Delhi High Court
M/S National Highways Authority ... vs M/S Itd-Sdb(Jv) on 31 October, 2018
IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 28.08.2018
Judgment pronounced on: 31.10.2018
+ O.M.P. 622/2014
M/S NATIONAL HIGHWAYS AUTHORITY OF INDIA ..... Petitioner
Through: Ms. Gunjan Sinha Jain with Ms.
Soumya Priyadarshnee, Advs.
versus
M/S ITD-SDB(JV) ..... Respondent
Through: Ms. Kiran Suri, Senior Advocate with
Ms. Anusuya Salwan, Ms. Aishwarya
Kumar and Ms. Nikita Salwan, Advs.
CORAM:
HON'BLE MR. JUSTICE RAJIV SHAKDHER
RAJIV SHAKDHER, J.
1. This is a petition filed under Section 34 of the Arbitration and
Conciliation Act, 1996 (in short "1996 Act"). Via this petition, challenge is
laid to the award dated 28.01.2014, passed by the Arbitral Tribunal
comprising technical Members. The petitioner i.e. National Highways
Authority of India (hereafter referred to as "NHAI") was the claimant before
the Arbitral Tribunal.
2. The record shows that prior to the disputes being referred to the
Arbitral Tribunal, the respondent (hereafter referred to as "Contractor") had
in accordance with Clause 67 the Conditions of Particular Application (in
short "COPA") appended to the Contract Agreement dated 07.02.2001, (in
short "C.A.") entered into between the parties herein, referred its claim to
the Dispute Review Board ("DRB"). The claims of the Contractor upon
which the DRB gave its recommendations were as follows: -
"Dispute no.1 - Refund of liquidated damages wrongfully
recovered in respect of Section-1.
Dispute no.2 - Payment for initial pile load test on pile
foundations.
Dispute no.3 - Payment of balance 25% amount of
certified amount wrongly withheld by the
Employer of IPC-73.
3. The record shows that the DRB unanimously ruled in favour of the
Contractor qua the disputes referred to it. It may, however, be relevant to
note that two opinions were given by DRB which comprised three
Members. One opinion comprised the majority recommendation while
other opinion which concurred with the opinions of the majority set forth its
separate reasons. These recommendations were made on 05.10.2010. Since
NHAI was aggrieved by the recommendations made by the DRB, it issued a
notice of dissatisfaction and expressed its intention to invoke the arbitration
on 23.10.2010, in accordance with the provisions of the C.A.
4. It is in this background that once the Arbitral Tribunal was
constituted and pleadings were completed that the impugned award was
rendered.
5. As would be evident from what is indicated hereinabove, NHAI was
aggrieved on three counts: first, the recommendation made by the DRB for
refund of liquidated damages retained by it qua Section 1 of the work in
issue; second, the recommendation made by the DRB with regard to
payment of monies towards installation of 7 test piles and the initial load
test carried out on these piles by Contractor; and lastly the recommendation
made for payment of balance 25% of the certified amount against IPC 73 by
NHAI.
6. Besides this, since the Arbitral Tribunal has also granted pre-award as
well as post award interest at the rate of 12% per annum in respect of
amounts awarded under dispute No.1 and 3 and vis-à-vis the period for
which amounts were not paid in respect of dispute No.2, the same is also
challenged by NHAI. In addition thereto, since price adjustment has also
been ordered in favour of the Contractor as per paragraph 3.3.11 of the
impugned award, interest is awarded at the same rate and that is assailed as
well by NHAI.
6.1 Briefly, in paragraph 3.3.11 of the impugned award the Arbitral
Tribunal has held that price adjustment would be calculated keeping in mind
the indices prevailing on the date 28 days prior to the last day of the period
to which a particular Interim Payment Certificate(IPC) is related. Therefore,
keeping this in mind, the Arbitral Tribunal directed NHAI to rework the
price adjustment in respect of payment to be made in respect of claim
lodged by the contractor under dispute No.2.
7. Having regard to the broad contours of the challenge made by NHAI
referred to above, to my mind, the following brief facts need to be noticed: -
8. As alluded to above, the C.A. was executed between NHAI and the
Contractor on 07.02.2001. The C.A. required the Contractor to execute the
works described as follows: -
"Four Laning and Strengthening of existing two lane highway
section from 393 km to 470 km on NH-2 via Sikandara
(Construction Package II-A) in the State of U.P." (hereafter
referred to as the subject works).
8.1 The value fixed for execution of the subject works was pegged at
Rs.2,89,30,49,814/-. As indicated above, because disputes erupted between
the parties, the contractor placed its grievances before the DRB. The DRB,
with respect to the three disputes, to which reference has been made
hereinabove, gave its recommendation on 05.10.2010.
9. Since, NHAI was dissatisfied with the recommendations of the DRB,
it issued a notice to that effect and expressed its intention to invoke the
arbitration mechanism. This notice was issued on 23.10.2010.
10. It is in this background that claims were lodged before the Arbitral
Tribunal.
