Delhi High Court
National Highways Authority Of ... vs Kmc Constructions Ltd. on 23 December, 2021
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 23.12.2021
+ O.M.P. (COMM.) 461/2020, I.A. NOS. 7760/2020 &
2327/2021
NATIONAL HIGHWAYS AUTHORITY
OF INDIA ....Petitioner
versus
KMC CONSTRUCTION LTD ....Respondent
Advocates who appeared in this case:
For National Highways : Mr Arun Kumar Varma, Senior
Authority of India Advocate with Mr Yamandeep Kumar
and Mr Shashank Bhansali,
Advocates.
For KMC Construction : Ms Kiran Suri, Senior Advocate with
Ltd. Mr Hitendra Nath Rath, Advocate.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. The petitioner (hereafter 'NHAI') 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
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By:DUSHYANT
RAWAL
Tribunal constituted by three members (hereafter 'the Arbitral
Tribunal').
2. NHAI challenges the impugned award to the limited extent that
it allows KMC's claims for certain extra items ( E-2, E-4, E-12, E-16,
R2-05, CD-02 & 03) forming part of Claim No. 1 and to the extent
that it allows KMC's Claim Nos. 12, 14 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
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By:DUSHYANT
RAWAL
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
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. P.V. Rama
Raju as an Arbitrator. NHAI nominated Sh. V.S. 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.
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By:DUSHYANT
RAWAL
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.
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
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By:DUSHYANT
RAWAL
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
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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By:DUSHYANT
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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By:DUSHYANT
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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By:DUSHYANT
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. At the outset it is necessary to note that NHAI seeks that the
impugned award be set aside to the limited extent that it has allowed
KMC's claims for certain extra items (E-2, E-4, E-12, E-16, R2-05,
CD-02 & 03) forming part of Claim No. 1 and has allowed KMC's
Claim Nos. 12, 14 and 22. NHAI does not challenge the Arbitral
Tribunal's decision to reject its counter-claims.
8. Mr Varma, learned senior counsel appearing for NHAI has
assailed the impugned award on four fronts. First, he submitted that the
decision of the Arbitral Tribunal to award Claim No.1 in respect of
certain items is ex facie erroneous. He contended that the Arbitral
Tribunal had erred in disregarding that KMC had accepted the Variation
Orders in respect of the extra items in question. The said Variation
Orders included the rates for the items in question. Notwithstanding the
above, the Arbitral Tribunal had awarded substantial amounts after
reworking the rates determined by the Engineer and as accepted by
KMC.
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By:DUSHYANT
RAWAL
9. Second, he submitted that the Arbitral Tribunal had erred in
awarding an amount of ₹3,93,83,321/- on account of additional
overheads as the total contract value had exceeded the Effective
Contract Price by over 15%. However, there was no evidence or
material on record to substantiate any increase in overheads. He
submitted that even if it is accepted that KMC was entitled to an
additional amount on account of overheads, it was nonetheless, required
to prove the same. However, in this case, there was no evidence on
record to show any increased overheads.
10. Third, he submitted that the Arbitral Tribunal had erred in
awarding costs for idling of men and machinery due to transporters
strike and instructions issued by the Mining Department. KMC
contended that it was entitled to be paid costs for idling of men and
machinery. Although the Arbitral Tribunal accepted the said contention,
there were no pleadings or any evidence for determining the amount as
awarded. He stated that KMC had not led any evidence to establish that
it had paid or incurred any cost for men and machinery during the
transporters strike and closure of quarry on the instructions issued by
the Mining Department.
11. He also submitted that the claim raised by KMC was barred by
limitation. The claims were made before the Engineer. However, the
Engineer did not render any decision. Therefore, the cause of action had
arisen after eighty-four days from the date of issuance of the notices,
which were issued in December 2002. Although, the said contention
was noted by the Arbitral Tribunal, it did not render any decision
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By:DUSHYANT
RAWAL
regarding the same. He relied on the decision of the Supreme Court in
the State of Gujarat v. M/s Kothari and Associates: (2016) 14 SCC 761
in support of his contention that the claims were barred by limitation.
12. Lastly, he submitted that the award of interest at the rate of 16%
per annum was excessive and the rate of interest was liable to be
reduced. He referred to the decision of the Supreme Court in Vedanta
Limited v. Shenzhen Shandong Nuclear Power Construction
Company Limited: (2019) 11 SCC 465 in support of his contention.
