Airport Authority Of India vs Virender Khanna & Associates
2018 Latest Caselaw 1855 Del

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*      IN THE HIGH COURT OF DELHI AT NEW DELHI
+      O.M.P. (COMM) 126/2018 & IA Nos.3795/2018 & 3796/2018
       AIRPORT AUTHORITY OF INDIA                ..... Petitioner
                         Through:Mr Abhishek Thakur, Mr Anuj
                         Kumar, and Mr Mohit Sharma, Advocates.
                         versus

       VIRENDER KHANNA & ASSOCIATES .....Respondent
                    Through: Mr Ramesh Singh with Mr Ranjay
                     N. Advocates.
       CORAM:
       HON'BLE MR. JUSTICE VIBHU BAKHRU
                    ORDER

       %            20.03.2018

VIBHU BAKHRU, J

1. Airport Authority of India (hereafter „AAI‟) has filed the present petition impugning an arbitral award dated 29.11.2017 (hereafter „the impugned award‟) passed by an Arbitral Tribunal constituted by a sole arbitrator. The impugned award was rendered by the Arbitral Tribunal in the context of the claims preferred by the respondent firm in respect of the agreement dated 29.02.2008 (hereafter „the Agreement‟) entered into between the parties for "Architectural/Engineering consultancy services for the proposed new Integrated Terminal Building at Birsa Munda Airport, Ranchi"

2. AAI is a body constituted under the Airports Authority of India Act, 1994 and is, inter alia, engaged in managing various airports in the country. The respondent is a firm of Architects. AAI

was desirous of availing architectural/engineering consultancy services in respect of construction of new Integrated Terminal Building at B.M. Airport, Ranchi. The respondent had approached AAI in this regard and after discussions had offered to provide the said services at a fee of "5% of the estimated or awarded or completed cost of work whichever is lower".

3. After initial discussions, AAI issued a Letter of Award (LoA) dated 16.01.2018. This was followed by the parties entering into an agreement on 29.02.2008 (hereafter „the Agreement‟). Clause 2.2 of the Agreement expressly provides that in consideration of the professional services, the respondent (referred to as the Consultant) would be paid "a professional fee of 5% of the estimated cost of the work or the awarded cost or completed cost of work whichever is lower of the subhead of the works for which consultant has rendered professional services".

4. It is stated that the construction of the terminal was inordinately delayed and took over five years; the Terminal building was finally inaugurated on 24.03.2013.

5. In view of the disputes that had arisen between the parties, the respondent invoked the Dispute Resolution Clause and the disputes raised by the respondent were referred to the Dispute Resolution Board (DRB) constituted by AAI. Before the DRB, the respondent raised nine claims, which were all rejected by a letter dated 09.12.2015.

6. Thereafter, at the request of the respondent, its claims were referred to the Arbitral Tribunal appointed by AAI. Before the Arbitral Tribunal, the respondent raised nine claims. The said claims are summarized below:-

6.1 Claim No. 1 : For a sum of ₹1,78,46,163/- being the difference between the consultancy fee of ₹4,85,54,417.05/- less the amount of ₹3,52,85,230/- received. The respondent claimed that the fee of 5% was required to be computed on the estimated cost of ₹111.36 crore and not ₹108.61 crores as computed by AAI. The difference in the two computations amounts to ₹13,71,987/-.

6.2 Claim No. 2 : Claim of ₹21,36,976/- on account of refund of security deposit. Whilst, the AAI had computed the security deposit at ₹20,86,976/-, the respondent claimed that the same was incorrect and the correct amount was ₹21,36,976/-.

6.3 Claim No. 3 : A sum of ₹8,78,985/- deducted by AAI on account of compensation for delay. The respondent claimed that the said deduction was unwarranted, as there was no delay on part of the respondent and in any event, there was no justifiable basis for making such deductions.