11. Thus, having regard to the aforesaid I would be adverting to the
claims lodged by NHAI dispute-wise: -
Dispute No.1
12. In so far as this dispute is concerned, the Contractor is aggrieved by
the fact that the Arbitral Tribunal has directed refund of a sum of
Rs.1,16,59,430/- which was recovered by it in the form of liquidated
damages.
13. The reason that NHAI retained the money was on account of its stand
that Section 1 of the subject works was not completed within the approved
extended time frame stipulated by it. The record shows that there is no
dispute that the subject works was divided into three sections for the
purposes of handing over the site after its completion. In so far as Section 1
was concerned, the distance to be covered lay between 393/0 km and 20/0
km. This section was required to be completed in 17 months with the caveat
that the site would be handed over immediately.
13.1 However, though the Scheduled Date of Completion was 22.07.2002,
NHAI had granted extension till 08.08.2003. It is NHAI‟s case that the
Contractor completed a substantial part of Section 1 only on 25.07.2007.
The Contractor though, argued to the contrary. It was the Contractor‟s
submission that a substantial portion of Section 1 was completed on
03.07.2003. In this behalf, it relied upon the Team Leader‟s letter dated
31.03.2005. Furthermore, the Contractor also relied upon the successive
IPCs issued by the Engineer appointed under the C.A. wherein it was stated
that Section 1 Equivalent was substantially completed on 03.07.2003. For
this purpose, reliance was placed on following IPCs: -
"IPC No.50 dated 21.10.2005; IPC No.51 dated 09.12.2005;
IPC No.52 dated 29.12.2005; and lastly IPC No.53 dated
07.02.2006."
14. Since an issue had been raised on behalf of NHAI, while assailing this
claim before the Tribunal that the Team Leader could not have taken into
account Sectional Milestones and converted that into equivalent road length,
reliance was placed by the Contractor on a policy decision taken by the
Chairperson of NHAI and other Members at a meeting held on 11.06.2003
and also on the direction issued by the Chairperson of the NHAI on
12.04.2006, whereby, the Engineer was required to look into the recovery of
liquidated damages under Section 1. The argument raised by the Contractor
was that the Engineer was required to resolve the issue, keeping in mind, the
policy decision taken on 11.06.2003. The Arbitral Tribunal accepted the
stand taken by the Contractor and returned, inter alia, the following facts:
i) That the Team Leader vide his letter dated 31.03.2005 had
indicated that Section 1 was substantially completed on 03.07.2003,
which was in point of fact, a date prior to the date up to which time
had been extended by NHAI i.e. 08.08.2003.
ii) The Engineer, who, himself, had delegated his power to the
Team Leader vide communication dated 17.03.2003, for issuing a
Taking Over Certificate, had via IPC‟s 50 to 53, to which I have made
a reference above, indicated that no liquidated damages were
recoverable qua Section No.1.
iii) The Engineer, after issuing IPCs 50 to 53 had done a U-turn.
This U-turn was reflected in the Engineer's communication dated
11.3.2006, while forwarding IPC 54. In this communication, it was
indicated by the Engineer (contrary to the earlier position taken by the
Team Leader, which, he had backed via IPCs 50 to 53) that a stretch
of only 26.454 kilometers of Section 1 was substantially completed as
on 3.7.2003. Therefore, by this communication, the Engineer
recommended retention of liquidated damages amounting to
Rs.73,08,333/-. According to the Arbitral Tribunal though, this was
an afterthought as the Taking Over Certificate for road length
equivalent to Section 1 had been issued nearly an year ago, that is, on
31.3.2005.
iv) The Taking Over Certificate reflected that Section 1 Equivalent
of road length consisted of road measuring 35 kilometers out of
which, 27.388 kilometers comprised new carriageway, while the
balance 7.729 kilometers covered existing carriageway. The sum total
of the two though, matched the approved Equivalent length of Section
1.
v) The Resident Engineer had vide his letter dated 13.5.2005
reiterated the issuance of Substantial Completion Certificate. The
Taking Over Certificate dated 31.3.2005 and the Resident Engineer's
communication dated 13.5.2005 were endorsed to the Project
Director, NHAI, Kanpur, despite which, NHAI had raised no
objection qua these communications.
vi) The argument advanced on behalf of the Contractor that the
claim under Dispute No.1 was time-barred was repelled and the order
dated 19.9.2012 passed by it on an application filed under Section 17
of the 1996 Act qua the very same ground was reiterated.
vii) NHAI by its conduct, on many occasions, had indicated that no
liquidated damages were imposable vis-à-vis Section 1.
15. On behalf of NHAI, Ms. Gunjan Sinha submitted that the claim had
to be allowed as the learned Arbitral Tribunal had applied the principle of
Equivalent Completion of Sections qua which, there was no provision in the
C.A. It was further stated that if this principle were to be applied, then the
entire timeline would change. According to the learned counsel, the
composition of Sections could not have been unilaterally altered to suit the
convenience of the Contractor.
16. On the other hand, Ms. Suri, learned Senior Advocate, reiterated the
findings returned by the Arbitral Tribunal and highlighted the fact that since
NHAI was unable to provide land on certain stretches on Section 1 vis-à-vis
new carriageway, it took a policy decision on 11.6.2003 that if quantities
planned to be executed in a Sectional Milestone had been attained in other
Sections or parts of the projects, then liquidated damages need not be levied.
