Delhi High Court
Italian Thai Develpoment Public ... vs Mcm Services Ltd on 27 May, 2020
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on : 27.02.2020
Pronounced on : 27.05.2020
+ O.M.P. (COMM) 297/2017
ITALIAN THAI DEVELPOMENT PUBLIC COMPANY
LTD ..... Petitioner
Through: Mr. Narendra Hooda, Sr.
Advocate with Mr. Aditya
Mishra, Mr. Ishan J and Mr.
Hrikesh, Advocates
versus
MCM SERVICES LTD ..... Respondent
Through: Mr. S.B. Upadhyay, Sr.
Advocate with Mr. Rajesh
Chhetri, Mr. Pawan Upadhyay
and Mr. Ravi Lochan,
Advocates
CORAM:
HON'BLE MS. JUSTICE JYOTI SINGH
JUDGMENT
1. Present petition has been filed under Section 34 of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as the „Act‟) challenging
the Award dated 22.03.2017 passed by the Arbitral Tribunal in so far as it
has partially allowed the claims of the Respondent. Respondent herein was
the Claimant in the Arbitration Proceedings and the Petitioner herein was
the Respondent.
2. Brief facts leading to filing of the present petition are that the
Government of Himachal Pradesh decided to construct a Project, namely,
Koldam Hydroelectric Power Project of 800 MW in Bilaspur District,
situated about 25 km from District HQ on River Satluj and 4.5 Kms of
Dehar Power Plant. Construction of the Project was to be done by National
Thermal Power Corporation (hereinafter referred to as „NTPC‟).
3. Petitioner participated in the Tender floated by NTPC and was
appointed as a Contractor for the Project, for "main civil works Package I
Dam, Spillway and Power Intake Package". Contractual relationships
between the Petitioner and NTPC were governed by a Letter of Award
dated 12.12.2003 and the FIDIC General Conditions of Contract
(hereinafter referred to as „FIDIC Conditions‟) read with the NTPC
Conditions of Particular Application (hereinafter referred to as the
„COPA‟).
4. The works included in the Contract between the Petitioner and the
NTPC were as under:
Section Particulars
Section 2 Design and construction of u/s
Diversion Dyke and d/s
Cofferdam.
Design, Installation and
operation of water control works.
Earth and rock fill dam.
Dam Instrumentation.
Section 3 Excavation in De-silting basin
area and Approach channel up to
EL618m
Section 4 Power Intake structure.
Intake and Spillway Control
Building.
Section 5 Spillway and chute.
Complete excavation for
spillway, chute and plunge pool.
Dam Instrumentation
Section 7 Excavation in Powerhouse area
up to EL 531 m (average)
including access road.
Excavation, leveling and grading
works of switch yard area.
Section 8 Underground drainage and
grouting works in the foundation
including galleries.
Section 9 Plugging of Diversion Tunnel.
All other associated for all
sections of works.
5. The total estimated awarded value of the Contract in favour of the
Petitioner was Rs. 6,64,55,55,021/-.
6. Under Clause 4.1 of the FIDIC Conditions read with COPA,
Petitioner was permitted to sub-contract the work, awarded to it by NTPC.
Petitioner, thereafter, subcontracted the work in respect of Sections 5, 8 & 9
to the Respondent herein and issued a Letter of Award on 10.03.2004
(hereinafter referred to as „LOA‟). Value of work, so awarded was
Rs.2,32,55,61,050/- i.e. 12% less than the amount at which these Sections
of work were awarded by NTPC to the Petitioner. Under the LOA the scope
of work to be executed by the Respondent included:
Spillway: The spillway for Koldam is a gated spillway
located on the left bank of Dam. The main elements
of this structure are:
A concrete weir approximately 132m. wide,
with a crest at elevation 625.
6 gate bays, each equipped with a radial
gate 17.10m wide by 17m high (by H M
Contractor) .
A concrete closure section situated on the
left bank of the weir with a top surface at
elevation 648 , that prevents any bypassing
of the gated weir by the left bank.
A reinforced-concrete chute of total length of
approximately 420m, with width varying
from 132m at the top to 70 m at the bottom,
equipped at the bottom with a flip bucket
that forms a jet trajectory at 30⁰ angle to
the horizontal.
This structure shall respect the following operating
specification;
(i) Discharge a flow of 11,400 cu.m./sec, which
corresponds to the Standard Project Flood, with 5
gates opened and a maximum water level of EL.
641.1
(ii) Discharge a flow of 16,500 m3/s, which
corresponds to the Probable Maximum Flood, with
6 gates opened and maximum water level of El.
646The spillway piers shall each have a room
containing the radial gate control equipment
Underground The work is composed of:
Grouting and Underground construction works for
grouting and drainage galleries.
Drainage All the grouting and drainage works carried
Works out from the galleries .
Installation of monitoring equipment in the
galleries.
Diversion The two diversion tunnels will be equipped
with losing plugs to ensure a permanent
Tunnel Plugs water tightness after filling up the reservoir.
The closing of tunnel 2 are made out of
reinforced concrete as well. The plugging
shall be carried out along with the work of
bottom outlet made of two pipes allowing to
evacuate a flow of 580 Cu. M/S at full
reservoir water level. This facility will allow
to control the level of the reservoir during
the first fill up, The steel lining at the invert
for 1OOm length on the downstream of the
floodgate shall be provided to limit erosions
due to high velocity of the water full of
abrasive materials
7. Certain Provisions of the LOA which are necessary for the present
petition are as under:
i. "Clause 3.2 of the Letter of Award required that the
scope of work subcontracted to the
Respondent/Claimant be completed in accordance
with the specifications, terms and conditions
contained in the FIDIC Conditions read with the
NTPC COPA. Further, Clause 14 required the
Respondent/Claimant to ensure that the work is
completed in accordance with the Technical
Specifications prescribed by NTPC.
ii. Clause 4 provided that the subcontract was for a total
consideration of Rs. 232,55,61,050. Clause 5 further
provided that this consideration was subject to price
adjustment in accordance with the formula specified
in Clause 73 of the NTPC COPA.
iii. Clause 8 stipulated that time is of the essence of the
contract as far as the Respondent/Claimant's
obligations are concerned and required the
Respondent/Claimant to complete its works m
accordance with the timeline prescribed by the NTPC
in its Letter of Award dt. 12.12.2003. Clause 9 further
stipulated the amount of compensation to be paid by
the Respondent/Claimant in the event of delay.
iv. Clause 10 stipulated the amount of money to be
retained with the Petitioner as the
Respondent/Claimant's security deposit towards its
performance of its obligations under the Letter of
Award.
v. Clauses 11 and 21 of the Letter of Award read with
Clause 3 of the Attachment to the Letter of Award
explicated the obligation the Respondent/Claimant to
mobilize sufficient resources and employ sufficient
labour, as specified, for the completion of the work
awarded to it in accordance with the timelines
prescribed by NTPC.
vi. Clause 23 of the Letter of Award provided that
disputes arising out the contract would be resolved in
accordance with the procedure specified in Clause 67
of the FIDIC Conditions read with the NTPC COPA,
and Clause 24 conferred exclusive jurisdiction on
courts in Delhi in relation to matters arising from the
contract.
vii. Clause 2 of the Attachment to the Letter of Award
clarified that payments to the Respondent/Claimant on
a back to back basis after receipt of certifications and
payments from NTPC for the work completed by the
Respondent/Claimant, and clause 6 of the Attachment
to the Letter of Award made the conditions of work in
the FIDIC Conditions and NTPC COPA applicable to
the contract on a back to back basis, except insofar as
any inconsistency exists between the two, in which
case the Letter of Award would prevail.
viii. Clause 7 of the Attachment to the Letter of Award
empowered the Petitioner to terminate the contract or
a part thereof in the event of the
Respondent/Claimant‟s nonperformance."
