Delhi High Court
M/S Kmc Construction Ltd. vs National Highway Authority Of ... on 23 December, 2021
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 23.12.2021
+ O.M.P. (COMM.) 458/2020, I.A. NOS. 257/2021 & 2649/2021
M/S KMC CONSTRUCTION LTD .....Petitioner
versus
NATIONAL HIGHWAY AUTHORITY
OF INDIA ....Respondent
Advocates who appeared in this case:
For KMC Construction : Ms Kiran Suri, Senior Advocate with
Ltd. Mr Hitendra Nath Rath, Advocate.
For National Highways : Mr Arun Kumar Varma, Senior
Authority of India Advocate with Mr Yamandeep Kumar
and Mr Shashank Bhansali,
Advocates.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. The petitioner (hereafter 'KMC') has filed the present petition
under Section 34 of the Arbitration and Conciliation Act, 1996
(hereafter 'the A&C Act') impugning an Arbitral Award dated
24.09.2019 (hereafter 'the impugned award') rendered by an Arbitral
Tribunal constituted by three members (hereafter 'the Arbitral
Tribunal'). KMC also impugns an order dated 21.11.2019 (hereafter
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RAWAL
the 'revised order'), whereby its application under Section 33 of the
A&C Act was rejected.
2. KMC challenges the impugned award in respect of its Claims
Nos. 3, 5, 13, 19 and 22.
3. Briefly stated, the facts that are necessary to address the
controversy are stated hereunder.
3.1 NHAI, by a Letter of Acceptance (LoA) dated 22.08.2001,
awarded a contract for the work of 'Widening to four lanes and
strengthening of the existing two lane carriageway between Km
278/000 to Km 340/000 of Udaipur-Ratanpur-Gandhinagar Section of
NH-8 in Rajasthan, package no. UG-1' (hereafter the 'Project') to
KMC. Subsequently, the parties entered into an agreement dated
05.10.2001 (hereafter 'the Agreement'). In terms of the Agreement,
KMC agreed to execute the works at a Contract Price of
₹164,75,76,353/-. The works for the Project were to commence on
30.10.2001 and completed by 30.04.2004.
3.2 It is KMC's case that NHAI had failed to handover the site to it
and had provided an incorrect Detailed Project Report (DPR). Despite
this, KMC completed the project two months prior to the stipulated date
of completion. The works were completed on 28.02.2004 at a Contract
Price of ₹248,00,00,000/- against the original Contract Price of
₹164,75,76,353/-. KMC submitted its completion statement on
08.05.2004. It is KMC's case that the Engineer did not process the
payments due to it and extended the defect liability period. Finally, the
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RAWAL
Engineer issued the Defect Liability Certificate on 24.05.2006. The
Engineer issued a Statement at Completion proposing a recovery of
₹18,16,34,122/- against the Final Bill of ₹70,51,84,650/-. Further, the
Engineer did not give its decision on the other sums payable to KMC.
3.3 NHAI invoked the Performance Bank Guarantee furnished by
KMC in the sum of ₹16,47,57,636/-.
3.4 In view of the disputes, KMC invoked the Arbitration Agreement
by a letter dated 16.09.2006 and nominated Sh PV Rama Raju as an
Arbitrator. NHAI nominated Sh VS Dixit as its nominee Arbitrator.
Both nominated Arbitrators appointed Sh Prafulla Kumar as the
Presiding Arbitrator and the Arbitral Tribunal was constituted on
12.11.2006.
3.5 In the meanwhile, KMC also filed a Writ Petition (bearing W.P.
No. 18269/2006) before the High Court of Andhra Pradesh seeking
interdiction of the invocation of the Bank Guarantee. By an order dated
29.11.2006, that High Court restrained NHAI from encashing the
aforesaid Bank Guarantee. NHAI appealed against the aforesaid order
before the Division Bench of the High Court of Andhra Pradesh and the
Court ordered KMC to keep the Bank Guarantee alive during the course
of the arbitration proceedings.
3.6 Before the Arbitral Tribunal, KMC raised twenty-two claims
aggregating to ₹135,96,28,549/-. NHAI filed its Statement of Defence
and also raised counter-claims.
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RAWAL
3.7 By a letter dated 11.10.2013 addressed to the Arbitral Tribunal,
both parties requested the Arbitral Tribunal to keep the arbitral
proceedings in abeyance, to enable them to amicably resolve the
disputes by Conciliation before the three CGM Committee and the
Independent Settlement Advisory Committee (ISAC). However, the
Conciliation was not successful and by a letter dated 23.06.2015, KMC
requested the Arbitral Tribunal to resume the arbitral proceedings. Mr
VS Dixit recused from the Arbitral Tribunal and Mr Ninan Koshi was
appointed by NHAI in place of him. Mr Ninan Koshi and KMC's
Arbitrator jointly appointed Mr SC Sharma as the Presiding Arbitrator
on 19.04.2016.