Reference, in this behalf, was made to the Taking Over Certificate dated
31.3.2005, the Resident Engineer's letter dated 13.5.2005 and Engineer's
letter dated 2.9.2003.
Reason & Analysis:
17. In my view, retention of money on account of liquidated damages
would necessarily require NHAI to show that it had suffered injury on
account of delay. As indicated above, there is no dispute between the
parties that the dates for commencement in completion were fixed for each
of the three sections, which form part of the project. Liquidated damages in
this case, were sought to be levied and thus, recovered vis-à-vis Section 1.
NHAI has not been able to demonstrate that the finding returned by the
Arbitral Tribunal that a policy decision had been taken by NHAI at a level
no less than of its Chairman along with other Members of the concerned
committee that wherever Equivalent length anywhere else in the project had
been achieved, liquidated damages could not be levied, was a finding which
had no basis. Clearly, this policy decision was taken by NHAI as it was
unable to provide land qua certain Sections and remove utilities and bring
down trees to enable the Contractor to carry on the work.
18. Furthermore, as rightly argued on behalf of the Contactor, in this
case, a directive was issued on 12.4.2006 by the Chairman in the presence
of Member (Technical) and Chief General Manager to resolve the issue of
retention of an amount towards liquidated damages. Therefore, the Taking
Over Certificate dated 31.03.2005, issued by the Team Leader who was part
of the Engineer‟s team and the Resident Engineer's letter dated 13.5.2005
cannot be faulted with, as both the communications were made in the
background of the policy decision taken by NHAI via the Chairperson in a
meeting attended by Member (Administrative), Member (Finance) and
Member (Technical), in view of the inability by NHAI, as indicated above,
to give complete right of way to the Contractor. The project, as indicated
above, required Four-Laning and Strengthening of carriageway on NH-2
which required the contractor to strengthen existing lanes and to provide for
two new lanes.
19. Having regard to the aforesaid, in my view, no fault can be found
with the reasoning or conclusion reached by the Arbitral Tribunal qua
Dispute No.1.
Dispute No.2:
20. This claim essentially pertains to demand of payments by the
Contractor with regard to the installation of 7 test piles and the initial load
test carried on them. Being additional items, which were, according to the
Contractor, not specified in the tender drawings, payment qua the same had
to be made by NHAI.
21. NHAI, however, resisted the payment in respect of the said additional
item on the ground that Bill of Quantity (BOQ), item No.5.051, included this
item as well. The contention of NHAI was that construction of test piles
and initial load tests carried out on them was governed by BOQ item
No.5.05, which, clearly provided that quoted rates would include provision
for all tests.
21.1 Furthermore, reliance was also placed by NHAI, to support this
contention, on the following clauses in the Technical Specification (TS):
Providing and Casting In place Bored RCC piles including all tests complete as per drawing and technical
Specification Clause no. 1100, 1600 & 1700.
(a) Clause 1100; Sub-clauses 1101.3; and 1105.12.
21.2 In addition thereto, reliance was also placed on Clauses 11133, 1118
and 1119. Besides this, reference was also made to TS sub-clause 114.2(xi).
22. The argument advanced was that a conjoint reading of BOQ item
No.5.05 and the TS clause referred to above, would show that initial pile
loading test was covered in the quoted rate and that the quoted rate would
include costs incurred towards labour, material, equipment and other
incidental expenses involved for conducting routine and initial pile load
tests, which would include costs for installation of piles on which tests were
carried out. It was also contended that since TS Clause 1105 referred to test
piles which were shown on the drawings or specified in the contract, it
demonstrated the fact that drawings were not only source of information as
regards test piles and initial load tests which were carried out on such piles.
The fact that the location and number of initial load tests carried out were
dependent on sub-soil strata conditions would provide the reasons as to why
1105 TEST PILES
1105.1. Test piles which are shown on the drawings or specified in the Contract or installed by the Contractor on his
own to determine the lengths, of piles to be furnished shall conform to the requirements for piling as indicated in these
specifications, if they are to be incorporated in the completed structure. Test piles that are to become a part of the
completed structure shall be installed with the same type of equipment that is proposed to be used for piling in the
actual structure. Test piles which are not to be incorporated in the completed structure shall be removed to at least 600
mm below the proposed soffit level of pile cap and the remaining hole shall be back filled with earth or other suitable
material. The piles shall be load tested in accordance with provisions laid down in this section.
1113.1. General
The bearing capacity of a single pile may be determined from test loading a pile. The load test on a concrete pile may
not be carried out earlier than 28 days from the time of casting of the pile. There shall be two categories of test on
piles, namely, initial tests and routine tests. Initial tests should be carried out on test piles which are not be
incorporated in the work. Routine tests shall be carried out as a check on working piles. The number of initial and
routine tests on piles shall be as determined by the Engineer depending upon the number of foundations, span length,
type of superstructure and uncertainties of founding strata. In any case, the initial load tests shall not be less than 2 in
number, while the routine load tests shall not be less than 2 percent of the total number of piles in the structure nor less
than 2 in number. The above stipulations hold good for both vertical as well as lateral load tests on pile foundations.
