Delhi High Court
National Hydro-Electric Power ... vs M/S Continental Construction ... on 6 December, 2018
$~48
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 6th December, 2018
+ O.M.P. 668/2009
NATIONAL HYDRO-ELECTRIC POWER
CORPORATION ..... Petitioner
Through: Mr. B. P. Singh and Dr. S. K. Khatri,
Advocate.
versus
M/S CONTINENTAL CONSTRUCTION
LTD. & ANR. ..... Respondents
Through: Mr. Satpal Singh, Advocate with Mr.
V. K. Sharma, Arbitration consultant.
(M:9810780218)
CORAM:
JUSTICE PRATHIBA M. SINGH
Prathiba M. Singh, J. (Oral)
1. Present petition under Section 34 of the Arbitration and Conciliation
Act, 1996 (hereinafter „the Act‟) has been preferred by the National Hydro-
Electric Power Corporation (hereinafter „NHPC‟) challenging the impugned
award dated 5th June, 2009 passed by the learned Sole Arbitrator. M/s.
Continental Construction Limited - Respondent No.1 (hereinafter
„Contractor‟) entered into a contract with NHPC on 1st October, 1985 in
respect of works for „Construction of power tunnels Up-Stream Package at
Chamera Project (Stage-I)‟. The date of commencement was 1st January,
1986 and the stipulated date of completion was 31st July, 1989. The actual
work was completed on 31st January, 1994. There is no dispute in respect of
these dates.
2. The original contract was awarded for a total value of
Rs.19,58,60,430/-. Various extra works were also given to the Contractor.
The final bill was submitted by the Contractor for a sum of
Rs.78,29,50,414.60/-. The Contractor raised several claims including for
non-payment of the final bill. Since NHPC did not take any action and
process the payment of final bill or clear any of the Contractor's claims, a
petition under Section 11 (6) of the Act was moved in the Delhi High Court.
The matter finally culminated in the Supreme Court and vide order dated
11th May, 1999, Shri Abdul Hamid Raina, retired engineer of the NHPC was
appointed as the Sole Arbitrator.
3. Before the learned Arbitrator, the following claims were raised by the
Contractor.
"
S. No. Brief Description of Amount Claimed
Claims (Rs.)
1 Payment due on BOQ 90,750.00
items
2 Payment due on beyond 1,38,09,428.79
(+) 30% deviation of
individual items.
3 Payment due on beyond (- 2,07,52,865.24
) 30% deviation of
individual items.
4 Payment due on beyond 11,91,58,238.10
(+) 20% overall deviation
of contract sum.
5 Payment due on account 3,52,84,095.82
of withheld/unpaid extra
items to be released.
6 Payment to be released on 1,54,14,580.09
account of unaccepted
recoveries
7 Payment due on account 82,42,264.64
of escalation
8 Payment due on account 12,68,75,200.00
on unpaid claims
Total Rs. 33,96,27,423.20
9 Interest @ 24 per annum 31,54,45,950.50
w.e.f. 19-10-94 to 31.08.98
10 Interest @ 24 per annum A matter of
w.e.f. 01-09-98 to date of Calculation
actual payment
Grand total Rs. 65,50,73,373.70
4. The total claims awarded by the Arbitrator are as under:
S. No. Description of Claims Amount in Rs.
1 Amount of Award in 3,91,89,289.79
favour of the Claimant
(Annexure-A)
2 Less recoveries awarded 47,10,227.50
against counter claims of
Respondent (Annexure-B)
3 Net amount of Award in 3,44,79,062.29
favour of the Claimant
4 Pre reference Interest 1,77,15,342.20
awarded @ 14% p.a.
w.e.f. 01.01.95 to
31.08.98
5 Interest @ 12% p.a. from 4,44,77,990.35
1.9.98 to date of award i.e.
