Delhi High Court
National Highways Authority Of ... vs M/S Hindustan Construction Co. ... on 2 July, 2018
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 02.07.2018
+ O.M.P. (COMM) 19/2018 & IA Nos. 739/2018 & 6462/2018
NATIONAL HIGHWAYS AUTHORITY OF INDIA ...Petitioner
Versus
M/S HINDUSTAN CONSTRUCTION CO. LTD. ...Respondent
Advocates who appeared in this case:
For the Petitioner :Dr Maurya Vijay Chandra.
For the Respondent :Mr Dayan Krishnan, Senior Advocate with
Ms MalvikaLal & Ms AakashiLodha.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. The petitioner (hereafter „NHAI‟) has filed the present petition
under Section 34 of the Arbitration and Conciliation Act, 1996
(hereafter „the Act‟), inter alia, impugning the arbitral award dated
03.09.2017 (hereafter „the impugned award‟) delivered by the Arbitral
Tribunal comprising of three arbitrators, namely, Sh S.S. Agarwal
(Presiding Arbitrator), Sh M.K. Aggarwal and Sh J.S. Katoch
(hereafter „the Arbitral Tribunal‟).
2. The impugned award was rendered in the context of disputes
that had arisen between the parties in relation to the „Contract
Agreement‟ dated 21.10.2005 (hereafter „the Agreement‟) for
execution of the works relating to Lucknow-Muzzaffarpur National
Highway Project NH-4.
3. By the impugned award, the Arbitral Tribunal rejected NHAI‟s
claim and awarded a sum of ₹1,25,05,186/- alongwith future interest
at the rate of 12% per annum in favour of the respondent (hereafter
„HCL‟). NHAI has contested the award made against the counter
claim preferred by HCL.
4. The controversy involved in the present petition relates to
whether the Arbitral Tribunal had erred in rejecting the claim of
interest on deferment of recovery of Mobilization and Equipment
Advance as per Clause 60 of Conditions of Particular Application
(COPA) preferred by NHAI.
5. NHAI is a statutory body constituted under Section 3 of the
National Highways Authority of India Act, 1988 and is, inter alia,
engaged in Development, Maintenance and Management of National
Highways. HCL (the Contractor) is a company incorporated under the
Companies Act, 1956.
6. On 21.10.2005, NHAI and HCL entered into the Agreement for
execution of the work of four laning of Lucknow-Muzzaffarpur
National Highway-4 (NH-4) from km 135.000 to km 164.000 of
Ayodhya to Gorakhpur Section of NH-28 in the State of Uttar Pradesh
(hereafter „the Project‟).
7. The Agreement was a unit rate contract. The bidding documents
contained a detailed document „Bill of Quantities‟ (hereafter „BOQ‟)
containing the items of work with the estimated quantities of each
item to be executed by HCL. The parties adopted the terms and
conditions of the contract as contained in the General Conditions of
Contract (GCC) and Special Conditions of Contract (SCC). These
terms are based on standard format FIDIC Contract 4th Edition in 1987
with certain Conditions of Particular Application (COPA) amending
the FIDIC and GCC.
8. On 22.03.2007, HCL requested the Engineer to defer the
recovery of mobilization and machinery advance from interim
payment certificates till the Project progress reaches 20%.
Claims
9. NHAI filed its Statement of Claims before the Arbitral Tribunal
claiming (i) ₹3,19,14,314/- on account of loss of interest in respect of
deferment of recovery of mobilization and equipment advance for
three months, which continued for over thirty months (Claim No.1);
(ii) pendente lite interest at the rate of SBI-PLR + 2% on the
abovementioned amount (Claim No.2); (iii) future interest at the rate
of 18% per annum (Claim No.3); and (iv) cost of arbitration (Claim
No.4).
10. HCL filed its Statement of Defence contesting the claims made
by NHAI. HCL, inter alia, also filed a counter claim for an amount of
₹1,25,05,186/- towards the amount withheld by NHAI for loss of
interest.
11. The principal controversy involved in the present petition
relates to the decision of the Arbitral Tribunal rejecting the claim of
NHAI for recovery of interest of ₹3,19,14,314/- and further interest on
that amount. NHAI also assails the impugned award inasmuch as the
HCL‟s counter claim has been accepted.
