Delhi High Court
National Highways Authority Of ... vs M/S Ijm-Gayatri Joint Venture on 12 May, 2020
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: 26.11.2019
Pronounced on: 12 .05.2020
+ O.M.P. (COMM) 428/2017
NATIONAL HIGHWAYS AUTHORITY OF INDIA
..... Petitioner
Through: Mr. Manish K. Bishnoi, Mr.
Anurag Sarda & Mr.Umang Raj,
Advocates
versus
M/S IJM-GAYATRI JOINT VENTURE ..... Respondent
Through: Mr. Jayant Mehta, Mr. Angad
Mehta & Mr.P.D.V. Srikar,
Advocates.
CORAM:
HON'BLE MS. JUSTICE JYOTI SINGH
JUDGEMENT
1. Present petition has been filed under Section 34 of the Arbitration
& Conciliation Act, 1996 (hereinafter referred to as „Act‟) challenging
the Arbitral Award dated 09.08.2017. Claimant before the Arbitral
Tribunal was M/s. I.J.M.-Gayatri (Joint Venture) who is the Respondent
herein and is being referred to as the Respondent, hereinafter. The
Respondent before the Arbitral Tribunal, National Highways Authority of
India, the Petitioner herein would be referred to as Petitioner hereinafter.
2. Brief facts that need to be captured for adjudicating the present
petition are that the Petitioner took up the Project pertaining to widening
of 4/6 lanes and upgrading of existing 2 lane Road of NH-5 in the State of
Andhra Pradesh from Km. 291.000 to Km. 358.000 of Ongole-
Chilakaluripet-Contract Package AP-13, under the "Golden
Quadrilateral" Scheme of Government of India. Being the lowest bidder,
the Contract was awarded to the Respondent and an Agreement was
executed on 25.05.2001. Notice to proceed with the work was issued by
the Petitioner on 29.05.2001 in accordance with Clause 41.1 of Special
Conditions of Contract (SCC) stipulating the dates of Commencement
and Completion as 1.6.2001 and 31.12.2003, respectively. The time
stipulated for completion was 31 months and Defects-Liability period as
per Clause 49.1 was 12 months.
3. The Contract stipulated sectional completion of road and was
divided into Sections -"A", "B" and "C". The original date of completion
of each section was extended upto 24.03.2006, 31.12.2005 and
24.03.2006, respectively.
4. After submission of "Final Statement" by the Respondent on
issuance of the Defects Liability Certificate by the Petitioner on
21.10.2008, certain disputes arose between the parties and were referred
to a Dispute Review Board, but the Board did not give any
recommendation and the matter was referred to Arbitration.
5. The Respondent being the Claimant preferred the following claims
before the Arbitral Tribunal:
"1. Claim for refund of Extra Seigniorage charges
recovered from running bills on account of enhanced
volume of Minor Minerals considering swell/bulkage
factor
2. Claim for compensation of extra cost and expenses
incurred due to locking of securities due to prolongation
of the contract period
3. Claim for compensation of additional overhead
expenses due to prolongation of the contract period
4. Claim for compensation of loss of profit resulting from
loss of business opportunity due to prolongation of the
contract period.
5. Claim for compensation of loss sustained due to loss of
productivity of Plant & Machinery unutilized to the full
extent due to various delays and hindrances ' during the
original stipulated period of contract.
6. Claim for refund of enhanced seigniorage charges
wrongly recovered by the Acting Resident Engineer in
IPC-56 in-lieu of Final Statement, the payment of which
was already made in various lPCs up to IPC-55 in-terms
of Contract Clause 70;8 of COPA.
7. Claim for payment of interest at 18% per annum on all
the pending claims 1 to 6 from the date of cause of action
for due payment till the date of actual payment."
6. Petitioner filed its statement of Defence and finally the Arbitral
Tribunal passed an Award in favour of the Respondent, operative part of
which is as under:
Claim Description of Claim Amount claimed Amount
No. in Rs. Awarded in Rs.
1. Claim for the seigniorage charges 90,59,253/- 78,99,558/-
recovered from running bills on account of
enhanced volume of minor minerals
considering swell / bulkage factor.
2 Claim for compensation of extra cost and 2,11,63,200/- 45,27,011/-
expenses incurred due to locking of
securities due to prolongation of the
contract period.
3. Claim for compensation of additional 29,05,08,704/ 7,58,32,312/-
overhead expenses due to prolongation of
the Contract Period.
4. Claim for compensation of loss of profit 19,36,72,469/ 7,96,74,288/-
resulting from loss of business opportunity
due to prolongation of the contract period.
5. Claim for compensation of loss sustained 10,79,46,386/ 8,63,57,088/-
due to loss of productivity of plant and
machinery unutilized to the full extent due
to various delays with hindrances during
the original stipulated period of Contract.
6. Claim for refund of enhanced Seigniorage 65,46,047/- 65,46,047/-
charges wrongly recovered by the Acting
Resident Engineer in IPC-56 in lieu of
Final Statement, the payment of which was
already made in various IPCs upto IPC-55
in terms of Contract Clause 70.8 of COPA.
7. Claim for payment of interest on claim Upto 31.07.2017 At the rate
no.1 to claim no.6. Rs.59,40,03,598/ specified in
and further at contract clause
the same rate of 60.8, on awards
10% of Claim 1 and 6,
compounded from date of
monthly from submission of
01.08.2017, till Draft Final
date of payment. Statement to the
Engineer, and on
awards of Claim
2, 3, 4 & 5, from
31.01.2012, the
date of reference
for arbitration,
till date of
award. From
date of award to
actual date of
payment, at 10%
per annum
simple interest
on the all awards
of all claims
No.1 to 6.
7. Learned counsel for the Petitioner has argued with respect to all
Claims which have been allowed in favour of the Respondent. With
respect to Claim No. 1 which was for refund of Extra Seigniorage
Charges recovered from running bills of the Respondent, on account of
enhanced volume of Minor Minerals, learned counsel for the Petitioner
argued that in Road Construction Contracts, minor minerals in the form
of stones, sand, gravel, clay and other material is used. In the present
EPC (Engineering, Procurement and Civil Construction) Contract, Clause
28.2 of the General Conditions of Contract (GCC) provided that except
where otherwise stated, Contractor shall pay all tonnage and other
royalties, rent and other payment or compensation for getting the said
material. Hence, the liability to pay Seigniorage Charges to the State
Government of AP was of the Respondent under the Contract. However,
in order to facilitate collection of Seigniorage Charges, the State
Government had issued a G.O. No. 23 dated 05.03.1999 by which the
Petitioner, being the Employer, was made responsible for collecting the
charges by deducting the same from the running bills of the Respondent.
The Petitioner had no role in computing or quantifying the charges, and
was merely to deduct the same, from time to time. Upto 24th IPC (Interim
Payment Certificate), the charges were deducted on the basis of solid
content/mixed design as computed by the State Government. Vide letter
dated 26.07.2003, the State Government demanded additional seigniorage
charges computed on the quantity of minor mineral in the form of their
transportation, by applying Bulkage factor. It is argued that the Petitioner
neither had any right nor any occasion to question the demand since the
liability to pay seigniorage charges was that of the Respondent. The
finding of the Tribunal that the Petitioner unilaterally changed the
methodology of calculating the charges and that too, retrospectively, is
incorrect as the Petitioner was only a facilitator. It is also argued that if
the Respondent was aggrieved by the charges, it ought to have challenged
the same in appropriate legal proceedings by impleading the State of
Andhra Pradesh. The present claim could not have been adjudicated by
the Arbitral Tribunal in the absence of State of Andhra Pradesh, which
was not a party to the Arbitration Agreement. It is contended that the
Tribunal has erred in holding that the Petitioner could not clarify the
adoption of bulkage factor, without appreciating that the Petitioner was in
no position to defend the acts of the State Government. The amount
deducted from the bills towards Seigniorage Charges was remitted by the
Petitioner to the State Government. However, as a result of the finding by
the Tribunal, charges would now have to be borne and incurred by the
Petitioner which would be in express violation of Clause 28.2 of the
GCC. The Award is in clear conflict of the contractual provision and is
hence perverse as per the judgment of the Supreme Court in DDA v. R.S.
