National Highways Authority Of ... vs Pcl-Sticco(Jv)
2022 Latest Caselaw 833 Del

                                IN THE HIGH COURT OF DELHI AT NEW DELHI

                          %                               Judgment delivered on: 23.03.2022
                          +      O.M.P. (COMM) 77/2016 & I.A No. 2511/2021

                          M/S NATIONAL HIGHWAYS AUTHORITY
                          OF INDIA                                                 ..... Petitioner
                                                          versus

                          PCL - STICCO (JV)                                      ..... Respondent


                          Advocates who appeared in this case:
                          For the Petitioner        : Mr Rajiv Kapoor, Advocate.

                          For the Respondent        : Dr Amit George, Mr Swaroop George,
                                                      Mr Piyo Harold Jaimon, Mr Amol Acharya
                                                      and Mr Rayadurgam Bharat, Advocates.
                          CORAM
                          HON'BLE MR JUSTICE VIBHU BAKHRU

                                                      JUDGMENT

VIBHU BAKHRU, J

1. The National Highways Authority of India (hereinafter 'NHAI') has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter 'the A&C Act') impugning an Arbitral Award dated 15.12.2015 (hereinafter 'the impugned award') delivered by an Arbitral Tribunal comprising of three members - Justice (Retd.) Shri E. Padmanabhan, Shri T.C. Bhagoria and Shri Surjeet Singh as the Presiding Arbitrator (hereinafter 'the Arbitral Tribunal').

Signature Not Verified Digitally Signed

Signing Date:23.03.2022

2. The impugned award was rendered by the Arbitral Tribunal in respect of disputes that had arisen between the parties in connection with the Agreement for "Widening to 4/6 lanes and strengthening of existing 2- Lane Carriageway of NH-5 in the State of Orissa from Km 284.00 to Km 338.00 (Ganjam-Sunkhala) Contract Package OR-VII".

3. NHAI had invited bids for the aforesaid works in the year 2001. On 30.03.2001, the respondent submitted its bid pursuant to the said invitation to tender. The respondent's bid was accepted by a Letter of Acceptance (LoA) dated 09.07.2001, and the contract was awarded to the respondent.

4. Thereafter, on 20.08.2001, the parties entered into a formal contract (hereinafter 'the Contract'). The date for commencement of the works was stipulated as 22.09.2001, and the works were to be completed within a period of thirty-two months, that is, by 21.04.2004.

5. The execution of the works was delayed and by a letter dated 31.07.2003, the respondent sought extension of time (EOT) till 30.06.2005. NHAI granted the same by a letter dated 01.08.2003. Thereafter, the respondent again sought EOT till 31.12.2005, which was granted by NHAI by its letter dated 20.09.2004. Thereafter, the respondent sought EOT till 30.06.2006 which was also granted by NHAI by its letter dated 05.08.2005.

6. Since the works were further delayed, the respondent applied for EOT till 31.12.2007 by a letter dated 13.06.2006. The respondent's

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Signing Date:23.03.2022 request for EOT was recommended by the Engineer by its letter dated 08.07.2006. However, NHAI did not confirm the same.

7. NHAI alleged that the progress of the works was slow and the respondent had practically abandoned the site. On 12.05.2007, the Team Leader recommended that the Contract be repudiated in case of non-completion of the works by 31.12.2007. Thereafter, by a letter dated 05.06.2007, the respondent once again sought EOT till 31.12.2008. However, by a letter dated 14.06.2007, the Engineer declined the request for EOT and stated that it had recommended repudiation of the Contract.

8. The parties conducted mutual discussions and the respondent also proposed by its letter dated 23.10.2007 that the Contract be amicably foreclosed. On 31.03.2008, the respondent once again sent a letter reminding NHAI to consider its request for grant of EOT and/or foreclosure of the Contract.

9. By a letter dated 03.04.2008, NHAI rejected the respondent's request for foreclosure of the Contract. It issued a separate letter dated 03.04.2008 initiating action under Sub-clause 63.1 of the General Conditions of Contract (hereinafter 'GCC') and expelled the respondent from the Contract.