05.06.09
6 Total amount of Award as 9,66,72,394.84
on 05.06.09, the date of
Award
5. The above amounts were corrected vide award dated 5th August, 2009.
The final claims awarded are set out herein below:
S. No. Description of Claims Amount in Rs.
1 Amount of Award in 2,53,12,503.24
favour of the Claimant
(Annexure-A)
2 Less recoveries awarded 47,10,227.50
against counter claims of
Respondent (Annexure-B)
3 Net amount of Award in 2,06,02,275.74
favour of the Claimant
4 Pre reference Interest 1,05,85,448.50
awarded @ 14% p.a.
w.e.f. 01.01.95 to
31.08.98
5 Interest @ 12% p.a. from 2,65,76,933.57
1.9.98 to date of award i.e.
05.06.09
6 Total amount of Award as 5,77,64,657.81
on 05.06.09, the date of
Award
6. Before this Court, the only objections raised by NHPC are in respect
of claim no.8.1 in which Rs.46,50,000/- was awarded by the learned
Arbitrator as also the claims relating to interest. No objections are pressed
against any of the other awarded amounts.
Claim no.8.1: In-fructuous expenditure on supervision, overheads etc.
together with pre-reference, pendente-lite and future interest on the final
amount.
7. Amounts under this head were claimed on the ground of failure of
NHPC to meet the contractual obligations in time as also due to expenses
incurred due to changes in the geographical conditions and other unforeseen
circumstances. The claim was for a total sum of Rs. 10,83,75,463/-."
8. The Contractor raised this claim on the ground that that overheads and
other expenditure, were claimed to have been incurred by the Contractor due
to delays and hindrances. The delays highlighted by the Contractor are -
1) Delay in handing over of the site by NHPC;
2) Delay due to change in location of structures;
3) Delay due to extremely adverse and unforeseen geological conditions;
4) Delay due to the factors directly attributable to NHPC over which the
Contractor had no control.
9. The overheads claimed including continuing wages of staff,
maintenance of camps, ventilation, dewatering, lighting, conveyance,
running vehicles, wages of staff, maintenance of camps, telephone, telex,
postage, financing expenses, etc. Learned Arbitrator after considering the
submissions of the Contractor and submissions of NHPC held that the
Contractor would be entitled for overhead and financing costs for a period of
five months. Accordingly, out of the claimed sum of Rs.10,83,75,463/-, the
Contractor was awarded Rs.46,50,000/-, which included financing cost @
14% per annum. The split-up of the amount was calculated as below:
OVERHEADS
1 Date of commencement of = 01-01-1986.
main work..........
2 Stipulated date of = 31-07-1989
completion ..........
3 Period allowed for = 43 months
completion of
works............
4 Contract Value............ = Rs.1958.60 Lacs
5 Monthly turn over = Rs.45.54 Lacs
...........= 1958.60/43
6 Time related cost per = Rs.5.94 lacs
month (i.e. overheads @
15%) = 0.15 x 45.54/1.5
7 Actual date of = 31-01-1994
completion..........
8 Extended period for = 54 months
completion...........
9 Total Value of work = Rs.4191.95 Lacs
done.......................
10 Value of extra work done = Rs. 2233.35 lacs
after the Contractual date
of completion ..........
11 Corresponding time for = 49.03 months Say
which time related cost 49 months
already recovered from
extra works = 2233.35 x
43/ 1958.60
12 Amount of un-recovered = Rs. 29.70 Lacs
overheads payable to the
contactor = (54-49) x 5.94
13 Financing cost @ 14% = Rs.16.8 Lacs
p.a. for a period of 48.5
i.e. ½ of (43+54) months
14 Total amount of Award = Rs. 46.5 Lacs
against overheads
10. The main objection raised by learned counsel for NHPC is that the
learned Arbitrator failed to consider the bar against award of such amounts
under clauses 21.1 and 21.2 of the Special Conditions of the Contract. It is
submitted that the entire award has been made by the learned Arbitrator
without considering the fact that for all the additional work done, due
payments were made and even escalation was granted. The Contractor was
thus not entitled to anything in addition over and above the said payments,
in view of delays. The overheads incurred by the Contractor were duly
compensated and hence during the five month period, no additional
overheads ought to have been awarded. Further submission of learned
counsel for the NHPC is that there was no evidence led before the learned
Arbitrator to actually show and establish that any additional overhead
expenses were incurred by the Contractor. Even the basic material was not
placed on record. Leaned counsel for NHPC relies upon the judgment of the
Delhi High Court in National Highways Authority of India v. Bumi
Hiway (M) SDN BHD, in OMP 249/2013 decided on 25th March, 2015.
