Delhi High Court
M/S S Reddy Infratech Private ... vs M/S Overseas Infrastructure ... on 1 June, 2018
$~33
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P. (COMM) 245/2018
M/S S REDDY INFRATECH PRIVATE
LIMITED ..... Petitioner
Through: Mr Brij Bhushan Gupta, Sr.
Advocate with Mr Prabhat Kumar and
Mr Uday Khanna, Advocates.
versus
M/S OVERSEAS INFRASTRUCTURE ALLIANCE
(INDIA) PRIVATE LIMITED ..... Respondent
Through: Mr Manish Sharma and Mr Ninad
Dogra, Advocates.
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
ORDER
% 01.06.2018
VIBHU BAKHRU, J
1. The petitioner has filed the present petition under Section 34 of
the Arbitration and Conciliation Act, 1996 (hereafter ‗the Act') for
setting aside the Arbitral Award dated 03.02.2018 (hereafter ‗the
impugned award') delivered by the Arbitral Tribunal consisting of Mr
Justice B.P. Singh (Retired), Mr Justice Mukul Mudgal (Retired) and
Mr Justice Gorigay Bikshapathy (Retired). The impugned award was
rendered by the majority with Justice Gorigay Bikshapathy (Retired)
entering a dissenting opinion. The controversy between the parties
arises in relation to an agreement dated 13.08.2012 - captioned ‗Sub-
Contract Agreement' (hereafter ‗the Agreement') - entered into
between the parties for construction of dwelling units in Maldives. In
terms of the Agreement, the petitioner was required to furnish two
bank guarantees - one for securing an advance ( hereafter ‗ABG') and
the other for securing the performance of the contract (hereafter
‗PBG') - each for a sum equivalent to 10% of the contract value of
Rs. 126 Crores. Although, the petitioner furnished the bank
guarantees, the same were found to be forged. Accordingly, the
respondent terminated the Agreement by a notice dated 11.01.2013. In
the aforesaid context, the petitioner raised several claims - seventeen
in number - in respect of alleged expenditure/loss incurred by the
petitioner in relation to the contract between the parties. In addition,
apart from costs of arbitration and interest, the petitioner also raised a
claim for loss of profits expected by the petitioner from execution of
the contract.
2. By the impugned award, the Arbitral Tribunal (by majority)
found that the termination of the Agreement was not wrongful and
rejected all claims made by the petitioner.
3. Mr Brij Bhushan Gupta, learned Senior Counsel appearing for
the petitioner does not contest the decision of the Arbitral Tribunal in
rejecting the petitioner's claim that termination of the Agreement was
wrongful; he, however, contends that the petitioner would be entitled
to its claims for the expenditure incurred in terms of Sections 64 and
65 of the Contract Act, 1972 (hereafter ‗the Contract Act'). He
referred to the impugned award and submitted that the petitioner's
claims were rejected only on the ground that the expenditure in
question was incurred prior to the parties entering into the Agreement
or the issuance of the Letter of Intent (LOI). He contended that
rejection of the petitioner's claims on this ground was not sustainable.
4. In view of the above, the only controversy that falls for
consideration of this Court is whether in terms of Section 64 and 65 of
the Contract Act, 1972 the petitioner is entitled to the claims made in
respect of the expenditure incurred by the petitioner in connection
with or in relation to the contract.
Background facts
5. The respondent was awarded a contract by the Government of
Maldives for construction of 485 dwelling units out of which 385 units
were to be constructed at a place called Hulhumale and 100 dwelling
units were to be constructed at a place named Thinadoo. The
respondent and the Government of Maldives also entered into a
contract dated 26.01.2012 in respect of the aforesaid works.
6. Thereafter, the respondent sought offers from various entities to
sub-contract the work for construction of the dwelling units in terms
of the contract awarded to it by the Government of Maldives. After the
parties had held negotiations and discussions, the respondent issued a
Letter of Intent (LOI) dated 27.06.2012 expressing its intention to
award the contract for sub-contracting the work of designing and
building the housing project at Maldives. The total price of the
contract was fixed at ₹126 crores and the project was to be completed
within a period of sixteen months from the Commencement date. The
LOI further indicated that it was contingent upon the petitioner
developing designs and obtaining approvals from the Ministry of
Housing and Environment Republic of Maldives.