8. According to the Petitioner, Respondent failed to fulfill its
obligations under the LOA from the very beginning, as it failed to mobilize
machinery as required and its work output suffered from severe delays,
besides failing to meet the quality requirement specified by the NTPC. As
per the Petitioner, Respondent abandoned the work, after failing to adhere
with the timelines for completion of work and on account of this disputes
began to arise between the parties.
9. On 27.01.2009, Respondent invoked Clause 67 of the FIDIC
Conditions, informing the Engineer of the disputes and seeking adjudication
of the following claims:
S.No. Claim Amount Claimed
1. Idling of MCM‟s resources Rs. 12,65,77,806.
2. Release of unjustified recoveries Rs. 78,71,126.
and pending payments.
3. Reimbursement of payment Rs. 37,79,729.
made to seconded staff
4. Additional Work in certain Rs. 65,05,419.
inclined gallaries
5. Additional amount paid to Rs. 42,15,251.
workmen
6. Release of security deposit Rs. 4,91,92,145.
amount
7. Balance payment of RA Bills Matter of
and Escalation Bills calculation,
therefore not
ascertained
8. Interest 1% per month,
from the date on
which payment
was due till the
date of actual
payment.
10. On 17.04.2009, the Engineer communicated its decision to the parties
finding all the claims preferred by the Respondent to be untenable, being
against the explicit Provisions of the Contract and lacking sufficient details
as well as evidence of the alleged loss. The Engineer, in fact, concluded that
it was the Petitioner who had incurred losses and damages on account of
breach and abandonment by the Respondent.
11. Subsequent, thereto, Respondent invoked Arbitration and filed its
Statement of Claim on 27.10.2009 before the Tribunal, raising the
following claims against the Petitioner:
S. Claim Amount Amount
No. Claimed Awarded
1. Idling Charges Rs.12,65,77,806 Rs.1,34,67,162
2. Refund of deductions Rs.78,71,126 Rs.32,42,705
and release of
pending payments
3. Reimbursement of Rs.12,55,921 Rs.5,08,904
service charges and
service tax paid on
salaries paid for
seconded labour
4. Additional Work in Rs.65,05,419 Rs.65,05,419
inclined galleries
5. Reimbursement for Rs.42,15,251 Nil
additional payment
made to workmen
6. Release of security Rs.4,97,10,698 Rs.4,48,95,263
deposit
7. Balance payment for Rs.14,67,73,025 Rs.1,19,96,310
work done along
with escalation
8. Payment of agency Rs.28,24,36,088 Nil
fee
9. Interest 18% per annum 1% over RBI
from 16.02.2008 lending rate
from 20.04.2009
12. On 10.12.2009, Petitioner filed its Statement of Defence rebutting the
claims raised by the Respondent, being against the Contractual provisions
and also highlighting that there was no evidence or proof of alleged loss
suffered by the Respondent under any of the claims raised by it. Respondent
filed its rejoinder, thereto, and added new claims as follows:
S.No. Claim Amount Claimed
1. Agency fee ( post award) Rs. 12,96,00,000
2. Idling Charges of staff and Rs 16,79,25,216
machinery till December 2009
3. Costs for demobilization of Rs. 50,00,000
machinery
13. On 22.04.2010, Petitioner also filed its counterclaims, seeking an
Award of Rs. 18,49,00,730/- on account of additional costs incurred by the
Petitioner in completing the balance work sub-contracted to the
Respondent. These counterclaims were, however, suspended, as recorded
by the Tribunal in its order dated 03.05.2014. Subsequently, Respondent
sought to amend its claims and filed an amended Statement of Claim
whereby it raised the following additional claims:
S. No. Claim Amount Claimed Amount
Awarded
10. Agency fee Rs. 12,96,00,000 Nil
11. Idling charges Rs. 27,87,94,049 Nil
of staff and
machinery on
account of
stoppage of
services
12. Costs for Rs. 50,00,000 Nil
demobilization
of machinery
13. Costs for Rs. 99,35,229 Nil
restoration of
machinery
14. Petitioner filed its amended Statement of Defence and the
Respondent filed amended rejoinder. Petitioner also filed a response to an
application filed by the Respondent for interrogatories and clarified the
process by which the Respondent‟s bills were cleared, upon receipt of
certification and payments from NTPC and also clarified that the difference,
if any, in the amounts billed by the Respondent and paid to it, was on
account of differences in certification and payments claimed by the
Respondent on one hand and the NTPC on the other. Both parties led
evidence and after hearing the parties, learned Tribunal passed the
impugned Award, partially allowing the claims of the Respondent as under:
Claim Description Awarded Amount in
no. Rs
1 Idling charges 1,34,67,162.88
2(a) Rent for Shaper Machine 12,501.00
2(c) Refund as to construction of 1,59,946.50
Approach Road to Gallery No.12
2(d) Refund as to construction of 14,50,000.00
Road No.5A
2(e) Refund of medical & Dispensary 6,82,825.88
Charges
2(f) Refund of QC Lab Charges 7,00,676.85
3 Reimbursement of Service 5,08,904.71
Charges of Seconded Staff
supplied
4 Revised Rates of Excavation in 65,05,419.20
Inclined Galleries No.3,5,7,9,10
&H. Gallery No.6
6 Refund of Retention money 4,48,95,263.00
7 Balance Payment & escalation 1,19,96,310.23
TOTAL 8,03,79,010.25
9 Interest
Costs
15. The principal contention of learned Senior Counsel, Mr. Hooda,
touching upon objections, with respect to most of the claims challenged
herein is that the claims have been awarded by the Tribunal without
considering and identifying the existence and breach of any contractual
obligations by the Petitioner and dehors the fact that Respondent was
unable to either plead or prove loss/damage as required under Section 73 of
the Indian Contract Act, 1872. Arguments have also been made separately
with respect to each of the claims awarded in favour of the Respondent.
CASE OF THE PETITIONER
Claim No. 1: Award of idling charges for non-utilization of
equipments/resources deployed by the Respondent due to delays caused
by extraneous factors.
16. Mr. Hooda argued that the Tribunal failed to appreciate that the claim
was on account of factors such as strikes/protests by locals, delay in
possession of Spillway/dumping area, etc. and none of these factors could
be attributed to the Petitioner and nor do they constitute Force Majeure
Events. The Tribunal did not consider or identify the breach of any
contractual obligations by the Petitioner and the Award of Claim was
against the Provisions of Section 73 of the Indian Contract Act as no
loss/damage was established by the Respondent. The Tribunal erroneously
awarded the Claim on consideration of Clauses 12.1, 42.2 and 44 of the
FIDIC Conditions read with NTPC COPA, even though these were not
pleaded by the Respondent and moreover, these clauses placed obligations
on NTPC qua the Petitioner and not on the Petitioner qua the Respondent
under the contract. Even otherwise, the remedy contemplated by these
Clauses could at best lead to a claim for grant of extension of time and price
adjustment, in case of delays caused by specifying conditions, but which
were neither claimed by the Respondent nor awarded by the Tribunal.
Tribunal failed to appreciate that the work had been further sub-contracted
by the Respondent and it neither pleaded nor proved that it had paid any
compensation to its sub-contractors on account of idling and thus no loss
could be claimed by the Respondent. It was argued that even if the
Petitioner was to be held responsible, compensation would be limited to
escalation as per Clause 73 of the Contract, which was already granted to
the Respondent. The Tribunal rightly held that in the absence of any
evidence with respect to the alleged loss suffered, Contractor is not entitled
to idling charges, yet ignoring the said finding, Tribunal allowed the idling
charges, on an imaginary CPWD Formula.
17. Learned senior counsel for the Petitioner argued that the Tribunal
completely ignored the cross examination, in which the witness of the
Respondent failed to give any evidence on any loss suffered due to idling.