4. On 24.09.2019, the Arbitral Tribunal delivered the impugned
award. A tabular statement indicating the amounts awarded against the
claims made by KMC is set out below:
Clai Nomenclature of Amount of the Amount of Declaratory Interest on
m Claims Claim as per Claims as per Claim for Claims as per
No. Applicant Award Interest as per Award
Applicant
1. CLAIM No. 1 7,62,12,757/- 3,19,51,622/- 38,81,56,355/- 5,80,24,145/-
Variations ordered as
per Clause 51.1 for
which new rates are to
be paid as per market
rates in terms of Clause
52.1 and 52.2
i. E2: Supplying and 6,90,466/- 3,44,890/- Amount
fixing of Netlon Geo- included
textile behind above in
abutments and wing Claim No.1
walls
ii. E3: Removal of 15,87,359/- 15,87,359/- --do--
existing tree stumps
iii. E4: Providing and 1,33,85,106/- 72,42,390/- --do--
fixing m position
HYSD bars for Median
Drain Chambers
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RAWAL
iv. E5: Sand filling in open 7,52,005/- 5,22,413/- --do--
wells falling in
construction area
v. E12: Painting of Kerbs 5,93,462/- 4,74,416/- --do--
vi. E16: Pedestrian 6,30,840/- 5,12,188/- --do--
Guard Railing
vii. Rl.02: PCC M:15 grade 3,13,367/- Nil --do--
Cement Concrete for
RCC Retaining Walls
viii. Rl.03: PCC M:25 grade 16,92,228/- Nil --do--
Cement Concrete for
RCC Retaining Walls
ix. Rl.04: Providing and 32,49,271/- Nil --do--
fixing in position
HYSD reinforcement
bars
x. R2.05: Construction of 2,07,99,485/- 8,64,800/- --do--
Stone Masonry in CM
(1:3) for Masonry
Retaining Wall
xi. UD.02: Construction of 2,91,41,234/- 1,86,85,239/- --do--
RCC Urban Drains as
per approved Drawing
xii. CD.02: Providing 32,12,2611- 17,17,927/- --do--
Encasement to Cross
Ducts with M: 15 Grade
Concrete
xvi. CD.03: Providing 150
mm dia. PVC Pipe m
Cross Ducts
2. CLAIM NO.2 27,62,38,125/- 11,24,51,315/- 1,40,99,62,986 20,42,11,587/-
New rates to be paid for /-
the quantities executed
more than 25% of Bill
of Quantities and 2% of
Contract Price as per
sub-clause 52.2
3. CLAIM NO. 3 2,62,01,641/- Nil 13,37,37,306/- Nil
Escalation to be paid
on Base Rates as per
clause 70.1 (Price
Adjustment) and not
after discounting the
base rate by the rebate
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RAWAL
4. CLAIM NO.4 3,99,84,686/- 1,95,93,580/- 20,40,88,148/- 3,55,81,941/-
Classification of
roadway excavation
materials as per clause
301.2.1 (ii) attracting
payment under Item
No.: 2.01(b), but
payment made under
item Nos. 1.02(a) and
2.01(a)
5. CLAIM NO.5 9,65,26,231/- Nil 59,84,79,236/- Nil
The rebate is limited to
BOQ quantity only and
cannot be applied to
work done beyond
BOQ quantities
6. CLAIM No.6 3, 75,24,163/- Nil 19,15,29,250/- Nil
Rocky Sub grade is to
be paid as per clause
301.6 under item No.:
2.10 of BOQ
7. CLAIM NO. 7 47,99,749/- 28,34,132/- 2,44,98,676/- 51,46,783/-
Payments not made for
the diversions made as
per Engineer's
instructions with
200 mm thick WMM
and 40 mm thick DBM
8. CLAIM N0.8 19,29,273/- 10,92,967/- 98,47,314/- 19,84,828/-
Payments for routine
maintenance not made.
Payment to be released
as per clause 3002
9. CLAIM NO.9 7,18,183/- 7,18,183/- 36,65,719/- 13,04,220/-
Balance payment to be
made under item No
12.09 for planting and
maintenance of median
hedges and tree sapling
10. CLAIM NO. 10 30,18,985/- Nil 22,65,827/- Nil
Payment of Escalation
for Bitumen content
in Tack Coat and Prime
Coat to be paid as per
Clause 70.5(ii)a
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RAWAL
11. CLAIM NO. 11 14,35,599/ Nil 73,27,524/- Nil
Reimbursement of
Seigniorage Charges
recovered from the bill
on account of
Earthwork (minor
minerals)
12. CLAIM NO. 12 22,63,81,902/- 3,93,83,321/- 72,98,79,504/- 6,66,05,072/-
Further sums are to be
paid for the variations
exceeding 15% of the
Effective Contract
Price
13. CLAIM NO. 13 4,00,00,000/- Nil 20,41,66,313/- Nil
Bonus not paid for
early completion of 6
months (only paid for 2
months)
14. CLAIM NO. 14 62,57,800/- 47,35,147 I- 2,01,75,818/- 80,08,080/-
Costs to be paid for
idling of Men and
Machinery due to
transporter's strike and
due to Mining
Department
Instructions
16. CLAIM NO. 16 68,59,334/- Nil 2,21,15,228/- Nil
Cost to be paid for
rectification of
damages caused due to
accidents
17. CLAIM NO. 17 42,63,034/- 7,69,350/- 1,37,44,478/- 13,01,124/-
Reimbursement
of amount towards cost
of repairs after DLP i.e.