Sharma (2008) 13 SCC 80.
8. Learned counsel for the Petitioner also argues that the Respondent
had accepted and allowed the deduction from its running bills post IPC-
24 without any objection and protest, and recoveries were actually made.
Nothing prevented the Respondent from taking recourse to legal
proceeding against the State Government at that stage.
9. With respect to Claim No. 2 which was for compensation for loss
sustained due to locking of securities on account of prolongation of the
Contract, it is argued by learned counsel for the Petitioner that the claim
of the Respondent is based on the contention that the contract had to be
extended by nearly 27 months on account of the delay caused by the
Petitioner, which is a breach of the contract. It is submitted that a plethora
of evidence brought on record before the Tribunal, which it has failed to
even consider, showed that the delay was attributable to the Respondent,
for slow progress of the work. Tribunal has also failed to give cogent and
sufficient reasons in support of the claim. Tribunal has based its finding
merely on the fact that Extension of Time (EOT) was granted by the
Petitioner, but has not even adverted to the plethora of letters written by
the Independent Engineer clearly blaming the Respondent for delay
throughout the project. It is argued that the Independent Engineer clearly
brought out the reasons for delay by the Respondent in the form of not
arranging adequate funds, resources, not making timely payment to sub-
contractor, abandonment of work, labour strikes, non-procurement of
material etc. Attention of the Court is drawn to several documents in this
regard, brought on record, which are argued to be merely illustrative of
the delay caused by the Respondent.
10. Petitioner relies upon the judgment of Supreme Court in the case of
Associate Builders v. DDA, AIR (2015) SC 620 where the Court has held
that the Arbitral Tribunal must adopt a „judicial approach‟ which means
that it cannot act arbitrarily or in a whimsical manner. The Court has also
held that if the Tribunal fails to draw an inference which ought to have
been drawn or the inference is untenable, the Court can interfere in the
Award. Counsel also relies upon the judgment in the case of Somdutt
Builder Ltd. v. State of Kerala, (2009) 10 SCC 259 and State of West
Bengal v. Afcons Infrastructure Ltd., 2010 SCC OnLine Cal. 2608 to
argue that in the said case similar Award apportioning delay without any
supporting reason was set aside.
11. Claim No. 3 was for compensation for overhead expenses on
account of prolongation of the Contract. It is argued by the Petitioner that
claim of the Respondent was based on the contention that heavy overhead
expenses were incurred because of overstay on the construction site,
beyond the original contract period and thus, the Tribunal has awarded
Rs. 7,58,32,312/- as compensation. It is argued that the Respondent had
initially claimed an amount of Rs. 29,05,08,704/- which was revised to
Rs. 12,70,20,765/-. The initial computation was based on Hudson‟s
Formula which is an empirical formula and was without any supporting
evidence of the actual overhead expenses. The Respondent produced a
Chartered Accountant Certificate to certify the reduced amount claimed
later and the CA was also brought as a witness. The testimony of CA was
however not found credit-worthy as recorded by the Tribunal itself in
para 3.3.11. It is submitted that once the Respondent failed to prove the
actual overhead expenses, the claim merited outright rejection and the
Award was therefore clearly contrary to Section 73 of the Indian Contract
Act, 1872. The argument is that merely a finding of breach will not lead
to an award of compensation for loss till the party proves actual loss or
damage.
12. It is further argued that the quantification is even otherwise ex facie
faulty. Respondent had engaged UPSBC to do the bridge/structural work
for a lump-sum amount of Rs. 14.08 crores and thus the expenses due to
delayed work, if it all incurred could have been incurred by UPSBC only.
It is an admitted position that neither the UPSBC claimed any overhead
expenses on account of delay nor were any paid to UPSBC. The finding
is thus clearly contrary to Section 73 of the Indian Contract Act, 1872.
13. Counsel for the Petitioner relies upon the judgment in case of
Mapex Infrastructure Pvt. Ltd. v. National Highway Authority of India,
2018 SCC OnLine Del 6664, wherein it was held by this Court that a
sub-contractor‟s cost can be claimed by the principal contractor only by
furnishing proof that such a claim is made by the former and that the
latter has actually made the payment, after applying the principle of
mitigation of loss. It is submitted that this objection was raised by the
Petitioner and is recorded in para 3.2.5 by the Tribunal, but has not even
been dealt with and the claim has been allowed, which is a patent
illegality.
14. Claim No. 4 was for compensation of loss of profit resulting from
loss of business opportunities due to contract prolongation. Counsel
argues that the claim of the Respondent was based on the alleged acts of
the Petitioner due to which the Contract was extended by nearly 27
months and allegedly, the resources of the Respondent remained locked
up, depriving it of the profits. It is pointed out that it was the Respondent
who was solely responsible for the delay and the finding of the Tribunal
that delay is attributable to the Petitioner is perverse being contrary to
abundant evidence available on record. The Tribunal has failed to give
adequate reasons to support the finding. Instead of mobilizing the
resources within the stipulated period, the Respondent had sufficient
leeway to carry out the work in the extended period, thereby minimizing
the expenditure.
15. It is further argued that it is settled law that the party claiming
loss/damage needs to prove the same by leading evidence and the damage
cannot be remote but should be in contemplation of the parties.
Respondent has not proved any opportunity which came its way and was
thus lost in the prolonged period of the Contract. Merely stating that
various tenders were lost during this period is not enough. Claim for loss
of profits has to be pleaded and proved through documents and evidence.
It is also argued that the claim overlaps with the claim of loss on account
of idling of plant & machinery and both could not have been allowed by
the Tribunal. Counsel relies upon the judgment in the case of Bharat
Coking Coal Ltd. v. L.K. Ahuja (2004) 5 SCC 109, wherein it was held
that the Contractor has to prove loss of profit by producing evidence. It
was also held that the said claim could not be allowed after claims for
escalation and price of material etc., were allowed. In the case of NHAI
vs. HCC 2016 SCC OnLine Delhi 6112, this Court has held that a person
claiming loss of profit must establish that he had the opportunity to
deploy its resources in another venture and that those ventures would
have yielded profit. The Tribunal must also consider if the equipment
were owned by the contractor or were to be hired from other contracts.
Reliance is also placed on AIR v. Unibros and Others, (2002) Suppl.
Arb.LR 618 (Del.) where the Court held that for assessing loss of profit
Hudson‟s Formula cannot be straightway applied unless factors like
capacity to earn the profit etc. are proved by the contractor.
16. Claim No. 5 was for compensation of loss sustained due to loss of
productivity of plant & machinery unutilized to full extent due to delays
and hinderances in the original period. The contention of the counsel for
the Petitioner is that the entire claim of the Respondent was based on
impediments and delays caused by the Petitioner which had an adverse
cumulative effect on the plant & machinery which had been deployed and
could not be withdrawn or utilized elsewhere. This according to the
Respondent had led to losses by way of ownership charges i.e.
depreciation, insurance, storage charges, crew charges etc. Learned
counsel for the Petitioner contends that the claim was allowed without an
iota of evidence. Petitioner had objected that details of the plant &
machinery along with date of purchase and date of deployment at the site
along with copy of invoices etc. had not been proved at all. The claim
was for respondent‟s own machinery said to have been deployed and
unutilized in the original contract period. The monthly reports did not
contain any details of ownership of the machinery or details of working
hours and unutilised hours, with specific period, month-wise and
machine-wise. The whole bridge work was given on sub-contract basis
and major structures were executed by M/s UPSBC. Compensation of
loss is claimed for total quantum of work executed in the extended
period, as though the whole machinery and equipment including that of
M/s UPSBC was idle, however, the sub-contractor had not even raised
such a claim. The Petitioner had also raised objection about the inflated
nature of Claim No. 5 since the productivity losses of the equipment
claimed were more than the component of equipment in the total project
cost. Petitioner relied upon the judgment in the case of State of Orissa v.