However, both initial and routine tests may be suitably increased for important structures or cases with large variation
in the sub-surface strata. The methodology of carrying out load tests and of arriving at safe load on piles shall conform
to IS: 2911 (Part IV). In case of any doubt of workmanship or load carrying capacity of working piles not subjected to
routine tests, or when ordered by the Engineer, or when provided in the contract, load tests on working piles may be
supplemented by non-destructive testing. Such tests may include "Integrity Testing" of concrete in the installed pile
andutilisation of "Pile Driving Analyser" which gives an indication of pile capacity in end bearing and side friction.
the location of initial load tests could not be indicated in the tender
drawings.
22.1 This apart, the claim was barred by time as it had not been raised
within a prescribed period of 28 days from the date of cause of action as
required under Sub-Clause 53.1 of the General Conditions of Contract
("GCC"). Furthermore, no notice of intention to claim extra payment under
this head was given by the Contractor to NHAI as required under Sub-
Clause 52.24 of the GCC. In support of this objection, NHAI adverted to the
fact that the initial pile loading test was conducted as early as in October,
2001 and the claim qua the same was raised in February, 2005. Thus,
according to NHAI, the claim was barred both under the provisions of the
Limitation Act, 1963 (in short "Limitation Act") and sub-clause 53.1 of the
GCC. Pertinently, these very objections were reiterated on behalf of NHAI
by Ms. Sinha before me.
23. On the other hand, on behalf of the Contractor, it was submitted by
Ms. Suri that the initial pile load tests were carried out in accordance with
the instructions conveyed by the Engineer. The contention advanced was
that in terms of TS Sub-Clause 1105.1, the test piles had to be shown either
in the drawings or specified in the Contract. According to the learned Senior
Counsel, the tender drawings only provided for routine load test of working
52.2 Power of Engineer to Fix Rates, G.C.C.
Provided that if the nature or amount of any varied work relative to the nature or amount of the whole of the Works or
to any part thereof, is such that, in the opinion of the Engineer, the rate or price contained in the Contract for any item
of the Works is, by reason of such varied work, rendered inappropriate or inapplicable, then, after due consultation by
the Engineer with the Employer and the Contractor, a suitable rate or price shall be agreed upon between the Engineer
and the Contractor. In the event of disagreement the Engineer shall fix such other rate or price as is in his opinion,
appropriate and shall notify the Contractoraccordingly, with a copy to the Employer. Until such time as rates or prices
are agreed or fixed, the Engineer shall determine provisional rates or prices to enable on-account payments to be
included in certificates issued in accordance-with Clause 60. Provided also that no varied work instructed to be done
by the Engineer pursuant to Clause 51 shall be valued under Sub-Clause 52.1 or under this Sub-Clause unless, within
14 days of the date of such instruction and, other than in the case of omitted work, before the commencement of the
varied work, notice shall have been given either:
(a) by the Contractor to the Engineer of his intention to claim extra payment or a varied rate or price, or
(b) by the Engineer to the Contractor of his intention to vary a rate or price.
piles and that they did not indicate initial load test piles that had to be
installed and qua which Section load tests were required to be carried out.
The contention was that BOQ Item No.5.05 had to be read with TS 1105.1
and the tender drawings. The contention advanced by Ms. Suri was that
installation of initial load test piles and their corresponding load tests
continued uptil September, 2005. The claim was submitted in February
2005, followed by updation in January, 2006 along with rate analysis, which
is something that is not contested by the Engineer or NHAI.
24. According to the learned Senior Advocate, the Engineer was
empowered to approve rate variations upto 1% of the contract price.
Furthermore, it was submitted that the failure to comply with the procedural
requirements under sub-clauses 53.15, 53.2 and 53.36 of the GCC cannot bar
either the Engineer or the Arbitral Tribunal to decide whether or not
payment had to be made qua this claim as well as it was based on
"contemporary record". In this behalf, reliance was placed on Guide to Use
FIDIC condition of contract. The other contention raised in support of this
claim on behalf of the contractor by Ms. Suri was that the C.A. permitted
Notice of Claims, 53.1, G.C.C.
Notwithstanding any other provision of the Contract, if the Contractor intends to claim any additional payment
pursuant to any Clause of these Conditions or otherwise, he shall give notice of his intention to the Engineer, with a
copy to the Employer, within 28 days after the event giving rise to the claim has first arisen.
Substantiation of Claims, 53.3, G.C.C.
Within 28 days, or such other reasonable time as may be agreed by the Engineer, of giving notice under Sub-Clause
53.1, the Contractor shall send to the Engineer an account giving detailed particulars of the amount claimed and the
grounds upon which the claim is based. Where the event giving rise to the claim has a continuing effect, such account
shall be considered to be an interim account and the Contractor shall, at such intervals as the Engineer may reasonably
require, send further interim accounts giving the accumulated amount of the claim and any further grounds upon which
it is based. In cases where interim accounts are sent to the Engineer, the Contractor shall send a final account within 28
days of the end of the effects resulting from the event. The Contractor shall, if required by the Engineer so to do, copy
to the Employer all accounts sent to the Engineer pursuant to this Sub-Clause. If the circumstances giving rise to the
claim are not continuing the Contractor has the Obligation, but also the benefit, of submitting his claim to the Engineer
for agreement or discussion while the event is still sufficiently recent for Site personnel to have the facts at their
fingertips and the records readily available. If the circumstances are continuing the Engineer will inspect the records at
reasonable intervals and should raise any points with which he disagrees or on which he wishes to have further
information when he inspects the records.
raising of claims even at the stage of submission of draft final statement. In
this behalf, reference was made to sub-clause 60.11 and 60.14 of the GCC.