one year after Taking
Over Certificate
CLAIM NO. 19 55,78,89,631/- 4,07,91,985/- 67,69,71,248/- 1,73,70,736/-
19. Losses suffered by the
contractor as a (Including (Including (Including
consequence of failure interest) interest) interest)
to release the
Performance Bank
Guarantee on the expiry
of defect liability period
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RAWAL
CLAIM NO. 20 59,29,566/- Nil 1,91,17,556/- Nil
20. Interest payable to the
contractor for delay in
release of Additional
Performance Bank
Guarantees
CLAIM NO. 22 461,90,07,700 38,21,67,760/- 398,27,57,23/- Sum of as
22. Interest is to be paid for /- above
unpaid executed items (Excluding
from the date of Claim No.19)
completion of the work
Declare that the letter Nil Nil
23. dated 29.07.2006 is
illegal, void, ab initio
and of no effect, being
contrary to law and in
violation of the terms
and conditions of the
contract
5. The Arbitral Tribunal rejected the counter-claims preferred by
NHAI. A tabular statement setting out the counter-claims is given
below:
Claim No. Nomenclature of Counter-Claims Amount of the Counter-
Claims as per Opposite
Party
Claim- A Recoveries on various accounts (Non-
Refundable)
i. Scrap Steel of RCC Slab & RC Pipes 1,42,005/-
ii. Dismantled Mansory Stone 5,48,029/-
Claim -B Recoveries in IPC's (Non-refundable)
i. Recoveries on account of New Rock rates 14,91,24,898/-
and other items with interest
Claim- C Amount to be withheld on account of non-
submission of NOC disputes etc.
i. Mining Department dues (refundable) 1,70,87,188/-
ii. EPF dues (refundable) 66,56,014/-
iii. Labour Case (refundable) 3,00,000/-
iv. Claims by M/s Akschat Farms refundable) 8,00,000/-
v. Withheld amount of escalation for want of 21,70,171/-
submission of invoices of material
consumed (refundable)
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RAWAL
6. KMC filed an application under Section 33 of the A&C Act dated
22.10.2019, inter alia, seeking modification of the impugned award in
respect of reimbursement of commission paid for the Bank Guarantee.
KMC claimed that there was an error in its calculation of the
Commission paid to the Bank. However, the Arbitral Tribunal rejected
the same by an order dated 21.11.2019.
Submissions
7. KMC has assailed the impugned award in respect of five claims
- Claim Nos. 3, 5, 13, 19 and 22. The said claims were either rejected
or not accepted in entirety by the Arbitral Tribunal. Ms Suri, learned
senior counsel appearing for KMC, has advanced contentions in respect
of each of the aforesaid five claims.
8. First, she submitted that the formula, as stipulated under Clause
70.3 of the Conditions of Particular Application (COPA), required the
price adjustment to be worked on the value of work done (referred to as
R-1). The said value was to be computed on the basis of the base rates
as quoted by KMC. Ms Suri claimed that NHAI had erroneously
adjusted the base rates by applying a discount/rebate as offered by KMC
on the overall price, for working the formula as stipulated under Clause
70.3 of the COPA. She stated that the issue was no longer res integra
and was covered by the decision of a Coordinate Bench of this Court in
National Highways Authority of India v. Oriental Engineer Pvt. Ltd.:
2018 SCC OnLine Del 10120.
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RAWAL
9. Second, Ms. Suri submitted that the Arbitral Tribunal had erred
in rejecting KMC's claim for payment at the quoted rates in respect of
works executed beyond the Bill of Quantities (BOQ). She stated that
the Engineer had incorrectly calculated the amount payable to KMC, at
a discounted price, in respect of work done beyond the BOQ. She stated
that KMC had quoted a rate for the BOQ items and had also offered a
rebate; however, that rebate was limited to executing the BOQ items.
Any work done beyond the BOQ was required to be paid at the quoted
rates without considering the discount or rebate as offered by KMC.
She submitted that the said issue was covered by the decisions of this
Court in National Highways Authority of India v. M/s ITD
Cementation India Ltd.: 2009 (13) DRJ 176 and in Chennai Ennore
Port Road Company Ltd. v. Coastal SPL (JV): 2019 SCC Online Del
9267. She submitted that since the impugned award runs contrary to
the aforesaid decisions, the impugned award to the extent it rejects
KMC's claim under Claim No.5, is required to be set aside.
10. Third, she submitted that the Arbitral Tribunal had erred in
rejecting KMC's claim for early completion of works by a period of six
months. She stated that KMC would have qualified for the maximum
bonus (of six months) since it would have completed the works six
months prior to the stipulated date of completion (that is, 30.04.2004),
however, there were several defaults on the part of NHAI resulting in
hindrances and delays. Notwithstanding the same, KMC had completed
the works two months prior to the stipulated date of completion. The
Engineer had admitted the delay and recommended extension of time
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RAWAL
for a period of 147 days, however, the extension of time was not
necessary as KMC had completed the works before the stipulated date.
Ms Suri submitted that in view of these circumstances, KMC would be
entitled to bonus for early completion of works and the extension of
time was required to be considered for that purpose. She relied on the
decision of the Division Bench of this Court in Union of India v. N.N.
Buildcon Pvt. Ltd.: 2015 SCC Online Del 11647, in support of her
contention.
11. Fourth, she submitted that the Arbitral Tribunal had allowed
KMC's claim (Claim No.19) for loss suffered due to NHAI's failure to
release the Performance Bank Guarantee (PBG) on expiry of the Defect
Liability Period (DLP). She stated that the Arbitral Tribunal had erred
by not granting bank commission of ₹37,01,895/- for the period from
01.05.2007 to 30.04.2009 and, for the period after 01.11.2018 on the
assumption that KMC had not proved the same. She stated that KMC
had produced certain receipts as well as a sanction letter, however, the
Arbitral Tribunal had erroneously ignored the same. She also stated that
KMC had submitted a certificate from the bank dated 23.01.2020,
however, the same was not a part of the record before the Arbitral
Tribunal.
12. In addition, she submitted that the Arbitral Tribunal had erred in
awarding interest at the rate of 12% per annum instead of the contractual
rate of 1/30th of 1% per calendar day.