M/s. Samantary Construction Pvt. Ltd. 2015 SCC Online 865 wherein it
was held that the Arbitrator ought to ascertain total value of machinery
before awarding the claims since such loss should not exceed the price of
the equipment. The Tribunal has brushed aside the objection by holding
that there was no record to evidence that the claimed amount exceeded
the cost of machinery. It is submitted that this finding is perverse since
Respondent had failed to produce any document to show the value of
plant & machinery and till such evidence was brought on record, no
estimation of the idling losses could have been made. This apart, none of
the 19 items of key plant & machinery are owned by the Respondent.
Also, to claim idleness or under-utilization of machinery, Respondent had
to prove that there was existence of an opportunity to deploy the
machinery for gainful employment, which was never done.
17. It is further contended that the methodology for calculation of loss
of productivity was not in terms of the contract. Productivity has to be
measured on a day to day basis and not on the total value of a particular
BOQ item. Extension of time was granted for all the three milestones so
as to not cause idleness and most of the Earth-Handling machinery could
not have been idle, since a lot of frontage of lower layers of carriageway
were available for working. The Monthly Progress Reports only contain
theoretical number of machinery, classification-wise, and not details of
specific machinery owned by the Respondent with working hours and
unutilized hours.
18. The next argument by the learned counsel for the Petitioner is with
respect to Claim No. 7 which was for payment of interest on Claim No. 1
to Claim No. 6. It is argued that the claim was for pendente lite and future
interest. The Tribunal has erroneously awarded pendente lite interest
@10%, compounded monthly, which is punitive. The Tribunal has relied
upon Sub-Clause 60.8 of COPA (Conditions of Particular Application),
which is inapplicable and is only for payment certified by the Engineer
which was not so in the present case. It is argued that even otherwise,
Section 31(7)(a) of the Act provides for pre-reference and pendente lite
interest at a reasonable rate. The Tribunal has awarded exorbitant amount
and moreover the Respondent had never claimed compound interest in
any of its Notices sent to the Petitioner. Learned counsel relies upon the
judgment in the case of NHAI v. M/s. KNR Patel (JV) KNR House in
Civil Appeal No. 3597/2017, where an identical contractual clause was
considered and the Apex Court reduced the pendente lite interest awarded
@ 10% compounded monthly to simple interest @12% per annum. It is
further pointed out that in SLP No. 16506-07/2016, between the same
parties, Supreme Court had granted leave on the issue of grant of
compound interest in terms of Clause 60.8. SLP has been admitted and in
the meantime, Petitioner has been directed to calculate pendente lite
simple interest @12% per annum.
Learned counsel also relies on the judgment of the Supreme Court in
Vedanta Limited v. Union of India and Ors. 2018 SCC OnLine Del
11253 wherein it has been held that rate of interest awarded by the
Tribunal must be compensatory and not punitive. In the case of Krishna
Bhagya Jala Nigam Ltd. v. G. Harischandra Reddy and Another (2007)
2 SCC 720 rate of interest for pendente lite and future period was reduced
to 9%.
19. Per contra, learned counsel for the Respondent at the outset
argues that the Award is a well-reasoned Award based on the documents
and the evidence placed before the Tribunal. He argues that the scope of
judicial review under Section 34 of the Act is extremely limited and it is
not open to the Court to re-appreciate the evidence led before the
Tribunal or interpret the contractual terms differently. If the view taken
by the Tribunal is a possible view, this Court cannot interfere in the
Award. Even reasonableness of reason is the preserve of the Tribunal and
this Court cannot sit in appeal over the reasons and the findings. The
grounds being urged by the Petitioner would require the Court to judge
the matter as an Appellate Court which is beyond the scope of its power
under Section 34 of the Act.
20. Learned counsel at the outset denies it was the Respondent who
was responsible for the delay in completion of the work or was not
equipped with resources to carry out the work, as required in the laid
down Schedule. It is submitted that the lapses and breaches by the
Petitioner were highlighted and communicated to the Petitioner time and
again, which is why the Engineer-in-Charge granted extension of time on
four occasions. This decision was subsequently approved by the
Committee of senior officials of the Petitioner. The events of delay
resulting in grant of EOTs, granted by the Engineer had been examined in
detail by the Tribunal. In fact, it was the Petitioner who was responsible
for the delay, both, in non-handing over the land and technical approvals,
besides delay in removal of encroachments, release of drawings and
changes in the bridge‟s layout etc. It is argued that this was fortified by
the fact that no Liquidated Damages were levied by the Petitioner, while
granting the extension of time.
21. Learned counsel for the Respondent has relied on the judgment in
the case of ONGC v. Saw Pipes Ltd. (2003) 5 SCC 70, to contend that
interference is permissible when the Award is patently illegal and shocks
the conscience of the Court. In McDermott International Inc. v. Burn
Standard Co. Ltd. and Others (2006) 11 SCC 18, Apex Court has held
that challenge to the Award is available on very limited grounds and there
must be a minimal interference since the parties have chosen to resolve
their disputes through Arbitration. The limited grounds for challenge are
now clearly spelt out in Section 34 itself, after a series of pronouncements
on the aspect. The Impugned Award is neither in violation of Public
Policy nor Interest of India, and nor violates Justice or Morality. The
Tribunal has in detail dealt with the issue of grant of extension of time. In
determining the issue of delay, Tribunal has referred to various
communications between the parties, recommendations of the Engineer
in-charge and Monthly Progress Reports.
22. On merits it is argued that, with regard to Claim No. 1, the
Tribunal has noted that deduction from IPCs 1-24 was done without
applying any Bulkage factor. Payment of Seigniorage was done under
Clause 28.2 of the Contract, without any objections and the Petitioner
was unable to explain the basis of determination of bulkage factor.
Significantly, even the Contract did not contemplate applying the said
factor. Further, Clause 14.3 of the ITB-8 provided that all royalties,
duties, taxes etc. as applicable 28 days prior to Base Date were to be
included in the contract price. On date of execution of the contract,
Bulkage factor applicable was 1 and not 1.5. Clause 70.8 of the
Agreement provided for reimbursement of additional cost incurred by
Contractor, resulting from increased cost on account of loss promulgated
after 28 days prior to Base Date. The Agreement did not provide for
Bulkage factor of 1.5 and was unilaterally applied in 2003 by the
Petitioner pursuant to a Notification issued by the A.P. Mines and
Geology Department. The contention, therefore, is that the application of
Bulkage factor is extraneous to the Agreement and in any event, this
would fall within clause 70.8 of the Agreement. Reliance is placed on the
judgment of the Supreme Court in Ssangyong Engineering and
Construction Company Limited v. National Highways Authority of
India (NHAI) (2019) SCC 131, wherein it has been held that an Award
which is based on Formulas, extraneous to the contract, is to be set aside.
23. With regard to Claim No. 2, learned counsel for Respondent argues
that the Tribunal has allowed only a part-sum against the claimed amount
and that too after assessing the evidence before it. Sum awarded is
supported by a Banker‟s Certificate on the basis of the actuals proved.
Thus, there is application of mind and the finding cannot be faulted with.
24. With respect to Claim Nos. 3 & 4, it is argued that the Tribunal has
relied on MoRTH Standard Data Book to award the claims. This was one
of the methods of computation submitted by the Respondent. The rates
prescribed in the said Data Book have been accepted by several Courts to
be reasonable. In fact, in so far as Claim No. 4 is concerned, the Tribunal
rejected application of Hudson‟s Formula to calculate the loss of profit. In
so far as Claim No. 3 is concerned, only a part of the project work was
sub-contracted to the UP-State Corporation, whereas the contract price
was much higher. In any event, it is argued that this would amount to
reappreciating evidence which is beyond the scope of Section 34 of the
Act.