10. The resultant disputes between the parties were referred to arbitration.

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Signing Date:23.03.2022

11. Before the Arbitral Tribunal, the respondent filed a Statement of Claims and raised the following claims:

                                  Claim Particulars of Claim                Amount of claim
                                  No.
                                  1.    Unpaid amount of balance work          ₹ 20,71,14,460/-
                                        executed including claim of
                                        escalation for which Bank
                                        Guarantee was given and the
                                        same had been encashed by the
                                        respondent.
                                  2.    Claim     towards      infructuous     ₹ 19,12,20,340/-
                                        overhead and profit
                                  3.    Loss due to illegal confiscation of    ₹ 16,45,24,510/-
                                        claimant's      machinery      and
                                        equipment lying at the site by the
                                        respondent on 4.4.2008 and
                                        return of machinery
                                  4.    Cash loss due to encashment of         ₹ 28,64,48,202/-
                                        bank guarantee
                                  5.    Loss suffered due to forcible              ₹ 7,94,300/-
                                        occupation of leased land where
                                        plant and machinery were
                                        installed and material was
                                        stacked, and which has been
                                        confiscated by the respondent
                                  6.    Claim of Interest                   Vide para 15.6 of
                                                                            claim statement

                                  7.       Cost of Arbitration                     ₹ 50,00,000/-

12. The Arbitral Tribunal has awarded an amount of ₹6,10,17,434/- for the works executed that remain unpaid, as against the respondent's claim for a sum of ₹20,71,14,460/- (Claim No. 1). The Arbitral Tribunal

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Signing Date:23.03.2022 also awarded a sum of ₹5,28,53,000/- against the respondent's claim for a sum of ₹16,45,24,510/- in respect of machinery and equipment lying on its site, which was taken over by NHAI on 04.04.2008 (Claim No.

3). In addition, the Arbitral Tribunal awarded a sum of ₹27,00,30,461/- on account of loss on encashment of the bank guarantees (Claim No. 4). The Arbitral Tribunal further awarded future interest at the rate of 12% per annum on the aforesaid amounts from the date of the impugned award till its realisation, in the event the petitioner failed to pay the sums awarded to the respondent within a period of three months from the date of the impugned award. The remaining claims made by the respondent were denied.

13. The Arbitral Tribunal found that NHAI's action under Sub- clause 63.1 of the GCC to expel the respondent from the site was illegal on various grounds.

14. It is NHAI's case that the said decision of the Arbitral Tribunal that the actions taken by NHAI under Sub-clause 63.1 of the Contract were illegal, is patently erroneous. And, the impugned award is thus, vitiated by patent illegality.

Submission

15. Mr Kapoor, learned counsel appearing for NHAI contended that the Arbitral Tribunal had erred in considering the events that had transpired prior to July 2006 and erroneously concluded that NHAI was responsible for the delay. This is one of the grounds on the basis of which NHAI's decision to terminate the Contract has been held to be

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Signing Date:23.03.2022 illegal. He submitted that NHAI had granted EOT for completion of the works till June 2006 and therefore, the question whether there was any fault or breach on the part of NHAI in handing over the sites or performing its reciprocal obligations under the Contract, was required to be considered in reference to the period after July 2006.

16. He submitted that NHAI had handed over the sites progressively and the entire site was handed over to the respondent by August, 2004. Yet, the respondent had barely completed 49.75% of the works as on 03.04.2008. This clearly established that the respondent had failed to maintain the requisite progress and the action of NHAI in accepting the Engineer's recommendation to expel the respondent could not be faulted.

17. He stated that the respondent had sought EOT till 30.06.2006 and had also submitted a program for completion of the works; however, the respondent had failed to adhere to the schedule as proposed. Therefore, NHAI's decision to expel the respondent from the site and to take over the works was well within its contractual rights.

18. Mr Kapoor, learned counsel appearing for the petitioner, further submitted that the Arbitral Tribunal had rendered the impugned award on consideration of equity and not on the basis of contractual provisions. He submitted that this was not permissible in view of Section 28(3) of the A&C Act as the parties had not agreed to confer the Arbitral Tribunal the powers to decide the issues ex aequo et bono or as an amiable compositeur.

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Signing Date:23.03.2022

19. Next, Mr Kapoor contended that the Arbitral Tribunal had grossly erred in proceeding to examine the question whether the respondent was entitled to further EOT for completion of the works as the same was not an issue before the Arbitral Tribunal. The Engineer had recommended EOT up to 31.12.2007. However, even thereafter, there was hardly any progress in execution of the works and therefore, NHAI was well within its contractual rights to expel the respondent from the site. He stated that it was not incumbent on NHAI to accept the respondent's request for EOT. He submitted that the respondent's request was also accompanied by various conditions such as providing discretionary advance, bridging loan etc.