In fact, the Tribunal itself reproduced the relevant cross examination, more
particularly, question Nos. 19 and 20, which are as under:
"Q19. I put it to you that MCM executed the excavation works
awarded to it through its various sub-·contractors and
therefore did not directly suffer any loss on idling of resources
for which MCM has raised Claim No. 1. What do you have to
say?
Ans: It is incorrect, because we ourselves also worked besides
the sub-contractors and have borne the expenses of
equipment, machinery and manpower of sub-contractors as
well as ourselves.
Tribunal's question: Is there anything to show whether the
MCM has borne the expenses of sub-contractors?
Ans: I am not aware of it.
Q20. How much of the works that led to the claim No. 1 on
idling of resources were carried out by sub-contractors of
MCM?
Ans: I cannot say until I check the records."
Claim No. 4: Payment for additional work in certain inclined galleries
due to delays caused by extraneous factors: - Tribunal awarded Rs.
65,05,419.20.
18. Learned senior counsel contends that the findings of the Tribunal in
para 250 of the Award are perverse and beyond the Provisions of the
Contract. Tribunal overlooked that Respondent had abandoned the work
and Petitioner had to deploy another sub-contractor, at higher rates, to
complete the work. Cross examination of the Respondent‟s witness
confirms abandonment of work on the part of the Respondent, more
particularly, reply to question Nos. 27 and 28. It is further argued that the
claim was based on factors such as strikes/protests by locals etc. and none
of these factors could be attributed to the Petitioner and would at the highest
constitute Force Majeure Events. The Award of Claim is also against the
Provisions of Section 73 of the Indian Contract Act as the Tribunal has
neither considered nor identified breach of any contractual obligations on
the part of the Petitioner. Tribunal further erred in awarding the claim using
the rates offered by the Petitioner to other sub-contractors who had
completed the balance work after the Respondent had abandoned the same.
This was against the scheme of payment under the Contract. Tribunal
further ignored the fact that under the Contract, the Respondent, at the
highest, could be entitled to an extension of time and price escalation under
Clauses 12.2, 42.2, 44 and 73, which was not even the pleaded case of the
Respondent. Tribunal failed to appreciate that reliance of the Respondent on
Section 54 of the Indian Contract Act was misplaced in as much as it had
pleaded a case of reciprocal obligations, without identifying any obligations
imposed or breached by the Petitioner under the Contract.
Claim No. 6: Release of security deposit in the sum of Rs. 4,48,95,263/-
19. Learned senior counsel for the Petitioner contends that the findings of
the Tribunal under this Claim are perverse and against the contractual
provisions. Tribunal has erroneously concluded that Petitioner was not
entitled to forfeit the security deposit solely on the basis that the Petitioner
withdrew its counterclaims against the Respondent and this is in
contravention of the law on adjustments and equitable set off. The Claim
was allowed in the teeth of Clause 10 of the Letter of Attachment, under
which Respondent was not entitled to refund of the security deposit, until
the Engineer issued a „Certificate of Satisfaction‟ certifying complete
discharge of the work sub-contracted under the Letter of Award.
Respondent had abandoned the work during the pendency of the Letter of
Award, and was thus in breach of its obligations. Tribunal erroneously
awarded a refund of security deposit to the extent of Rs. 4,48,95,263/- even
though the record clearly indicated that the amount of security deposit lying
with the Petitioner admittedly stood reduced to Rs.1,88,29,249/- on account
of adjustments made towards the dues payable to Petitioner, to the extent of
Rs. 3,08,81,448. Tribunal also neglected to consider that Petitioner suffered
additional costs to the extent of Rs. 18,49,00,730/- on account of the
abandonment of work by the Respondent.
Claim No. 7: Award of balance payments along with price escalation
20. Learned senior counsel for the Petitioner argues that the said Claim
has been allowed by the Tribunal even though the same was beyond its
jurisdiction having not been raised before the Engineer in accordance with
clause 67 of FIDIC conditions read with COPA. The Award is a result of
total non-application of mind. The Tribunal in its finding under para 262 of
the Award has recorded that the Claim was for Rs. 1,82,79,471/-, based on
the Statement of Claim. Under para 274, the Tribunal records the
Petitioner‟s version, based on the documents of the Respondent, being
Annexures R-1 to R-6, that there was no outstanding payment and the
retention has reduced, considering the adjustment of the unpaid advance. In
para 275, the Tribunal, based on the rejoinder of the Respondent, records its
revised Claim being Rs. 13,44,08,620/- and then in paras 276 and 278 based
on pure guess work, comes to an assumption of total value of balance work
being Rs. 5,68,91,573/-. Thereafter considering the full Award value of
Claim No. 6, Tribunal finally arrived at a figure of Rs. 1,19,96,310/-. The
Tribunal also ignores that the supporting documents under this Claim were
fudged documents and there was duplication of claims.
21. Respondent thereafter submitted Annexure C-68 and a Tabular
submission, reflecting the Claim amount to be Rs. 63,30,74,904/-.
Respondent in the said Annexure showed net claim after only deducting the
duplication made under Claim Nos.2 and 4 but did not show any deduction
of Rs.25,545,555/- towards other claims settled by Petitioner as brought out
in Annexure C-63. The Tribunal considered only two entries of the
Respondent in Annexure R-3 i.e. RA-51 & 52 and ignored the total RA
Bills 1 to 50. This part of the Award being totally illusive and based on
guess work deserves to be set aside.
Claim No. 9: Award of Interest.
22. Mr. Hooda learned senior counsel submits that the Tribunal has
awarded simple interest to the Respondent at the rate of 1% over and above
the RBI prime lending rate, on the date of the Award, on the awarded
claims, excluding cost, from 20.04.2009 and this is completely contrary to
the terms of the Contract between the parties, wherein payment of interest
was explicitly prohibited, in case of any dues outstanding or in case of
delayed payments. Attention of the Court is drawn to Clause 78 of the
Contract which reads as under:
CONDITIONS OF PARTICULAR APPLICATION
78 No claim for interest or damage will be entertained or be
payable by the Employer in respect of any amount or
balances which may be lying with the Employer owing to any
dispute, difference or misunderstanding between the parties
or in respect of any delay or omission on the part of the
Engineer in making intermediate or final payments or in any
other respect what-so-ever.
23. Learned senior counsel relied on the judgment of the Supreme Court
in case of State of U.P v. Harish Chandra & Co., (1999) SCC 163, where
the Supreme Court dealt with an identical Clause and held as under:
"9. ...The said clause reads as under:
"1.9 No claim for delayed payment due to
dispute etc.--No claim for interest or damages
will be entertained by the Government with
respect to any moneys or balances which may
be lying with the Government owing to any
dispute, difference; or misunderstanding
between the Engineer-in-Charge in marking
periodical or final payments or in any other
respect whatsoever."
10. A mere look at the clause shows that the claim for interest by
way of damages was not to be entertained against the
Government with respect to only a specified type of amount,
namely, any moneys or balances which may be lying with the
Government owing to any dispute, difference between the
Engineer-in-Charge and the contractor; or misunderstanding
between the Engineer-in-Charge and the contractor in marking
periodical or final payments or in any other respect whatsoever.
The words "or in any other respect whatsoever" also referred to
the dispute pertaining to the moneys or balances which may be
lying with the Government pursuant to the agreement meaning
thereby security deposit or retention money or any other amount
which might have been with the Government and refund of
which might have been withheld by the Government. The claim
for damages or claim for payment for the work done and which
was not paid for would not obviously cover any money which
may be said to be lying with the Government. Consequently, on
the express language of this clause, there is no prohibition
which could be culled out against the respondent-contractor that
he could not raise the claim for interest by way of damages
before the arbitrator on the relevant items placed for
adjudication. In fact, similar contention has been repelled by the
aforesaid decision of the three-Judge Bench of this Court in
paras 24 and 25 of the Report. It has been clearly observed in
para 25 of the Report that under clause 4 which was pressed
into service, no interest was payable on the amount withheld.