12. In terms of the Agreement, HCL was provided mobilization
advance of a sum of ₹12.76 crores on 24.01.2006 and equipment
advance of an amount of ₹12.76 crores on 13.09.2006. Thus, in
aggregate, NHAI provided an advance of ₹25.52 crores to HCL. The
said advance was an interest free advance and was to be recovered
from interim payments. In terms of Clause 60.7 (C) of COPA
(Conditions of Particular Application), the recovery of advance was
agreed to commence from interim payment certificates (IPC) after the
cumulative value of IPCs reach 20% of the contract price or 12
months after the disbursal of the first installment whichever is earlier.
The recovery was to be made at the rate of 30% of the amount of each
interim payment (IPC).
13. Admittedly, the works did not progress as scheduled, and HCL
claimed that the delay in execution of the works was attributable to
NHAI as it had failed to handover the site within the stipulated period
and further the site as handed over was not free from encumbrances.
In addition, HCL claimed that there were other delays, which were
beyond the control of HCL.
14. Resultantly, 20% of the contract was not completed within the
period of 12 months; that is, the period after which recoveries of the
mobilization advance provided by NHAI were to commence.
15. It is in the above context that HCL requested for deferment of
the recovery of mobilization advance. HCL claimed that it had
proceeded on the basis that cash flow to the extent of 20% of the
contract price would be available with it.
16. In the aforesaid background, HCL requested for deferment of
the recovery of mobilization advance and further agreed to pay interest
at the rate equivalent to SBI PLR + 2%.
17. By a letter dated 22.03.2007, HCL requested that the recovery
of mobilization and machinery advance be deferred till cumulative
IPCs reach 20% of the contract value. The parties had held discussions
and on 19.04.2007, HCL sent a letter, inter alia, stating as under:-
"In pursuance of the further discussions on the above
subject, we do hereby undertake that the interest @
SBI PLR + 2%, on the recoverable amounts of advance
(30% of the gross IPC value), which will actually be
deferred from various interim payment certificate,
beyond the actual date of recovery for a further period
of 3 months or till the progress reaches 20%,
whichever is earlier would be borne by us."
18. NHAI accepted the aforesaid request and sent a letter dated
17.05.2007 accepting the HCL‟s request for deferment of the recovery
of the mobilization advance for a period of three months from the date
of the said letter. The contents of the said letter dated 17.05.2007 read
as under:-
"Sir,
With reference in the above mentioned subject it
is to inform that NHAI has agreed for the following :-
i. Deferment of recovery of mobilization and
equipment advances from monthly IPCs with interest
rate at SBI PLR + 2% on deferred amount for the
period of next three months from the date of issue of
this letter.
This issues with the approval of competent authority."
19. NHAI deferred the recovery of mobilization advance for three
months. However, NHAI recovered the interest at SBI PLR+2% from
IPC No. 8, 9 & 10. A tabular statement indicating the interest
recovered is set out below:-
IPC Gross IPC 30% of Amount of Recovery of
No. Amount (Rs) Gross IPC Interest @ SBI - Interest in
Amount PLR + 2% (i.e. IPC No.
(Rs) 12.75%+2%) Rs
a b=ax30% c=bx(12.75+2)%/12 d=c
10 5,62,85,718 1,68,85,715 13,28,228 IPC No. 10
Total : 6,24,72,455 21,73,203
20. Admittedly, the recovery of the advances was made regularly
from IPC No. 11 onwards and the recovery was complete by the time
IPC No. 29 was issued in March, 2010.
21. Each of the IPCs was certified by the Engineer as required in
terms of sub-clause 60.2 of COPA.
22. After the entire amount of advance (mobilization as well as
equipment advance) was recovered by NHAI, further interest on the
deferred installments of ₹6,24,72,455/- was sought to be recovered
from IPC No. 29.
23. Although HCL had paid three months interest; but, because the
deferred advances were not recovered immediately thereafter, NHAI
claimed that it was entitled to recover further interest for the period of
29 months. This was informed by the Engineer to HCL on 24.10.2011.
NHAI states that on 30.01.2016, it informed HCL as to the balance
amount payable/recoverable from HCL and this included interest on
deferment of mobilization and equipment advance.
24. HCL did not accept the same and issued a notice of dispute
dated 20.05.2014 in terms of Clause 67 of COPA.
