Delhi High Court
Airports Authority Of India vs Unity Pratibha Consortium on 5 March, 2018
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 05.03.2018
+ O.M.P. (COMM) 395/2017 & IA No.12980/2017
AIRPORTS AUTHORITY OF INDIA ..... Petitioner
Versus
UNITY PRATIBHA CONSORTIUM ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr K. K. Rai, Senior Advocate with Mr
Dig Vijay Rai, Ms Chetana Rai and
Mr Pulkit Tyagi.
For the Respondent : None.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. The petitioner (hereafter „the AAI‟) has filed the present
petition under Section 34 of the Arbitration and Conciliation Act,
1996 (hereafter „the Act‟) impugning an arbitral award dated
29.07.2017 (hereafter „the impugned award‟) rendered by an Arbitral
Tribunal comprising of a sole arbitrator.
2. By the impugned award, the Arbitral Tribunal has awarded a
sum of ₹47,92,321/- in favour of the respondent and further directed
that the bank guarantees amounting to ₹2,35,92,000/- be released. The
counter claim preferred by the AAI has been rejected.
3. The principal controversy involved in the present case relates to
rejection of the counter claim preferred by the AAI. Mr K. K. Rai,
learned Senior Counsel appearing for the AAI contended that the
impugned award was intrinsically inconsistent inasmuch as the
Arbitral Tribunal had accepted the report of Chief Technical
Examiner‟s Organisation (hereafter „CTEO‟) of the Central Vigilance
Commission and had permitted AAI to adjust the amount of ₹30 lakhs
retained by the AAI from the amounts due to the respondent but, on
the other hand, the Arbitral Tribunal had rejected the AAI‟s counter
claim, which was also based on the report of the CTEO.
4. Briefly stated, the controversy involved in the present case
arises in the following context:-
4.1 AAI had invited bids for the work "Modular Expansion of
Terminal Building at Amritsar Airport, Amritsar (Phase II), SH Main
Building Work". The respondent submitted its bid pursuant to the
aforesaid invitation which was accepted. The AAI issued a Letter of
Intent (LOI) dated 24.11.2006 which was subsequently followed by a
Letter of Award (LOA) dated 30.11.2006.
4.2 Thereafter, the parties entered into a „Contract Agreement‟ on
02.12.2006, whereby the respondent agreed to execute the works at a
contract value of ₹65,58,82,344.96.
4.3 The works were to be completed within a period of 10 months
from the 25th day of the LOI; the Scheduled date for commencement
of the works was 19.12.2006 and the works were to be completed by
18.10.2007.
4.4 The execution of the works was delayed for various reasons
including increase in the scope of work and the contract was finally
completed on 30.06.2009. The AAI paid the final bill in August, 2010.
4.5 In terms of the Contract Agreement, the respondent also
submitted three Bank Guarantees. Details of which are as under:-
S.No. BG No. Bank & Date BG Amende Validity BG Reference
of issue amount d BG submitted of Contract
(in Rs. Amount for Condition
Lacs) (in Rs.
Lacs)
1. 3731LG00 PNB, Mid 330 100 30.06.2010 Security Clause No.
2309 Corporate Deposit 01 on page
Branch, -02
Brady
House, V.N.
Road,
Mumbai-23
16/03/2009
2. 0505009B SBI, 44 47.77 30.06.2014 Guarantee Guarantee
G0002485 Commercial against the for
Branch, work of performan
Fort, Standing ce of
Mumbai - seam specialized
01. roofing work page
3. 0505009B SBI, 67 88.15 30.06.2014 Guarantee Guarantee
G0002486 Commercial, against the for
Fort, work of performan
curtain/stru ce of
Mumbai -01. ctural specialized
aluminium work page
4.6 According to the respondent, the total value of the work was
₹1,16,43,95,546/- (₹1,09,38,33,426/- + Escalation Bill of
₹7,05,62,020/-).
4.7 The respondent claimed that a sum of ₹93,99,226/- had been
withheld by the AAI. This was disputed by the AAI; however, AAI
accepted that it had withheld a sum of ₹75,00,000/-.
4.8 The CTEO, a wing of the Central Vigilance Commission, sent a
letter dated 07.07.2011 to the Chief Vigilance Officer of the AAI
calling for comments from the concerned officials with regard to
certain observations. The petitioner states that it was alleged in the
report submitted by the CTEO that financial favours were given to the
respondent and payments were made at higher rates for extra items,
which were inadmissible. In particular, it was claimed that a sum of
₹1.97 crores was paid to the respondent for using 250 MT capacity of
crane in lieu of 80 MT crane to erect the portal frame truss segments
etc.