25. With regard to Claim No. 5 counsel for the Respondent contends
that the said claim was limited to Ownership and Operation &
Maintenance Charges. While awarding the claim, the Tribunal relied on
invoices submitted by the Respondent and the MoRTH Standard Rates.
These issues are purely in the Domain of the Arbitrator and cannot be
interfered with in the present petition. For Claim No. 7, it is urged that the
Tribunal has awarded the contractual rate of interest for Claim No. 1 and
for the remaining claims, the interest has been awarded at @ 10%. It is no
longer res-integra that the Tribunal has a power to award interest at the
rate it deems reasonable, as long as the parties have not agreed on
anything to the contrary.
26. I have heard the learned counsels for the parties.
27. Claim No. 1 awarded in favour of the Respondent was for refund
of extra Seigniorage Charges recovered from its running bills on account
of enhanced volume of minor minerals, applying the Bulkage factor. As
per Clause 28.2 of the GCC, the Respondent was liable to pay all tonnage
and other royalties, rent, other payments, if any, for getting stone, sand,
gravel, clay etc. required for the Works. Government of A.P. amended
Rule No. 10 (1) of the A.P. Mineral Concession Rules under the Mines
and Minerals (Regulation and Development) Act, 1957, through a
Notification issued vide GO No. 331 dated 21.06.2000. The amended
provision reads as under:-
"In the mentioned schedules, the rates for Seigniorage Fee
on the Minor Mineral consumed in the work are given for
per unit, in CUM (volumetric) in Schedule-I and dead rent
is given for per unit in Hectare in Schedule-II."
The Government vide GO No. 23 dated 05.03.1999 mandated deduction
of Seigniorage Charges by PWD from the bills of the Contractor.
28. Petitioner deducted Seigniorage Charges at the rate specified in
Schedule-I of the GO for minor minerals, consumed and measured as
compact quantities in CUM of the work carried out from the first 24 IPCs
paid in first 31 months from commencement. At this stage, on the
recommendation of the Vigilance and Enforcement Officer, as per
demand notice of the Assistant Director of Mines and Geology, Petitioner
introduced application of bulkage factor on compacted quantities to work
out loose quantities consumed in the work. The Department raised
demand for the balance charges on NHAI applying the Bulkage factor,
interpreting provision of Rule 34 (1) of the Concession Rules. Petitioner
deducted the charges on loose quantities consumed in the entire work
executed, applying Bulkage factor of compacted quantities right from the
commencement of the work i.e. retrospectively. Respondent in its Final
Statement under Clause 60.11 of COPA, claimed the difference of the
charges calculated by applying bulkage factor of loose quantities and the
charges calculated on the compacted quantities.
29. The Tribunal was of the view that the arguments by the
Respondent were valid in light of GO dated 05.03.1999 which imposes
statutory duty on NHAI to deduct Seigniorage Charges as per the Act and
the GOs. It is the NHAI which had to interface with the Department to
the exclusion of the Respondent. The Tribunal negated the contention of
the Petitioner that it was duty bound to effect recovery on a demand from
the Mining Department on the ground that the letter dated 26.07.2003,
issued by the Assistant Director, Mines was not a GO but only a Demand
Notice. Before effecting recovery, Petitioner was under an obligation to
satisfy itself regarding the demand being lawful and as per the GOs and
the Act. Tribunal has observed that Petitioner could not explain how the
values of Bulkage factor were arrived at. In the Defence Statement, a
value of 1.5 was indicated but the Tribunal observed that, this was not
existing in the recommendations of the Vigilance Department and no
further document was brought to support the version.
30. The Tribunal interpreted the word „dispatched‟ used in Rule 10 (1)
to hold that if the word could be related to transportation and made
synonymous to loose quantities, then the work „consumed‟ could be
synonymous to compact quantities. In that case, dispatch quantity will not
be analogous to consumed quantities while both have to be the same, and
therefore, the interpretation of the Vigilance Department was incorrect.
Tribunal further observed that in the present case, minor minerals to be
used were to be measured at the time of consumption for charging the
Seigniorage Fee. Until the 24th IPC, fee was deducted on compacted
quantities, but after the intervention of the Vigilance Officer, it was
charged for loose quantities by multiplying compacted quantities with
bulkage factor, retrospectively. The Tribunal concluded that the
Respondent was right in the submission that there was no provision for
applying any swell/bulkage factor on compacted quantities for
Seigniorage Charges in the contract. The word „tonnage‟ used in Clause
28.2 indicates that Charges are to be paid on tonnage i.e., weight basis.
Seigniorage Fee is applicable on the solid contents, which would mean
minerals without voids, which the minor minerals are not. Tribunal was
of the view that if the volume of solid contents is to be worked out then
specific gravity and weight of the material should be known, which was
not the case here. Tribunal also went into the technical aspects of the
bulkage factor and was of the view that the Petitioner could not calculate
the bulkage factor by calculating loose quantities from the compacted as
gravel or earth do not exist loosely in the land. After a detailed analysis,
the Tribunal came to a finding that the claim for excess Seigniorage
Charges deducted by the Petitioner is not the same as it would have been
in the case of compacted and finished volume of the items of work.
Tribunal, therefore, allowed the claim for refund of the charges in favour
of the Respondent.
31. Having perused this part of the award, in my opinion, the
Respondent is right in its contention that there is no patent illegality in the
Award to this extent. The Respondent is right in its contention that the
Petitioner is calling upon the Court to reappreciate and interpret the
Clauses of the Contract to come to a different finding. What is of
significance is that the Tribunal has placed reliance, to come to a
conclusion in favour of the Respondent, not only on the provisions of the
Act and the GOs but also on the Clauses of the Agreement between the
parties. As per Clause 14.3 of the ITB, all royalties, taxes etc. as
applicable 28 days prior to the Base Date were included in the contract
price. As on date of the execution of the contract, the Bulkage factor
applicable was not 1.5. Clause 70.8 of the Agreement provided for
reimbursement of additional cost incurred by a Contractor resulting from
increased costs on account of loss promulgated after the 28 days, prior to
the base date. The Bulkage factor was admittedly applied unilaterally in
2003 pursuant to a Notification of the Mines Department. Thus, as rightly
held by the Tribunal, the bulkage factor was extraneous to the Agreement
and as rightly contended by the Respondent, squarely fell within Clause
70.8 of the Agreement.
32. Tribunal has carefully analyzed all the provisions of the Act and
the GOs and more importantly the Clauses of the Agreement. It has
rightly come to the conclusion that the bulkage factor was extraneous to
the Agreement and could not have been applied more so, retrospectively.
The Tribunal was also of the view that the G.O dated 05.03.1999 imposed
a statutory and fiduciary duty on the NHAI to deduct the Seigniorage
Charges. No Clearance Certificate was required by the Respondent from
the Mining Department and hence it was for the NHAI to interface with
the Department to the exclusion of the Contractor. The Demand Letter by
the Assistant Director, Mines, was only a demand notice and moreover,
the NHAI was not bound by directions which were against the provisions
of law. Relevant part of the Award is reads as under:-
"1.3.13 AT is of the view that the arguments put forward
by the Claimant are valid in the light of G.O. No. 23 dated
05.03.1999 which imposes statutory and fiduciary duty on
the works departments i.e. NHAI in this case to deduct
seigniorage charges as per ACT and G.Os. As no
clearance certificates from Mining Department is
required by the Claimant, so it is NHAI to interface with
the Mines and Mineral Department to the exclusion of the
Contractor. The letter dated 26.07.2003 issued by the
Assistant Director Mines is not a G.O but 'demand notice'
based on the recommendations of Vigilance and
Enforcement Officer. Therefore the Respondent
contention that he is duty bound to effect the recovery of
demand raised by Mining Department and has no other
obligation towards contractor is not correct. Before
effecting the recovery from the contractor, the Respondent
has obligation to satisfy himself regarding the correctness
of demand raised in view of Act and G.O.s under
enforcement. As the Respondent has obligations towards
contractor to deduct seigniorage charges as per law, the
Respondent cannot redirect the Claimant to approach to
some other authority for redressal on the issue.