11. The contention of learned counsel for the Contractor, on the other
hand, is that the learned Arbitrator has given detailed reasoning as to why
clause 21.1 is not applicable. The learned Arbitrator, after considering 15%,
as the overhead component, awards the same only for a period of five
months. Considering the nature of delay, this award is not unreasonable,
inasmuch as even while applying Hudson's formula, some amount is
awarded as overhead expenditure based upon the total value of the contract.
Learned counsel for the Contractor relies upon the judgment of this Court in
Punjab National Bank v. Bijlee Construction, 190 (2012) DLT 195, as
also section 54 of the Contract Act, 1872. He further relies upon the
judgment of the Supreme Court in McDermott International Inc. v. Burn
Standard Co.Ltd. & Ors., (2006) 11 SCC 818.
12. This Court has heard the submissions of the parties in respect of this
claim. The Court is not going into the question of calculation and the
manner in which the learned Arbitrator has arrived at the period of five
months and Rs.46,50,000/-. The same is a factual analysis. However, what
the Court has to consider is whether the award of this claim was barred
under clause 21 of the special conditions of the Contract. Clause 21 is set out
herein below:
"21. FACILITIES BY CORPORATION
21.1 Where any facility/material or anything is
agreed to be provided by Corporation to Contractor
and if it is not provided or if there is any delay in
providing the same, Contractor shall not be entitled to
any claim or damage from or against Corporation.
Contractor may, however, ask for a suitable extension
of time which may be granted by Engineer-in-Charge,
at his sole discretion as provided in clause 39 of the
General Conditions of the Contract.
21.2 In the Contract, unless it is specifically
provided that a particular facility, material or any
other thing is to be provided by Corporation at its own
cost, it is agreed by the parties that the same shall be
provided by Contractor at its own cost."
13. A perusal of this clause shows that if there is any delay by the
Corporation i.e. the NHPC in providing any facility, any material, or
anything as agreed, the Contractor would not be entitled to any claims or
damages against NHPC. The clause provides that the Contractor is entitled
to seek extension, which would be granted by the Engineer-in-Charge.
Learned counsel for the Contractor argues that the factors which resulted in
the delay do not constitute a facility or material. A perusal of the reasons for
delays, as enumerated by the learned Arbitrator, shows that firstly the delay
was in respect of handing over of the site and secondly due to change in the
location of structures. Both these would constitute facilities provided by
NHPC. The third factor i.e. unforeseen climate conditions is not covered by
clause 21. However, broadly, the delay is due to handing over of the site
and the change in the location of the structures. Learned Arbitrator has
rejected the application of clause 21.1 by holding that the NHPC has not
cited any reason falling under clause 21.1. Relevant portion of the award is
set out herein below:
"3. The reference by the Respondent to clauses 5 and
15 of GCC is misplaced. Clause 5 deals with the
„Sufficiency of Tender' and Clause 15 deals with
'Works to be carried out in accordance with
specifications, drawings and orders etc.' In the present
case the Claim is for compensation for the losses
sustained by the Claimant due to failure by the
Respondent in fulfilling his obligations under the
contract. Clause 21.1 of SCC stipulates that the
Contractor shall not be entitled to any claim or
damage from the Corporation in case any
facility/material or anything related to
facility/material, though agreed to be provided by the
Corporation, is not provided or there is delay in
providing the same. However the Respondent has not
cited any such reason of delay in execution of the
work."