Reasons & Analysis:
25. Under this claim, the contractor had sought payment of a sum of
Rs.45,37,847. The claim, as indicated above, involved payments for
installation of seven test piles and conducting initial load test on them. The
Arbitral Tribunal, however, noted that the sum of Rs.45,37,847/- included a
sum of RS.11,95,944/- towards price adjustment. The amount towards price
adjustment had been calculated, according to the learned Arbitral Tribunal,
by taking into account the price indices as on 28 days prior to taking over of
the subject works, that is, as on 25.7.2007. As per the reasoning employed
by the Arbitral Tribunal the methodology adopted by the Contactor on this
count was not correct. The Arbitral Tribunal was of the view that the
Contractor should have taken into account the price indices, which were
relevant when the work was carried out and not when the subject works
were taken over. Therefore, it concluded that since test piles were
completed on different dates between October, 2001 and September, 2005,
the price adjustment component had to be reworked.
26. On merits, the Arbitral Tribunal returned, inter alia, with the
following findings of fact: (i) that the tender drawings did not specify initial
pile load test; (ii) the tender drawings only specified the routine tests; and
(iii) that tenders had been invited without carrying out sub-soil
investigations.
26.1 In other words, because sub-soil investigations were not carried out,
details with regard to the initial load tests were not provided.
27. In view of the above, the Arbitral Tribunal concluded that it was
illogical on the part of NHAI to contend that the Contractor ought to have
included in its bid costs of an item, the details of which were not known to it
prior to the bid being preferred.
28. Having regard to the findings returned by the Arbitral Tribunal and
the rationale, I am of the view that the conclusions reached on this score are
unimpeachable. The failure on the part of NHAI to carry out sub-soil
investigations prior to floating of tender cannot lead to a situation that the
Contractor is denied moneys expended by it on installation of test piles and
carrying out load test on them at the behest of the Engineer.
29. Thus, the contention advanced on behalf of NHAI to the contrary
cannot be accepted.
30. As regards submissions advanced on behalf of NHAI that the claim
under this head was barred in view of failure to comply with the provisions
of sub-clauses 53.1, 53.2 and 53.3 of the GCC, I am inclined to accept the
interpretation put by the Arbitral Tribunal on sub-clause 53.47 of the GCC,
which is that the preceding sub-clauses are procedural in nature and that
they do not emasculate the right of a contractor to lodge a claim; the only
caveat being that the Contractor's claim could get restricted to the amounts
as quantified by either the Engineer or the Arbitral Tribunal appointed in
consonance with sub-clause 67.3. This aspect is mentioned in sub-clause
53.4, which reads as follows:
Failure to Comply, 53.4
If the Contractor fails to comply with any of the provisions of this Clause in respect of any claim which he seeks to
make, his entitlement to payment in respect thereof shall not exceed, such amount as the Engineer or any arbitrator or
arbitrators appointed pursuant to Sub- Clause 67.3 assessing the claim considers to be verified by contemporary
records (whether or not such records were brought to the Engineer's notice as required under Sub-Clauses 53.2 and
53.3).
"...53.4 If the Contractor fails to comply with any of the
provisions of this Clause in respect of any claim which he seeks
to make his entitlement to payment in respect thereof shall not
exceed such amount as the Engineer or any arbitrator or
arbitrators appointed pursuant to Sub-Clause 67.3 assessing
the claim considers to be verified by contemporary records
(whether or not such records were brought to the Engineer's
notice as required under Sub-Clauses 53.2 and 53.3)..."
(emphasis is mine)
30.1 Furthermore in the context of what is stated above, observations made
in National Highways Authority of India vs. OSE-GIL J.V., 2014 SCC
OnLine, Del 7051 being relevant are extracted hereafter:
"...3. Ms. Gupta, therefore, argues that Section 28 of the
Contract Act would have no application, in view of the fact that,
clause 53.1 of the contact obtaining between the parties only
prescribes a procedure, by which, claim for additional
payments, if any, can be triggered by the contractor (i.e., the
respondent in this case). Ms. Gupta says that clause 53.1 of the
contract does not, as held by arbitral tribunal, firstly, prescribe
a period of limitation; and secondly, a period shorter than that
prescribed under law, rendering it liable to run afoul of Section
28 of the Contract Act.
4. In the context of what Ms. Gupta has submitted it would be
necessary to extract relevant portion of not only clause 53.1,
but also, an attendant clause, i.e., clause 53.4; which was also
relied upon by the arbitral tribunal. The same read as follows:
"Clause 53.1: Notwithstanding any other provisions of the
contract, if the contractor intends to claim any additional
payment pursuant to any Clause of these Conditions or
otherwise, he shall give notice of his intention to the Engineer,
with a copy to the Employer, within 28 days after the event
giving rise to the Claim has first arisen......