The claim which was made in that case by Durga Parshad
before the arbitrator was for the non-payment of the full amount
as per final bill submitted by him and the interest so awarded on
the said amount was clearly not covered by clause 4 of the
contract. Similar is the fact situation in the present case and the
wording of the clause in question is also of an identical nature.
Therefore, the contention of learned Senior Counsel for the
appellant-State that clause 1.9 barred the consideration of such
a claim for interest cannot be sustained. The High Court,
therefore, rightly came to the conclusion that that clause was not
a bar to such a claim. Further contention of learned Senior
Counsel for the appellant that the claims regarding cutting of
hard rock were wrongly granted, cannot be made the subject-
matter of an objection under Section 30 of the Arbitration Act
which could have been agitated for getting any reduction of the
amount as awarded by the arbitrator. It was a question purely
on the merits of the award which could not be agitated in
objections as they were not in the nature of an appeal against
the award before the court below. Civil Appeal No. 7643 of 1995
is disposed of accordingly."
It is argued that Clause 78 of the Contract clearly bars payment of
interest on any amount which remains lying with the employer on account
of any dispute between the parties. Except damages, all sums of money
payable under the Contract would be presumed to be lying with the
employer and thus barred under Section 78.
24. Per contra learned Senior Counsel for the Respondent has at the
outset argued that none of the objections raised against the Award fall
within the scope of Section 34 of the Act and the Court cannot be called
upon to interfere with the findings of fact recorded by the Tribunal or re-
appreciate the evidence as an Appellate Court. The view taken by the
Tribunal is a plausible view based on documents and evidence and calls for
no interference.
Case of the Respondent
25. As regards Claim No. 1, it is argued that Respondent had claimed a
sum of Rs. 12,65,77,806/- but the Tribunal after detailed analysis of
material on record and taking cognizance of the admitted fact that idling
had taken place, applied the CPWD Formula and awarded only Rs.
1,34,67,162.88/-. Petitioner‟s several letters on record particularly from
pages 835 onwards, clearly indicated that there was idling of the equipment
of the Respondent. In these letters, the Petitioner had itself, while stating the
reasons for idling, demanded consequential reliefs from the principle
employer, NTPC. Reasons for idling are also admitted, as evident from the
documents on record, being, delay in handing over the site, delay in
removal of physical obstruction, delay in site for dumping and stock, pile,
area, etc. Idling charges for non or under utilization of equipment is in the
realm of compensation or damages and covered under Section 54 of the
Contract Act, under which the claim was made and not under Clauses 12.2
and 42 of the Contract, which the Petitioner had with NTPC, as alleged.
Though there were 91 idling days, the Tribunal only considered 51 and
allowed the claim. In the absence of any contractual Formula, the Tribunal
rightly relied on the CPWD norms which are standard norms in all
Construction Contracts. Reliance is placed on the judgment in the case of
NTPC v. Patel Engineering, 2015 SCC OnLine Del 7512 and Krishna
Bhagya Jala Nigam Ltd. v. G. Harischandra Reddy & Anr,. (2007) 2 SCC
720.
26. Claim No. 4 pertains to revision of rates of excavation in inclined
galleries and horizontal galleries. It was argued that the work was delayed
due to site constraints where the work had to start from top end instead of
bottom, as per planned methodology, which resulted in higher expenses.
Delay in handing over the drawings and access roads by Respondents
caused the delay. Respondent had completed more than 90% of the gallery
work. Petitioner got the balance work executed through another agency at a
higher rate and the Respondent only requested for the same rate to be paid
to it.
27. Tribunal observed that Petitioner did not dispute the additional costs
worked out by the Respondent nor denied payment of higher rates to the
second agency. Clause 5 of the LOA provided that the price specified in
para 4.0 was subject to price escalation under Clause 73 of COPA, which
the Petitioner had with NTPC. The rates claimed by the Respondent were at
par with M/s Himalaya Construction for similar excavation work and,
therefore, the Tribunal rightly allowed the claim.
28. Learned Senior Counsel argued that under Claim No. 6, Respondent
had claimed the amount withheld by the Petitioner, as Security Deposit.
Clause 10 of the LOA provided for retention of 5% of RA Bills as security
deposit which was to be returned back to the Respondent. The objection of
the Petitioner was that Respondent had abandoned the work and, therefore,
claimed Rs. 3.10 Crore as negative balance and deducted Rs. 4,48,95,263/-
from the Respondent‟s RA bills for the period 2004-2008. Subsequently,
however, the Petitioner withdrew its counterclaim of Rs. 18,49,00,730/-,
which it had earlier submitted on account of alleged breach by the
Respondent due to abandoning the work. Since the Petitioner itself
withdrew the counterclaim, the Tribunal rightly held that the retention
amount was in fact for the work executed and was Respondent‟s own
money. It thus directed refund of the amount. It was also argued that under
Clauses 6 & 7 of the „Appendix‟ to the LOA dated 10.03.2004, Petitioner
was entitled to terminate part or whole of the Contract in case of non-
performance by the Respondent, but no such action was taken.
29. With respect to Claim No. 7, it is argued that Respondent had
claimed Rs. 18,22,79,471/- but the Tribunal awarded only Rs. 1,19,96,310/-
after detailed examination of the material on record. Petitioner has not
disputed the computation nor sought any clarification assuming there was
any factual mistake, under Section 33 of the Act. The amount claimed is
against the work done along with escalation and is based on the evidence
led before the Tribunal. It is not open to this Court under Section 34 of the
Act to re-appreciate the evidence. Relying on the judgment in the case of
MP Power Generation vs. Ansaldo Energia, (2018) 16 SCC 661, it is
reiterated that under Section 34 of the Act, Court does not sit as a Court of
Appeal and a possible view by the Arbitrator has to necessarily pass muster
as the Arbitrator is the sole judge of quantity and quality of evidence.
30. Defending the Award under Claim No. 9, which relates to grant of
Interest, learned Senior Counsel for the Respondent argues that the
Petitioner‟s reliance on Clauses 77 and 78 of the Agreement entered into
between NTPC and ITDC, to contend that these clauses prohibit the grant
of interest, is misconceived. The same clauses have been considered in
three Decisions of this Court, where the interest was allowed by interpreting
the clauses to mean that they would apply only with respect to money lying
with the employer and not with respect to adjudicated claims qua certain
disputes. Reliance is placed on the judgment of the Single Judge of this
Court in NTPC v. Patel Engineering, 2015 SCC OnLine Del 7512, which
was upheld by the Division Bench in FAO (OS) 219/2015 titled NTPC v.
Patel Engineering. It is submitted that judgment of the Division Bench
was taken up in appeal before the Supreme Court and SLP(C) 25685/2015
filed by NTPC was dismissed vide order dated 05.10.2015. Reliance is also
placed on the decisions in the case of NTPC Limited v. Hindustan
Construction Company Ltd,. 2017 SCC OnLine Del 6652 and Harish
Chandra (supra).
31. I have heard the learned Senior Counsels for the parties and
examined their rival contentions.
32. Claim No. 1 was with respect to idling charges of machinery and
manpower on account of stoppage of work by the Petitioner on many
occasions due to obstructions in the work. The Tribunal relied upon a
plethora of letters placed on record by the Respondent including Annexures
C-3, C-4, C-5, C-28, C-29, C-30 etc., whereby the respondent had brought
to the notice of the Petitioner, from time to time, that there were
obstructions on the site on account of non-availability of access road,
hindrances towards excavation, blasting work, stoppage of work due to
problems by the locals. Tribunal extracted the „summary of the reasons‟ for
stoppage of work in great details, in para 201 of the Award. Reliance is
placed by the Tribunal on the various clauses of the Contract entitling the
Respondent to idling charges. Clause 12.1 relates to unforeseeable physical
obstructions or conditions; Clause 42.2 relates to entitlement to extension
on account of failure to give possession and Clause 44 provides the
consequences for delay, impediment or prevention by the employer.
