Delhi High Court
Mahanagar Telephone Nigam Ltd. vs Gaurav Enterprises on 9 April, 2018
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 09.04.2018
+ O.M.P. (COMM) 286/2016 and IA No. 6836/2016
MAHANAGAR TELEPHONE NIGAM LTD. .... Petitioner
versus
GAURAV ENTERPRISES ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr Saket Sikri, Mr Junaid Nahvi and
Ms Niyati Patwardhan.
For the Respondent : Dr Anurag Kumar Agarwal with
Ms Chelina Chelina.
WITH
+ O.M.P. (COMM) 181/2017 and IA Nos. 4244/2017 &
7724/2017
MAHANAGAR TELEPHONE NIGAM LTD..... Petitioner
versus
H.S. CONSTRUCTIONS CO. ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr Saket Sikri, Mr Junaid Nahvi and
Ms Niyati Patwardhan.
For the Respondent : Mr Dinesh Mohan Sinha.
+ O.M.P. (COMM) 182/2017 and IA Nos. 4245/2017 &
7726/2017
MAHANAGAR TELEPHONE NIGAM LTD..... Petitioner
versus
O.M.P. (COMM) 286/2016 & Other Connected Matters Page 1 of 15
H.S. CONSTRUCTIONS CO. ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr Saket Sikri, Mr Junaid Nahvi and
Ms Niyati Patwardhan.
For the Respondent : Mr Dinesh Mohan Sinha.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
Introduction
1. The petitioner (hereafter „MTNL‟) has filed the present petitions
under Section 34 of the Arbitration and Conciliation Act, 1996
(hereafter „the Act‟) impugning three arbitral awards (award dated
30.12.2015 in O.M.P.(COMM) 286/2016 and two separate awards
dated 15.12.2016 in O.M.P.(COMM) 181/2017 and O.M.P.(COMM)
182/2017) delivered by the Arbitral Tribunal constituted by a sole
arbitrator, Mr Ashok Sharma, former CGM (Law), MMTC (hereafter
„the Arbitral Tribunal‟). The said arbitral awards were rendered in the
context of disputes that had arisen between MTNL and the respective
respondents in respect of the agreements entered into for laying of
cables through trenchless technology.
2. The disputes between MTNL and the respective parties arise
from the agreements entered into pursuant to the bids submitted by the
respondents in response to the Notice Inviting Tender (NIT) dated
25.11.2002. The controversy involved in the above matters is similar
and the arbitral awards challenged in these petitions are also similar. In
view of the above, the petitions are taken up together.
3. For the purposes of addressing the controversy involved in these
petitions, this Court would refer only to the facts as relevant to OMP
(COMM) 286/2016. The learned counsel appearing for the parties also
agree that the decision in the said matter would be determinative of
other petitions as well. The arbitral award dated 30.12.2015 impugned
in the said matter is hereafter referred to as „the impugned award‟.
4. The impugned award has been rendered in respect of claims
raised by Gaurav Enterprises (hereafter „the respondent‟) in respect of
the work done in performance of the „Agreement for Rehabilitation of
Outdoor Plant of GM (N-II) Area‟ dated 25.02.2003 entered into
between MTNL and the respondent (hereafter „the Agreement‟).
5. The dispute between the parties related to the price payable by
MTNL for the work of laying of cables through Trenchless
Technology. Whilst, the respondent claims that MTNL was liable to
pay for the said work at the rate of ₹412/- per meter as agreed under
the Agreement, MTNL disputes the same. According to MTNL, the
Agreement stood novated in so far as the rates payable for the work is
concerned and MTNL was only liable to pay for the same at the rate of
₹230/- per meter. By the impugned award, the Arbitral Tribunal has
accepted the respondent‟s claim that the Agreement was not novated
and the respondent would be entitled to recover the differential amount
(being the difference between the amount paid at the rate of ₹230/- per
meter and as computed on the basis of ₹412/- per meter). Accordingly,
the Arbitral Tribunal has awarded a sum of ₹92,58,465/- on account of
the balance differential amount for the work done and the security
amount. The Arbitral Tribunal has also awarded a sum of
₹82,38,765.57/- as pendente lite interest at the rate of 10% per annum
from 07.02.2007 till the date of the impugned award. The Arbitral
Tribunal has also awarded post award interest at the rate of 12% per
annum on the awarded amount from the date of the award till the
payment.
6. The controversy involved in the present petition relates to the
respondent‟s claim for the balance differential amount in respect of the
downward revised rates from ₹412/- to ₹230/- per meter for the work
of laying of cables through Trenchless Technology.