.....Clause 53.4: If the Contractor fails to comply with any of
these provisions of this Clause in respect of any claim which he
seeks to make, his entitlement to payment in respect thereof
shall not exceed such amount as the Engineer or any arbitrator
or arbitrators appointed pursuant to Sub-Clause 67.3 assessing
the claim considers to be verified by contemporary records
(whether or not such records were brought to the Engineer's
notice as required under sub-clauses 53.2 and 53.3)...."
5. In my view, a plain reading of clause 53.1 would show that,
while it is a non-obstante clause, it provides that where a
contractor intends to claim additional payment, he is required
to give notice of his intention to the engineer, with a copy to the
employer (i.e., the NHAI in this case), within 28 days after the
event, giving rise to the claim, has arisen.
5.1 On the other hand, clause 53.4, provides for an anticipated
situation, which is, where a contractor fails to comply with any
provisions of the clause in issue (i.e., clause 53), in respect of
any of his claims, for which, he seeks entitlement to payment,
and thus, the manner in which it is to be assessed by the
engineer or an arbitrator, as the case may be.
5.2 Clause 53.4, therefore requires that, in such a situation, the
engineer or, the arbitrator(s) so appointed to adjudicate upon
the dispute in this behalf, shall assess the claim for additional
payment by verifying the same with reference to the
"contemporary records".
5.3 A conjoint reading of clause 53.1 and 53.4, persuades me to
accept the submission of Mr. Airi, learned counsel for the
respondent, that the provisions of clause 53.1, which required
issuance of notice before a claim can be lodged for additional
payment, is not mandatory, and that, it is only a directory
provision. Failure, to issue notice, does not envisage a situation
that the contractor, i.e., the respondent in this case, would lose
his right to agitate his claim for additional payment. If notice is
not issued, as contemplated under clause 53.1, then, the
engineer or the arbitrator(s) appointed to adjudicate upon the
claim lodged, can assess its tenability and value with reference
to contemporary record.
5.4 It is not disputed before me, by the counsel for the
petitioner, that the, claim has been verified by the arbitral
tribunal with reference to contemporary record. It is also not in
dispute that there is, today, no grievance vis-a-vis the quantum
of the claim, so ascertained by the arbitral tribunal.
6. Having regard to the above, in my opinion, the discussion on
Section 28 of the Contract Act by the arbitral tribunal was, in a
sense, made in addition, to its view on the interpretation of
clauses 53.1 and 53.4..."
(emphasis is mine)
31. Before I conclude on this aspect of the matter, I must also advert to a
contention advanced, based on the provisions of Section 2278 and 2289 of
the Indian Contract Act, 1872 (in short „Contract Act‟). Based on the said
provisions, it is argued that NHAI cannot be called upon to pay for
installation of test piles and initial load test which were not authorized and
since the two components of the claims cannot be separated, it was not
bound to recognize the claim.
31.1 Section 227 provides that the principal is not bound by the acts done
by an agent beyond the authority conferred on him. Section 228 adverts to a
situation that where an agent acts outside the scope of his authority and the
unauthorized acts cannot be separated from those which are authorized, the
principal is not bound to recognise the transaction. To my mind, both
sections have no application for the reason the Engineer, as noted above,
acted within the bounds of his authority. The value of the variation item was
within the range of the limit prescribed in Clause 2.1 (d)(ii) of the G.C.C.
Therefore, the NHAI was, to my mind, required to make payment for the
Section 227, INDIAN CONTRACT ACT, 1872 - Principal how far bound, when agent exceeds authority- When an
agent does more than he is authorized to do, and when the part of what he does, which is within his authority, can be
separated from the part which is beyond his authority, so much only of what he does as is within his authority is
binding as between him and his principal.
Section 227, INDIAN CONTRACT ACT, 1872 - Principal not bound when excess of agent‟s authority is not
separable - Where an agent does more than he is authorized to do, and what he does beyond the scope of his authority
cannot be separated from what is within it, the principal is not bound to recognize the transaction.
additional item based on the principle analogous to quantum meruit, which
was what the Arbitral Tribunal, in effect, has directed.
32. Thus, in my view, the Arbitral Tribunal has rightly awarded the said
claim in favour of the Contractor for a sum of Rs.33,41,903/- with
additional right to claim price adjustment as indicated in the award.
Dispute No.3:
33. This claim was rendered academic in view of the fact that NHAI has
admittedly released payment against the balance 25% of the certified
amount in respect of IPC 73. The record shows that the Engineer had
certified IPC 73 for an amount equivalent of Rs.12,40,97,985/- against
which, NHAI had released an amount equivalent to Rs.8,96,81,425/-. Thus,
in effect, NHAI had withheld 25% of the total sum in respect of IPC 73 -
amounting to Rs.3,44,16,560/-. The ground put forth by NHAI for
withholding the said amount was that further action had to be taken vis-à-vis
IPC 73. In other words, IPC 73 had not been finalized as the certified
amount included provisional rates for "variation items". According to
NHAI, fixation of rate for variation items had not been completed and that
its approval qua the same was still awaited.