1.3.14 The Respondent stated that they have no role in
fixing the bulkage factors but only complied with the
directions contained in the letter dated 26.07.2003 issued
as demand notice by the Assistant Director Mines and
Geology. The Respondent could not explain how the
values of bulkage factors used are arrived at. In their
defense statement they have indicated value of bulkage
factor as 1.5 but this value is not existing in
recommendations of Vigilance Department; further the
Respondent tried to explain the value during hearings
(written synopsis by NHAI) but could not explain clearly
and put up no document in support of their version.
1.3.15 "When a quarry lease is granted under these rules,
the Seigniorage Fee or Dead rent whichever is higher,
shall be charged on all Miner Minerals dispatched or
consumed from the land at the rate specified in Schedule-!
and Schedule· II as the case may be." The Vigilance and
Enforcement Officer could relate 'dispatched' word as
used in the Rule lO(i) with measurement of Miner Mineral
in the form of its transportation i.e. loose quantities. So, to
work out loose quantities, bulkage factors on compacted
quantities were introduced and for this enhanced volume,
the seigniorage charges were demanded from the
contractor through Respondent.
If the 'dispatched' word can be related to transportation
and made synonymous of loose quantities then the
'consumed' word can be made synonymous of compact
quantities. And in that case dispatched quantities will not
be analogues to consumed quantities while both have to
be same. Therefore interpretation made by the Vigilance
& Enforcement Officer seems to be incorrect. In the
instant case the Miner Minerals to be used in works are to
be measured at the time of consumption for charging
seigniorage fee. Until payment of 241h IPC, the
seigniorage fee was deducted on compacted quantities
and thereafter with the intervention of Vigilance Officer it
was charged for loose quantities calculated on
multiplying compacted quantities with bulkage factors
retrospectively .
1.3.16 The Claimant's contention that the swell/bulkage
factor applied on compacted quantities to calculate loose
quantities of Minor Mineral consumed in the work for
working out seigniorage fee by the Respondent, is against
law and provisions of contract. The Claimant rightly stated
that there is no provision for applying any swell/Bulkage
factor on compacted quantities for calculating seigniorage
charges in the contract. The Mines and Mineral Act and
also does not lay down any, procedure for applying any
bulkage factor while effecting recovery of seigniorage fee.
The word „Tonnage‟ usede in Clause 28.2 GCC indicates
that seigniorage charges are to be paid on tonnage;
meaning thereby on weight basis. The seigniorage fee is
applicable on solid contents of Minor Minerals. This is
considered opinion of the AT that the solid content means
Mineral without voids but Minor Minerals do not exist
without voids in the land or in compacted state at
consumption site. If volume of solid contents are to be
worked out then specific gravity and weight of the material
should be known. Such is not the case here. Thus, the
grounds given by the Claimant that the seigniorage
charges payable on weight basis and on solid contents of
Minor Minetals, are not convincing grounds in support of
their case.
1.3.17. The Panchayat Raj Department of Govt. of A.P. by
memo dated 26.11.1982 provided direction in respect to
measurement of quantities consumed in the work. The
Memo says "The Government therefore direct that the
departmental officers of the Panchayat Raj Engineering
Department shall recover the Seigniorage charges from
the bills of contractors for work done and measured with
reference to quantities used in the works as per theoretical
requirements at the rates prescribed by the mines and
Geology Department." The Claimant also stated that they
have accomplished an agreement with the State of A.P. on
27.02.2009 wherein G.O. Ms. No. 331 dated 21.06.2000
and G.O. Ms. No. 217 dated 29.09.2004 were referred and
clause No.104.0 of the agreement stipulated as
"Seigniorage fee shall be recovered from the bills of the
Contractor on the work done and measured with reference
to the quantities used in the works as per the theoretical
requirements at the rates prescribed by the government of
Andhra Pradesh as per Minor Mineral Concession Rules
subject to amendments". Clearly, the procedure prescribed
in the referred G.O.s. would have been followed by the
Respondent for calculating the seigniorage charges.
1.3.18. The theoretical requirements of the Miner Minerals
such as earth and gravel which are to be used in the work
as they are existing in land, is the same as the finished and
compacted quantities. There is well laid procedure for
working out theoretical requirements of materials in an
item of work as standardized in Data Book of Ministry of
Road Transport and Highways. From item No. 3.08
(Embankment), 3.10 (Sub-Grade), 3.11 (shoulder) and
3.12 (Median Filling) in Data Book clearly indicate that
1M3 Earth or Gravel is required for 1M3 of finished and
compacted item.
1.3.19 The Respondent in their written synopsis tried to
calculate a bulkage factor for item No. 3.10 (Sub-Grade)
as 1.25 taking loose thickness as 250 mm arbitrarily and
compacted thickness from the loose as 200 mm.
Calculating loose quantity from compacted is vague as the
gravel or earth is not existing in loose in the land and
theoretical requirement as per Data Book is also not for
any loose quantity. Therefore, pleading by the Respondent
is not tenable. ln case of Embankment the Respondent has
given reference of some circular of Irrigation Department
regarding Swell factor of soils (18%) and allowance for
compaction and shrinkage (12% to 12 and 1/2 %), which
has no relevance with this issue.
33. A Co-Ordinate Bench of this Court in O.M.P. 737/2012 in the case
of NHAI v. IJM Gayatri(JV), i.e., the same parties, had the occasion to
deal with the similar issue and similar contentions. Court has held that no
patent illegality could be found with the conclusion reached by the
Tribunal once it has thoroughly analyzed the relevance circulars,
Government Notifications and the Clauses of the Contract. Relevant part
of the judgment reads as under:-
"3. Claim No. 2 was for refund of extra seigniorage
charges deducted from running bills in the sum of
Rs. 30,60,070 on account of enhanced volume of
materials considering the swell/bulkage factor. It is
submitted by Mr. Chetan Sharma, learned Senior
counsel for the NHAI that under Clause 28.2 of the
General Conditions of the Contract (?GCC?), the
Respondent had to pay all tonnages and royalties, if
any, for extracting the materials required for the
work. A statutory duty was cast upon the NHAI to
deduct the seigniorage charges from the bills of the
Respondent. Further, it was made clear under
Clause 34.2 of the Special Conditions of Contract
(?SCC?) that the Respondent shall comply fully
with all existing acts, regulations and bye-laws,
notifications that may be passed by the State or the
Central Government and shall keep NHAI
indemnified. It is further submitted that AT erred in
allowing the above claims. The learned AT analyzed
G.O. No. 23 dated 5th March 1999 under which the
responsibility and obligation for proper collection of
seigniorage charges was placed on the NHAI. It was
concluded that recovery of seigniorage charges had
to be based on measurement of solid contents
(compacted) without applying any bulkage factor.
The only method available with the Mines
Department to arrive at the quantity for recovering
of seigniorage charges was ?as consumed? in the
work which in turn meant measurement in
compacted form as per ?unit? mentioned in the
BOQ. On the other hand it was found that the NHAI
unilaterally changed the methodology for
calculating seigniorage charges by applying bulkage
factor and that too retrospectively.
Consequently, the excess seigniorage charges to the
extent of Rs. 30,60,070 was liable to be reimbursed
to the Respondent. The AT concluded that
imposition of bulkage factor was unilateral and
without reference to the Respondent. It was noticed
that in other contracts the NHAI was deducting
segniorage charges without application of bulkage
factor.
4. As regards the plea of the NHAI that the
deductions were made as per
the directions of Government of Andhra Pradesh,
the AT referred to the relevant letter/clarification
dated 24th July 2000 which did not mention about
the bulkage factor but required the minerals to be
measured on the basis of the quantity undertaken
from the quarry site. Further, the ADMG was
required to initiate any action for recovery only
after satisfying himself that the findings of the
Vigilance and Enforcement Department were
correct. No such action appeared to have been
initiated.