7. Briefly stated, the relevant facts necessary to address the
aforesaid controversy are as under:-
7.1 MTNL issued a Notice Inviting Tender (NIT) on 25.11.2002 for
"rehabilitation of outdoor plant at Saraswati Vihar, Rohini, Badli and
Narela, Delhi which included the work of laying of cables through
Trenchless Technology". The NIT specifically provided that MTNL
reserved its right to award the work to three contracts in the specified
ratio of 50:30:20.
7.2 The respondent submitted its bid pursuant to the aforesaid NIT.
The said bid was not the lowest bid. The lowest bid was submitted by
M/s Carrycon India Ltd. (hereafter "Carryconˮ). However, as per the
MTNL‟s policy, the respondent was also provided the option to carry
out portion of the works albeit at the rate fixed in the case of the L-1
bidder (Carrycon).
7.3 On 25.02.2003, the respondent agreed to undertake the work
awarded to him at the rate of ₹412/- per meter, which was the rate
agreed between MTNL and the L-1 Bidder (Carrycon). The parties
entered into an agreement dated 25.02.2003 („the Agreement‟). The
respondent also furnished a Performance Security of ₹1,00,000/-.The
Agreement was valid for a period of one year from the date of signing
the same.
7.4 Material Management Cell (MM Cell), a division of MTNL
issued another Notice Inviting Tender (NIT) on 30.12.2002 for new
network creation through Trenchless Technology for the same work of
laying of cables through Trenchless Technology. The rates for the said
work were discovered to be lower than the rates for the work awarded
pursuant to the NIT dated 25.11.2002.
7.5 On 13.05.2003, a meeting was held between MTNL and
Carrycon - the L1 bidder - regarding reduction of rates in the new
tender for similar work of laying of cables through Trenchless
Technology.
7.6 MTNL, by a letter dated 03.07.2003, informed Carrycon that the
base rate of ₹230/- per meter was approved by the Competent
Authority for the work of laying of cables through Trenchless
Technology and the said rate would also be applicable for the
agreement with Carrycon. A copy of the said letter was also sent to all
the contractors. However, the respondent disputes the receipt of the
said letter.
7.7 The respondent submitted its first bill dated 09.09.2003 for
execution of the part of the work contracted at the agreed rate of
₹412/- per meter. However, MTNL cleared the said bill by unilaterally
reducing the rate to ₹230/- per meter.
7.8 The respondent sent various letters dated 23.08.2003,
29.09.2003, 24.07.2004, 13.08.2004 and 01.09.2004 protesting against
the conduct of MTNL in not adhering to the terms of the Agreement
and effective payments for the work done at the reduced rate of ₹230/-
per meter. None of the aforesaid letters were responded to by MTNL.
Although, MTNL had disputed the receipt of the aforesaid letters, the
Arbitral Tribunal - on the basis of the information disclosed pursuant
to the respondent in response to an application filed under the Right to
Information Act, 2005 - accepted that the said letters were received by
MTNL.
7.9 The respondent, by its letter dated 30.03.2004, requested MTNL
to extend the validity period of the contract by a further period of six
months. Respondent consented to carry out trenchless digging work at
the MM prevailing rate during the extended period. MTNL extended
the validity of the contract upto 26.07.2004.
7.10 On 26.07.2004, the work awarded to the respondent was
completed.
7.11 On 01.09.2004, the respondent issued a letter to MTNL
contending that it had been forced to receive payments at the rate of
₹230/- per meter for laying of cables. The respondent issued a notice
dated 10.11.2006 for payment of balance amount at the rate of ₹412/-
per meter but MTNL did not respond to the aforesaid notice.
7.12 Thereafter, the respondent issued a notice dated 14.12.2006 to
CGM, MTNL invoking the arbitration clause.
8. Similar dispute was raised before a Coordinate Bench of this
Court in OMP 268/2003 captioned "Vichitra Const. v. MTNL" and by
an order dated 25.08.2004, it was held that MTNL cannot unilaterally
deduct the amount and was directed to release the differential amount
of ₹182/- per meter on submission of bank guarantee. The respondent
sought to rely on the said order.
The Impugned Award
9. Before the Arbitral Tribunal, the respondent filed the statement
of claim, inter alia, claiming ₹91,58,465/- on account of the difference
in the amount payable at the rate of ₹412/- per meter (as claimed by
the respondent) and ₹230/- per meter as paid by MTNL. The claims
made by the respondent in its statement of claim are set out below:-
"(a) Amount of Bills Rs.91,58,465.00
(b) Interest on the above amount
@ 18% p.a. from 01.01.2004
to 31.12.2006 Rs.49,45,536.00
(c) Amount of Security withheld
and not paid. Rs.100,000.00
(d) Interest on the above amount
@18% p.a. from 01.01.2004
to 31.12.2006 Rs.54,000.00
(e) Litigation Expenses Rs.1,50,000.00
----------------------
Total: Rs.1,44,08,001.00
--------------------ˮ
10. The Arbitral Tribunal framed the following issues:
"(i) whether the respondent is entitled to the amount of
₹92,58,465/- including the balance differential amount and
the security amount.