34. The Arbitral Tribunal, inter alia, noted the provisions of sub-clause
2.1(b) of G.C.C.10 and sub-clause 2.1(d)(ii)11 contained in Appendix to bid,
which permitted the Engineer to approve a variation if it did not exceed 1%
2.1 Engineer's Duties and Authority:
(a) The Engineer shall carry out the duties specified in the Contract.
(b) The Engineer may exercise the authority specified in or necessarily to be implied from the Contract, provided,
however, that if the Engineer is required, under the terms of his appointment by the Employer, to obtain the specific
approval of the Employer before exercising any such authority, particulars of such requirements shall be set out in Part
II of these Conditions. Provided, further that any requisite approval shall be deemed to have been given by the
Employer for any such authority exercised by the Engineer.
Engineer's Authority to Issue Variations, 2.1 (d)(ii), Appendix to bid
One percent of the contract price at a time subject to a maximum of 10 (Ten) percent of the contract price in aggregate.
of the Contract Price at a time subject to a maximum of 10% of the contract
price in aggregate.
35. The Arbitral Tribunal, thus, came to a conclusion that the Engineer
was empowered to approve the variations, contrary to what had been the
stand of NHAI.
35.1 To be noted, before the Arbitral Tribunal, one other argument was
raised by NHAI, which was that excess payment of Rs.67,28,252/- had been
made to the Contractor. The Arbitral Tribunal rejected the said contention,
as there was no such claim raised before it. Pertinently, as correctly
advised, no such ground of objection has been taken in the petition filed
under Section 34 of the 1996 Act, though, there is a passing reference to this
fact in paragraph 21.2 of the body of the petition.
35.2 Importantly, this aspect was also not pressed before me by Ms. Sinha.
36. It is also relevant to note that pursuant to the decision of the DRB in
respect of this claim, which was also in favour of the Contractor, a bank
guarantee was furnished by the Contractor, which expired during the
pendency of the proceedings before the Arbitral Tribunal. The Arbitral
Tribunal noticed that the bank guarantee in the sum of Rs.3,44,16,560/-
expired on 14.1.2012.
36.1 The Arbitral Tribunal has, however, returned a finding of fact that the
dispute before the DRB with regard to this claim was raised on 19.4.2010
and that NHAI released the retained payment under this claim to the
Contractor on 15.1.2011.
36.2 Therefore, while no payment was required to be awarded by the
Arbitral Tribunal qua the said claim, what it was required to examine was as
to whether interest had to be paid or not. This aspect is discussed in the
latter paragraph of the judgment.
Interest Claim (Pre-Award): Discussion
37. The Arbitral Tribunal has awarded in respect of the claim lodged
under Dispute No.1 and 2 qua interest, sums calculated at 12% (simple) per
annum) from the date of cause of action, that is, 11.12.2007 till the date of
the award, that is, 28.1.2014.
37.1 However, as noticed above, in respect of the claim lodged under
Dispute No.3, the period for which interest, albeit, at the same rate has been
awarded commences from 19.4.2010 when the dispute was referred to the
DRB and 15.1.2011 when the payment was released by the NHAI.
38. Pertinently, despite sub-clause 60.812 of the C.A. providing that
interest is to be paid at the rate of 12% compounded monthly, the Arbitral
Tribunal has rejected the contention of the Contractor on the ground that no
demand for interest was made by the Contractor. Thus, taking into account
the provisions of sub-clause 60.8 of the C.A., Section 313 of the Interest Act,
Final Payment Certificate, 60.8: Within 28 days after receipt of the Final Statement, and the written discharge, the
Engineer shall issue to the Employer (with a copy to the Contractor) a Final Payment Certificate stating:
(a) the amount which, in the opinion of the Engineer, is finally due under the Contract or otherwise, and
(b) after giving credit to the Employer for all amounts previously paid by the Employer and for all sums to which the
Employer is entitled other than under Clause 47, the balance, if any, due from the Employer to the Contractor or from
the Contractor to the Employer as the case may be.
Section 3, Interest Act, 1978 - Power of court to allow interest
(1) In any proceedings for the recovery of any debt or damages or in any proceedings in which a claim for interest in
respect of any debt or damages already paid is made, the court may, if it thinks fit, allow interest to the person entitled
to the debt or damages or to the person making such claim, as the case may be, at a rate not exceeding the current rate
of interest, for the whole or part of the following period, that is to say,--
(a) if the proceedings relate to a debt payable by virtue of a written instrument at a certain time, then, from the date
when the debt is payable to the date of institution of the proceedings;
(b) if the proceedings do not relate to any such debt, then, from the date mentioned in this regard in a written notice
given by the person entitled or the person making the claim to the person liable that interest will be claimed, to the date
of institution of the proceedings:
1978, and Section 1431(7)(a) and (b) of the 1996 Act, the Arbitral Tribunal
has proceeded to award at simple interest at the rate of 12% per annum.