25. Although, the copy of the said notice has not been produced by
NHAI, a copy of the letter dated 23.05.2016 produced by NHAI
indicates that HCL had raised the dispute in the following words:
"the proposed recovery is opposed to the terms of the
agreement between the parties for deferment and
subsequent action of Engineer/ Employer in recovering
the legitimate payments from the IPC etc. While the
Contract ensures payment of interest free advances and
the deferment of recovery of advances was required due
to the Employer delays prohibiting execution of the work
as per Contractors plan etc., the Employer is unjustly
enriching their position by directing recovering additional
amounts beyond that is genuinely due to them and
recovered from the IPC. They consider that very action is
not in accordance with the terms of the Contract and Law
applicable to it. Further, under the circumstances
explained hereinabove, the contractor is left with no other
alternative but to seek the Employer‟s intervention in this
matter to settle the same amicably. In view of the above
facts explained & clear provisions of the contract, they
requested to refrain from recover any payments in this
regard."
26. Since the said matter could not be resolved, the disputes were
referred to arbitration. Although, NHAI suggested the disputes be
referred to a sole arbitrator, the same was not acceptable and the
Arbitral Tribunal of three members was constituted.
27. The Arbitral Tribunal considered the rival contentions. Before
the Arbitral Tribunal, it was contended on behalf of HCL that the
mobilization and equipment advance was interest free advance and
since the delay in execution of the works was attributable to NHAI,
HCL had requested that the recovery of the advance be deferred. It
had also agreed to pay interest for a period of three months, which
was, concededly, recovered. It was stated that the parties always
understood that the deferment of recovery of mobilization advance
would mean that no advance would be recovered for a period of three
months. This was also the understanding of the Engineer who had duly
certified the IPCs. The Arbitral Tribunal considered the same and held
that the communications issued by NHAI clearly indicated that it had
agreed for deferment of recovery of mobilization advance and
equipment advances from monthly IPCs with interest at the rate of
SBI PLR+2% on deferred amount for a period of next three months
from the date of issue.
28. The Arbitral Tribunal observed that the words used in the
communication dated 17.05.2007 gave sufficient scope for one to
think that interest would be levied only for a period of three months.
Concededly, NHAI had not communicated any intention to charge
interest till the amount was finally recovered. The Arbitral Tribunal
also noted that the conduct of the parties also indicated that the interest
was to be levied only for a period of three months and, accordingly,
the Arbitral Tribunal rejected the claim made by NHAI.
29. Dr Maurya Vijay Chandra, learned counsel appearing for NHAI
contended that the fact that the Engineer had certified the 11th IPC
without recovering the advances that were recoverable under IPC 8, 9
& 10 did not absolve HCL of the liability to pay interest. He earnestly
contended that in terms of Clause 60.1 of COPA, the primary duty to
submit a statement for interim payments rested with HCL and it was
HCL‟s obligations to indicate the current amount of recovery. Since,
HCL had failed to do so, the IPCs certified by the Engineer could not
be held against NHAI.
30. This Court is not persuaded to accept the aforesaid contention.
First of all, the background in which the request for deferment of
mobilization advance had been agreed by the parties cannot be
ignored. It is also relevant to note that the advances provided were
interest free and NHAI was not otherwise entitled to recover any
interest on the advance provided to HCL. In this background, the letter
dated 17.05.2007 issued by NHAI for deferring the recovery of
advances on an interest for a period of three months must be construed
strictly. Undisputedly, the said communications had been construed in
a manner so as to provide for interest only for a period of three months
and to defer the recovery schedule for the said period. Therefore, the
recovery of advances was made as per schedule; that is, from 11thIPC
onwards.
31. It is relevant to state that this Court is not called upon to re-
appreciate and re-examine the disputes between the parties in these
proceedings. The view taken by the Arbitral Tribunal is undisputedly a
plausible view and cannot be stated to fall foul of Section 34(2)(b)(ii)
of the Act. In this view, no interference is called for with the decision
of the Arbitral Tribunal to reject the claim raised by NHAI.
Counter claims
32. The next question to be addressed is whether the Arbitral
Tribunal had erred in awarding the counter claim made by HCL. HCL
had claimed that the Engineer had certified a payment of
`1,69,80,319/- and €71,216/- and had issued a final payment
certificate dated 04.04.2012 recommending the release of the aforesaid
amounts. The said amount did not account for the interest on deferred
mobilization advanced claimed by NHAI. It was stated that,
subsequently, the Engineer had modified the final statement and had
recommended an amount of `80,83,957/-. HCL further claimed that in
addition to the aforesaid amount, NHAI intimated that a sum of
`60,96,048/- was to be paid to HCL as the balance amount under IPC
43. Thus, in all, HCL claimed that a total amount of `1,25,05,186/- is
due and payable by NHAI.