(ii) whether the respondent petition is signed, verified and
instituted by a duly authorized person. If not whether is
liable to be rejected?
(iii) whether the payments made by MTNL at the
renegotiated rate of ₹230/- per meter were accepted by the
respondent and therefore binding on it.
(iv) whether the renegotiation of the rate of ₹230/- per
meter done with L1 party M/s Carrycon is ipso facto
binding on the respondent.
(v) whether the agreement dated 25.02.2003 between the
parties made within validity period of one year can be
altered unilaterally, without the consent of the respondent,
by MTNL."
11. The Arbitral Tribunal held that the parties had entered into a
binding agreement and the rates so agreed could not be changed
unilaterally. The Arbitral Tribunal also found that after entering upon
the Agreement, MTNL had not entered into any negotiations with the
respondent.
12. The Arbitral Tribunal also rejected the contention that the
respondent had accepted the new reduced rates by its conduct, as the
Arbitral Tribunal observed that the respondent had sent letters dated
23.08.2003, 29.09.2003, 24.07.2004, 13.08.2004 and 01.09.2004
protesting against MTNL‟s unilateral reduction in the rates with effect
from the date of the Agreement. MTNL had disputed the receipt of the
letters of protest. However, this was rejected by the Arbitral Tribunal
as the respondent had produced copies of certain letters obtained from
MTNL pursuant to an application made under Right to Information
Act, 2005, which established that MTNL had received the protest
letters sent by the respondent.
13. MTNL‟s contention, that the invoices raised by the respondent
at the rate of ₹230/- per meter indicated its acceptance of the reduced
rates, was also rejected as the Arbitral Tribunal noted that the first
invoice was raised at the rate of ₹412/- per meter; however, MTNL
had not paid the same. The Arbitral Tribunal accepted the contention
that the respondent had raised invoices at reduced rates to avoid any
tax complications and the same did not indicate respondent‟s
acceptance of those rates. The Arbitral Tribunal also observed that the
Performance Security was submitted by the respondent taking into
account the contractual rate of ₹412/- per meter and MTNL had not
reduced the value of the Performance Security required to be furnished
under the Agreement. The Arbitral Tribunal reasoned that this was
perhaps because MTNL was aware of the disputes and desired to hold
on to the higher security.
14. It was MTNLʼs case before the Arbitral Tribunal that it was not
required to enter any negotiations with the respondent as the tender
conditions expressly provided that all the negotiations would be held
with the L-1 bidder (Carrycon). The Arbitral Tribunal also rejected
this contention, as it held that the negotiations with the L-1 bidder
referred to in the tender documents were negotiations prior to entering
into a binding agreement. Thus, any negotiations with the L-1 bidder
after the parties had entered into the Agreement would not bind the
parties.
15. In view of the above, the issues struck by the Arbitral Tribunal
were decided in favour of the respondent and the Arbitral Tribunal
decided the impugned award in favour of the respondent. The Arbitral
Tribunal awarded (i) a sum of ₹92,58,465/- on account of the balance
differential amount for work done and the security amount, and (ii) a
sum of ₹82,38,765.57/- as pendente lite interest at the rate of 10% per
annum from 07.02.2007 till the date of the impugned award, and (iii)
post award interest at the rate of 12% per annum on the awarded
amount from the date of the award till the payment.
Submissions
16. Mr Sikri, learned counsel appearing for MTNL contended that
the Arbitral Tribunal had grossly erred in ignoring the terms of the
tender conditions, which formed an integral part of the contract
between the parties. He submitted that in terms of Clause 17 of the
NIT, the post tender negotiations were restricted to L-1 bidder only.
Therefore, the respondent was bound by the agreement negotiated
with Carrycon. He submitted that by a letter dated 03.07.2003, MTNL
had communicated the decision of the Competent Authority that the
base rate for laying of cables through trenchless method would be
₹230/- per meter instead of ₹412/- per meter. Although, the said letter
was addressed to Carrycon, it was also marked to all the other
contractors.
17. He further drew the attention of this Court to a letter dated
30.03.2004 communicating the respondent‟s acceptance for carrying
out trenchless work at the prevailing MM rates. He submitted that the
Arbitral Tribunal had erred in not accepting that the same also
constituted a novation of the Agreement.