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RAWAL
13. Lastly, she submitted that the Arbitral Tribunal had erred in not
awarding interest at the rate of 1% per month compounded monthly on
unpaid executed items from the date of completion of the work. She
further submitted that the Arbitral Tribunal had also erred in not
awarding interest for the period from 24.10.2013 to 23.06.2015 on the
ground that the arbitral proceedings were suspended as the parties were
exploring the possibility of an amicable settlement.
Reasons and Conclusion
14. The first question to be examined is whether the impugned award
is vitiated by patent illegality as the Arbitral Tribunal has rejected
KMC's Claim No.3 - claim for escalation to be paid on the basis of
rates as quoted by it.
15. KMC had claimed a sum of ₹2,62,01,641/- on account of
difference in price adjustment as accepted by NHAI and as claimed by
KMC. In terms of Clause 70.1 of the COPA, KMC was entitled to price
adjustment on the basis of rise and fall in the labour cost index. The
said price adjustment was to be determined with reference to the base
rates as quoted by KMC. The controversy between the parties relates to
the base rates. NHAI claimed that the base rates as quoted by KMC for
various BOQ items were required to be discounted as admittedly, KMC
had offered certain rebates and discounts on the Contract Price as
quoted by it. KMC claimed that although it had offered a discount but
the same was on the overall Contract Price and not on rates as quoted
for the individual items. Therefore, the price adjustment was required
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RAWAL
to be computed with reference to the rates of various BOQ items as
quoted by it and not on the basis of a discount or rebate.
16. KMC had submitted the bid quoting a Contract Price of
₹211,66,64,388/-. Subsequently, it had offered a rebate pursuant to
which the Contract Price was reduced to ₹164,65,76,353/-. KMC
claimed that the said discount was on the overall price and did not affect
the rates for items quoted by it. Accordingly, KMC claimed that the
price escalation under Clause 70.1 of the COPA - which was required
to be computed according to the formula as specified in Clause 70.3 of
the COPA - was required to be computed on the base rates.
17. The Arbitral Tribunal found that KMC had in fact offered certain
rebates on the tendered rates and therefore, its claim that the formula
under Clause 70.3 of the COPA was required to be worked on the base
rates as quoted by it by disregarding the discount or rebate as offered
by it, was rejected.
18. The Arbitral Tribunal rejected the contention that KMC had
offered a rebate on the overall Contract Price without affecting the base
rates as quoted by it for various items.
19. This Court finds no infirmity with the Arbitral Tribunal's
decision. The tender submitted by KMC indicates that it had quoted the
item rates against each item of the BOQ and had also quoted the value
of the said work, which was a product of the rates quoted and the
estimated quantity. The said figures for each items were added to
provide the cumulative value of different heads of works and their
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RAWAL
aggregate value amounted to ₹211,66,64,388/-. KMC had offered
rebate in terms of a letter dated 17.06.2001. The contents of the said
letter are relevant and are reproduced below:
"Please refer the bid submitted by us for the above work.
In accordance with Clause 23, Section - I - instructions
to bidders of Volume - I (Modification and withdrawal
of Bids) we hereby offer rebated as follows.
1) 22.59% (Percent twenty two point five nine only)
rebate for all the items in Bill Nos.2,3,4,7,8,9,10,11
and 12 in BILL OF QUANTITIES.
2) 18.36% (Percent eighteen point three six only) rebate
for all the items in Bill Nos.1,5A,5B,6A, 6B and 6C
in BILL OF QUANTITIES."
20. It is clear from the above that KMC had offered discounts on "all
items" of BOQ and not simply a discount on the overall price as claimed
by it. Thus, the fundamental premise on which KMC had founded its
claim does not hold good.
21. In view of the above, the decision of the Coordinate Bench of this
Court in National Highways Authority of India v. Oriental Engineer
Pvt. Ltd. (supra) is of no assistance to KMC as in that case the
contractor had given an overall discount on the price and not on all items
of the BOQ. It is also important to note that in that case, the arbitral
tribunal had accepted the contention that the price adjustment clause
was required to be worked on the base rates as quoted by the contractor.
The Coordinate Bench of this Court had rejected NHAI's challenge to
the arbitral award as the Court found that the arbitral tribunal's
interpretation of the clause was a plausible one and warranted no
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RAWAL
interference. The Division Bench of this Court had also concurred with
the aforesaid view and found no ground to interfere with the impugned
award or with the decision of the Single Bench rejecting NHAI's
challenge under Section 34 of the A&C Act. Rejection of a petition
under Section 34 of the A&C Act does not imply that the decision of
the Arbitral Tribunal is correct or that the Court concurs with the same.
It merely means that no interference with the arbitral award is warranted
as the grounds for setting aside the award under Section 34 of the A&C
Act are not established.
22. The second question to be examined is whether the Arbitral
Tribunal's decision to reject KMC's Claim No.5 is patently illegal.
KMC had claimed a sum of ₹9,65,26,231/- on account of additional
payment for execution of items in excess of the specified quantities
mentioned in the BOQ. The payments for such quantities executed by
KMC were cleared at the discounted rates quoted by KMC. KMC
claimed that it had offered the discount only in respect of the quantities
under the BOQ and it had not agreed to extend that discount for
quantities executed in excess of the BOQ. The Arbitral Tribunal found
KMC's contention to be unmerited.
23. The Preamble to BOQ clearly stated that "the quantities given in
the Bill of Quantities are estimated and provisional and are given to
provide a common basis for bidding." Thus, it was contemplated that
the quantum of work executed may vary. The Arbitral Tribunal noticed
that by a letter dated 17.06.2001, KMC had offered a discount in respect
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RAWAL
of all the items in the BOQ and had not mentioned any condition that
the discount was limited only to the quantities as mentioned in the BOQ.