13. Ms Suri, learned counsel appearing for KMC countered the
aforesaid contentions. She submitted that KMC's claim for idling of
men and machinery was awarded on the basis of the rates as published
by Ministry of Road Transport and Highways in MoRTH Data Book
for the year 2001. The relevant pages from the said book were placed
on record. She also handed over a copy of those pages during the course
of submissions.
Reasons and Conclusion
14. The first question to be examined is whether the decision of the
Arbitral Tribunal in allowing KMC's Claim no. 1 for additional
amounts in respect of certain items of work directed to be executed by
the Engineer in addition to the Bill of Quantity (BOQ) items, is patently
illegal.
15. During the course of the execution of the works, certain new
items were directed to be executed by the Engineer. Undisputedly, the
Engineer was required to fix rates for the said items. KMC claimed that
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By:DUSHYANT
RAWAL
the rates were required to be fixed with reference to the market rates,
nature of the item, variation in the cost of materials, variation in
operation cost etc. In terms of the Agreement, KMC submitted analysis
of rates in respect of each item in question. However, the Engineer had
finalised the rate arbitrarily and without considering the actual cost.
Accordingly, KMC claimed additional amount based on the difference
in the value of work at the rates as claimed by KMC and as fixed by the
Engineer.
16. NHAI is aggrieved on account of the amounts awarded by the
Arbitral Tribunal in respect of seven items (E-2, E-4, E-12, E-16, R2-
05, CD-02 & 03). A tabular statement setting out the relevant items,
the amount claimed by KMC and the amount awarded against such
claims is set out below:
"S. Claim no. and description of Amount Amount
No. claim claimed (Rs.) awarded
(Rs.)
1. Claim No.1
• Supplying and fixing of Netlon
Geo-Textile behind abutments 6,90,466/- 3,44,890/-
and wing walls
• Providing and fixing in position 1,33,85,106/- 72,42,390/-
HYSD bars for Median Drain
Chambers
• Painting of Kerbs 5,93,462/- 4,74,416/-
• Pedestrian Guard Railing 6,30,840/- 5,12,188/-
• Construction of Stone Masonry 2,07,99,485/- 8,640,800/-
in CM (1:3) for Masonry
Retaining Wall
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By:DUSHYANT
RAWAL
• Providing Encasement to Cross 32,12,261/- 17,17,927/-
Ducts with M:15 Grade Concrete
&CD-03: Providing 150 mm dia.
PVC Pipe in Cross Duct
17. NHAI's contention that the impugned award is vitiated by patent
illegality is premised on the assumption that the Arbitral Tribunal was
precluded from awarding any amount as KMC had accepted the rates
as fixed by the Engineer and had signed the Variation Orders in
acceptance thereof.
18. KMC had contended that it was not precluded from raising its
claim as the rates fixed by the Engineer were ex facie arbitrary. KMC
had submitted the analysis of rates for each of the items. Although the
Engineer had fixed the rates, it had overlooked certain cost components
that were available on record.
19. The Arbitral Tribunal examined the analysis of rates and found
that there were apparent errors. Accordingly, the Arbitral Tribunal
determined the rates for certain items as set out above. The Arbitral
Tribunal rejected NHAI's contention that KMC was precluded from
challenging the said rates. And, accepted KMC's contention that it had
signed the Variation Orders as there was an inordinate delay in
determining the rates and it had to sign the same for its payments to be
processed. KMC had submitted its rates at the time of executing the
items. The Arbitral Tribunal noted that no objections were raised at the
material time and KMC was allowed to proceed with and complete the
items of work. There was an inordinate delay on the part of the
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By:DUSHYANT
RAWAL
Engineer in determining the rates. It did so, much after the work had
been completed. KMC contended that NHAI was estopped from
challenging the rates. The Arbitral Tribunal accepted KMC's
contention that the rates submitted by it were accepted without
objection by the Engineer at the material time and it had permitted KMC
to proceed with the work on that basis.
20. KMC had pleaded that it had signed the Variation Orders as the
delay was affecting its cash flow. The Arbitral Tribunal had found that
KMC had taken up the matter with the Engineer but had signed the
Variation Orders as the payments had already been unreasonably
delayed. However, KMC had treated the same as provisional.
21. The issue whether KMC was bound by the Variation Orders as
accepted by it, in the given facts and circumstances, is a contentious
one. The Arbitral Tribunal had evaluated the circumstances and
material before it and had rejected NHAI's contention that KMC was
bound by the Variation Orders. Merely because KMC had signed the
Variation Orders it is not dispositive of KMC's claims. KMC's
contentions in this regard were evaluated and considered by the Arbitral
Tribunal. The decision of the Arbitral Tribunal is not amenable to a re-
evaluation on merits. It is trite law that the arbitral award cannot be
interfered with except where it is found to be patently illegal or in
conflict with the public policy of India.
