Delhi High Court
Nhpc Limited (Formerly Known As ... vs M/S Continental Construction & ... on 6 December, 2018
$~49
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 6th December, 2018
+ O.M.P. 141/2010
NHPC LIMITED (FORMERLY KNOWN AS NATIONAL HYDRO
ELECTRIC POWER CORPORATION LTD. ..... Petitioner
Through: Mr. B. P. Singh and Dr. S. K. Khatri,
Advocate.
versus
M/S CONTINENTAL CONSTRUCTION & 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)
I.A. 16198/2018 in OMP 141/2010
1. The application has been moved for replacing the special conditions
of contract of which the wrong version was placed on record inadvertently.
Fresh documents of special conditions of contract is taken on record.
2. I.A. is disposed of.
O.M.P. 141/2010
3. The 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‟) against
the impugned award dated 9th December, 2009 passed by the learned Sole
Arbitrator. M/s. Continental Construction Limited - Respondent No.1
(hereinafter „Contractor‟) entered into a contract with the NHPC on 28th
May, 1986 in respect of works for the "Construction of Tailrace Tunnel -
Civil Works" at Chamera HE Project (hereinafter, „project‟). The date of
commencement was 1st April, 1986 and stipulated date of completion was
31st July, 1989, however, the actual work was completed on 22nd February,
1994. There is no dispute in respect of these dates. The original contract
was awarded for a total value of Rs.13,95,24,220.00/-. Various extra works
were also given to the Contractor. The final bill was submitted by the
Contractor for a sum of Rs.53,75,21,440.04/-. The Contractor raised various
claims including non-payment of the final bill. Since NHPC did not take
any action, the petition under Section 11 (6) of the Act was moved in the
Delhi High Court. The matter finally culminated in a Special Leave Petition
before the Supreme Court, and vide the order dated 11th May, 1999, Shri
Abdul Hamid Raina, the retired engineer of the NHPC was appointed as the
Sole Arbitrator.
4. Before the learned Arbitrator, the following claims were raised by the
Contractor:
S. Brief Description of Claims Amount Claimed
No. (Rs.)
1 Payment due on BOQ items, 50,000.00
executed within (+/-) 30% variation
of quantities
2 Payment due on variations in 68,88,420.88
quantities beyond (+) 30% of
individual items and revision of rate
of deviated item at par with other
contracts at Chamera
3 Payment due on variation in 1,45,68,737.97
quantities beyond (-) 30% deviation
on individual items
4 Payment due on revision of rates of 3,77,36,432.17
individual items executed beyond
(+) 20% overall deviation of
contract sum
5 i) Payment on account of 16,90,805.00
withheld/balance amount due
from the Respondent in respect
of execution of extra items of
work. 58,08,499.39
ii) Payment due for extra items of
work done but not paid so far
6 Payment due on account of excess 1,52,14,096.70
and unaccepted recoveries
7 Payment due on account of actual 1,81,49,616.39
escalation
8 Payment due on account of unpaid 12,58,48,839.70
claims
Total Rs. 22,57,35,448.00
9 Interest @ 24 per annum w.e.f. 18- 20,96,63,084.10
10-94 to 31-08-98
10 Interest @ 24 per annum w.e.f. 01- A matter of
09-98 to date of actual payment Calculation
Grand total Rs. (Excluding Sr. No.10) 43,53,98,532.40
5. The total claims awarded by the Arbitrator are as under:
S. No. Description of Claims Amount in Rs.
1 Amount of Award in 1,54,40,606.67
favour of the Claimant
2 Less recoveries awarded 25,44,717.99
against counter claims of
Respondent
3 Net amount of Award in 1,28,95,888.68
favour of the Claimant
4 Pre reference Interest 66,20,491.33
awarded @ 14% p.a.
w.e.f. 18.10.98 to
31.08.98
5 Interest @ 12% p.a. from 1,74,09,449.72
1.9.98 to date of award i.e.
05.06.09
6 Total amount of Award as 9,66,72,394.84
on 09.12.09, the date of
Award
6. Before this Court, the only objections raised by the NHPC are in
respect of claim no.8.1 in respect to which Rs.1,10,20,000/- was awarded by
the learned Arbitrator, as also the interest.