39. In my view, the approach of the Arbitral Tribunal is in accordance
with law and therefore, the same is required to be sustained. NHAI did not
portray before me that a demand for interest was made.
Provided that where the amount of the debt or damages has been repaid before the institution of the proceedings
interest shall not be allowed under this section for the period after such repayment.
(2) Where, in any such proceedings as are mentioned in sub-section (1),--
(a) judgment, order or award is given for a sum which, apart from interest on damages, exceeds four thousand rupees,
and
(b) the sum represents or includes damages in respect of personal injuries to the plaintiff or any other person, or in
respect of a person's death,
then, the power conferred by that sub-section shall be exercised so as to include in that sum interest on those damages
or on such part of them as the court considers appropriate for the whole or part of the period from the date mentioned
in the notice to the date of institution of the proceedings, unless the court is satisfied that there are special reasons why
no interest should be given in respect of those damages.
(3) Nothing in this section,--
(a) shall apply in relation to--
(i) any debt or damages upon which interest is payable as of right, by virtue of any agreement; or
(ii) any debt or damages upon which payment of interest is barred, by virtue of an express agreement;
(b) shall affect--
(i) the compensation recoverable for the dishonour of a bill of exchange, promissory note or cheque, as defined in the
Negotiable Instruments Act, 1881 (26 of 1881); or
(ii) the provisions of rule 2 of Order II of the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908);
(c) shall empower the court to award interest upon interest.
Section 31 - Form and contents of arbitral award
(1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.
(2) For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the signatures of the
majority of all the members of the arbitral tribunal shall be sufficient so long as the reason for any omitted signature is
stated.
(3) The arbitral award shall state the reasons upon which it is based, unless--
(a) the parties have agreed that no reasons are to be given, or
(b) the award is an arbitral award on agreed terms under section 30.
(4) The arbitral award shall state its date and the place of arbitration as determined in accordance with section 20 and
the award shall be deemed to have been made at that place.
(5) After the arbitral award is made, a signed copy shall be delivered to each party.
(6) The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter
with respect to which it may make a final arbitral award.
(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money,
the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable,
on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of
action arose and the date on which the award is made.
1[(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate
of two per cent. higher than the current rate of interest prevalent on the date of award, from the date of award to the
date of payment.
Explanation.-- The expression "current rate of interest" shall have the same meaning as assigned to it under clause (b)
of section 2 of the Interest Act, 1978 (14 of 1978).]
2[(8) The costs of an arbitration shall be fixed by the arbitral tribunal in accordance with section 31A.]
Future Interest (Post-Award): Discussion
40. The Arbitral Tribunal has, under this head, awarded once again,
simple interest at the rate of 12% per annum on the amounts, which include
the amounts awarded under Dispute No.1 and 2 inclusive of interest. In
other words, post award interest has been awarded on the total sum reflected
in paragraph 7.1, that is, a sum of Rs.2,90,91,620/-. Here again, in my view,
no error is found in the approach adopted by the Arbitral Tribunal.
41. Besides this, the Arbitral Tribunal has also awarded simple interest at
the rate of 12% from the date of cause of action, that is, 11.12.2007 till
28.1.2014 on the amount of price adjustment which is squarely to be worked
out, vis-à-vis, claim lodged in respect of Dispute No.2. To my mind, no
error can be found in respect of the same as well.
42. I may only indicate that in respect of Post-award interest awarded by
the Arbitral Tribunal, the only objection taken is that since it is granted on
the awarded sum, that is, sum inclusive of interest till the date of the award,
it tantamounts to awarding interest at a compounded rate.
42.1 In this regard, I may only advert to the following extract from the
judgement of the Supreme Court in Hyder Consulting (UK) Ltd. v. State of
Orissa, (2015) 2 SCC 189, which is in sync with the approach of the
Arbitral Tribunal:
"...10. In this view of the matter, it is clear that the
interest, the sum directed to be paid by the arbitral
award under clause (b) of sub-section (7) of Section 31
of the Act is inclusive of interest pendente lite.
11. At this juncture, it may be useful to refer to Section
34 CPC, also enacted by Parliament and conferring
the same power upon a court to award interest on an
award i.e. post-award interest. While enacting Section
34 CPC Parliament conferred power on a court to
order interest "on the principal sum adjudged" and
not on merely the "sum" as provided in the Arbitration
Act. The departure from the language of Section 34
CPC in Section 31(7) of the 1996 Act is significant and
shows the intention of Parliament.
12. It is settled law that where different language is
used by Parliament, it is intended to have a different
effect. In the Arbitration Act, the word "sum" has
deliberately not been qualified by using the word
"principal" before it. If it had been so used, there
would have been no scope for the contention that the
word "sum" may include "interest." In Section 31(7)
of the Act, Parliament has deliberately used the word
"sum" to refer to the aggregate of the amounts that
may be directed to be paid by the Arbitral Tribunal
and not merely the "principal" sum without interest..."
(emphasis is mine)
43. Accordingly, for the foregoing reasons, in my view, no interference is
called for with the impugned award. The captioned petition is, accordingly,
dismissed. Costs will follow the result.
RAJIV SHAKDHER
(JUDGE)
OCTOBER 31, 2018/pmc