24. The decision of the Arbitral Tribunal to reject KMC's Claim
No.5 cannot by any stretch be considered to be patently illegal or in
conflict with the public policy of India. The Arbitral Tribunal's view is
clearly a plausible view and cannot be interfered with in these
proceedings.
25. The next question to be examined is whether the Arbitral
Tribunal had erred in rejecting KMC's claim for bonus for early
completion of the Contract (KMC's Claim No.13).
26. KMC claimed that it was entitled to ₹4,00,00,000/- as bonus for
completing the works prior to the stipulated date of completion, in terms
of Clause 47.3 of the COPA. The stipulated date for completion of the
Contract was 30.04.2004 and KMC claims that it had completed the
works on 28.02.2004. Undeniably, KMC is entitled to bonus for
completing the works two months prior to the stipulated date of
completion of the Contract; and, the said bonus was paid to it. KMC
claims that it is entitled to bonus for a period of six months - which was
the maximum - as there were delays for reasons attributable to NHAI
and the stipulated period for completing the works was required to be
extended. KMC claimed that the works would have been completed
even prior to 28.02.2004, if there were no defaults on the part of NHAI.
The Engineer found that there was a delay of eighty-nine days in
handing over the site and removing obstructions; a delay of ten days in
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RAWAL
providing a decision with regard to the drawings etc.; a delay of twenty-
five days on account of additional work; and, a delay of over twenty-
three days on account of force majeure events. KMC claimed that the
Engineer had recommended an extension of time of 147 days, however,
the same was not necessary as KMC had completed the works prior to
the expiry of the original Contract period. Nonetheless, the said
extension of time was required to be considered for the purpose of
calculation of bonus.
27. The Arbitral Tribunal held that in terms of Clause 47.3 of the
COPA no adjustment of time, by reason of granting an extension of
time, was required to be allowed for computing the bonus payable under
the Contract. Clause 47.3 of the COPA is relevant and is set out below:
"47.3 Bonus for early completion:
If the contractor achieves completion of the whole works
prior to the time completion prescribed by Clause 43, the
Employer shall pay to the contractor a sum, stated in the
appendix to Bid as bonus for every completed month
which shall elapse between the date stated in Taking over
certificate of whole of the works, including variations
ordered by the Engineer and the relevant time prescribed
in Clause 43.
For the purpose of calculating the bonus payments, the
time given in the Bid for completion of the whole of the
works is fixed and unless otherwise agreed, no adjustment
of the time by reason of granting an extension of time
pursuant to clause 44 or any other clause of these
conditions will be allowed. Any period falling short of a
complete month shall be ignored for the purpose of
computing the period relevant for the payment of bonus."
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RAWAL
28. As is apparent from the above, Clause 47.3 of the COPA
expressly provides that the time for completion of the Contract is fixed
and unless the parties otherwise agree, no adjustment of time by reason
of granting extension of time would be allowed. Sensu stricto, KMC's
contention that it was entitled to bonus under Clause 47.3 of the COPA
by taking into account its entitlement to extend the time for completion
of work, which it was otherwise entitled to, is not admissible under the
said clause. Considering that the Engineer had found certain delays on
the part of NHAI, it was possible for the Arbitral Tribunal to take
another view. However, this Court is unable to accept that the Arbitral
Tribunal's view is manifestly erroneous and renders the impugned
award patently illegal.
29. In Union of India v. N.N. Buildcon Pvt. Ltd. (supra), which is
relied upon by KMC, the Arbitral Tribunal had accepted the
contractor's claim. This Court found no grounds to interfere with the
same under Section 34 of the A&C Act. As noted above, dismissal of
an application under Section 34 of the A&C Act for setting aside an
arbitral award cannot be construed to mean that the Court concurs with
the decision of the Arbitral Tribunal; it merely means that the Court
does not find any ground under Section 34(2) or Section 34(2A) of the
A&C Act, to interfere with the award.
30. It is also material to note that there is nothing in the said decision,
which indicates that the contractual clause in the context of which the
said decision was rendered, included any specific bar to adjustment on
account of extension of time as is the case under Clause 47.3 of the
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RAWAL
COPA. In this view as well, the decision in Union of India v. N.N.
Buildcon Pvt. Ltd. (supra), does not further KMC's case.
31. The next question required to be considered is whether the
Arbitral Tribunal's decision in respect of KMC's Claim No.19 - claim
for loss suffered by KMC as a consequence of failure on the part of
NHAI to release the Performance Bank Guarantee within the stipulated
period - is patently illegal.
32. NHAI had issued the Taking Over Certificate on 28.02.2004. The
Defect Liability Period of twelve months expired on 28.02.2005 in
terms of Clauses 10.2 and 10.4 of the GCC. NHAI was obliged to return
the Performance Bank Guarantee for a sum of ₹16,47,57,636/-
(hereafter 'the PBG') furnished by KMC within a period of fourteen
days thereafter. However, NHAI issued the Defect Liability Certificate
on 24.05.2006. Thus, the PBG was required to be released latest by
07.06.2006, that is, within the fourteen days period after the issuance of
the Defect Liability Certificate. However, NHAI did not release the
PBG and this resulted in KMC incurring additional costs on account of
commission paid to the Bank for extending the PBG along with further
interest on that commission. KMC also claimed interest on the said
amount.