Tribunal placed reliance on various letters written by the Petitioner, wherein
they had objected to the delay at their end as well as those portions of the
letter where some hindrances and obstructions were not denied. The
Tribunal also extracted a letter dated 10.01.2008 written by the Petitioner to
the Respondent wherein the Respondent was informed that Petitioner was
discussing the matter with NTPC on the issue of extension of time, driven
by the delays to critical path. Pursuant to the directions of the Tribunal,
Petitioner filed various documents including Statement of Claims raised by
it against NTPC. The Tribunal after perusal of the statement, observed that
the Petitioner had raised a Claim against NTPC on account of events that
had adversely effected the progress of the work, extension of time etc. on
account of delay in handling the site possession, removal of obstructions,
delay in handling / dumping as well as on other aspects, which were
essentially the same reasons on which the Respondent had claimed idling
charges from the Petitioner. The Tribunal then sifts the evidence on record
which includes correspondence between the parties, the data showing the
period of stoppage of work under different Heads such as rainfall, strike,
non-availability of site for excavation, dumping etc. Having analysed the
data minutely, the Tribunal rejects the Claim for idling charges on account
of strike and the rainfall period. The Tribunal observes that neither of the
parties presented the correct figures of idling or led satisfactory evidence on
the assessment of rates to determine the idling charges. However, finding
that none of the reasons cited by the Respondent regarding stoppage of
work, as evident from several documents on record, were denied by the
Petitioner and instead the Petitioner admitted in its letter dated 14.12.2005
that progress was adversely impacted due to various reasons, Tribunal
allowed the Claim in favour of the Respondent. The Tribunal additionally
notes that Petitioner had itself raised Claims against the NTPC on account
of delays and obstructions in the progress of work by the NTPC. The
Tribunal having found that there was no contractual formula to determine
the idling charges, relied on the CPWD norms and calculated the charges by
dividing the value of work done by total number of days worked and then
multiplying the same with the number of idle days, after deducting 50%
towards material consumed. Thus, out of the total 91 idling days claimed,
the Tribunal awarded the Claim only with respect to 51 days.
33. This part of the Award is based on analyses of several documents and
evidence on record. As a finding of fact, the Tribunal has found that there
were delays and hindrances caused by the Petitioner, resulting in the idling
of machinery and manpower. Since there was no contractual formula, the
Tribunal has applied the most commonly used CPWD Norms in such
Contracts.
34. Petitioner had raised the same argument before the Tribunal, that in
the absence of any evidence of the loss suffered, the Contractor is not
entitled to idling charges, as is being raised here. The Tribunal took note of
this argument in para 212 of the Award and then posed upon itself the task
to sift the evidence to adjudicate the idling charges on real figures and rates
reasonably assessed.
35. In paras 213 to 216 of the Award, the Tribunal extracts the figures
furnished by the Respondent mentioning in detail the date, duration and the
equipments along with idling hours to substantiate the Claim. The Tribunal
thereafter relies on the cross-examination of the witness of the Respondent
and extracts in the Award, some relevant portions therefrom. It is thereafter
that the Tribunal concludes that the Respondent was entitled to the said
Claim.
36. In the case of NTPC vs. Patel Engineering (supra), this Court has
upheld the applicability of the CWC Guidelines for computing the idling
charges, in the absence of a contractual formula. Under Section 34 of the
Act, this Court cannot interfere in finding of facts or reappreciate the
evidence. This part of the Award is thus upheld.
37. Claim No. 4 was for additional work in the inclined galleries and was
based on the plea that the execution of work got delayed due to stoppage of
work by local people and for not handing over the site in time, causing an
increase in the rate of excavation. Petitioner resisted the Claim by denying
that there was any stoppage of work, attributable to the Petitioner and
instead claimed that it was the Respondent who had abandoned the work
midway and another sub-contractor had to be engaged to execute the work
at substantially higher cost. The Tribunal in order to decide the said Claim
relies upon Annexure C-72, C-73 being letters written by the Respondent to
the Petitioner bringing to its notice the change of methodology by the
Petitioner in excavating the galleries, resulting in higher expenses than
those envisaged under the Contract, as well as the reasons for delay such as
handing over the portals and access roads. The Tribunal also relies on
Annexure C-59, letter dated 23.10.2006, whereby Respondent had sought
revision of rates for the excavation work in the galleries and had brought
out in detail the delay caused by the Petitioner. The response of the
Petitioner vide letter dated 16.01.2008 was also taken note of by the
Tribunal. The Tribunal then took note of Clause 4 of the LOA whereby the
contract price was based on the unit rates and quantities, specified in the
„Attachment‟ to the LOA. It observed that the Petitioner did not dispute the
additional costs worked out by the Respondent nor denied the payment of
higher cost to M/s Himalaya Constructions, who had completed the balance
work. Tribunal also relied on Clause 5 of the LOA dated 10.03.2004
providing that the Contract price was subject to price escalation in
accordance with Clause 73 of COPA. Tribunal also notes that the petitioner
did not join issue with the Respondent on the revision of rates, but took a
stand that Respondent had abandoned the work, midway.
38. Once the Petitioner did not dispute the additional costs worked out by
the Respondent on account of the change in methodology in excavation
attributable to the Petitioner, the Tribunal, in my view, rightly allowed the
present Claim. Respondent had applied for revision of rates, but the
Engineer did not even consider the issue in terms of Clause 73 of COPA.
Petitioner had got the balance work executed through M/s Himalaya
Constructions and had paid the said Company at a higher rate than the
contractual rate between the parties herein. Since the Tribunal found that
the Claim for additional cost was not disputed, it adopted the rate approved
for M/s Himalaya Construction for the similar excavation work as the
revised rate under the present Claim. In my view, the methodology adopted
by the Tribunal was really in the domain of the Tribunal, once the Claim to
higher rates was not disputed by the Petitioner.
39. In the case of Associate Builders v. DDA, (2015) 3 SCC 49, the Apex
Court categorically held that the decision as to what Formula would be
applicable in the particular facts of a case, depending the contractual terms,
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."
Supreme Court in the above judgment also placed reliance on the
judgment in McDermott International Inc. v. Burn Standard Co. Ltd.,
(2006) 11 SCC 181, wherein the Court had made the following
observations:
"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.
XXX
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. "
This part of the Award calls for no interference.