22. In M/s PCL-Suncon (JV) v. National Highways Authority of
India: 2015 SCC OnLine Del. 13192, the Division Bench of this Court
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By:DUSHYANT
RAWAL
had observed that "Section 34 jurisdiction calls for judicial restraint
and an awareness that the process is removed from appellate review".
Clearly, the view of the Arbitral Tribunal is a plausible one and it is not
permissible for this Court to interfere with the same.
23. The second question to be considered is whether the impugned
award is vitiated by patent illegality to the extent that the Arbitral
Tribunal had awarded a sum of ₹3,93,83,321/- against KMC's claim for
a sum of ₹22,63,81,902/-, on account of variation in the contract value
exceeding 15% of the Effective Contract Price (Claim No.12).
24. KMC had claimed that it was entitled to additional expenditure
on account of overheads and profit resulting from increase in the value
of the Contract as it had exceeded 15% of the Effective Contract Price.
The original contract price was ₹164,75,76,653/-. However, KMC had
executed additional work for a sum of ₹90,35,23,147/- which exceeded
15% of the Effective Contract Price. Thus, the Arbitral Tribunal found
that the additional value of the work above 15% of the contract price
was ₹65,63,88,694/- and in terms of Clause 52.3 of the General
Conditions of Contract (GCC), the Engineer was required to determine
additional overheads. Clause 52.3 of the GCC is set out below:
"52.3. Variations Exceeding 15 percent:
If, on the issue of the Taking-Over certificate for the
whole of the Works, it is found that as a result of:
(a) all varied work valued under Sub-clauses 52.1 and
52.2,
And
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RAWAL
(b) all adjustments upon measurement of the
estimated quantities set out in the Bill of
Quantities, excluding Provisional Sums, day
works and adjustments of price made under
Clause-70, but not from any other cause, there
have been additions to or deductions from the
Contract Price which taken together are in excess
of 15 percent of the "Effective Contract Price"
(Which for the purposes of this Sub-clause shall
mean the Contract Price, excluding Provisional
Sums and allowances for day works, if any) then
and in such event (subject to any action already
taken under any other Sub-Clause of this Clause),
after due consultation by the Engineer with the
Employer and the Contractor, there shall be added
to or deducted from the Contract Price such further
sum as may be agreed between the Contractor and
the Engineer or, failing agreement, determined by
the Engineer having regard to the Contractor's Site
and general overhead costs of the Contract. The
Engineer shall notify the Contractor of any
determination made under this Sub-Clause, with a
copy to the Employer. Such sum shall be based
only on the amount by which such additions-
deductions shall be in excess of 15 percent of the
Effective Contract Price."
25. KMC claimed that the variation amounted to
₹115,26,64,060.44/-. The value of additional items beyond the
permissible 15% of the Effective Contract Price amounted to
₹90,55,27,607.49/-. KMC claimed that it was entitled to additional
overheads of ₹13,58,29,141.12/- calculated at the rate of 15% of the
said amount and further 10% of the said amount as profits, quantified
at ₹9,05,52,760.75/-. KMC, thus, claimed that it was entitled to
₹22,63,81,901.87/-.
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By:DUSHYANT
RAWAL
26. NHAI disputed the aforesaid claim. According to NHAI, no
amount was payable as the overheads were included in the rates fixed
by the Engineer under Sub-Clauses 52.1 and 52.2 of the GCC. NHAI
also stated that KMC was not entitled to any amount as it had failed to
produce any evidence to prove the site and general overheads costs.
KMC had relied on certain letters. However, NHAI stated that the said
letters were not sufficient evidence for substantiating the claims. NHAI
also disputed the manner of computing the variation above the threshold
of 15% of the Effective Contract Price.
27. The Arbitral Tribunal had interpreted Clause 52.3 of the GCC
and held that KMC was entitled to additional overheads on account of
increase in the value of the Contract beyond the threshold limit of 15%.