18. The learned counsel appearing for the respondent contested the
aforesaid submissions and supported the reasoning as articulated in the
impugned award. It is, however, important to note that he readily
conceded that the expression "prevailing MM rates" in the
respondent‟s letter dated 30.03.2004, referred to the rate of ₹230/- per
meter.
Reasons and Conclusion
19. The Agreement between the parties clearly specifies that the
work for laying of cables through trenchless method would be paid at
₹412/- per meter. It is also important to note that it is the stated
position that MTNL did not enter into any negotiations with the
respondent for reducing the rates as set out in the Agreement. MTNL
rested its case on Clause 17 of the NIT, which expressly provides that
"post tender negotiations are restricted to L-1 bidder only".
20. This Court is of the view that the said clause would be of little
assistance to MTNL, as the same must be read in the context of the
NIT. The import of Clause 17 of the NIT is to restrict post tender
negotiations with the L-1 bidder for firming up the prices and terms at
which the offers are to be accepted. The said clause exhausts itself
when the parties entered into a definite agreement. The NIT does not
contemplate any negotiations after the Agreement is entered into. The
NIT by its very nature is an invitation to submit offers. The bids
submitted by the various bidders would result in a binding contract.
Since, it is contemplated that after the offers are tendered there may be
some negotiations with the respective parties, the NIT expressly
provides that the negotiations after receipt of offers would be entered
into only with the L-1 bidder. The said negotiations are clearly
towards entering into a binding agreement. Once the negotiations
crystallize into final terms, all other specified bidders (L-2 and L-3
bidders) may also be awarded works at those rates/terms. Such award
would clearly amount to a counter offer, which if accepted, results in a
binding contract.
21. In the aforesaid circumstances, once MTNL had quoted the
negotiations and made a counter offer to the respondent and other
bidders, a binding contract would come into existence with the said
counter offers being accepted. The contention, that the bidders would
be also bound by any novation of the contract, if any, that may be
agreed thereafter between MTNL and L-1 bidder, is unmerited. The
Arbitral Tribunal had rejected the said contention and in the opinion of
this Court, is rightly so. Clearly, no interference is called for with the
decision of the Arbitral Tribunal in this regard. Thus, as far as the
work executed during the term of the contract is concerned, MTNL
would be liable to pay for the work done at the rates as agreed under
the Agreement.
22. Having stated the above, this Court is also of the view that the
Arbitral Tribunal had erred in ignoring the effect of the letter dated
30.03.2004. The said letter reads as under:-
"The General Manager (N-II)
MTNL,
Sector-3, Rohini,
Delhi-110085
SUB: REQUEST FOR EXTENSION OF
CONTRACT FOR REHABILITATION
WORKS IN NORTH - II AREA.
Dear Sir,
This is with reference to the above-mentioned Contract
for Rehabilitation works in North-II Area. We request
you to kindly extend the contract again for a further
period of 6 months.
We hereby give our consent to carry out the works at
the same rates, terms and conditions of the existing
agreement and also carry out trenchless digging works
at the prevailing MM rates without any enhancement for
all the work orders issued during the extended period.
Thanking you,
Yours faithfully,
For Gaurav Enterprisesˮ
23. As noticed above, it was readily accepted that the expression
"prevailing MM rates" as referred to by the respondent in the
aforesaid letter referred to the rate of ₹230/- per meter. Thus, the
respondent had requested for an extension in the term of the
Agreement and had consented to carry out the trenchless bidding work
at ₹230/- per meter during the extended period. Concededly, this
request was acceded to by MTNL and MTNL had extended the term
of the contract. In this view, it was not open for the respondent to now
claim that it is entitled to be paid at ₹412/- per meter for the work
executed pursuant to the work order issued during the extended period
(that is, from 30.03.2004 to 26.07.2004).
24. Accordingly, the impugned award, to the extent that it holds
that the respondent is entitled to be paid at the rate of ₹412/- per meter
for the work done during the extended period, that is, from 30.03.2004
to 26.07.2006, is unsustainable and set aside.
25. The amount and the interest awarded to the respondent,
consequently, be reduced to the aforesaid extent.
26. It is not disputed that the other contractors (respondents in OMP
181/2017 and 182/2017) had also sent similar letters conveying their
consent to execute the works during the extended period at prevailing
MM rates, that is, ₹230/- per meter. Thus, the arbitral awards in the
said cases are also set aside to the extent that the same entitles the said
contractors to receive consideration at a higher rate of ₹412/- per
meter due in the extended period.
27. The petitions are disposed of in the above terms. All the
pending applications are also disposed of. The parties are left to bear
their own costs.
VIBHU BAKHRU, J
APRIL 09, 2018
RK