5. AAI claimed that a sum of ₹2,49,85,642/- was recoverable from
the respondent on the basis of the report of the CTEO. The said
amount was the aggregate of the sums specified in two statements −
Recovery Statement No.1 indicating sums aggregating ₹2,13,63,457/-
and Recovery Statement No.2 indicating recovery of a sum of
₹36,22,185/-. Recovery Statement No.1 consisted of recoveries on
account of payments for extra items which were now claimed to be
inadmissible and payments made for extra items, which AAI now
claimed were made at higher rates. Recovery Statement No.2 was for
recovery of amounts on account of deficiency in execution of certain
works as specified under the Contract Agreement.
6. AAI claimed that the said amount was due in terms of Clause
29(2) of the Contract Agreement. This was disputed by the
respondent.
7. The Arbitral Tribunal accepted that AAI was entitled to recover
the amounts as specified in Recovery Statement No.2, that is, a sum of
₹36,22,185/-. Since the sum of ₹30 lacs was admittedly withheld by
the AAI on that account, the Arbitral Tribunal awarded balance sum of
₹6,22,185/- and adjusted the same from the amount awarded in favour
of the respondent. The Arbitral Tribunal also awarded interest at the
rate of 9% per annum on the said sum from 25.10.2015 to 29.07.2017,
which it quantified at ₹97,994/-.
8. With regard to the recovery of the amounts specified in the
Recovery Statement No.1, the Arbitral Tribunal came to the
conclusion that the same was not recoverable in terms of the proviso
to Clause 29(2) of the Contract Agreement as the said amounts were
specifically sanctioned by the Executive Director, Engineering of the
AAI and the General Manager, Engineering of the AAI.
9. The respondent had claimed that a sum of ₹93,99,227/- was
withheld; however, AAI clarified that only a sum of ₹75 lacs had been
withheld by the AAI. Out of the aforesaid amount of ₹75 lacs, a sum
of ₹15 lacs was withheld against the pressure testing of glasses and
₹30 lacs was withheld against the replacement of glass fins. Since the
defective glasses had been replaced and tested, the Arbitral Tribunal
held that there was no justification for AAI to withhold the aforesaid
sum of ₹45 lacs (₹30 lacs plus ₹15 lacs). The Arbitral Tribunal also
awarded interest at the rate of 9% per annum on the aforesaid amount
from 21.01.2005 and, accordingly, awarded a sum of ₹10,12,500/- in
favour of the respondent.
Submissions
10. Mr Rai, learned Senior Counsel appearing for the AAI
contended that the impugned award was palpably erroneous and was
ex facie inconsistent inasmuch as the Arbitral Tribunal had accepted
that the AAI was entitled to recover a sum of ₹36,22,185/- on the basis
of the report of the CTEO. However, the Arbitral Tribunal rejected the
AAI‟s claim for recovering any amount under Recovery Statement
No.1, which was also based on the report of the CTEO. He submitted
that the Arbitral Tribunal having accepted that the AAI was entitled to
make recoveries on the basis of the report of the CTEO could not have
rejected its right to recover the sum of ₹2,13,63,457/- (as per
Recovery Statement No.1). He submitted that the Arbitral Tribunal
had grossly erred in proceeding on the basis that the proviso to Clause
29(2) of the Contract Agreement was applicable. He contended that
the said proviso, inter alia, provided that the AAI would not be
entitled to recover any sum overpaid provided the same had been
agreed upon by the officers of specified designations as indicated in
the said proviso. He contended that the expression "agreed upon" as
used in the said proviso obviously, referred to an agreement arrived at
after the differences and disputes had arisen and the overpaid sum had
been identified. Any approval of rates or prices by the concerned
officer prior to the receipt of the report from CTEO would be of little
relevance. Lastly, he submitted that the Arbitral Tribunal could not
have sat in appeal over the report of the CTEO and, therefore the
AAI‟s claim based on the said report could not have been rejected.
Reasoning and Conclusion
11. At the outset, it is necessary to observe that no contentions were
advanced on behalf of the AAI in respect of the award of claims in
relation to the amount withheld by the AAI. Further, Mr Rai also did
not contest the interest awarded in favour of the respondent. Thus,
there is no controversy with respect to the award of a claim of ₹45 lacs
along with interest thereon, quantified at ₹10,12,500/-.