40. Claim No. 6 was for release of security deposit of Rs. 4,97,10,698/-.
Petitioner resisted the Claim before the Tribunal on the ground that
respondent had abandoned the work and the Project could not be completed
by the Respondent. Petitioner vide letter dated 20.07.2009 communicated
to the Respondent that after crediting all the amounts to which it was
entitled, there was a negative balance of Rs. 3.10 Crores on the Respondent
and thus the retention money got reduced to Rs. 1.88 Crores as against a
contractual requirement of Rs. 4.97 Crores and thus, Respondent was not
entitled to refund of the security deposit. The argument today before this
Court is that having abandoned the contract, Respondent cannot be
permitted the refund of security deposit and that too in the absence of
satisfaction of the Engineer on the completion of the Project under Clause
10 of the LOA, read with Clause 67 GCC. Clause 10 of the LOA permits
5% retention from each running bill towards security deposit with a further
retention equal to 2.5% on completion of 12 months and a further 2.5% of
the running bills after 25 months from the date of the LOA. The said
provision also requires a satisfaction by the Engineer-in-Charge that all
terms of the contract are duly carried out. As a matter of fact, Petitioner had
deducted Rs. 4,48,95,263/- as retention money from the Running Bills
between 2004-2008. When the respondent referred the dispute to the
Engineer under Clause 67 GCC, the Engineer declined the release of
retention money as according to the Engineer, Petitioner had incurred costs
on account of breach by the Respondent. Petitioner had also filed a counter
Claim for compensation on account of the alleged breach by the Respondent
in abandoning the work. The counterclaim was subsequently withdrawn by
the Petitioner and the Tribunal by order dated 03.05.2014 had suspended
the proceedings qua the said Counterclaim. Recording this background, the
Tribunal observed that once the Counter Claim had been withdrawn and the
proceedings were suspended by the Tribunal, at present, Petitioner had no
Claim against the Respondent, and therefore, the retention money could not
have been set off or adjusted against any Claim. On this basis, the Tribunal
concluded that Respondent was entitled to refund of retention money
deducted from their running bills towards the work actually done. The
Tribunal was of the view that the question of performance or non-
performance was of no relevance to this Claim as the Petitioner had given
up all its claims/ counter claims against the Respondent. Relevant para of
the Award reads as under:
"257. Claim No.6
Release of Security Deposit Rs. 4,97,10,698.00
Claimant's contention is that vide Letter dated 16.02.2008,
Claimant demanded pending payment including Security
Deposit but the same having not been paid, the clamant is
entitled to recover Security Deposit.
258. Respondent resisted the claim pleading that the question
of refund of security deposit does not arise when the Claimant
has abandoned the work and when the project is not yet
completed. Vide their Letter dated 20.07.2009, the Respondent
clarified to Claimant that after crediting all the amounts to
which the Claimant is entitled, there is still a negative balance
of Rs. 3.10 crores on the Claimant and thus the retention
money got reduced to Rs.1.88 crores as against the
contractual requirement of Rs4.97 crores. The Claimant thus
is not entitled to refund of the security deposit as claimed.
259. Clause 10 of the Letter of Award provides as under:-
"10.0 Retention:
A retention of 5% shall be deducted as security deposit
from each running bills. Further retention equal to
2.5% of the running bills will be deduced on completion
of 12 months period from the date of this letter. A
further retention equal to 2.5% of the running bills will
be deduced after completion of 24 months from the date
of this letter. Thus the final Retention will be 10% (ten
percent) of the running bills. The Retention shall be
returned to MCM after the Engineer in charge has
satisfied himself that all terms of the Contract have
been duly and fully carried out by the MCM or after 90
days after the completion of defect liability period and
on submission of the documents indicated in the main
Contract we have with NTPC under sub-clause 10.1 of
conditions of Particular Application:"
260. Pursuant to Clause 10 of LoA, the Respondent deducted
Retention Money Rs.4,48,95,263/- from the claimant's
Running Bills for the period between 2004 to 2008. The
Retention Money therefore is the monies retained by the
Respondent otherwise payable to the claimants for the works
done between 2004 and 2008. When the claimant referred the
dispute to Engineer under Clause 67 GCC, the Engineer
decided that ITD cannot release-the Retention Money as ITD
has incurred costs as a result of breach of contract by MCM
by abandoning the works. The Respondent on the other hand,
filed Statement of Claim / Counter Claim for awarding
monetary compensation of Rs.184,900,730.36 on account of
breach of contract committed by the claimant by abandoning
the works. However, the Respondent having withdrawn the
Claims / Counter Claims, this Tribunal by order dated
3.5.2014 suspended the arbitral proceedings in respect of the
Claims / Counter Claims raised by the Respondent. The order
of the Tribunal having attained finality, the Respondent as on
today has no claims or counter claims as against the
claimant. Had there been any claims or counter claims, the
Retention Money would have been set off or adjusted against
such claims / counter claims. But there being no claims or
counter claims as on today, the claimant is entitled to refund
of Retention Money deducted from their Running Bills for the
work actually done. There is no question of performance or
non-performance of the contract by the claimant as it has no
bearing as the respondent has given up all claims / counter
claims against the claimant. The Respondent is therefore,
liable to refund the Retention Money Rs.4,48,95,263/- from
the claimant's Running Bills."
There is no infirmity in this part of the Award and calls for no
interference.
41. With respect to the contention of the parties under Claim No. 7,
having perused the Award, it is seen that the Tribunal has examined the
contentions of the parties and the plethora of documents and calculations
placed on record, before arriving at the figure due to the Respondent. The
Tribunal has taken note of the Claim of the Respondent from the Statement
of Claim as well as the rejoinder and has also analysed the stand of the
petitioner in the Statement of Defence. In addition, the amended pleadings
have also been taken note of. Averments of the Petitioner in reply to the
application for discovery and interrogatories is also analysed by the
Tribunal. The Tribunal based on these documents records the value of the
claims and the approved quantities and their differences. Reconciliation
statements have been perused. The Tribunal also deals with the issue raised
that the Claim was not referred to the Engineer and negatives it in para 271
which reads as under:
271. Admittedly, the Engineer vide his decision dated
17.04.2009 rejected the claim for Balance Payment and
Escalation stating that there is no balance due and on the
other hand there is negative accumulative account i.e.
amount due from claimant to the Respondent to the tune of
Rs. 1.40 crores. The claim for Balance Payment and
Escalation was thus subjected to the decision of the
Engineer who rejected the claim stating that there is a
negative accumulated account to the tune of Rs. 1.40 crores
due from claimant to the Respondent. Therefore, it cannot be
said that the claim has not been referred to Engineer's
decision. The Respondent's contention that the claim is not
maintainable as the same having not been referred to
Engineer's decision under Clause 67 GCC is therefore,
liable to be rejected."
42. In para 274, the stand of the Petitioner with regard to the balance
payments with detailed figures is noted by the Tribunal and in para 276, the
Tribunal renders a finding that the Petitioner worked out the total value of
work only upto RA Bill No. 50, but did not take into account the subsequent
bills for May 2008 and June 2008. Calculating the amounts due in the
subsequent bills, the Tribunal arrives at a computation. In para 277, the
Tribunal takes note of the admitted amounts received by the Respondent.
Detailed tables showing the deduction towards contractual retention and
other advances towards cement, store material, TDS, WCT, etc. are noted.
Finally, taking into account all these payments / deductions and balance, the
Tribunal has arrived at a computation in para 277 towards the amount due
to the Respondent, along with escalation.
43. It is thus, not open to the Petitioner to contend that this part of the
Award suffers from non-application of mind. The contention that the Claim
was not referred to the Engineer is also not correct as the Engineer rejected
the Claim under Clause 67 GCC. Needless to state that this Court while
examining the Award under Section 34 of the Act, cannot interfere in pure
findings of fact and the methodology adopted for calculation. No
interference is called for in the Award under Claim No.7.
44. Under Claim No. 9, the Tribunal has awarded simple interest to the
Respondent @ 1 % over and above the RBI Time Lending Rates as
pendente lite interest from 20.04.2009. The principal contention of the
Petitioner herein is that the award of interest is in complete contravention of
the terms of the Contract, whereby the payment of interest is explicitly
prohibited in case of any outstanding due or delayed payment. Clause 78
according to the Petitioner bars any payment of interest on any amount
which remains with the employer on account of any dispute between the
parties. Respondent has, on the other hand, defended the Award by arguing
that Clauses similar to Clauses 77 and 78 in the present Contract, have been
interpreted in three earlier judgments and it is not open to the Petitioner to
place any other interpretation and the Claim has been rightly allowed. Both
sides have cited their respective judgments which have been referred to in
the earlier part of this judgment. Clauses 77 and 78 as referred to above,
were considered by a Coordinate Bench of this Court in the case of NTPC
Limited vs. Hindustan Construction Company Ltd., 2017 SCC OnLine
Del 6652. The Court has interpreted the clauses as under:
"51. As far as Clause 77 is concerned, the Court fails to
appreciate how the said Clause would be relevant for
deciding whether the contractor is entitled to pendent
lite interest. It talks of the "interest upon any guarantee" or
"payment of arrears" or "any balance which may on the final
settlement of his account, be due to him" on account of
omission on the part of the Engineer to pay the amount. The
Court is unable to read the above Clause as prohibiting an AT
from paying interest pendent lite to a secondary claim.
