading of
the surface and less quality control. However, a subsequent Team Leader by a
letter dated 24th May, 2005 proposed a new rate of Rs. 479.58 per cubic metre
purportedly based on market rates and laying charges. This was informed to the
Respondent only by the letter dated 16th September, 2005. This was
immediately disputed by the Respondent by a letter dated 20th September
2005. NHAI nevertheless proceeded to recover the amount paid earlier at
Rs.665 per cubic metre from IPC 13 and IPC 40. Therefore it cannot be
contended that Clause 53.1 was not adhered to. The further developments
leading up to the decision of the DRB have already been referred to earlier in
this order. The Court, accordingly, does not find any infirmity in the
conclusion reached by the AT that the claim of the Respondent was not barred
by limitation.
24. In any event, as pointed out by learned counsel for the Respondent, to the
extent that Clause 53.1 of the GCC requires the claimant to issue a notice of its
intention to the Engineer within 28 days after the event, failing which the claim
would be time barred, is hit by Section 26 of the Contract Act 1872 as
explained by this Court in National Highways Authority of India v. Mecon-
Gea Energy Systems India Ltd. JV 199 (2013) DLT 397.
25. As regards the grant of interest at 12%, the AT's view is consistent with
what was recommended by the DRB itself and this in turn was in conformity
with Clause 60.8 (b) COPA.
26. Consequently, the Court finds that there are no grounds made out for
interference with the impugned Award dated 9th May 2009 of the AT. The
petition is, accordingly, dismissed but in the circumstances, with no orders as
to costs.
S. MURALIDHAR, J.
JANUARY 30, 2017
b'nesh