7. Claim no.8.1, which relates to claim for in-fructuous expenditure on
supervision, overheads etc. together with pre-reference, pendente-lite and
future interest on the final amount due to failure of NHPC to meet the
contractual obligations as also change in the geographical conditions and
other unforeseen circumstances, is set out herein below:
"
Sl. Description of the Claim Amount Amount
No. Claimed (Rs.)
Awarded
(Rs.)
2. Claim No.8.1 for infructuous 98,705,430.00 11020000.00
expenditure on supervision,
overheads etc. due to failure of
Respondent to meet their
contractual obligation
"
8. Reasons for raising this claim is the huge overheads, which were
claimed to have been incurred by the Contractor due to delays. The delays
highlighted by the Contractor are -
a) Delay in handing over Land for Setting up Construction Facilities;
b) Delay on part of NHPC in handing over Site of Works to the
Contractor;
c) Delay due to late supply of power;
d) Delay due to late supply of portal drawings to Adit;
e) Delay due to change in main channel drawings by the Respondent;
f) Delay due to change in alignment of Adit by the Respondent;
g) Delay in first full blast of the tunnel of Adit due to adverse geology
met;
h) Delay due to unexpected geology at outlet site;
i) Delay due to defective ventilation system provided by the
Respondent;
j) Delay due to change in supports specified in the contract drawings for
all classes of tunnel supports on account of wrong identification of
geology.
k) Delay due to slow progress of the project construction works with
equipment supplied by the Respondents.
9. Reasons for claiming these overheads was in respect of continuing
wages of staff, maintenance of camps, ventilation, dewatering, lighting,
compressed air, running vehicles, telephone, telex, postage, financing
expenses, etc. Learned Arbitrator after considering the submissions of the
Contractor and submissions of the NHPC held that the period of 20 months
out of delay of 30 months is the period for which the Contractor would be
entitled for overhead and financing costs. Accordingly, the Ld. Arbitrator
awarded a sum of Rs.1,10,20,000.00/-, as compensation for overheads. The
split-up of the amount was calculated as below:
OVERHEADS
1. Date of commencement of main 01.04.1986
works (as per the agreement)
2. Stipulated date of completion 31.12.1988
3. Period for completion of works 33 months
4. Contract Value Rs.1395.24 lacs
5. Monthly turn over (1395.24/33) Rs.42.28 lacs
6. Time related cost per month (i.e. Rs.5.51 lacs
overheads @ 15%) = 0.15 x
42.281/1.5
7. Actual date of completion 22.02.1994
8. Extended period for completion 61.6 months
9. Total Value of work done Rs.2732.75 lacs
10. Value of extra work done after the Rs.1336.45 lacs
Contractual date of completion (9-
4)
11. Corresponding time for which time 31.6 months
related cost already recovered from
extra works = (10x¾)
12. Number of months of un-recovered 30 months
overheads payable to the
Contractor (8-11)
13. Compensation decided by the Rs.110.20 lacs
Tribunal for 20 months (20x5.51)
10. The main objections raised by learned counsel for the NHPC is that
the learned Arbitrator has failed to consider the bar against award of
overheads, as contained in 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 and escalation, which was granted, the Contractor was not entitled to
anything in addition. The work undertaken by the Contractor was duly paid
for and hence during the 30 months' 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 no additional overhead expenses were incurred by
the Contractor. Even basic material was not placed on record. Learned
counsel for the 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 (hereinafter, „Bumi Hiway‟).
11. The Contractor, on the other hand, submits that it had also filed a
Section 34 petition being OMP 206/2010, as even though the Ld. Arbitrator
held all delays were attributable to NHPC, and that the Contractor was
entitled for compensation for delay in 30 months @25%, he awarded
compensation for only 20 months @15% for overheads and profit to the
Contractor. The Contractor states that no reasons were given by the Ld.
Arbitrator for restricting the award to 20 months, despite giving a finding
that the delays were attributable to NHPC. However, in response to the
contentions raised by NHPC in the present petition, the Contractor submitted
that clauses 5, 15, 18, 39, 46 of the General Conditions of Contract and
Clauses 21.1 and 21.2 of the Special Conditions of Contract have no
application to the claim. The Ld. Arbitrator had considered the rival
submissions of the parties in detail, and come to a conclusion that all delays
in respect of the project is attributable to NHPC, which finding has not been
challenged. The only argument advanced by NHPC is application of clause
21.1 of the Special Conditions of Contract, which they failed to establish
before the Arbitrator. Thus, NHPC failed to establish the reasons for
interference in the impugned award. However, without prejudice to the
above, the Contractor prayed for setting aside of the impugned award on the
grounds as stated in OMP 206/2010.