52. As far as Clause 78 is concerned, it only applies to "any
amount or balance which may be lying with the employer".
The above balance amount could be lying as a result of two
contingencies: (i) on account of any dispute or difference
between the parties or (ii) on account of any delay or
omission on the part of the Engineer in making interim or
final payment. It is in the above specific conditions that no
interest is payable. The sum and substance are not in the
nature of sums that are yet to be determined as being payable.
Again, this is not a Clause which prohibits payment
of pendent lite interest in the manner contemplated in Union
of India v. Ambika Construction (supra) or Union of
India v. Bright Power Projects (India) (P) Ltd. (supra).
Therefore, in the considered view, there was no prohibition
against the AT awarding interest in the manner it has in the
impugned Award."
45. This is the judgment which has been relied upon by the Respondent
in its favour.
46. It needs a mention at this stage that clauses similar to these two
clauses came up for consideration before the Supreme Court in a recent
judgment in the case of Jaiprakash Associates Ltd. vs. Tehri Hydro
Development Corporation Ltd. (THDC) 2019 SCC OnLine 143. The
relevant clauses in the said case which, in my view, are pari materia to
clauses 77 and 78 are as under:
"Clause 50.0 Interest on money due to the contractor
No omission on the part of the Engineer in charge to pay the
amount due upon measurement or otherwise shall vitiate or
make void the contract, nor shall the contractor be entitled
to interest upon any guarantee or payments in arrears nor
upon any balance which may on the final settlement of his
account, be due to him.
Clause 51.0 No claim for delayed payment due to dispute
etc.
No claim for interest or damage will be entertained or be
payable by the corporation in respect of any amount or
balance which may be lying with the corporation owing to
nay dispute, different or misunderstanding between the
parties or in respect of any delay or omission on the part of
he Engineer in charge in making intermediate or final
payments on in any other respect whatsoever."
47. In the said case, the Arbitral Tribunal had granted interest @ 10% per
annum as interest pendente lite apart from future interest. The Award was
challenged in the High Court and a Single Judge of this Court quashed the
Award, limited to the interest, awarded by the Arbitrators. In an intra-court
appeal, the Division Bench upheld the Judgment of the Single Judge. The
litigation was carried further to the Supreme Court by Jaiprakash Associates
Limited to the question, whether the Arbitrators could have awarded interest
in view of Clauses 50 and 51 of the GCC which governed the terms
between the parties. The High Court had taken a view that if the interest
was prohibited by the express terms of the Contract between the parties, the
Tribunal has no jurisdiction to award the interest. On the interpretation of
the Clauses, the High Court was of the view that they were pari materia to
Clauses 1.2.14 and 1.2.15 of the Contract being subject matter of the
judgment in Tehri Hydro Development Corpn. Ltd. v. Jai Prakash
Associates Ltd., (2012) 12 SCC 10, wherein the Supreme Court had
interpreted the clauses to mean that no interest is payable on claim for
delayed payment to the Contractor.
48. The Supreme Court culled out the broad principles with regard to the
grant of pre-reference and pendente lite interest by an Arbitral Tribunal.
Insofar as pendente lite interest is concerned, the Court observed that the
1996 Act had made a significant departure on the grant of pendente lite
interest from the law under the 1940 Act. This distinction according to the
Court was summarized by the Supreme Court in an earlier judgment in
Sayeed Ahmed & Company vs. State of Uttar Pradesh (2009) 12 SCC 26.
Relevant part of the judgment in Sayeed Ahmed (supra) is as under:
"14. The decisions of this Court with reference to the awards
under the old Arbitration Act making a distinction between
the pre-reference period and pendente lite period and the
observation therein that the arbitrator has the discretion to
award interest during pendente lite period in spite of any bar
against interest contained in the Contract between the parties
are not applicable to arbitrations governed by the Arbitration
and Conciliation Act, 1996."
49. The Supreme Court then relied upon the judgment in Sree Kamatchi
Amman Constructions v. Divisional Railway Manager (Works), Palghat
(2010) 8 SCC 767 and Union of India vs. Bright Power Projects (India)
Private Limited (2015) 9 SCC 695, the later being a judgment by a Bench
of three Judges, where this position of law was reiterated. The Court noted
that again in the case of Sri Chittaranjan Maity v. Union of India (2017) 9
SCC 611, the same question fell for consideration. Relevant part of the
judgment in Sri Chittaranjan Maity (supra) is as under:
"16. Relying on a decision of this Court in Ambica
Construction v. Union of India [Ambica
Construction v. Union of India, (2017) 14 SCC 323], the
learned Senior Counsel for the appellant submits that mere
bar to award interest on the amounts payable under the
contract would not be sufficient to deny payment on pendente
lite interest. Therefore, the arbitrator was justified in
awarding the pendente lite interest. However, it is not clear
from Ambica Construction [Ambica Construction v. Union of
India, (2017) 14 SCC 323] as to whether it was decided under
the Arbitration Act, 1940 (for short "the 1940 Act") or under
the 1996 Act. It has relied on a judgment of Constitution
Bench in State of Orissa v. G.C. Roy [State of Orissa v. G.C.
Roy, (1992) 1 SCC 508]. This judgment was with reference to
the 1940 Act. In the 1940 Act, there was no provision which
prohibited the arbitrator from awarding interest for the pre-
reference, pendente lite or post-award period, whereas the
1996 Act contains a specific provision which says that if the
agreement prohibits award of interest for the pre-award
period, the arbitrator cannot award interest for the said
period. Therefore, the decision in Ambica
Construction [Ambica Construction v. Union of India, (2017)
14 SCC 323] cannot be made applicable to the instant case."
50. Significantly, the Supreme Court refers to the judgment of the Court
in Reliance Cellulose Products Limited v. Oil and Natural Gas
Corporation Limited (2018) 9 SCC 266, where the entire law on the subject
was revisited. In the case of Reliance Cellulose (supra), the Supreme Court
had contrasted a Clause relating to grant of interest as in second Ambika
Construction case i.e. Ambica Construction v. Union of India, (2017) 14
SCC 323, with the Clause in Tehri Hydro (supra). The Supreme Court in
the case of Reliance Cellulose (supra) held as under:
"24. A conspectus of the decisions that have been referred to
above would show that under the 1940 Act, an arbitrator has
power to grant pre-reference interest under the Interest Act,
1978 as well as pendente lite and future interest. However, he
is constricted only by the fact that an agreement between the
parties may contain an express bar to the award of pre-
reference and/or pendente lite interest. Since interest is
compensatory in nature and is parasitic upon a principal sum
not having been paid in time, this Court has frowned upon
clauses that bar the payment of interest. It has therefore
evolved the test of strict construction of such clauses, and has
gone on to state that unless there is a clear and express bar to
the payment of interest that can be awarded by an arbitrator,
clauses which do not refer to claims before the arbitrators or
disputes between parties and clearly bar payment of interest,
cannot stand in the way of an arbitrator awarding pre-
reference or pendente lite interest. Thus, when one contrasts a
clause such as the clause in Second Ambica Construction
case [Ambica Construction v. Union of India, (2017) 14 SCC
323 : (2018) 1 SCC (Civ) 257] with the clause in Tehri Hydro
Development Corpn. Ltd. [Tehri Hydro Development Corpn.