20. In addition to the above, Mr Kapoor referred to various findings of the Arbitral Tribunal, which he contended are patently erroneous. First, he pointed out that the Arbitral Tribunal had observed that the expulsion notice dated 03.04.2008 was silent regarding the specific ground on which the respondent was expelled. However, the expulsion notice referred to Sub-clause 63.1(d) of the GCC as well as Sub-clause 63.1(f) of the Conditions of Particular Application (COPA).

21. In addition, he submitted that the Arbitral Tribunal had incorrectly noted that the details of delay as set out in the Statement of Claims, had not been denied. He submitted that in its Statement of Defence filed before the Arbitral Tribunal, NHAI had traversed all averments made by the respondent in respect of delay in handing over of the site and other hindrances.

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Signing Date:23.03.2022 Reasons and Conclusion

22. It is clear from the impugned award that the Arbitral Tribunal had examined the disputes between the parties in the context of various provisions of the Contract. It was found that NHAI was in flagrant violation of some of its obligations under the Contract and this was one of the principal reason for the Arbitral Tribunal to hold NHAI's action under Sub-clause 63.1 of the GCC to be illegal.

23. Mr Kapoor's contention that the question regarding EOT was wholly irrelevant for examining the dispute regarding NHAI's exercise of its contractual rights under Sub-clause 63.1 of the GCC, is unmerited. Clearly, the right of the respondent and the corresponding obligation of NHAI, to grant EOT in the given circumstances is relevant for determining whether NHAI's action under Clause 63 of the GCC was valid or wrongful. If the respondent was entitled to EOT on account of prolongation of the works resulting due to various hindrances and breach on the part of NHAI to perform its reciprocal obligations, NHAI's action of expelling the respondent on account of slow progress, would be unsustainable.

24. In the aforesaid context, the Arbitral Tribunal had found that NHAI's action in withholding or delaying grant of EOT was contrary to the terms of Clause 44 of the GCC. Sub-clause 44.1 of the GCC provided for grant of EOT for reasons not attributable to the respondent. In addition, in terms of the said clause, the Engineer was required to not only examine the question of EOT but also determine the additional

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Signing Date:23.03.2022 costs, if any, required to be paid to the respondent resulting from certain delays.

25. In the present case, the Arbitral Tribunal found that the delays had arisen on various grounds attributable to NHAI including delay in handing over of the sites and substantial change in the design. The Arbitral Tribunal had referred to a letter dated 14.08.2004, which had set out a table indicating the reasons for the delays, which were attributable to NHAI or beyond the control of the respondent.

26. The Arbitral Tribunal also found that the Engineer/NHAI had delayed processing the applications for EOT. Although NHAI had consented to EOT up to 30.06.2006, it had imposed an arbitrary condition that the respondent would not be entitled to consequential compensation under Sub-clause 42.2(b) of the GCC. The Arbitral Tribunal found that imposition of such a condition was in breach of the contractual provisions and was patently illegal.

27. The respondent had applied for EOT by its letter dated 13.06.2006 and, the Engineer had recommended EOT till 31.12.2007. However, NHAI had failed and neglected to take a decision on the same and the issue of EOT remained pending with NHAI. The Arbitral Tribunal noted that the in its letters seeking EOT - which was recommended by the Engineer - the respondent had set out various reasons for the delay including certain hindrances that were continuing as on that date. It was pointed out that works at various places were stopped on account of unpaid compensation for acquisition of land. In

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Signing Date:23.03.2022 addition, acquisition of certain land was yet to be verified by the surveyor of the Revenue Department. This was specifically noted by the Arbitral Tribunal in the impugned award, and the Arbitral Tribunal had found that grant of EOT was justified. Notwithstanding the same, NHAI had not granted approval for the same.

28. Mr Kapoor's contention that the Arbitral Tribunal had not considered the events during the year 2006 to 2008, is unmerited. A plain reading of the impugned award indicates that the Arbitral tribunal had considered the question of delay even during the said period.

29. The respondent had, by its letter dated 05.06.2007, once again requested for EOT till 31.12.2008 and had submitted a revised program for completion of the works. However, this request was not recommended by the Engineer. In the circumstances, the respondent had made a representation for amicably closing the Contract. However, that request also remained pending till 03.04.2008.

30. The respondent had protested against the action of NHAI of expelling the respondent under Sub-clause 63.1 of the GCC by its letter dated 11.04.2008. The Arbitral Tribunal had found merit in the respondent's contention that no case was made out for expelling the respondent under Sub-clause 63.1 of the GCC in view of the following aspects highlighted in the letter dated 11.04.2008:

"(i) Failure to hand over sites encumbrance free on dates stipulated in agreed conditions of the contract.