7. Thereafter, the parties entered into the Agreement on
13.08.2012. The Agreement expressly provided that the
Commencement date to be as under:-
―E Commencement Date:
The Commencement date shall be the date on which
Advance Payment has been released by OIA to
ASPRIL. OIA Shall release advance payment after
receipt of both Advance Bank Guarantee and
Performance Bank guarantee from ASRIPL, each
being 10% value of Contract price.‖
8. Further in terms of the Agreement, the project was to be
completed within five hundred days from the Commencement date.
9. The petitioner claims that the bank guarantees (ABG and
PBG) were arranged by one Mr K. K. Menon, who was an employee
of the respondent at the material time. The petitioner further claims
that Mr K. K. Menon had agreed to arrange the bank guarantees in
question for a consideration of `2,50,00,000/- out of which a sum of
`1.65,00,000/- was remitted by the petitioner into the bank account of
Mr K. K. Menon on 26.10.2012 and a further sum of `35,00,000/- was
paid by the petitioner in cash.
10. At a meeting held on 17.12.2012, the petitioner was informed
that the bank guarantees furnished pursuant to the Agreement were not
genuine.
11. On 11.01.2013, the respondent sent a notice terminating the
Agreement.
12. Thereafter, the petitioner issued a notice dated 25.03.2013,
which ultimately led to the commencement of the arbitral proceedings
and constitution of the Arbitral Tribunal.
13. The arbitral proceedings culminated in the impugned award.
Discussion and Conclusion
14. As noticed above, the only question to be addressed is whether
the Arbitral Tribunal had erred in rejecting the claims made by the
petitioner for the expenditure incurred by it in relation to the contract
between the parties. Before the Arbitral Tribunal, the petitioner had
filed its Statement of Claim claiming: (i) `63,00,000/- as expenditure
incurred for preparation of initial drawings and bill of quantifies; (ii)
`25,00,000/- for payment made to Team Ventures Private Ltd. for
facilitating the contract with the respondent; (iii) `5,60,000/- incurred
by the petitioner in engaging the services of a consultant to obtain
approvals and `1,75,000/- for registration with the Ministry of
Housing and Infrastructure, and approvals/license from the concerned
Ministries of Government of Maldives; (iv) `1,25,000/- as expenditure
incurred for registration with the Export Promotion Council of India;
(v) `2,00,00,000/- paid to Mr K.K. Menon towards arrangement of
bank guarantees; (vi) `8,12,000/- incurred towards travelling to India
for procurement of material; (vii) `32,650/- being expenditure
incurred for testing of material; (viii) `2,00,000/- for making advance
payment for materials; (ix) `7,84,012/- being the expenditure incurred
towards retrofitting existing tools and machinery for being exported to
Maldives; (x) `6,46,657/- as expenditure for the visits of the petitioner
to Mumbai; (xi) `2,35,000/- as expenditure for petitioner's visits to
Delhi; (xii) `3,00,940/- being the expenditure incurred for travelling to
various ports for finalizations of logistics; (xiii) `76,33,000/- as
overheads; (xiv) `9,00,000/- being expenditure for travelling of staff
to Maldives; (xv) `10,30,000/- expenditure in respect of staff at
Maldives; (xvi) `5,55,870/- as expenditure incurred for visiting China
for procurement of machinery, furniture and tools for Maldives; (xvii)
`5,00,000/- as loss of furniture procured from China; (xviii)
`18,90,00,000/- as loss of profits; (xix) Cost of arbitration; and (xx)
Interest at the rate of 24% p.a.
15. There is no dispute that the Bank Guarantees furnished to the
respondent were forged and Mr Gupta has not assailed the decision of
the Arbitral Tribunal rejecting the petitioner's claim that termination
of the Agreement was wrongful. The Arbitral Tribunal had also
concluded that the controversy with regard to forged bank guarantees
was a matter between the petitioner and Mr K.K. Menon and did not
concern the respondent. The Arbitral Tribunal reasoned that the
petitioner had entered into the alleged arrangement for procurement of
the bank guarantees with Mr K. K. Menon acting in his private
capacity and not as a representative of the respondent. Plainly, the
question whether Mr K. K. Menon had defrauded the petitioner would
be of little relevance while considering the question whether the
Agreement had been validly terminated as there is no dispute that the
bank guarantees (ABG and PBG) furnished on behalf of the petitioner
were forged.