It relied upon the decision of the Division Bench of this Court in M/s
PCL-Suncon (JV) v. National Highways Authority of India: 2015
SCC OnLine Del. 13192. Paragraph no. 18 of the said decision is
relevant and is set out below:
"18. The Arbitral Tribunal held that valuation of the
omitted items was to be made under Clause 52.1,
independent of Clause 52.3. This Court is in agreement
with this view. A look at the terms of the contract would
show that Clause 52.1 and 52.2 on the one hand and52.3
on the other contemplate two different points of time in
the execution of the contract. Under 51.1, the Engineer is
entitled to affect any variation by way of addition or
deletion of items from the BOQ. Clause 52.1 mandates
that such variations made during the execution of the work
must be valued at the same time, i.e. during the
subsistence of the contract, at the time of the variation
itself. Clause52.3 operates at a later point in time, i.e. at
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By:DUSHYANT
RAWAL
the time when the Taking Over Certificate is issued, which
necessarily contemplates the completion of the work and
the end of the Contract. It is at this time, that all previously
valued variations must be taken into account to ascertain
whether the cumulative valuation has either exceeded or
fallen below 15 percent of the price of the effective
contract price. In other words, the valuation under Clause
52.1 precedes the estimation of the valuation vis-a-vis the
effective contract price under Clause 52.3. Clause 52.3
therefore does not function as a restriction against the
initial mandatory valuation of any variation made in the
BOQ. It operates independently of it. Clause 52 can be
said to be in three steps,
(i) Clause 52.1 being the sub clause determining
initial valuations of the varied work,
(ii) Clause 52.2 being the sub clause where when
the valuation under 51.1 is of such nature as to
effect the price of other items of the BOQ,
prices of such affected must be re-negotiated;
(iii) Clause 52.3, which leads to the aggregate
estimation of all variations at the time the
work, is completed and the contract realized.
Clearly then, 52.3 does not in any manner limit the
individual valuations made during the subsistence of the
contract. In fact, the wording of Clause 52.3 could not
have made the situation clearer; it begins with the words
"if on the issue of the Taking-Over Certificate" expressly
signifying the time at which the threshold of 15%
becomes important. If this were not reason enough,
Clause 52.3 itself clearly refers to the valuation of the
variation having already been carried out under Clause
52.1 and 52.2 by employing the words "all varied work
valued under Sub-Clauses 52.1 and 52.2".
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By:DUSHYANT
RAWAL
28. In view of the above, NHAI's contention that the impugned
award is patently illegal as the Arbitral Tribunal erred in interpreting
Clause 52.3 of GCC, is unsustainable. As noted above, it is not
necessary for this Court to re-adjudicate the disputes. The Arbitral
Tribunal's interpretation of Clause 52.3 of the GCC is clearly a
plausible interpretation. It is well settled that the Arbitral Tribunal is the
final adjudicator regarding interpretation of the contract [See:
McDermott International Inc. v. Burn Standard Co. Ltd and Ors.:
(2006) 11 SCC 181].
29. In view of the above, no interference with the impugned award is
warranted on account of the Arbitral Tribunal's interpretation of Clause
52.3 of the GCC. The contention that no amount is payable to KMC as
it had not substantiated its claim by producing any evidence regarding
incurring additional overheads, is unpersuasive. A plain reading of
Clause 52.3 of the GCC indicates that the Engineer was required to
determine the additional overheads, having regard to the contractor's
site and general overhead costs of the Contract. This indicates that the
Engineer was required to play a pro-active role and determine the
additional cost in consultation with the employer (NHAI). The Arbitral
Tribunal found that the Engineer had not done this exercise and
therefore, it was apposite for the Arbitral Tribunal to determine
reasonable overheads. The Arbitral Tribunal held that general
overheads charges at the rate of 6% of the additional work done would
be reasonable, bearing in mind that the initial establishment of KMC
would require augmentation above the BOQ rates. It is material to note
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that the KMC's claim for additional overheads was not one of damages
but of additional contract price and it was entitled to receive the same
on account of additional works executed by it. Ms Suri had referred to
certain documents including the analysis of rates issued by Ministry of
Road Transport and Highways (MoRTH) and pointed out that MoRTH
had accepted overhead cost at 10%. She had also referred to the Delhi
Schedule of Rates where overheads at the rate of 10% of the item rates
have been accepted. The decision of the Arbitral Tribunal to determine
a reasonable compensation for the same warrants no interference in
these proceedings.
30. It is also necessary to point out at this stage that NHAI has not
contested that 6% of the overhead charges are unreasonable. In view of
the above, this Court finds no reason to set aside the impugned award.
31. The next question to be examined is whether the impugned award
to the extent that KMC's claim for idling of men and machinery due to
transporters' strike and due to instructions issued by the Mining
Department (Claim No.14), is patently erroneous.