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Signing Date:23.03.2022

(ii) No compensation for increase in cost of input, which was phenomenal, was granted by employer on account of prolonged delay in handing over of site, which was to the extent of more than 84 months as against the contract period of 32 months and still there are stretches which have not yet been handed over. Thus the contract which is frustrated by the employer, NHAI was also requested for foreclosure of the contract but no action was taken for a considerable number of months.

(iii) Instead, employer advised the claimant to go to DRB. DRB's recommendation for cost compensation has also not been accepted by employer but arbitration has been invoked.

(iv) No extension of time granted by employer beyond 30.6.2006 though Engineer subsequently has recommended EOT up to 31.12.07, but the funds to the extent of about Rs. 4 crores of work which had already been executed, were not released by the Engineer."

31. It is clear from the above that the decision of the Arbitral Tribunal that NHAI's recourse to Sub-clause 63.1 of the GCC was wrongful in view of its failure to not comply with the other provisions of the Contract, including, by keeping the decision regarding EOT pending for an inordinately long period, is informed by reason.

32. Mr Kapoor, learned counsel appearing for the petitioner, had invited this Court to re-examine and re-appreciate the factual aspects of this controversy as according to him the conclusions of the Arbitral Tribunal were erroneous. However, given the limited scope of examination under Section 34 of the A&C Act, it is not permissible for

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Signing Date:23.03.2022 this Court to re-adjudicate the disputes. It is clear that the conclusions of the Arbitral Tribunal are based on material available on record and this Court is unable to accept that the view expressed by the Arbitral Tribunal is not a plausible one.

33. The Arbitral Tribunal held that expulsion of a contractor under Clause 63 of the GCC was required to be for a legitimate cause. In the present case, the Arbitral Tribunal had found that NHAI's action to do so was unjustified. The Arbitral Tribunal was of the view that such action was not permissible where the backlog or shortfall in performance was on account of justifiable causes, including for reasons attributable to NHAI. The Arbitral Tribunal had evaluated the factual circumstances and had concluded that in this case, the delay in completion of the works was attributable to various reasons beyond the control of the respondent and included those attributable to NHAI. This Court finds no ground to review the said conclusion on the anvil of standards of Section 34(2A) or Section 34(2)(b)(ii) of the A&C Act.

34. It was submitted on behalf of NHAI that one of the claims made by the respondent regarding illegal occupation of the site - which was premised on the assertion that the expulsion under Sub-clause 63.1 of the GCC was illegal - was not allowed by the Arbitral Tribunal. It was contended that the reasons stated by the Arbitral Tribunal for rejecting the said claim of the respondent is inconsistent with its view that expulsion of the respondent under Sub-clause 63.1 of the GCC was illegal. It was contended that in one sense the Arbitral Tribunal had accepted the action of NHAI under Clause 63 of the GCC as legal and

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Signing Date:23.03.2022 therefore, its decision to hold the same as illegal in respect of another claim, was inconsistent.

35. The aforesaid contention is also unpersuasive. The Arbitral Tribunal had examined the factual circumstances and was of the view that it was not apposite to award compensation to the respondent for NHAI taking over the works. This conclusion was based on the findings that (i) there was an inordinate delay in completion of the works; (ii) the financial condition of the respondent had deteriorated; and, (iii) the respondent had voluntarily offered to foreclose the Contract at the material time. This Court does not find that the approach of the Arbitral Tribunal is patently illegal or one that vitiates the impugned award.

36. It is also relevant to bear in mind that for an arbitral award to be set aside on the ground of patent illegality, the illegality must strike to the root of the matter. In Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd.: 2021 SCC OnLine SC 695, the Supreme Court had explained the ground of patent illegality as under:

"25. 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'. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression 'patent illegality'. What is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a

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Signing Date:23.03.2022 domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression 'patent illegality'."

37. In this case, the Arbitral Tribunal had found that in the given circumstances, NHAI's actions to expel the respondent from the site was unjustified. The Arbitral Tribunal has merely awarded the value of the works executed by the respondent; a reasonable value for assets that were taken over by NHAI; and the compensation for funds recovered by encashment of the Bank Guarantee.

38. This Court is unable to accept that the impugned award is vitiated by patent illegality on the face of the award.

39. The petition is, accordingly, dismissed. The pending application is also disposed of.

VIBHU BAKHRU, J MARCH 23, 2022 RK/v

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Signing Date:23.03.2022