5. Having examined the detailed and reasoned
Award in respect of Claim No. 2, this Court is
unable to find any patent illegality in the conclusion
reached by the AT. It has thoroughly analysed the
relevant circulars and notifications as well as the
applicable clauses of the contract. The decision in
respect of Claim No. 2 is, therefore, not called for
interference."
34. The decision of the Tribunal in respect of Claim No. 1, therefore,
does not call for any interference.
35. With respect to Claim No. 2, the contention of the Respondent was
that due to extension of the contract by 27 months on account of the acts
of the Petitioner, Respondent suffered losses on account of additional
expenditure for keeping the Bank Guarantees alive for additional period.
The Tribunal has extracted in para 2.1.2 of the Award, the eleven Bank
Guarantees which remained locked during the additional period as a
consequence of prolongation of contract. In para 2.1.3, the Tribunal
notes that the Bank Guarantees were issued to secure performance and/or
Retention Money. The Tribunal has analyzed each of the Bank
Guarantees with respect to the date on which it was to be released under
the original contract and the date on which it was actually released and
the extra expenditure incurred along with interest, to keep them alive.
Tribunal has also noted that the claim was supported with Banker‟s
Certificate towards commission charges and losses incurred and has
rendered a finding that the contention of the Petitioner that the contract
was extended at the request of the Respondent and hence it could not
claim a loss on account of locking of securities is ex-facie absurd. It notes
that the Respondent notified the detailed particulars of all events from
time to time in terms of Clause 44.2 of the GCC. The Engineer analyzed
the events and determined the Extension of Time, in terms of Clause 44.3
of the Agreement and that the Petitioner granted the extension of time. A
clear finding is rendered that the security BGs were renewed beyond the
stipulated date of 31.03.2005, as a consequence of delay in completion of
the Contract. Tribunal has taken note of the contentions of the Petitioner
that the Extension of Time was a gracious act and that the Respondent did
not give any notice while extending the BGs. Tribunal has rejected the
contention that grant of EOT was a gracious act on the ground that there
is no such provision in the Contract to grant EOT, out of grace. Tribunal
observed that once the EOT was granted after analyzing all pros and
cons, Respondent cannot be made to suffer for the extra expenditure.
Having rejected the contentions of the Petitioner in favour of the
Respondent, the Tribunal has been cautious to Award expenditure on
Bank Guarantees on the basis of the evidence before it. Whatever claim
of expenditure was supported by the Banker‟s Certificate, has been
allowed but where the Respondent did not substantiate the claim by a
Banker‟s Certificate, that part of the claim has been disallowed. Relevant
part of the Award reads as under:-
"2.3.4 The Claimant had provided one certificate of Bank
Commission Charges for BGs issued by IJM
Corporation, which includes BG No. LG-00012/2001
dt:15.05.2001 for a sum of Rs.l,44,66,634/-. This
certificate is for various other work contract, like APSH
8; HPPCL, Pk-1, and APSH-7 etc. This certificate is in
form of a table prepared by claimant, and there is no
certificate from the bank. The AT is of considered opinion
that the claimant is not entitled for this amount.
2.3.4 The Claimant ·provided Bankers certificates of
Commission and other charges for performance BG No.
24/77 dated 15/05/2001. The additional amount comes to
(64,48,014-36,81,602+ 15,11,252+2,49,347) Rs.
45,27,011 for which the Claimant is entitled, along with
interest."
In my opinion, this part of the award with respect to Claim No. 2
calls for no interference by this Court.
36. With respect to Claim No. 3, the Arbitrator has adopted the
methodology of quantifying the Claim based on the MoRTH Standard
Data Book for rate analysis. The Respondent had proposed three methods
for quantification out of which the Tribunal has adopted the
aforementioned methodology. The Tribunal was of the view that the
component of the overhead charges as provided in the MoRTH Data
Book was the most appropriate method to adopt in the light of the records
and information placed before the Tribunal. The Tribunal split the work
into two categories as per the MoRTH Standard Data Book viz. road
work and bridge work and was of the view that the Respondent had
rightly taken the percentage as 8% for road work and 25% for bridge
work. However, it did not agree with the calculation of the Respondent in
seeking overhead expenses on the entire cost of the project, but calculated
only on the cost of work carried out in the extended period. Taking the
cost of work as per the Final Payment Certificate (FPC), the Tribunal
arrived at a certain calculation and awarded the amount. The Tribunal
disregarded the certificate of the Chartered Accountant as well as the
deposition of the Chartered Accountant as doubts had been raised by the
Petitioner on its credibility. The Tribunal was of the view that the
Respondent‟s calculation based on Hudson‟s Formula could not be
accepted. The Tribunal has noted that the compensation could be
calculated as additional overhead during the extended period and worked
out the following methodology and calculation to arrive at the awarded
amount:-
"Cost of total bridgework as per FPC-56·= Rs.470,336,603
Cost of bridge work, done up to stipulated date of
completion as per IPC 25 = Rs.31,94,60,045
Cost of bridge work done in extended period = 470,336,603
- 319460045 = Rs.15,08, 76,558
Cost of other remaining work done in extended period =
995,928,597 -150876558 = Rs.84,50,52,039
Therefore over head for bridge work comes out to = 15,08,
76,558 x 25/100 = Rs3, 77,19,140
And for Road Work to Rs. 84,50,52,039 x 8/100 = Rs
6,76,04,163
Total Over Head Charges = Rs. 10,53,23.303
As discussed, Over Head cost is to be reduced by 10% for
one time fixed item of Overhead.
On reducing overhead charges by 10% of Rs 10,53,23.303;
comes out to be Rs. 9,47,90,973/·."
37. The Tribunal was of the opinion that 20% more work could have
been done by the Respondent during the original contract period and
accordingly reduced the overhead charges by 20%. Thus, the Tribunal
awarded Rs. 7,58,32,312/- as against the claim amount of Rs.
12,70,20,765/-. In my opinion, no patent illegality can be found in this
part of the Award. The Tribunal has adopted a methodology which in his
wisdom was apt to calculate the amount claimed. Moreover, while
calculating the amounts, the Tribunal has taken into account the amounts
as per the FPC. There is no dispute by the Petitioner on the validity or
otherwise of the FPCs which are certified by the Independent Engineer.
No interference is called for in the Award qua the Award of this Claim in
favour of the Respondent.
38. In Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC
(Civ) 204 : 2014 SCC OnLine SC 937 at page 89, the Apex Court
categorically held that the decision as to what Formula would be
applicable in a particular scenario, is the domain of the Arbitrator. It was
held:
"56. Here again, the Division Bench has interfered wrongly
with the arbitral award on several counts. It had no business to
enter into a pure question of fact to set aside the arbitrator for
having applied a formula of 20 months instead of 25 months.
Though this would inure in favour of the appellant, it is clear
that the appellant did not file any cross-objection on this score.
Also, it is extremely curious that the Division Bench found that
an adjustment would have to be made with claims awarded
under Claims 2, 3 and 4 which are entirely separate and
independent claims and have nothing to do with Claims 12 and
13. The formula then applied by the Division Bench was that it
would itself do "rough and ready justice". We are at a
complete loss to understand how this can be done by any court
under the jurisdiction exercised under Section 34 of the
Arbitration Act. As has been held above, the expression
"justice" when it comes to setting aside an award under the
public policy ground can only mean that an award shocks the
conscience of the court. It cannot possibly include what the
court thinks is unjust on the facts of a case for which it then
seeks to substitute its view for the arbitrator's view and does
what it considers to be "justice". With great respect to the
Division Bench, the whole approach to setting aside arbitral
awards is incorrect. The Division Bench has lost sight of the
fact that it is not a first appellate court and cannot interfere
with errors of fact."
39. Supreme Court in the above judgement also placed reliance on the
judgment in McDermott International Inc. v. Burn Standard Co. Ltd.,
(2006) 11 SCC 181, wherein the following observations were made:
"106. We do not intend to delve deep into the matter as it is an
accepted position that different formulae can be applied in
different circumstances and the question as to whether damages
should be computed by taking recourse to one or the other
formula, having regard to the facts and circumstances of a
particular case, would eminently fall within the domain of the
arbitrator.