12. The only issue that falls for consideration of this Court is
whether the decision of the Arbitral Tribunal to reject the AAI‟s claim
for recovery of a sum of ₹2,13,63,457/- on account of (a) payments
made for allegedly inadmissible extra items; and (b) payments made
for extra items at alleged higher rates, is patently illegal or falls foul of
the fundamental policy of Indian law.
13. Before proceeding further, it would also be relevant to mention
that it was the AAI‟s case that a sum of ₹2,13,63,457/- was
recoverable in terms of Clause 29(2) of the Contract Agreement, there
was no endeavour whatsoever on the part of the AAI to establish that
the said amounts were recoverable dehors the provisions of Clause 29
of the Contract Agreement. Even before this Court neither any
submission has been made nor any material has been produced to
establish that the AAI would be entitled to recover the amounts
without reference to Clause 29 of the Contract Agreement and the
Arbitral Tribunal had erred in not awarding the same. As clarified by
Mr Rai, the AAI‟s case rests solely on the basis of Clause 29 of the
Contract Agreement. In other words, it is the AAI‟s case that CTEO‟s
report is binding on the respondent in terms of Clause 29 of the
Contract Agreement and, therefore, the AAI is entitled to recover the
amount claimed on the basis of the said report.
14. Bearing the aforesaid case in mind, it would now be relevant to
refer to Clause 29 of the Contract Agreement, which is set out below:-
"29(1) Whenever any claim, against the contractor for
the payment of a sum or money arises out of or under the
contract, Airports Authority of India (International
Airport Division) shall be entitled to recover such sum
by appropriating, in part or whole, the security deposit of
the contractor, and sell any Government promissory
notes, etc., forming the whole or part of such security. In
the event of the security being insufficient or if no
security has been taken from the contractor then the
balance or the total sum recoverable as the case may be
shall be deducted from any sum then due or which at any
time thereafter may become due to the contractor under
this or any other contract with Authority. Should this
sum be not sufficient to cover the full amount
recoverable, the contractor shall pay to Airports
Authority of India (International Airports Division) on
demand the balance remaining due.
29(2) Airports Authority of India (International Airports
Division) shall have the right to cause an audit and
technical examination of the works and the final bills of
the contractor including all supporting vouchers, abstract
etc. to be made after payment of final bill and if as a
result of such audit and technical examination any sum
is found to have been overpaid in respect of any work
done by the contractor under the contract or any work
claimed by him to have been done by him under the
contract and found not have been executed the contractor
shall be liable to refund the amount of overpayment and
it shall be lawful for Airport Authority of India
(International Airports Division) to recover the same
from him in the manner prescribed in sub clause (i) of
this clause or in any other manner legally permissible
and if it is found that contractor was paid less than what
was due to him under the contract in respect of any work
executed by him under it, the amount of such under
payment shall be duly paid by Airports Authority of
India (International Airports Division) to the contractor.
Provided that Airports Authority of India (International
Airports Division) shall not be entitled to recover any
sum overpaid, nor the contractor shall be entitled to
payment of any sum paid short where such payment has
been agreed upon between the Executive Director
Engineering/Gen. Manager Engg/Dy. or Addl. Gen.
Manager Engg/Asstt. Gen. Manager Engg or the Sr.
Manager Engg on the one hand and the contractor on the
other under any terms of the contract permitting payment
for work after assessment by the Executive Director
Engineering/Gen. Manager Engg./Dy. or Addl. Gen.
Manager Engg/Asstt. Gen. Manager Engg or the Senior
Manager Engineering."
15. In terms of Clause 29(2) of the Contract Agreement, the AAI
had the right to call for an audit and technical examination of works as
well as all supporting vouchers, abstract etc., after the final bill was
approved. If such examination reflected that the contractor had been
overpaid in respect of any work claimed to have been done under the
contract, he would be liable to refund the same. In other words, it is
clear that Clause 29(2) of the Contract Agreement enabled the AAI to
recover: (i) any amount, which was found to have been overpaid in
respect of any work done by the contractor under the contract; and (ii)
amount paid for any work claimed to be done by him, which is found
not to have been executed by the contractor.
16. The proviso to the said clause makes it clear that Clause 29(2)
of the Contract Agreement would not entitle recovery of the amounts
that had been agreed between the contractor and the specified officers
of the AAI. In the present case, there is no dispute that the concerned
officers had agreed to the rates for execution of the extra items
included in the Recovery Statement No. 1. The Arbitral Tribunal
concluded that there was no dispute that the rates were agreed between
the respondent and the concerned officers of the AAI; thus, in terms of
proviso to Clause 29(2) of the Contract Agreement, no recovery under
Clause 29(2) of the Contract Agreement could be made.