14. This conclusion of the learned Arbitrator that, no reason, as covered
in this clause, has been cited by NHPC, is clearly contradictory. The award
itself records in the above paragraph that NHPC had placed reliance on this
clause and had argued that the factors contributing to the delay were covered
by the clause. The Arbitrator clearly erred in holding that the NHPC did not
cite any reason as covered by clause 21.1. It is the admitted position that
extension was granted to the Contractor without levy of any liquidated
damages or compensation in terms of clause 21.1. The question is whether
the Contractor can claim anything over and above the same under the claim
of overhead expenditure. During the five months, which the learned
Arbitrator holds to be the delayed period, there is no doubt that the work was
being executed by the Contractor and for the said work, payment has been
made by the NHPC. When there is a clear bar under the contract, the
learned Arbitrator could not have simply rejected this plea of NHPC by
holding that the delays are not due to the delay in provision of the facility,
material or any other reason. This interpretation is erroneous. The finding
that NHPC has not cited any reason as contained in Clause 21.1 for the delay
is thus not tenable. The reasons cited by the Contractor itself for the delays,
resulting in the claim being raised, clearly show that they are covered by this
clause 21.1. Moreover, delays due to climatic conditions cannot be attributed
to the NHPC.
15. Further the learned Arbitrator has also not considered any specific
evidence, which has been led but has simply applied 15% as the overheads
component. In the absence of any material i.e. evidence in terms of payment
of wages, actual office expenditure incurred during this period etc., by
applying the ratio in Bumi Hiway (supra), this Court is of the opinion that
without proving actual damage and loss, the Contractor could not have
claimed any amounts under this head. Relevant portion of the said judgment
is set out herein below:
"13. The principal question that arises therefore is
whether in the absence of BHSB placing any material
before the AT to prove any loss of profit or damages
having been incurred, the AT was justified in
proceeding to award BHSB any amount in respect of
the said two claims.
14. The Court is conscious of the scope of the
interference with an Award in terms of Section 34 of
the Act. In Associate Builders v. Delhi Development
Authority 215 (2014) DLT 204, after referring to the
decision in ONGC Limited v. Western Geco
International Limited 2014 (9) SCC 263 the Supreme
Court held that where a finding is based on no
evidence or the AT takes into account something
irrelevant to the decision which it arrives at, such
decision would necessarily be perverse. The AT was
expected not to give an Award which was contrary to
the settled legal position.
15. In McDermott International Inc. v. Burn Standard
Co. Ltd. (supra), the Court specifically dealt with the
method for computation of damages. The Court
prefaced its discussion with the remarks that "In the
assessment of damages, the Court must consider only
strict legal obligations, and not the expectations,
however reasonable, of one contractor that the other
will do something that he has assumed no legal
obligation to do." The Court then explained each of
the formulae commonly adopted. The Court noted the
criticisms of the Hudson‟s formula observing that "it
adopts the head office overhead percentage from the
contract as the factor for calculating the costs and this
may bear little or no relation to the actual head office
costs of the contractor." The Emden formula which has
received judicial support in a number of cases has the
advantage of using the "contractor‟s actual head office
and profit percentage rather than those contained in
the contract." The Eichleay formula is used "where it
is not possible to prove loss of opportunity and the
claim is based on actual cost." The Court did not
endorse any one particular formula since "it is an
accepted position that different formulas can be
applied in different circumstances and the question as
to whether damages should be computed by taking
recourse to one or the other formula, having regard to
the facts and circumstances of a particular case, would
eminently fall within the domain of the arbitrator."
What is significant as far as the above discussion is
concerned is that it is only concerned with the
application of formulae and not whether the formulae
would apply notwithstanding there is no proof of the
contractor having suffered overhead charges or loss of
profit.
16..........