6.4 Claim No. 4 : A sum of ₹12,50,000/- which was deducted by AAI on account of non-deployment of architect/engineer at site. AAI had deducted a sum of ₹14,00,000/- on the said count. The respondent agreed for a deduction of a sum of ₹1,50,000/- at the rate of ₹25,000/- per month for a period of six months and the same was acknowledged

in the final bill submitted by the respondent. The respondent claims the balance amount of ₹12,50,000/- deducted by AAI was not justifiable as, according to the respondent, a representative engineer was deployed at site by the respondent for a period of 28 months, which was beyond the consultancy period of 12 months. The respondent further claimed that no deduction could be made by AAI on this account, as there were no consequences provided in the contract on account of non-deployment of such personnel.

6.5 Claim No. 5 : A sum of Rs.38,350/- towards interest on the amount of ₹12,50,000/- withheld by AAI on account of penalty for non-deployment of personnel.

6.6 Claim No. 6 : Sum of ₹87,726/- towards delay in submission of as-built drawings.

6.7 Claim No. 7 : An amount of ₹72,88,348/- deducted as penalty towards deviation in the Bill of Quantity (BOQ) items.

6.8 Claim No. 8 : Amount of ₹12,08,067/- recovered by AAI as penalty towards the modifications in design based items.

6.9 Claim No. 9 : An amount of ₹26, 00,000/- recovered by AAI by encashing the bank guarantee submitted by the respondent.

6.10 In addition, the respondent also prayed for award of interests and costs.

7. The Arbitral Tribunal rejected respondent‟s claim No.1, as it

found that AAI‟s computation of the estimated cost of work at ₹108,60,98,186/- was correct and the respondent‟s claim was unjustified. The Arbitral Tribunal awarded claim No.2 − refund of security deposit of ₹21,36,976/- − in favour of the respondent. The Arbitral Tribunal also awarded claim No. 3 to the extent of ₹8,78,985/- in favour of the respondent.

8. The Arbitral Tribunal also held that the deduction of a sum of ₹14,00,000/- on account of non-deployment of personnel was not supported by any contractual provision. Accordingly, the Arbitral Tribunal awarded claim No.4 in favour of the respondent to the extent of ₹12,50,000/- being the amount withheld by AAI less the amount of ₹1,50,000/- accepted by the respondent. In view of the above, the Arbitral Tribunal also awarded claim no.5 which pertains to interest on delayed recovery deducted by AAI.

9. Claim No. 6 was also awarded in favour of the respondent. Insofar as claim No.7 is concerned, the Arbitral Tribunal found that deduction of a sum of ₹72,88,348/- on account of penalty on deviation from BOQ items was also not justified and, accordingly, awarded claim No.7 in favour of the respondent.

10. Similarly, the Arbitral Tribunal also found that deduction of ₹12,08,067/- made by AAI for non-providing professional fee in relation to certain items was unjustified and, accordingly, awarded claim No.8 also in favour of the respondent. Claim No.9 with regard to recovery of ₹26 lakhs ( amount collected by invoking of the bank

guarantee), was rejected by the Arbitral Tribunal. The Arbitral Tribunal also awarded simple interest at the rate of 8% and further costs of ₹2.5 lakhs in favour of the respondent.

Submissions

11. Mr Thakur, the learned counsel appearing for AAI has assailed the impugned award to the extent that Claim Nos. 4,5 & 7 are awarded in favour of the respondent. Mr Thakur submitted that the finding of the arbitral award, that AAI was not entitled to withhold a sum of ₹14,00,000/- on account of non-deployment of architect/engineer at site, was patently erroneous. He further submitted that the respondent had accepted such deduction at the rate of ₹25,000/- per month and had conceded to deduction of a sum of ₹1,50,000/- (being penalty at the rate of ₹25,000/- per month for a period of six months). He contended that since the respondent had accepted such penalty, there was no justification for awarding the said claim in favour of the respondent. He submitted that award of Claim no.5 (a sum of ₹38,360/-) towards interest on the delayed recovery was also unjustified as the same was a consequence of the delayed recovery of the sum of ₹4,45,000/- which formed a part of the amounts deducted on account of non-deployment of architect/experienced engineers.