32. KMC had claimed a sum of ₹62,57,800/- as cost for idling of
men and machinery. The claim as articulated by KMC in its Statement
of Claim is set out below:
"3.14 CLAIM NO.14 - Rs.62,57,800: Costs to be paid
for Idling of Men and Machinery due to
Transporters strike and due to Mining
department instructions.
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The Claimant states it is also entitled to idling charges
for the period 14-4-2003 to 23-4-2003 in view of the
transporters strike, in the sum of Rs.38,06,632/-, and
due to idling of machinery because of stoppage of
work by the Mining Department from 10-12-2002 to
13-12-2002, in the sum of Rs.24,51,168/-, as per the
statement appended herewith and marked as
Annexure - XIV."
33. KMC had included an Annexure (Annexure - XIV) to its
Statement of Claim setting out its list of machinery, which according to
KMC, was kept idle on account of stoppage of work due to transporters'
strike during the period 14.04.2003 to 23.04.2003 and on account of
stoppage of work from 10.12.2002 to 13.12.2002 on account of
instructions issued by the Mining Department.
34. NHAI had contested the aforesaid claim, essentially, on three
grounds. First, it had submitted that KMC's claims were barred by
limitation. Second, it had submitted that events such as transporters'
strike and stoppage of work on instructions of the Mining Department
did not fall within the purview of employer's risk under Clause 20.4 of
the Conditions of Particular Application (COPA). And third, it
submitted that KMC had failed to produce any documentary evidence
regarding idling of men and machinery.
35. The Arbitral Tribunal referred to Clause 20.4 of COPA and
rejected NHAI's contention that events such as transporters' strike and
Mining Department's instructions to stop work were not covered under
Clause 20.4 of COPA.
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36. Clause 20.4 of COPA reads as under:
"Sub-clause 20.4 Employer's Risks
Amend sub-clause 20.4 to read as follows:
The Employer's risks are
(a) Insofar as they directly affect the execution of the Works
in the country where the permanent Works are to be
executed:
(i) War and hostilities (whether was be declared or
not), invasion, act of foreign enemies;
(ii) rebellion, revolution, insurrection or military or
usurped power, or civil war,
(iii) ionizing radiations, or contamination by
radioactivity from any nuclear fuel, or from any
nuclear waste from the combustion of nuclear
fuel, radioactive toxic explosive or other
hazardous properties of any explosive nuclear
assembly or nuclear component thereof;
(iv) pressure waves caused by aircrafts or other aerial
devices traveling at sonic or supersonic speeds;
(v) riot, commotion or disorder, unless solely
restricted to the employees of the Contractor or
of his Sub contractors and arising from the
conduct of the Works;
(b) loss or damage due to the use or occupation by the
Employer of any Section or part of the Permanent
Works, except as may be provided for in the Contract.
(c) Loss or damage to the extent that it is due to the design
of the Works, other than any part of the design provided
by the Contractor or for which the contractor is
responsible, and
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(d) Any operation of the forces of nature (insofar as it
occurs on the Site) which in experienced contractor:
(i) could not have reasonable foreseen, or
(ii) could reasonably have foreseen, but against
which he could not reasonably have taken at least
one of the following measures:
(A) prevent loss or damage to physical property
from occurring by taking appropriate
measures, or
(B) insure against such loss or damage."
37. The Arbitral Tribunal also referred to Clause 12.2 of the GCC
and held that events in question - transporters' strike and stopping of
quarrying by the Mining Department - constituted obstructions, which
could not have been foreseen by KMC. Thus, in terms of Clause 12.2
of the GCC, KMC was entitled to extension of time as well as cost that
may have been incurred on account of such obstructions. KMC was
required to give a notice in terms of the said clause and the Engineer
was required to determine the cost as well as extension of time, in
consultation with NHAI. Admittedly, the said notices were issued by
KMC on 12.12.2002. Ms Suri had also handed over a copy of the letters
dated 12.12.2002 and 13.12.2002 informing the Team Leader regarding
stoppage of the mining activities by the Mining Department. The
Engineer had after a detailed analysis found that the works had been
disrupted for a period of six days on account of instructions issued by
the Mining Department. Similarly, the Engineer had determined the
delay on account of transporters' strike and had recommended
extension of time for a period of six days. Accordingly, the Arbitral
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Tribunal held that KMC was entitled to idling charges for men and
machinery for a period of four days in respect of the instructions issued
by the Mining Department and for a period of six days on account of
transporters' strike.