33. NHAI contested the aforesaid claim. NHAI contended that it had
attempted to invoke the PBG but this Court had, at the instance of KMC,
interdicted the invocation of the PBG and directed that the PBG be kept
alive till the conclusion / completion of the arbitral proceedings. NHAI
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claimed that KMC had not disputed the said direction and therefore,
was not entitled to any claim, which was premised on the PBG being
kept alive.
34. The Arbitral Tribunal had considered the disputes and had
rejected NHAI's contention. The Arbitral Tribunal noted that the
Engineer had issued the Defect Liability Certificate certifying that "The
contractor has fulfilled all of its physical and contractual obligation
under the above said contract" and therefore, NHAI was required to
release the PBG. However, NHAI had failed to do so. The Arbitral
Tribunal also held that the directions issued by this Court to keep the
PBG alive were occasioned due to wrongful actions on the part of NHAI
in attempting to invoke the PBG.
35. The principal PBG was for a sum of ₹16,47,57,636/-. The said
amount was not paid by KMC and therefore, its claim for interest on the
said amount was rejected. However, the Arbitral Tribunal found that
KMC had paid commission for keeping the PBG alive during the
extended period and quantified the said amount at ₹2,34,21,249/-. In
addition, the Arbitral Tribunal also awarded interest at the rate of 12%
per annum on the said amount to be computed from various dates on
which commission was paid.
36. The principal controversy in the present case relates to the
computation of the amount of commission. According to KMC, it had
updated its claim for commission to ₹2,70,65,979/- and its calculation
of ₹2,33,97,855/- submitted earlier was erroneous. KMC also contends
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that the Arbitral Tribunal had erroneously not granted bank commission
for the period 01.05.2007 to 20.04.2009. KMC had also filed an
application under Section 33 of the A&C Act seeking rectification of
the award to that extent since KMC's claim had been accepted but
according to KMC, there was a computation error in computing the
awarded amount against the said claim.
37. The Arbitral Tribunal rejected KMC's application under Section
33 of the A&C Act by an order dated 21.11.2019. It clarified that it had
computed the amount of bank commission payable to KMC on the basis
of the certificates issued by Andhra Bank, which were produced by
KMC in evidence; and, not on the basis of the computation as provided
by KMC. Therefore, there was no computational error in the impugned
award. Insofar as KMC's claim for award of commission and interest
after 31.03.2018 is concerned, the Arbitral Tribunal held that since the
claim for future amounts after 31.3.2018, was not made in the Statement
of Claims, the same could not be granted.
38. It is necessary to refer to Paragraph 19.4.8 of the impugned
award, which indicates the basis on which the Arbitral Tribunal has
computed the amount of the PBG commission. The said paragraph is
set out below:
"19.4.8 The AT has examined the updated claim and
decides as follows:
i) The principal amount of the Performance
Bank Guarantee of Rs.l6,47,57,636/- was
not actually paid to the Bank and hence it is
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not an expenditure incurred by the Claimant.
In view of this, the Claimant is not entitled
to interest on the amount of Performance
Bank Guarantee for the period 07.06.2006 to
31.03.2018 as claimed by the Claimant.
Hence the amount of Rs.50,53,72,664/-
claimed towards Performance Bank
Guarantee amount and interest thereon is not
admissible and is disallowed.
ii) It is seen from the statements (page 954 of
Vol 4 and page 2525 of CH-29) furnished by
Andhra Bank that the total commission paid
by the Claimant on various dates for keeping
Bank Guarantee alive for the extended
period amounts to Rs.2,34,21,249/-. The
bank commission for the extended period
was paid in instalments on different dates on
26.05.2006, 25.08.2006, 20.02.2007,
20.04.2009, 14.10.2009, 03.11.2010,
18.11.2011, 30.10.2012, 30.10.2013,
11.03,2014, 08.09.2014, 30.10.2014,
30.10,2014, 31.10.2016, 22.11.2016,
12.09.2017, 25.10,2017. Accordingly, AT
holds that Claimant is entitled to
reimbursement of the amount paid towards
BG commission to the bank as per the
statement furnished by the bank. The dates
on which payments were made are due dates
for interest calculation.
iii) The Claimant is also entitled to interest on
the commissions paid to the Bank.
iv) As regards rate of interest, it is seen that the
Claimant has adopted the rate prescribed in
the Appendix to Bid as per sub-clause 60.8
of COPA. This rate applies only to delayed
payments for work done during the
execution of the Contract and hence cannot
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be applied to commissions paid to bank. The
AT decides that simple interest at the rate of
12% per annum on the amount paid by the
Claimant towards BG commission, will be
reasonable."
39. It is seen from the above that the Arbitral Tribunal had relied
upon a statement furnished by KMC referred to as CH-29. The copy of
the said tabular statement is annexed at pages 894 and 895 of the
documents filed by KMC. The said tabular statement indicates the
amount of commission for PBG, paid to Bank from 29.05.2006 to
31.08.2018. The sum total of the commission paid is reflected as
₹2,33,97,855/-. KMC claims that there is a totalling error in the said
chart and the calculation is incorrect.
40. However, in the order dated 21.11.2019 passed by the Arbitral
Tribunal in KMC's application under Section 33 of the A&C Act, the
Arbitral Tribunal has clarified that it had relied on the certificates issued
by Andhra Bank - Certificate dated 20.04.2007 and Certificate dated
03.03.2018 for awarding the claim in favour of KMC. These two
certificates issued by Andhra Bank being Certificates dated 20.04.2007
and 03.03.2018 are annexed at pages 782 and 896 of the documents
filed along with this petition.