17. The net result of the discussion is that nowhere in
the decision in McDermott International Inc (supra)
did the Supreme Court hold that even without
producing any material to show loss of overheads or
profit, the Arbitrator could apply one of the formulae
to award the claims.
18. On the other hand, the Court finds that it has been
repeatedly stressed in the decisions of the Court that
some basic material has to be placed on record by the
contractor to demonstrate loss of profits. It is one thing
to say that on account of the premature termination of
a contract, losses would be suffered and such in such
instances it will be possible to demonstrate loss of
profit. However, that is not the case here. Extension of
time was given by NHAI up to 30th September 2004
without levy of LD. As the AT itself noted, BHSB did
earn profits but over an extended period of time.
Secondly, as the AT itself noted, BHSB did not produce
any material to show that it had suffered any overhead
costs or loss of profit. Therefore, the question of the AT
simply applying the formulae did not arise. The Award
appears to have proceeded on guess work.
19....22.......
23. For the aforementioned reasons, the Court is
unable to sustain the impugned Award of the
Arbitrator as it has proceeded merely on surmises and
conjectures in awarding BHSB's claim for overheads
and loss of profits without there being any evidence
whatsoever produced to even prima facie show that it
had suffered overhead charges and incurred losses.
This is not a case of inadequacy of evidence but there
being no evidence whatsoever to justify the impugned
Award. In such circumstances, merely applying
formulae to the total cost of the project to calculate the
compensation was impermissible in law. The award of
the amount under Claim No.7 is therefore set aside.
Consequently, the question of awarding any interest on
the said amount also does not arise."
16. For the above reasons, the award of amounts under 8.1 is not liable to
be sustained and the same is, accordingly, set aside.
Objections in respect of Interest amounts:
17. The next objection is in respect of interest amount, which has been
awarded by the learned Arbitrator. The learned Arbitrator has considered
one year period as a grace period for the payment of final bill. Post the one
year period, the learned Arbitrator has awarded 14% interest from 1st
January, 1995 till 31st August, 1998 and interest @ 12% per annum from 1st
September, 1998 till 5th June, 2009, which is the date of award.
18. The submission of learned counsel for NHPC is that no interest is
payable in respect of any delayed period for non-payment of the final bill in
view of clause 49. Learned counsel also relies on the judgment in Union of
India v. Pradeep Vinod Construction Co., in OMP 296/2005 decided on
30th July, 2018.
19. On the other hand, learned counsel for the Contractor relies upon
clause 48 of the Special conditions of Contract to argue that a maximum of
six months is the period in which the withholding of the final bill amount
can be done. Admittedly, the learned Arbitrator has granted interest after a
period of one year from the raising of the final bill. This, according to the
learned counsel for the Contactor, cannot be held to be barred under clause
49. Relevant clauses 48, 49 are extracted herein below:
"CLAUSE 48 : PAYMENT OF FINAL BILL:
The final bill shall be submitted by the contractor
within one month of the date fixed for completion of the
work or of the date the certificate of completion
furnished by the Engineer-in-Charge. No further claim
in this regard unless as specified herein under shall be
entertained. Payment shall be made within three
months if the amount of the contract plus that of the
additional items is upto Rs.2 lakhs and in 6 months, if
the same exceeds Rs. 2 lakhs of the submission of such
bill. If there shall be any dispute about any item or
items of the work then the undisputed item or items
only shall be paid within the said period of three
months or six months, as the case may be. The
contractor shall submit a list of the disputed items
within thirty days from the disallowance thereof and if
he fails to do so, his claim shall be deemed to have
been fully waived and absolutely extinguished.
CLAUSE 49: OVER PAYMENTS AND UNDER
PAYMENTS:
49.1 Whenever any claim whatsoever for the payment
of a sum of money to the Corporation arises out of or
under this contract against the Contractor, the same
may be deducted by the Corporation from any sum
then due or which at any time thereafter may become
due to the contractor under this contract and failing
that under any other contract with the Corporation or
from any other sum whatsoever due to the contractor
from the Corporation or from his security deposit, or
he shall pay the claim on demand.