38. The decision of the Arbitral Tribunal that events such as
transporters' strike and instructions issued by the Mining Department
fall within the scope of Clause 20.4 of COPA warrants no interference
as the said view is a plausible one and construction of the contract is
within the jurisdiction of the Arbitral Tribunal.
39. The Arbitral Tribunal's view that KMC was entitled to
compensation for idling of men and machinery warrants no
interference.
40. The contention that KMC's claim is barred by limitation has not
been considered by the Arbitral Tribunal. KMC has contested the
contention. According to KMC, its claim was not barred by limitation.
The defect liability period had expired in 2006. NHAI had rejected its
claims finally in June 2007. KMC had countered NHAI's submissions
that its claims were barred by limitation. However, the said issue was
not decided.
41. Although Mr Varma is correct that the Arbitral Tribunal has not
specifically dealt with NHAI's defence that KMC's Claim No. 14 was
barred by limitation. However, it is apparent that the Arbitral Tribunal
had rejected the same. This Court is of the view that NHAI's contention
that the petitioner's claims were barred by limitation is not sustainable.
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The contract in question was a running contract and the claims made by
the petitioner were well within the period of limitation after its claims
were rejected after completion of the Project. The reliance placed by the
petitioner in the case of State of Gujarat v. M/s Kothari and Associates
(supra) is not persuasive. In that case, the Court had considered a case
relating to a contract that spanned several seasons and breach of
obligations to provide site in one season crystallised the cause of action.
This is not so in this case. Indisputably, the contractor could raise its
claims if the same were not considered at the time of the Final Bill.
42. The only question that remains to be examined is whether the
said claim is substantiated in any manner. Mr Varma contended that the
Arbitral Tribunal has simply accepted the claim without considering
that the amounts as claimed were not quantified.
43. The aforesaid contention is not merited. The Arbitral Tribunal
had examined the claim and was persuaded to accept the claim. It
reasoned that the Engineer was required to determine the cost of idling,
which was not done. KMC has informed the Engineer regarding the
events that had resulted in stoppage of work. The Engineer had
recommended extension of time for completion of the works but had
not determined the costs to be paid. KMC had relied upon the MoRTH
Data Book for the year 2001, which indicated the usage charges in
respect of machinery. The Arbitral Tribunal had proceeded to determine
the charges on the said basis. Mr Varma contended that the usage
charges would also include costs for operating the machinery and thus,
was not an appropriate measure of idling costs. However, it does not
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appear that any such contention was advanced before the Arbitral
Tribunal. It is also well settled that there is some element of estimation
involved in assessing costs. If the measure is based on relevant material,
the arbitral award cannot be called into question. This is so because the
decision of the Arbitral Tribunal is final and this Court is not required
to carry out an exercise of re-adjudicating the disputes. An arbitral
award may be impeached on the ground of patent illegality but as
explained by the Supreme Court in Delhi Airport Metro Express Pvt.
Ltd. v Delhi Metro Rail Corporation Ltd.: 2021 SCC OnLine SC 695
"patent illegality should be illegality which goes to the root of the
matter. In other words, every error of law committed by the Arbitral
Tribunal would not fall within the expression 'patent illegality'..". And,
it is impermissible for the courts to reappreciate evidence to determine
whether an arbitral award suffers from patent illegality on the face of
the record.
44. Insofar as the claim for interest is concerned, KMC has also
challenged the same albeit on a different ground. According to NHAI,
the award of interest at the rate of 16% per annum is unreasonable.
KMC claims that the interest was required to be paid as agreed in terms
of the Contract. This Court finds no ground to interfere with the award
of interest on the ground that the rate of interest is unreasonable. The
Arbitral Tribunal has wide discretion in awarding interest under Section
31(7) of the A&C Act. Interestingly, this is also NHAI's contention,
advanced to contest KMC's contention that the Arbitral Tribunal has
erred in not awarding interest at the rate as agreed under the Agreement.
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The rate of interest under Section 37(1)(b) of the A&C Act prior to
23.10.2015 was specified as 18% per annum. The award of interest at
the rate of 2% above State Bank of India's Prime Lending Rate cannot
be held to be unreasonable. In view of the above, the Court finds that
the impugned award cannot be set aside on the grounds as urged by
NHAI.
45. The petition is, accordingly, dismissed. The pending applications
are also disposed of.
VIBHU BAKHRU, J
DECEMBER 23, 2021
RK/v
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