12. Insofar as Claim no.7 is concerned, Mr Abhishek Thakur submitted that the Arbitral Tribunal had erred in not accepting that the deviation in the BOQ items would have to be reckoned from the BOQ items as per the estimated value of work and not the BOQ items as per

the work awarded. He further submitted that this was the necessary consequence to holding that the respondent was to be paid the professional fee on the basis of the estimated cost of works. He earnestly contended that once the Arbitral Tribunal had accepted that the professional fee payable to the respondent was required to be calculated on the basis of estimated value of work, it would naturally follow that the deviations would also have to be considered by comparing the actual BOQ items executed and the BOQ items as per the estimated value of work.

Reasons and Conclusions

Re: Claim No. 4 (₹ 12,50,000/-).

13. AAI had deducted a sum of ₹ 14 lakhs as penalty on account of non-deployment of architect and an electronic engineer during the entire term of the project. AAI claimed that the respondent was obliged to post such personnel during the entire term of the project but had failed to do so. The Arbitral Tribunal found that an architect was required to be posted at site from the start of work till its completion. At the material time, it was contemplated that this period would span a period of one year but the electronic engineer was posted for only six months. However, the Arbitral Tribunal found that there was no provision in the Agreement entitling the AAI to impose any penalty on account of non-deployment of such personnel. The AAI also did not dispute that there was no provision for AAI to deduct such penalty from the amounts due to the respondent. However, AAI sought to

justify the deduction solely on the ground that the respondent had agreed to recovery at the rate of ₹25,000/- per month and this was also acknowledged in the final bill submitted by the respondent.

14. The Arbitral Tribunal rejected the aforesaid contention as the respondent had only accepted penalty for a period of six months, which formed a part of the initial contractual term of one year. The contract was inordinately delayed and, further, AAI had also allowed the respondent to post an experienced engineer at site in place of an architect. The Arbitral Tribunal had found that the respondent had posted an experienced engineer from November, 2009 to March, 2012. AAI had sought to recover the sum of ₹14 lakhs for non-deployment of an engineer from 01.03.2009 to October, 2009 and from March, 2012 to September, 2012 and for non-deployment of an electronic engineer from October, 2010 to September, 2012. The Arbitral Tribunal held that there since there was no provision in the agreement for making such recovery, the same could not be allowed. The contention, that such recovery was justified since the respondent had accepted only recovery of a sum of ₹1,50,000/- computed at the rate of ₹25,000/- per month for a period of six months falling within the term of initial agreement, is not persuasive. The respondent had not accepted any further deductions and, therefore, justifying any such deduction based on the respondent‟s consent did not arise.

15. Further, AAI could have made a claim for damages, if it was of the view that the terms of the Agreement had been breached. However, having failed to make any such claim, it was not open for

AAI to unilaterally recover any sum for non-deployment of personnel. The respondent had also urged that since the contract was delayed beyond the period of one year, it could not be expected that the respondent would continue to deploy such personnel for the entire period.

16. This Court cannot accept the finding or the conclusion of the Arbitral Tribunal to be perverse or patently illegal. Clearly, the award of such claim in favour of the respondent cannot be set aside on any of the grounds as set out under Section 34 of the Act.

Re : Claim no. 5 (₹38,350/-)

17. In view of the above, AAI‟s contest with regard to award of Claim No.5 in favour of the respondent also does not survive, as AAI had withheld a sum of ₹38,350/- towards interest on the delayed recovery of ₹4,45,000/-. The said amount pertains to recovery of penalty for non-deployment of an architect/experienced electronic engineer. Since, AAI‟s claim for the recovery on this count was held by the Arbitral Tribunal to be unjustified, the recovery of interest on delayed recovery of such amount is also unsustainable.