107. If the learned arbitrator, therefore, applied the Emden
Formula in assessing the amount of damages, he cannot be said
to have committed an error warranting interference by this
Court.
109. Sections 55 and 73 of the Indian Contract Act do not lay
down the mode and manner as to how and in what manner the
computation of damages or compensation has to be made.
There is nothing in Indian law to show that any of the formulae
adopted in other countries is prohibited in law or the same
would be inconsistent with the law prevailing in India.
110. As computation depends on circumstances and methods to
compute damages, how the quantum thereof should be
determined is a matter which would fall for the decision of the
arbitrator. We, however, see no reason to interfere with that
part of the award in view of the fact that the aforementioned
formula evolved over the years, is accepted internationally and,
therefore, cannot be said to be wholly contrary to the
provisions of the Indian law."
40. Claim No. 4 is on account of Loss of Profit for Rs. 19,36,72,469/-
for which the Tribunal awarded Rs. 9,96,74,288/-. In my view, the
Petitioner is right in its contention that this claim is overlapping with
Claim No. 3. There is merit in the contention of the Petitioner that the
respondent is claiming to seek double benefit. While on one hand it is
argued by the Respondent that it had mobilized his resources during the
extended period and therefore, should be granted the claim under
Overhead expenses, while on the other hand it is also seeking loss of
profit on the ground that had these resource been gainfully deployed
elsewhere he could have earned profit. The Arbitrator has allowed Claim
No. 3 on account of utilization and mobilization of resources under the
heading overhead charges and therefore, to claim loss of profit on
mobilization of resources at the site can certainly not be allowed. I also
find merit in the contention of the Petitioner that it is a settled law that a
party claiming loss of profit will have to first prove the existing
opportunity, and then its attempt to seize that opportunity and finally
prove that by not availing the said opportunity, it has incurred a loss. The
loss would have to be quantified and proved. The Petitioner is right that
none of these factors have been proved by the Respondent and there are
no documents or any evidence on record in proof of loss of profit. In the
case of DDA vs. PC Sharma, FAO(OS) 143/2006, decided on
02.02.2009, a Division Bench of this Court has held that there are three
distinct heads of damages which a Contractor can claim legally; which
are claims for idle machinery/labour, escalation and loss of profits,
subject to the same being duly established where the work gets prolonged
due to the fault of the employer. But what is important is that a contractor
will be entitled to these claims only if the same are duly established. Loss
of profits is a claim in the form of damages under Section 73 of the
Indian Contract Act. In order to seek a claim under any of the three heads,
the Contractor will have to lead evidence and establish the claim. A mere
calculation without any evidence on record would not be enough for the
Arbitrator to Award these Claims. In the case of Kailash Nath Associates
vs. DDA and Anr., (2015) 4 SCC 136, the Supreme Court clearly held as
under:-
"43. On a conspectus of the above authorities, the law on
compensation for breach of contract under Section 74 can
be stated to be as follows:
1. Where a sum is named in a contract as a liquidated
amount payable by way of damages, the party complaining
of a breach can receive as reasonable compensation such
liquidated amount only if it is a genuine pre-estimate of
damages fixed by both parties and found to be such by the
court. In other cases, where a sum is named in a contract
as a liquidated amount payable by way of damages, only
reasonable compensation can be awarded not exceeding
the amount so stated. Similarly, in cases where the amount
fixed is in the nature of penalty, only reasonable
compensation can be awarded not exceeding the penalty so
stated. In both cases, the liquidated amount or penalty is
the upper limit beyond which the court cannot grant
reasonable compensation.
2. Reasonable compensation will be fixed on well-known
principles that are applicable to the law of contract, which
are to be found inter alia in Section 73 of the Contract Act.
3. Since Section 74 awards reasonable compensation for
damage or loss caused by a breach of contract, damage or
loss caused is a sine qua non for the applicability of the
section.
4. The section applies whether a person is a plaintiff or a
defendant in a suit.
5. The sum spoken of may already be paid or be payable in
future.
6. The expression "whether or not actual damage or loss is
proved to have been caused thereby" means that where it
is possible to prove actual damage or loss, such proof is
not dispensed with. It is only in cases where damage or
loss is difficult or impossible to prove that the liquidated
amount named in the contract, if a genuine pre-estimate of
damage or loss, can be awarded.
7. Section 74 will apply to cases of forfeiture of earnest
money under a contract. Where, however, forfeiture takes
place under the terms and conditions of a public
auction before agreement is reached, Section 74 would
have no application."
41. The Bombay High Court in Essar Procurement Service Ltd. vs.
Paramount Constructions, 2016 SCC Online Bom 9697 clearly held that
Sections 73 & 74 of the Contract Act require actual damage or loss to be
proved and the proof cannot be dispensed with. In the case of Ajay Singh
Vs. Suneel Darshan, 2015 SCC Online Bom 1412, a Division Bench of
the Bombay High Court relying upon the case of Maharashtra State
Electricity Board vs. Sterlite Industries (India) Ltd., 2000 SCC Online
Bom 89 and Edifice Developers and Project Engineers Ltd. v. Essar
Projects (India) Limited, 2013 SCC Online Bom 18, held that if a party
has not suffered any loss, even if the Respondent has committed a breach,
it cannot be awarded compensation under Section 73 of the Contract Act.
When the loss is in terms of money, the same would have to be proved
and only when it is shown that the party has suffered an injury or a loss
can it be awarded the claim of loss of profit.
42. A perusal of the Award shows that the Petitioner had raised an
objection that the claim for loss of profit and loss of productivity of Plant
and Machinery were overlapping but the Tribunal has not dealt with the
issue of overlapping under Claim No. 4. A perusal of the Award further
shows that the Tribunal has allowed Claim No. 4 on the basis of the
MoRTH Data Book taking the profit as 10% of the function of cost as
also the time as function of the Contractor‟s profit. It is evident no
evidence was led by the Respondent to show actual loss of profit.
Supreme Court has in the case of Murlidhar Chiramjilal vs.
Harishchandra Dwarkada AIR 1962 SC 366 clearly laid down the
principles of Award of damages under Section 73 of the Contract Act,
1872 which are as under:
"The two principles on which damages in such cases are
calculated are well settled. The first is that, as far as
possible, he who has proved a breach of a bargain is to
supply what he contracted to get is to be placed, as far as
money can do it, in as good a situation as if the Contract
had been performed; but this principles is qualified by a
second, which imposes on a plaintiff the duty of taking all
reasonable steps to mitigate the loss consequent on the
breach, and debars him from claiming any part of the
damage which is due to his neglect to take such
steps: (British Westinghouse Electric and Manufacturing
Company Limited v. Underground Electric Ry.Co. of
London (1912) AC 673. at P.689). These two principles
also follow from the law as laid down in S.73 read with the
Explanation thereof. If, therefore, the contract was to be
performed at Kanpur it was the Respondents duty to buy
the goods in Kanpur and rail them to Calcutta on the date
of the breach and if it is suffered any damages thereby
because of the rise in price on the date of the breach as
compared to the contract price, it would be entitled to be
reimbursed for the loss. Even if the Respondent did not
actually buy them in the market at Kanpur on the date of
breach it would be entitled to damages on proof of the rate
for similar canvas prevalent in Kanpur on the date of
breach, if that rate was above the contracted rate resulting
in loss to it..."
10. We, therefore, find the Respondent's contention that the
Claimant has not suffered an actual loss to the unfounded
in as much as the actual loss suffered by the Claimant in
this case is the loss of an expected profit that the Claimant
would have earned had the Respondent honoured its
obligations under the Agreement. We find that none of the
judgments relied upon by the Respondent i.e. (i) Bombay
Container Terminals Pvt. Ltd. v. Central Warehousing
Corporation [CS(OS) No.776-A of 2004], (ii) Ashok
Kumar Khanna v. Johnson & Johnson Co. [RFA (OS)
32/2011] negate the aforesaid view and do not help the
Respondent. We find that the Claimant calculated loss of
profit as difference between the contracted rate and the
spot market rate at which the Respondent fixed the same
cargoes during the period. We, therefore, conclude that the
Claimant is entitled to damages for its loss of profit.