41. A perusal of the Certificate dated 20.04.2007 indicates that the
commission of ₹51,66,510/- was paid by KMC for the period
01.03.2005 to 30.04.2007. Out of the aforesaid amount, an aggregate
sum of ₹21,26,309/- was paid from 26.05.2006 to 30.04.2007
(₹5,78,000/- plus ₹11,55,887/- plus ₹4,62,422/- being the last three
entries in the said certificates).
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42. The Certificate dated 3.03.2018 indicates that a total amount of
₹2,12,24,940/- was paid towards PBG commission including service
tax/GST from 20.04.2009 to 03.03.2018. Thus, the aggregate amount
of ₹2,34,21,249/- (being ₹2,12,24,940/- and ₹21,26,309/-) has been
awarded by the Arbitral Tribunal. However, the said certificates do not
reflect the PBG commission paid for the period 01.05.2007 to
20.04.2009. The said figures are included in the tabular statement
referred to by the Arbitral Tribunal in the impugned award. The
commission reflected in the said tabular statement is set out below:
Period of Extension BG Commission
Amount
01.05.2007 to 31.10.2007 ₹9,24,732.00
01.11.2007 to 30.04.2008 ₹9,25,721.00
01.05.2008 to 31.10.2008 ₹9,25,721.00
01.11.2008 to 30.04.2009 ₹9,25,721.00
43. The said PBG commissions have not been included in the
impugned award. KMC had produced a copy of a debit advice issued
by Andhra Bank reflecting a debit of ₹9,24,732/- however, the same is
not legible. In addition, KMC had also produced a letter issued by
Andhra Bank sanctioning the facility of PBG commission to KMC. The
said letter specifies that the commission would be charged at 1% for all
types of Bank Guarantees. Undisputedly, the PBG was kept alive. The
sanction letter produced by KMC clearly indicates that commission was
payable on the PBG at the rate of 1% per annum. The Arbitral Tribunal
had accepted that PBG commission was payable to KMC for a period
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from 29.05.2006 to 31.10.2018. However, the Arbitral Tribunal has not
included the PBG commission for the period 01.05.2007 to 20.04.2009
for the reason that KMC had failed to produce any certificate from the
bank evidencing payment of the PBG commission for that period.
44. The Arbitral Tribunal has adopted a strict approach in this regard
and has disregarded the evidence other than the certificates issued by
Andhra Bank. KMC had not produced any evidence to show that it had
paid commission for the period 01.05.2007 to 19.04.2009. The Arbitral
Tribunal has also awarded interest from the dates when KMC paid the
commission. Thus, its decision to adopt a strict approach to proceed
only on the evidence that established actual payment of commission,
cannot be faulted. This Court cannot re-evaluate the evidence to
supplant its opinion over that of the Arbitral Tribunal. The view of the
Arbitral Tribunal cannot be stated to be patently illegal, warranting
interference in these proceedings.
45. The last contention to be examined is whether the impugned
award to the extent it does not award interest as claimed by KMC is
vitiated by patent illegality. KMC's grievance in this regard is two-fold.
First, that the Arbitral Tribunal has not awarded interest at the rate as
agreed by the parties. KMC claims that in terms of Clause 60.8 of the
COPA, it was entitled to interest at the rate of 1% per month
compounded monthly on the payments due in respect of items executed
by it from the date of completion (that is, 31.07.2004) till the date of
payment. Second, that the Arbitral Tribunal has not awarded any
interest for the period 24.10.2013 to 23.06.2015 as the parties were
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endeavouring to resolve their disputes amicably and the arbitral
proceedings were at a standstill. Clause 60.8 of the COPA is relevant
and set out below:
"The amount due to the contractor under any interim
payment certificate issued by the engineer pursuant to this
clause or to any other term of the contract, shall subject to
clause 47, be paid by the employer to the contract within
14 days after the contractor's monthly statement has been
certified pursuant to sub-clause 60.13, within 84 days
after the agreed final statement and written 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. In the event of
failure of employer to make payment within the time
stated, the employer shall pay to contractor interest
compounded monthly at the rates stated in the Appendix
to bid upon all sums unpaid from the date upon which the
same should have been paid."
46. NHAI had disputed KMC's claim for interest on the ground that
KMC was not entitled to any of its claims. The relevant extract from the
Statement of Defence setting out NHAI's averments to contest KMC's
Claim No. 22, is set out below:
"CLAIM NO.22 - Rs. 44,31,22,017/- : Interest is to be
paid for unpaid executed items from the date of
competition of the work.
(1) Contents of para under reply are denied as false and
incorrect. The Claimant has miserably failed to
corroborate its illegal and alleged claims with ample
evidence and supporting documents making it liable to be
rejected with exemplary cost. In view of the averments
made in the preceding paras, all the claims of the Claimant
deserves to be summarily rejected and hence, question for
the payment of any alleged interest doesn't arise. The
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claimant is not entitled to any amount to be paid under any
of the claims submitted before this Hon'ble Tribunal.
Each and every averment as stated in the claim under reply
is denied except specifically admitted herein. There
should not be any deemed admission on the part of the
Respondent for want of specific denial.
Quantification done by the claimant is vague and baseless.
Figures mentioned in the quantification are baseless. In
these circumstances the claim under reply is liable to be
dismissed."
47. It is apparent from the above that, NHAI did not dispute that
KMC was entitled to interest at the contracted rate or the interest rate as
specified under the Contract was exorbitant and in the nature of penalty.
According to NHAI, KMC's claim were untenable and therefore, it was
not entitled to any interest.