12. The Court has heard the submissions of the parties in respect of this
claim. First, it needs to be noticed that the Ld. Arbitrator has awarded an
amount which is higher than the claimed amount. The contractor had
claimed a sum of Rs. 98,705,430.00/- under this claim, whereas the Ld.
Arbitrator has awarded a sum of Rs.1,10,20,000/-. The Ld. Arbitrator ought
to have considered as to whether the amount awarded in this claim is barred
under special conditions of clause 21 of the Contract. Clause 21 of the
Contract 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 claim or
damages against the Corporation. 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 interpretation,
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 land for putting up
the construction facilities, as also delay in handing over of the site and
secondly, due to change in portal location, delays in supply of equipment
and delay to change in supports of all classes of tunnel supports due to
wrong identification of geology etc., All these would constitute facility
provided by the NHPC. The Ld. Arbitrator, held NHPC solely responsible
for the delay in the execution of the work, and gave the following finding:
"i) I have gone through the submissions made by the
parties, orally as well as in writing and after careful
study of the case, it is my considered opinion that
during the stipulated contract period, due to various
reasons, including adverse geological conditions
encountered at sit and consequent increase in the
number of steel supports, in major lengths of the
tunnel, the claimant could not execute the work at
required rate of progress which resulted in delay in the
completion of the work. The reasons for delay were
beyond the control of the claimant and solely due to
Respondent‟s inability to fulfil his contractual
commitments. The Project was delayed by a period of 6
months, which includes the rime required for the extra
quantum of work.
ii) So far as overheads are concerned, it is an
established fact that the delay in the completion of the
work results in loss to the contractor, owing to off-site
overheads which are independent of the actual site
expenditure such as expenses on account of rent, taxes,
insurance, bank guarantee charges, postage, telex,
telephone, printing & stationery, travelling,
conveyance charges, general office expenses etc., and
also on sit overheads i.e., those elements of cost which
are government by time, such as supervisory costs,
costs of site colonies etc.
.........
vi) The Claimant had submitted the claim for in-
fructuous expenditure on supervision, overheads,
profit, etc., including financing cost amount to
Rs.9,87,05,430.00 in the SOC.
vii) As the Claimant was required to remain mobilized
and therefore, invested in overhead and financing costs
beyond the Contractual period for no fault of his, the
Tribunal decides to award the claim for overhead and
financing costs be beyond the Contractual period for
no fault of his, the Tribunal decides to award the claim
for overhead and financing costs for a period of 20
months out of the delay of 30 months. The amount of
compensation works out to Rs.110.20 lacs as per
details given in Annexure - 8A."
14. This interpretation of the learned Arbitrator is clearly contrary to the
plain reading of the petition itself, inasmuch as it is the admitted position
that extension has been granted to the Contractor without levy of any
liquidated charges 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 30 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, the 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 Contractor had to continue to be mobilized and had
therefore invested in overhead and financing costs beyond the contractual
period for no fault of his. Moreover, the manner in which the Ld. Arbitrator
holds that the Contractor is entitled to damages for a period of 20 months
instead of claimed 30 months, is whimsical. There is no basis for the said
finding. Firstly, there was a bar in the contract from awarding such damages
and secondly, even on merits there was no ground to award for 20 months
and no evidence was also led in this regard to prove that the overheads had
been actually incurred by the Contractor. 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.
15. Further the learned Arbitrator has also not considered any specific
evidence, which has been led but simply applied 15% overhead component.
In the absence of any material i.e. evidence in terms of payment of wages,
actual office expenses incurred during this period etc., by applying the
judgment of Bumi Hiway (supra), this Court is of the opinion that without
proving actual damage or loss, the Contractor could not have claimed any
amount 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 claim under 8.1 is not liable to be sustained
and the same is, accordingly, set aside.
Objection in respect of the amount of interest awarded
17. The next objection is in respect of the interest, 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 9th December, 2009, which is the date of award.
18. The submission of learned counsel for the NHPC is that no interest is
payable in respect of any delayed period in respect of payment of final bill
in view of clause 49. Learned counsel also relies on the judgment of the this
Court 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 clause 48 and 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 interest component. 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
learned 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