Re : Claim no. 7 (₹72,88,348/-)

18. AAI had recovered a sum of ₹72,88,348/- on account of deviations from the bill of quantities. AAI claimed that the same was in terms of Clause 9.4 of the Agreement, which is set out below:-

"9.4 While submitting documents, the consultant

has to give an undertaking that there will not be any deviation of more than plus minus +/- 5% in design or in quantities of various items as worked out in bill of quantities, from actual execution based on approved drawings. If such deviation occurs i.e. more than 5% Consultant will not be paid anything extra on this account. And if such deviation occurs i.e. more than 5%, Consultant shall be liable to pay the penalty @10% of the deviation amount. In case of increase in the scope of work by AAI the consultant will be paid on pro-rata basis."

19. AAI claimed that the deviation in the BOQ items was to be computed on the basis of the estimated cost of work. The respondent had contested the aforesaid claim, inter alia, on the ground that there were large scale modifications in the approved drawings during the execution stage and, therefore, the "as-built drawings" were considerably different from the drawings as approved by AAI at the tender stage. It was the respondent‟s case that the deviation, if any, in the quantity of various items in BOQ could, at best, be determined by comparing the BOQ as awarded and the BOQ as executed.

20. There is no dispute that there were various modifications in the approved drawings at the instance of AAI. Plainly, the respondent could not be penalized on account of such modifications. Thus, in the circumstances, the Tribunal held that the deviations could be worked out on the basis of the awarded costs and the completed cost. Since, the variation between the awarded costs of ₹109.94 crores and the completed cost of ₹114.87 crores was within the tolerance limit of 5%, no penalty could be levied on the respondent. The relevant extract of

the impugned award reads as under:-

"60.0 After perusal of the Statement of Claims (SoC), Reply to the Statement of Claims (RoC) submitted by the Respondent, the Rejoinder & the additional documents submitted by Claimant, hearing both the parties at length during oral submissions and considering the written submission made by the two parties, I find that the provision of clause 9.4 of the agreement is quite clear. According to this clause the quantities of various items as worked out in the bill of quantities (BOQ) are to be compared with the quantities actually executed based on approved drawings. If such deviation occurs less than 5% consultant will not be paid anything extra on this account but if such deviation occurs more than 5% consultant shall be liable to pay the penalty @10% of the deviation amount."

21. It is difficult to accept that the aforesaid view is palpably erroneous or is contrary to the express terms of the Agreement. It was contended on behalf of AAI that once the Arbitral Tribunal had accepted that the respondent‟s fee was to be computed on the basis of the estimated costs, it would automatically follow that the deviation in the BOQ was also required to be computed on the basis of the estimated cost of work. This contention is, ex facie, unmerited. The professional fee payable to the respondent was to be worked out on the basis of the estimated costs of works or awarded costs of work or the executed cost of work, whichever are lower. In the present case, the estimated cost of work were the lowest and, therefore, the Tribunal

rightly accepted that the professional fee of 5% was to be computed on the basis of the estimated cost of work. This has no co-relation with computing the deviation from the BoQ as contemplated under Clause 9.4 of the agreement.

22. The rationale of imposing penalty on account of deviations is to penalize any failure on the part of the respondent to correctly estimate the BOQ items. However, if any deviation is caused due to the modification in the initial drawings submitted by the respondent, the respondent could not be held responsible for the same. Thus, the deviation if any needs to be computed between the drawings approved for construction (as built drawings) and the actual work required to be executed. As stated above, this Court is unable to fault the decision of the Arbitral Tribunal in this regard.

23. It is also well settled that the question relating to interpretation of a contract lies squarely within the jurisdiction of the Arbitral Tribunal, and an no interference with the Arbitral award could be called for unless it is found that such interpretation is perverse or wholly contrary to the terms of the contract.

24. In Mcdermott International Inc. v. Burn Standard Co. Ltd and Ors. : (2006) 11 SCC 181, the Supreme Court had held as under:

"112 ....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. ONGC and D.D. Sharma v. Union of India).

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."

25. In view of the above, this Court is not persuaded to accept that any interference with the impugned award is called for on the ground as urged by the AAI. The petition is, accordingly, dismissed. The pending applications are disposed of. The caveat stands discharged. The parties are left to bear their own costs.

VIBHU BAKHRU, J MARCH 20, 2018 pkv