49.2 The Corporation reserve the right to carry out
post-payment audit and technical examination of the
final bill including all supporting vouchers, abstracts,
etc. The Corporation further reserves the right to
enforce recovery of any overpayment when detected,
notwithstanding the fact that the amount of the final
bill may be included y one of the parties as an item of
dispute before an arbitrator appointed under Clause
55 of this contract and notwithstanding the fact that the
amount of the final bill figures in the arbitration
award.
49.3 If as a result of such audit and technical
examination any overpayment is discovered in respect
of any work done by the Contractor or alleged to have
been done by him under the contract, it shall be
recovered by the Corporation from the Contractor by
any or all of the methods prescribed above, and if any
under-payment is discovered, the amount shall be duly
paid to the contractor by the Corporation.
49.4 Provided that the aforesaid right of the
Corporation to adjust overpayments against amounts
due to the contractor under any other contract with the
Corporation shall not extend beyond the period of two
years from the date of payment of the final bill or in
case the final bill is a MINUS bill, from the date the
amount payable by the Contractor under the MINUS
final bill is communicated to the Contractor.
49.5 Any sum of money due and payable to the
contractor (including the security deposit returnable to
him) under the contract may be withheld or retained by
way of lien by the Engineer-in-Charge or Corporation
against any claim of the Corporation or such other
person or persons in respect of payment of a sum of
money arising out of or under any other contract made
by the contractor with the Engineer-in-Charge or
Corporation or with such other person or persons.
49.6 The sum of money so withheld or retained under
this clause by the Engineer-in-Charge or Corporation
will be kept withheld or retained as such by the
Engineer-in-Charge or Corporation or till his claim
arising out of in the same contract or any other
contract is either mutually settled or determined by the
arbitrator, if the contract is governed by the
arbitration clause under the clause 55 or by the
competent court hereinafter provided, as the case may
be, and the contractor shall have no claim for interest
or damages whatsoever on this account or any other
ground in respect of any sum of money withheld or
retained under this clause. "
20. A perusal of the above two clauses shows that under clause 48, if the
final bill is less than Rs.2 lakhs, the amount would have to be paid within a
period of three months and if the amount of the final bill exceeds Rs.2 lakhs,
the Engineer-in-Charge has the discretion to pay within a period of six months.
Under clause 49, the claim of interest is barred only when the money is
withheld or retained by the Engineer-in-Charge of the Corporation. The said
two clauses have to be read conjointly and it cannot be argued that the interest
is not payable in perpetuity if Engineer-in-Charge of the Corporation does not
authorise the payment of the bill. Such an interpretation would be contrary to
public policy. The admitted position is that a substantial amount was due to the
Contractor under the final bill, which the learned Arbitrator has awarded. The
computation of the outstanding amount under the final bill is not in dispute but
the only issue being disputed is in respect of the award of interest. A reading
of clauses 48 & 49 distinguishes the present case from the judgment in the
Pradeep Vinod Construction (supra). Learned counsel for the Contractor has
placed reliance on H. P. Housing & Urban Devt. Auth. & Anr. v. Ranjit
Singh Rana, AIR 2012 SC 1337 to submit that even in the said case, interest
@ 18% was upheld by the Supreme Court. The award of interest is in
accordance with law and is not barred under the contract.
21. Under these circumstances, it is held that the interest awarded by the Ld.
Arbitrator of 14% and 12% per annum cannot be said to be unreasonable or
perverse. Interest at 12% p.a. would be payable from the date of the award till
date of this order. The payments be now made by NHPC of the awarded
amounts, as per the present order, within 3 months. If payment is not made
within 3 months, interest at the rate of 18% p.a. shall be payable on the total
awarded amount.
22. The O.M.P is disposed of, in the above terms.
PRATHIBA M. SINGH
JUDGE
DECEMBER 06, 2018/dk