10. We, therefore, find the Respondent's contention that the
Claimant has not suffered an actual loss to the unfounded
in as much as the actual loss suffered by the Claimant in
this case is the loss of an expected profit that the Claimant
would have earned had the Respondent honoured its
obligations under the Agreement. We find that none of the
judgments relied upon by the Respondent i.e. (i) Bombay
Container Terminals Pvt. Ltd. v. Central Warehousing
Corporation [CS(OS) No.776-A of 2004], (ii) Ashok
Kumar Khanna v. Johnson & Johnson Co. [RFA (OS)
32/2011] negate the aforesaid view and do not help the
Respondent. We find that the Claimant calculated loss of
profit as difference between the contracted rate and the
spot market rate at which the Respondent fixed the same
cargoes during the period. We, therefore, conclude that the
Claimant is entitled to damages for its loss of profit."
The Award of the Arbitrator under Claim No. 4 thus deserves to be
set aside.
43. In so far as Claim No. 5 is concerned which was for loss of
productivity of Plant and Machinery unutilized during the original period
of contract, the contention of the Respondent was that during the currency
of the contract there were impediments and delays attributable to the
Respondent. These delays caused disruptions and thus machinery could
not be withdrawn and utilized at another site. Consequently, losses were
claimed on account of reduced productivity in the nature of depreciation,
interest on capital cost of Plant & Machinery, storage charges, overheads,
insurance etc. during the original Contract Period, more particularly on
account of 19 number Key plant and equipment. The method that was
adopted by the Respondent for claiming loss was that the Respondent
had, for each item, calculated the machinery hours actually required for
each of the BOQ items for the quantities, actually measured and certified
during the original period and for the Final Completion, quantities
actually measured and certified till completion. The calculation was as
per machinery outputs certified under the MoRTH Standard Data Book.
44. Petitioner had contended that the claim was based on presumptions
and exaggerations. MOST hire charges are for preparing the estimate at
Government level and not used by Contractors. No doubt the cost of
machinery is taken into consideration but not at the hire charges adopted
by MOST. It was argued that the charges have to be proved by
documentary evidence which was not done and Monthly Progress Report
could not be the bases for evaluation. The JV did not own any of the 19
items of the Key Plant and Equipment. To claim idleness, the Respondent
had to prove that there was an opportunity for deployment at another site
which was not done. Details of purchase of the machinery with its invoice
and history was never furnished.
45. Tribunal held that the Respondent was entitled to compensation on
account of prolongation of contract on the strength of Clause 53.4 and
60.10 as well as 60.11. Since the prolongation was attributable to the
Employer, the Contractor was entitled to loss of productivity of plants
and machinery. The Tribunal also observed that the Respondent had
placed on record invoices for 19 items of the main equipment which were
purchased and deployed at site. Status of deployment of the machines was
also shown as evidence. The Petitioner‟s claim that during the
contemporary period, other contracts were being executed by the JV
simultaneously was negatived by the Tribunal, on the ground that the
Petitioner could not furnish any evidence in support of this contention.
The Tribunal also noticed that the Petitioner could not substantiate its
argument that the idle charges were not supported by any data of actual
idling hours. Finally the Tribunal allowed the claim as under:-
"The Claimant's claim is for owned plant towards
Ownership, Operation and maintenance charges i.e. (i)
Depreciation -Machine (ii) Depreciation-Tyres (iii)
Interest charges on capital cost (iv) Storage Charges (v}
Repair charges-Tyres/Track (vi) Crew charges and (vii)
Miscellaneous charges i.e. maintenance towards
periodical overhauling. Accordingly the loss of
productivity hours for each of the 19 items of Plant &
Equipment is arrived at by deducting the machinery hours
consumed for the quantities executed during the original
contract -period from the total machinery hours actually
required for total executed quantities as per BOQ. These
machinery usage hours are for the work executed during
extended period, machinery hours multiplied by the net
usage rates for ownership, operation and maintenance
excluding POL, Lubricants, overheads and Repair
charges give the loss of productivity in original period and
these losses are to be compensated. This cost worked out
by the Claimant is Rs. 10,79,46,386 Crore."
46. The Tribunal has all through rendered a finding that the default was
on the part of the Employer, which is a finding of fact and calls for no
interference. Based on this the present claim has also been allowed. The
main argument of the Petitioner before the Arbitral Tribunal was that the
Supreme Court in case of State of Orissa vs. M/s. Samantary
Construction Pvt. Ltd., 2015 SCC Online 856 has held that the claim
based on Hire Charges could not be for indefinite period and in no case
exceed the price of machinery and equipment. The Tribunal has held that
there is no record before the Tribunal to evidence that the claim amount
exceeded the cost of machines for which productivity loss was claimed.
What is of significance is that the claim was for Ownership, Operation
and Maintenance charges, as mentioned above, and therefore, the
Tribunal calculated the loss of productivity by deducting the machinery
hours consumed for quantities executed from the machinery hours
required for the total executed quantity as per BOQ and thus allowed the
claim in favour of the Respondent. In my view, there is no perversity or
patent illegality in this part of the Award. Under Section 34 of the Act,
no interference is thus called for under this claim.
47. In so far as the claim for interest is concerned, the Tribunal has
awarded interest @10% per annum compounded monthly in accordance
with sub-Clause 60.8 from the date of the Statement of Completion to the
date of the Award and from the date of the award to actual payment
@10% per annum, simple interest. In so far as claim Nos. 2 to 5 are
concerned, interest has been awarded from 31.01.2012 i.e. the date of
reference to Arbitration till the date of the Award and from the date of the
Award to actual payment @10% per annum simple interest. Sub-Clause
60.8 of COPA is extracted hereinunder: -
"In the case of Final Certificate pursuant to Sub-Clause
60.13, within 84 days after the agreed Final Statement and
written discharge have been submitted to the Engineer for
certification and in the event of failure of the Respondent to
make payment within the times stated, the Employer shal1
pay to the Contractor interest compounded monthly at the
rate{s) stated in the Appendix to Bid upon all sums unpaid
from the date upon which the same should have been paid."
48. With regard to Claim No. 7, the argument of the petitioner is that
the Tribunal has committed a patent illegality in awarding pendente lite
interest @ 10% compounded monthly which is punitive. I find merit in
the contention of the petitioner. Section 31 (7) (a) of the Act provides for
interest at a reasonable rate. In the case of NHAI vs. KNR Patel (supra)
the Supreme Court has reduced the interest granted by the Tribunal
@10% compounded monthly to simple interest @12% per annum. In the
case of Vedanta (supra), the Supreme Court has clearly laid down that
the rate of interest must only be compensatory and not punitive. In my
view, traversing of law on the grant of interest as well as in the facts of
this case, the interest awarded by the Tribunal @10% compounded
monthly is certainly punitive and exorbitant. Accordingly, the Award to
the extent it grants interest @10% per annum compounded monthly under
Clause 60.8 on Award of Claim No. 1 from the date of submission of
statement of the Engineer and on Award of Claim Nos. 2,3,4 and 5 from
31.01.2012 till the date of the Award, is set aside. The Award of interest
@10% per annum as simple interest on Claim Nos. 1 to 6 from the date
of the Award to actual payment is upheld as this Court finds no infirmity
in this part of the Award.
49. The Impugned Award to the extent it has allowed Claim No. 4 is
hereby set aside. The remaining part of the award is upheld. Respondent
is at liberty to agitate its claim with respect to the pre-reference and
pendente lite interest on Claim Nos. 1 to 6 in accordance with law.
50. Petition is partially allowed.
JYOTI SINGH, J
th
MAY 12 , 2020/ rd/yo