16. The Arbitral Tribunal (by majority) also rejected the other
claims made by the petitioner as it held that the respondent was not
liable for the expenditure claimed to have been incurred by the
petitioner. It was observed that claim nos.1 & 2 related to work
allegedly done prior to the issuance of LOI and, therefore, the
respondent could not be held liable. Further, claim nos.3 & 4 were
rejected by the Arbitral Tribunal by observing that ―sub contract
agreement had not commenced in terms of Clause E." Claim nos. 6, 7,
8 & 9, which related to the expenditure allegedly incurred for material
procurement, were also rejected as the same were incurred prior to the
project commencement date. Claim nos.10, 11, 12, 14 & 16 related to
expenditure incurred on travelling of the petitioner's Managing
Director and its employees. The said claims were rejected by the
Arbitral Tribunal by observing that there was no agreement between
the parties for reimbursement of any such expenditure. Further, the
Arbitral Tribunal also observed that ―the claims are lacking in
particular and are extremely sketchy and have not been proved in any
manner.‖ With regard to claim nos.13, 15 & 17, the Arbitral Tribunal
observed that there is a possibility that some expenditure would have
been incurred by the claimant in relation to the project but the conduct
of the petitioner disentitled it for any relief towards any such
expenditure. As noticed above, claim no.18 related to loss of profits
which was rejected as the Arbitral Tribunal did not find that the
termination of the Agreement to be wrongful.
17. Claim no.5 related to reimbursement of the amount paid
towards obtaining of the bank guarantees. Clearly, there was no basis
for seeking such relief and the same was rejected by the Arbitral
Tribunal.
18. Mr Gupta relied on the provisions of Sections 64 and 65 of the
Contract Act and earnestly contended that the petitioner was entitled
to its claims.
19. At this stage, it is relevant to refer to Sections 64 & 65 of the
Contract Act, which are reproduced below:-
―64. Consequences of rescission of a voidable
contract.--When a person at whose option a contract
is voidable rescinds it, the other party thereto need not
perform any promise therein contained in which he is
the promisor. The party rescinding a voidable contract
shall, if he had received any benefit thereunder from
another party to such contract, restore such benefit, so
far as may be, to the person from whom it was
received.
65. Obligation of person who has received
advantage under void agreement, or contract that
becomes void.--When an agreement is discovered to
be void, or when a contract becomes void, any person
who has received any advantage under such agreement
or contract is bound to restore it, or to make
compensation for it to the person from whom he
received it.‖
20. It is obvious from a plain reading of the aforesaid provisions
and the claims made by the petitioner do not fall within the scope of
the aforesaid provisions. Thus, the contention that petitioner is to be
compensated for or reimbursed the expenditure incurred by it is
unmerited. Section 64 of the Contract Act provides that when a
person at whose option a contract is voidable rescinds the contract, he
is liable to restore such benefit as he may have received under the said
contract. In terms of Section 65 of the Contract Act, any person who
has received any benefit or advantage under a contract, which is
discovered to be void or becomes void is obliged to restore the
benefits received by him or to compensate the person from whom he
has received such benefits. The focus of Sections 64 and 65 of the
Contract Act is restoration of any advantage or benefit that has been
obtained by any party in connection with a void contract or voidable
contract that has been rescinded. A plain reading of the claims
indicates that none of the claims made by the petitioner were for
seeking restoration of any benefit received by the respondent. All
claims - barring the claims for loss of profits, furniture, costs and
interests - were for seeking reimbursement of expenditure incurred by
the petitioner in either travelling or preparing itself for execution of
the contract. It is obvious that none of such expenditure had translated
to any benefit or advantage (either tangible or otherwise) to the
respondent. Further, there is no pleading to the effect that the
respondent had acquired any benefit or advantage from the
expenditure incurred by the petitioner. Thus, plainly, the respondent
cannot call upon to reimburse any of the said expenditure.
21. In view of the above, the petition is unmerited and is,
accordingly, dismissed. The parties are left to bear their own costs.
VIBHU BAKHRU, J
JUNE 01, 2018
pkv/MK