48. It is important to note that the Arbitral Tribunal had accepted
KMC's claim and held that "as per the Contract, the claimant is entitled
to interest from due date till the date of payment".
49. It is material to note that it was not NHAI's defence that interest
under Clause 60.8 of the COPA is not payable on the amounts due for
the works executed by KMC as no payment certificate had been issued
in respect of the said amounts. The contention to this effect before this
Court is clearly an afterthought.
50. This Court is also not persuaded to accept that merely because an
interim payment certificate has not been issued for the work done, the
contractor would lose his right to receive the interest under the Contract
if he prevails in his claim for payment for the work done. This would
clearly imply that the interim certificate has been wrongly withheld.
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Surely, the contractor cannot be penalised for the same. It is not
necessary for this Court to dilate on this issue any further as this was
not the defence raised by NHAI before the Arbitral Tribunal. More
importantly, the Arbitral Tribunal has accepted that KMC was entitled
to interest as per the Agreement in respect of its claims except, the
amount in respect of loss suffered on account of non-release of the Bank
Guarantees.
51. Having found that KMC was entitled to interest, the Arbitral
Tribunal had reduced the rate of interest from 1% per month (12% per
annum compounded monthly) to simple interest at the rate of 16% per
annum (that is, 2% above the current Prime Lending Rate of SBI). The
Arbitral Tribunal was of the view that the award of interest at the
contracted rate would become exorbitant in view of the provision
regarding compounding interest on monthly rests. The Arbitral Tribunal
had, therefore, increased the rate of interest but deleted the provision
for compounding interest.
52. There is substance in KMC's contention that the award of interest
runs contrary to the terms of the Agreement. Merely because the interest
burden becomes large, is not a ground to deny interest as contracted for
by the parties. The increase in the quantum of interest is mainly due to
the period spent by KMC in securing the award. While KMC has been
denied its dues, NHAI has enjoyed the benefit of retaining the funds.
53. It is also important to note that it was not NHAI's case that the
interest rate provided under the Agreement was in the nature of penalty
or in terrorem. As noticed above, no such defence was taken. The
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Agreement is a commercial contract between the parties and the parties
are bound to honour the same. It is common knowledge that any finance
obtained from banks is on interest compounded monthly or quarterly.
Although, the Arbitral Tribunal had referred to the Prime Lending Rate
of State Bank of India, it did overlook that the finance provided by SBI
is on compound interest and not simple interest.
54. It is also material to note that the Supreme Court has rendered
several decisions holding that where a contract between the parties
proscribes awards of interests, the Arbitral Tribunal would not have the
power to award interest under Section 31(7)(a) of the A&C Act and for
the period prior to the date of the award. [See: Sayeed Ahmed And
Company v. State of Uttar Pradesh And Ors.: (2009) 12 SCC 26; Sree
Kamatchi Amman Constructions v. Divisional Railway Manager
(Works), Palghat And Ors.: (2010) 8 SCC 767; Ambica Construction
v. Union of India: (2017) 14 SCC 323; and Jaiprakash Associates
Limited (JAL) v. Tehri Hydro Development Corporation (India)
Limited (THDC): 2019 17 SCC 786 ].
55. In a recent decision by the Supreme Court rendered in Union of
India v. Manraj Enterprises: Civil Appeal no. 6592 of 2021, decided
on 18.11.2021, the Supreme Court had referred to the earlier decision
in Union of India v. Bright Power Projects (India) (P.) Ltd.: (2015) 9
SCC 695 and had observed that the words 'unless otherwise agreed by
the parties' as used in Section 31(7)(a) categorically specify that "the
arbitrator is bound by the terms of the contract insofar as award of
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interest from the dater of cause of action to the date of award is
concerned."
56. The Court also observed that the arbitrator is a creature of the
contract and it has no power to award interest contrary to the terms of
the agreement/contract between the parties. The principle that an
arbitrator is bound by the terms of the contract resonates through in
various other decisions rendered by the Supreme Court as well. The said
principle will also hold good, where the parties have expressly agreed
that the same would be payable.
57. In cases, where the agreement expressly provides for payment of
interest; unless the terms of the contract in regard to interest are found
to be invalid or inapplicable, the arbitral tribunal is required to render
an arbitral award in conformity with the terms of the Contract. In cases
where the agreement proscribes award of interest, the arbitral tribunal
cannot award interest. In cases, where the contract is silent as to
payment of interest, the arbitral tribunal would have the discretion to
award interest as Section 31(7)(a) of the A&C Act empowers the
arbitral tribunal to do so.
58. The Arbitral Tribunal also denied interest to KMC for the period
when the arbitration proceedings were at a standstill. This Court finds
that there is no justifiable reason for the same. It is conceded that during
the course of the arbitral proceedings, the parties had without prejudice
to their respective rights and contentions attempted to resolve their
disputes amicably. Considering that it is conceded that such discussions
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were without prejudice to all rights and contentions; the decision of the
Arbitral Tribunal to deny KMC the interest for the period that the parties
were endeavouring to resolve their disputes, that is, for a period from
24.10.2013 to 23.06.2015 is, ex facie, erroneous. The time taken for
discussion between the parties could not be to the advantage of NHAI
or a disadvantage to KMC. It certainly did not absolve NHAI to pay
interest which the Tribunal held was payable under the Agreement.
59. In view of the above, the impugned award to the extent it rejects
KMC's claim for interest at the contracted rate for the period from
which the amount became due to the date of the award, is set aside.
60. The petition is disposed of in the aforesaid terms.
VIBHU BAKHRU, J
DECEMBER 23, 2021
RK/v
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