Delhi High Court
M/S Sarada Construction vs National Highway Authority Of ... on 28 March, 2022
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 28.03.2022
+ O.M.P. (COMM.) 133/2021
M/S SARADA CONSTRUCTION ..... Petitioner
Versus
M/S NATIONAL HIGHWAY AUTHORITY
OF INDIA ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr. Rajat Arora, Ms. Renu Bhandari
& Mr. Ekansh Bansal, Advs.
For the Respondent : Mr. Alok Kumar Jain, Adv.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. The petitioner 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 17.12.2020 (hereafter 'the
impugned Award') rendered by an Arbitral Tribunal comprising of
three members (hereafter 'the Arbitral Tribunal').
2. The petitioner assails the impugned award to the limited extent
that its claim for extra work done quantified at ₹3,66,44,746/- and the
cost of arbitral proceedings quantified at ₹9,68,000/-, has been denied.
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3. The respondent (hereafter 'NHAI') had issued an invitation to
tender for work of "Repair & Maintenance work of remaining stretches
of NH 34 from Km 51 to Km 115 by BM, SDBC and Mastic Asphalt in
the State of West Bengal (Contract Pkg-Maintenance worklPkg-
1/2016)"
4. The petitioner had submitted its bid pursuant to the aforesaid
invitation to tender and by a Letter of Acceptance dated 27.05.2016, the
petitioner was awarded the aforesaid contract at a value of
₹5,78,87,054.25/- (Rupees Five Crores Seventy Eight Lakhs Eighty
Seven Thousand Fifty Four and Twenty Five paise). Thereafter, on
20.06.2016, the parties had entered into an agreement (the Contract). In
terms of the Contract, the date of commencement of work was
20.06.2016 and the same was required to be completed within a period
of three months; that is, on or before 19.09.2016. The Defect Liability
Period was stipulated as twenty-four months from the date of the
completion of the works. The works were completed on 11.10.2016,
therefore, the Defect Liability Period would expire on 10.10.2018.
5. The Arbitral Tribunal accepted NHAI's contention that it had
pre-closed the Contract in respect of the stretch of the highway from
KM 51.00 to KM 52.400 with effect from 14.03.2017 and had informed
the petitioner regarding the same on 04.01.2018. Similarly, the Contract
in respect of some stretches of the highway were pre-closed with effect
from 27.07.2018 and some were pre-closed with effect from
14.10.2018. However, the petitioner disputes that the Defect Liability
Period was foreclosed and claims that the Defect Liability Period
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Certificate dated 22.10.2018, issued by the Engineer does not mention
any pre-closure.
6. NHAI, by a letter dated 16.01.2019, informed the petitioner that
the Bank Guarantee furnished by the petitioner for a sum of
₹57,88,710/- was encashed. NHAI appropriated a sum of ₹47,07,951/-
and deposited the balance amount of ₹10,80,759/- recovered by
encashment of the Bank Guarantee in the petitioner's bank account.
The sum of ₹47,07,951/- retained / appropriated by NHAI comprised of
₹71,191/- as penalty for pre-closure of the Defect Liability Period and
₹46,36,760 as amount paid for execution of the balance works at the
risk and cost of the petitioner. NHAI claims that it had engaged the
Public Works Department for executing the repair work, which the
petitioner had failed to do during the Defect Liability Period, and had
incurred a cost of ₹46,36,760/-.
7. The petitioner claims that the recovery of the aforesaid amount is
illegal as it had not committed any default in performance of its
obligation. The petitioner further claims that it had executed certain
additional works during the Defect Liability Period and is entitled for
payment for the same.
8. In view of the disputes, the petitioner approached the Secretary
General, Indian Roads, for appointment of a Dispute Resolution Expert
in terms of the Contract. However, no appointment was made.
Thereafter, the petitioner nominated its Arbitrator. NHAI also
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nominated its Arbitrator and both the nominees appointed the Presiding
Arbitrator.