Ltd. v. Jai Prakash Associates Ltd., (2012) 12 SCC 10 :
(2013) 2 SCC (Civ) 122], it becomes clear that unless a
contractor agrees that no claim for interest will either be
entertained or payable by the other party owing to dispute,
difference, or misunderstandings between the parties or in
respect of delay on the part of the engineer or in any other
respect whatsoever, leading the Court to find an express bar
against payment of interest, a clause which merely states that
no interest will be payable upon amounts payable to the
contractor under the contract would not be sufficient to bar
an arbitrator from awarding pendente lite interest under the
1940 Act. As has been held in First Ambica Construction
case [Union of India v. Ambica Construction, (2016) 6 SCC
36 : (2016) 3 SCC (Civ) 36], the grant of pendente lite
interest depends upon the phraseology used in the agreement,
clauses conferring power relating to arbitration, the nature of
claim and dispute referred to the arbitrator, and on what
items the power to award interest has been taken away and
for which period. We hasten to add that the position as has
been explained in some of the judgments above under Section
31(7) of the 1996 Act, is wholly different, inasmuch as Section
31(7) of the 1996 Act sanctifies agreements between the
parties and states that the moment the agreement says
otherwise, no interest becomes payable right from the date of
the cause of action until the award is delivered."
51. Having traversed the various judgments on the subject, Supreme
Court finally examined clauses 50 and 51 which were subject matter of
controversy between the parties. Court was of the view that clauses 50 and
51 of the GCC being pari materia with the Clauses in the Tehri Hydro
(supra) had been interpreted by holding that no interest was payable on
delayed payments due to the contractor, and therefore, the same
construction was adopted for interpreting clauses 50 and 51. The Supreme
Court then examined the contention of the Appellant that this construction
was contrary to the judgment in Harish Chandra (supra). It may be noted
here that even in the present case reliance has been placed by the
Respondent on the judgment in Harish Chandra's case (supra). To answer
this question, the Court placed reliance on the discussion in the case of
Reliance Cellulose (supra), relevant para of which is as under:
"25. ...Also, unlike the clause in Tehri Hydro Development
Corporation Ltd. (Supra), clause 16 does not contain
language which is so wide in nature that it would interdict an
arbitrator from granting pendente lite interest. It will be
remembered that the clause in Tehri Hydro Development
Corportation Ltd. (supra) spoke of no claim for interest being
entertained or payable in respect of any money which may be
lying with the Government owing to disputes, difference or
misunderstanding between the parties and not merely in
respect of delay or omission; Further, the clause in Tehri
Hydro Development Corporation Ltd. (supra) goes much
further and makes it clear that no claim for interest is payable
"in any other respect whatsoever"
52. Finally, the Supreme Court held as under:
"21. It is pertinent to mention that the aforesaid judgment
also discusses and analysis Harish Chandra case. In the first
place, the judgment in Harish Chandra case is under the 1940
Act. More pertinently, this judgment is explained and
distinguished in Sayeed Ahmed and Company case in the
following paragraphs:
"17. The appellant strongly relied upon the decision of
this Court in State of U.P. v. Harish Chandra &
Co. [(1999) 1 SCC 63] to contend that Clause 1.09 of the
contract did not bar the award of interest. The clause
barring interest that fell for consideration in that decision
was as under: (SCC p. 67, para 9)
"1.09. No claim for delayed payment due to dispute,
etc.--No claim for interest or damages will be
entertained by the Government with respect to any
moneys or balances which may be lying with the
Government owing to any dispute, difference; or
misunderstanding between the Engineer-in-Charge in
making periodical or final payments or in any other
respect whatsoever."
This Court held that the said clause did not bar award
of interest on any claim for damages or for claim for
payment for work done. We extract below the reasoning
for such decision: (SCC p. 67, para 10)
"10. A mere look at the clause shows that the claim
for interest by way of damages was not to be
entertained against the Government with respect to
only a specified type of amount, namely, any moneys or
balances which may be lying with the Government
owing to any dispute, difference between the Engineer-
in-Charge and the contractor; or misunderstanding
between the Engineer-in-Charge and the contractor in
making periodical or final payments or in any other
respect whatsoever. The words „or in any other respect
whatsoever‟ also referred to the dispute pertaining to
the moneys or balances which may be lying with the
Government pursuant to the agreement meaning
thereby security deposit or retention money or any
other amount which might have been with the
Government and refund of which might have been
withheld by the Government. The claim for damages or
claim for payment for the work done and which was not
paid for would not obviously cover any money which
may be said to be lying with the Government.
Consequently, on the express language of this clause,
there is no prohibition which could be culled out
against the respondent contractor that he could not
raise the claim for interest by way of damages before
the arbitrator on the relevant items placed for
adjudication."
(emphasis supplied)
18. In Harish Chandra [(1999) 1 SCC 63] a different
version of Clause 1.09 was considered. Having regard to
the restrictive wording of that clause, this Court held that
it did not bar award of interest on a claim for damages or
a claim for payments for work done and which was not
paid. This Court held that the said clause barred award of
interest only on amounts which may be lying with the
Government by way of security deposit/retention money or
any other amount, refund of which was withheld by the
Government.
19. But in the present case, Clause G1.09 is
significantly different. It specifically provides that no
interest shall be payable in respect of any money that may
become due owing to any dispute, difference or
misunderstanding between the Engineer-in-Charge and
contractor or with respect to any delay on the part of the
Engineer-in-Charge in making periodical or final payment
or in respect of any other respect whatsoever. The bar
under Clause G1.09 in this case being absolute, the
decision in Harish Chandra [(1999) 1 SCC 63] will not
assist the appellant in any manner."
22. It is also pertinent to note that the judgment in Sayeed
Ahmed and Company distinguishing the restrictive wording
in Harish Chandra has been consistently followed by this
Court in number of cases thereafter. In this scenario, when we
find that Harish Chandra case which is of the vintage of 1940
Act and is distinguished in Sayeed Ahmed and
Company coupled with the fact that the ratio of Sayeed Ahmed
and Company has been consistently followed, there is no
reason to deviate from the construction to Clauses 50 and 51
of the GCC given by the arbitral tribunal in the first instance
as well as the High Court. Above all, these clauses is pari
materia with with Clauses 1.2.14 and 1.2.15 of GCC in THDC
case which was a judgment between the same parties."
53. It may be noted here that Clause 78 in the present case is exactly
similar to the clauses in Jaiprakash (supra) and Tehri Hydro (supra) and
the words of the Clauses which distinguished these cases from second
Ambika were "in any other respect whatsoever". Therefore, relying on the
judgments as referred to above, in my opinion, learned Senior Counsel for
the Petitioner is right in arguing that there was a clear bar in Clauses 77 and
78 for grant of interest on account of the eventualities mentioned therein.
The judgment of Jaiprakash (supra) is a judgment by three Judges Bench
and has considered the judgment in the case of Harish Chandra (supra)
and in this view, the contention of the Respondent cannot be accepted.
54. It is also important to see the paradigm shift in law with regard to the
grant of pendente lite interest from the position that inured under the 1940
Act to the position under the 1996 Act. The Legislature in its wisdom has
clearly sanctified the party autonomy and agreements between the parties
by introducing Section 31(7) in the 1996 Act and has made the power of the
Arbitrator to grant pendente lite interest, subject to any agreement between
the parties to the contrary. In this view of the matter, it was not open to the
Arbitrator to have allowed the present Claim and granted pendente lite
interest as the parties had under Clauses 77 and 78 agreed that there would
be a bar to grant of interest. This part of the Award therefore, deserves to
be set aside.
55. Accordingly, the Petition is partly allowed. The Impugned Award
only to the extent of grant of pendente lite interest is set aside. No orders as
to costs.
JYOTI SINGH, J.
MAY 27th , 2020
yo/rd