17. This Court finds no ground for interference with the aforesaid
view. First of all, there is a good ground to accept the Arbitral
Tribunal‟s interpretation of proviso to clause 29(2) of the Contract
Agreement. The object of Clause 29(2) appears to permit an audit post
approval of the final bill to verify whether the payments made to the
contractor are in terms of the contract; however, this audit would
afford no ground to alter or modify the terms of the contract which has
been performed. Plainly, the agreement between the parties would also
include the rates agreed to between the contractor and the specified
officers of the AAI. Clause 29(2) of the Contract Agreement cannot be
read in a manner so as to enable AAI to review the rates as agreed
with the contractor after he has completed the works. Thus, there is
no infirmity with the said interpretation.
18. Secondly, and more importantly, even if the interpretation of the
proviso to Clause 29(2) of the Contract Agreement as canvassed by
Mr Rai is accepted (which this Court does not), the same is not
sufficient to warrant any interference with the impugned award under
Section 34 of the Act. Plainly, the interpretation of the proviso to
Clause 29(2) of the Contract Agreement as accepted by the Arbitral
Tribunal is a plausible interpretation and cannot be stated to be
perverse and patently illegal.
19. The question as to the interpretation of the contract falls
squarely within the jurisdiction of the Arbitral Tribunal and it is trite
law that even if the interpretation of the contract is found to be
erroneous, the same would be an error within the jurisdiction of the
Arbitral Tribunal and would warrant no interference under Section 34
of the Act. In Mcdermott International Inc. v. Burn Standard Co.
Ltd and Others.: (2006) 11 SCC 181, the Supreme Court of India held
as under:-
"112. It is trite that the terms of the contract can be
express or implied. The contract of the parties would
also be a relevant factor in the matter of construction of
a contract. The construction of the contract agreement, is
within the jurisdiction of the arbitrators having regard to
the wide nature, scope and ambit of the arbitration
agreement and they cannot, be said to have misdirected
themselves in passing the award by taking into
consideration the conduct of the parties. It is also trite
that correspondences exchanged by the parties are
required to be taken into consideration for the purpose
of construction of a contract. Interpretation of a contract
is a matter for the arbitrator to determine, even if it gives
rise to determination of a question of law. [See Pure
Helium India (P) Ltd. v. Oil & Natural Gas
Commission: AIR 2003 SC 4519 and D.D. Sharma v.
Union of India: (2004) 5 SCC 325].
113. Once, thus, it is held that the arbitrator had the
jurisdiction, no further question shall be raised and the
court will not exercise its jurisdiction unless it is found
that there exists any bar on the face of the award."
20. In Steel Authority of India Ltd. v. Gupta Brother Steel Tubes
Ltd.: (2009) 10 SCC 63, the Supreme Court had expressly stated as
under:-
"...an error relatable to interpretation of the contract by
an arbitrator is an error within his jurisdiction and such
error is not amenable to correction by Courts as such
error is not an error on the face of the award."
21. The contention that there is an intrinsic inconsistency in the
impugned award is unmerited. There is a qualitative difference in the
items included in Recovery Statement No.1 and those included in
Recovery Statement No.2. In case of Recovery Statement No.1, the
AAI claims recovery of certain amounts, which have been paid for
works executed, at agreed rates. There is no dispute that the said items
were executed and the only controversy is whether the items could
have been admitted as extra items and whether the rates for such items
were higher than what ought to have been accepted. Recovery of any
amount under Recovery Statement No.1 would indisputably run
contrary to an agreement arrived at between the respondent and the
concerned officer of the AAI. As noticed above, by virtue of proviso
to Clause 29(2) of the Contract Agreement, the said Clause is
inapplicable for reviewing agreed rates for items of work. As
distinguished from the above, the recoveries as sought to be effected
in respect of Recovery Statement No.2 pertain to defective work; this
is clearly a matter of a technical audit and does not fall within the
exception carved out under proviso to Clause 29(2) of the Contract
Agreement.
22. The controversy addressed by the Arbitral Tribunal is not
whether the recoveries were sought to be made on the basis of the
report of the CTEO or whether the said report is acceptable; the
controversy decided is whether such recoveries could be made under
Clause 29(2) of the Contract Agreement as contended by the AAI.
23. In view of the above, this Court finds no infirmity with the
impugned award. The petition is, accordingly dismissed. The pending
application stands disposed of. The parties are left to bear their own
costs.
VIBHU BAKHRU, J
MARCH 05, 2018
pkv/RK