33. The aforesaid counterclaim was contested by NHAI on the
ground of maintainability as well as on merits. NHAI claimed that the
HCL‟s counter claim was not maintainable, as the scope of the dispute
referred to the Arbitral Tribunal was also barred by limitation. NHAI‟s
response to the counter claim is sketchy and bald denial. However, it
is not disputed that before the Arbitral Tribunal, NHAI had contended
that the amount claimed by HCL was not payable.
34. It is HCL‟s case that the amount of `1,25,05,186/- was due and
payable but had been withheld by NHAI on account of NHAI‟s claim
for interest on deferment of recovery of advances made in terms of
sub-clause 60.7 of COPA. Thus, if NHAI failed in its claim for
interest on deferment of recovery of advance, HCL would as a logical
consequence succeed in its counter claim.
35. The aforesaid contention is contested by NHAI. NHAI has also
referred to a letter dated 23.05.2016 issued by NHAI, which indicates
that a sum of `1,41,80,005/- was payable to HCL and that includes a
sum of `60,96,048/- withheld from IPC 43. Against the aforesaid sum,
NHAI had sought to adjust `2,22,533/- on account of WPCT;
`3,01,828/- on account of recovery of share of DRB payment;
`10,00,000/- on account of rectification as per recommendations of
the Engineer; `1,21,994/- on account of recovery of interest for
indices not correctly used; `28,464/- as excess paid in IPC 8; and
`62,40,000/- paid on account of provisional escalation paid earlier.
Thus, in terms of the said letter dated 23.05.2016, a sum of
`62,65,186/- was payable after adjusting the aforesaid sums
aggregating a sum of `79,14,819/- against the aforesaid amount and
NHAI had sought to adjust the interest on deferment of mobilization
and equipment advance amounting to `2,36,20,000/- and, thus, had
computed `1,73,54,814/- was recoverable from HCL.
36. It is apparent from the above that a sum of `1,25,05,186/- was
not withheld on account of NHAI‟s claim for interest on deferment of
recovery of the advances. It appears that only a sum of `62,65,186/-
was payable to HCL which was adjusted from the claim raised by
NHAI.
37. It is also apparent from the communications as well as letter
appointing the arbitrators that the disputes referred to the Arbitral
Tribunal were only with regard to the dispute relating to "interest on
deferment of recovery of mobilization and equipment advanced."
38. In the circumstances, the Arbitral Tribunal was required to
adjudicate whether (i) the counter claim fell within the scope of
reference; (ii) if so, whether it was barred by limitation; (iii) and if not,
whether it was sustainable on merits. However, it is seen that
although the Arbitral Tribunal has adjudicated the issue as to whether
the counter claim was barred by limitation, it has not addressed any of
the other issues. The Arbitral Tribunal has simply allowed the counter
claim in the following words:-
"10.1.1 It is noted from the final statement prepared
by the Claimant himself that a sum of
Rs.1,25,95,186/- has been shown as payable
to the Respondent. However, the Claimant
has opposed the claim, not only on the merit
but also on the plea of limitation. The
Claimant has mentioned that the Counter
Claim of the Respondent is even otherwise
not admissible as the claim has been made
after the period of limitation. The AT holds
that Final Payment Certificate was being
prepared by the Respondent even on
23.05.2016, which shows that the accounts
between the Claimant and the Respondent
were still being made as on 23.05.2016, as
such the Counter Claim preferred by the
Respondent cannot be considered as barred
by limitation. As such AT considers it as fair
and reasonable to award a sum of
Rs.1,25,05,186/- in favour of the Respondent
towards its counter claim."
39. As apparent from the above, there are no reasons provided by
the Arbitral Tribunal for allowing the counter claim. This is plainly
contrary to Section 31(3) of the Act, which mandates that the Arbitral
Tribunal shall state the reasons upon which the arbitral award is
passed unless the parties have agreed otherwise or the arbitral award is
a consent award.
40. It cannot be disputed that it is a fundamental policy of Indian
law that all decisions must be informed by reason and such reasons,
however brief, must be discernable from the order embodying such
decisions.
41. In view of the above, this Court is unable to sustain the award
of counter claim in favour of HCL as the same is not only contrary to
Section 31(3) of the Act but also falls foul of Section 34(2)(d)(ii) of
the Act as being contrary to fundamental policy of Indian law.
42. In view of the above, the impugned award to the extent of
counter claim awarded in favour of HCL, is set aside.
43. The petition and the pending applications are disposed of.
Parties are left to bear their own costs.
VIBHU BAKHRU, J
JULY 02, 2018
pkv