9. The petitioner submitted its Statement of Claims before the
Arbitral Tribunal claiming: (i) a sum of ₹2,85,96,218/- for extra work
executed by it during the Defect Liability Period (Claim No.1); (ii)
refund of an amount of ₹47,07,951/- recovered by NHAI by encashment
of the petitioner's Bank Guarantee (Claim No.2); (iii) interest at the rate
of 18 % per annum (Claim No.3); and (iv) cost of the arbitral
proceedings (Claim No.4).
10. It was the petitioner's case that it was compelled to commence
work during the monsoon season. The rain had adversely affected the
road conditions resulting in the petitioner repeatedly executing the same
repair works. The petitioner also claimed that at several places on the
Highway, the subgrade had settled down and required extensive
reconstruction. The poor condition of the road subgrade required re-
sectioning and removal of the subgrade soil upto 2 to 3 metres at certain
spots. In addition, there was huge undulation and depression and the
same required complete overlaying of BM and substantial corrective
work.
11. The petitioner claims that it had carried out extensive work on
the oral instructions of the Engineer. However, NHAI did not approve
the estimates submitted by the Engineer. Notwithstanding the same, the
petitioner claims that it is entitled to payment for the extra work
executed by it.
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12. In its Statement of Claims, the petitioner also averred that NHAI
was aware that the Highway required extensive reconstruction but had
concealed the said information from the petitioner. The petitioner stated
that the BOQ items did not include execution of certain items for re-
construction of the road but merely indicated that only repair work was
required to be carried out. The petitioner asserted that NHAI's
misrepresentation constituted a fraud under Section 17 of the Indian
Contract Act, 1872.
13. NHAI contested the claims made by the petitioner. According to
NHAI, the petitioner had defaulted in maintaining the Highway during
the Defect Liability Period and despite NHAI repeatedly calling upon
the petitioner to repair the Highway, it had failed and neglected to do
so. NHAI claimed that it had accordingly, pre-closed the Defect
Liability Period and engaged the PWD to execute certain repair works
that the petitioner had failed to execute.
Impugned Award
14. The Arbitral Tribunal considered the rival claims and noted that
the scope of work under the Contract entailed repairing damaged
stretches of the Highway using BM, SDBC and Mastic Asphalt. The
repairs were to be carried out on the stretch of Highway in the following
locations: (a) Km 51 to Km 60 and (b) Km 96 to Km 115.
15. The Arbitral Tribunal held that NHAI retained the financial
control in respect of the Contract. Although, the Engineer could issue
oral instructions to carry out extra works, the same required NHAI's
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approval. Unless the oral instructions were confirmed by instructions in
writing, the same were not binding on either parties. Estimates for four
Variations were forwarded to NHAI for approval. However, NHAI had
approved only the fourth Variation Order and did not approve the first
three.
16. The Arbitral Tribunal held that although, recommendations of the
Engineer were valuable but the same were not binding on NHAI. Since
NHAI had not approved the variations, it could not be compelled to pay
for the extra work done. Next, the Arbitral Tribunal held that since no
amounts were payable during the Defect Liability Period, the petitioner
could not claim any amount for the work done during the said period.
17. The Arbitral Tribunal found that NHAI had issued instructions
to the petitioner to undertake repairs and there was sufficient
correspondence on record to establish that the petitioner had failed to
execute the repairs of the Highway within a reasonable time. The
Arbitral Tribunal accepted that in terms of Clause 26.3 of the General
Conditions of the Contract (GCC), NHAI was within its contractual
right to get the work executed through another agency.
18. NHAI, had called upon the petitioner to undertake joint
measurements for estimating the expenditure required to repair the
damaged Highway. However, the petitioner had expressed its
limitations. Thereafter, NHAI had issued a notice under Clause 40 of
the Contract informing the petitioner that if the repairs were not
undertaken, it would terminate the Agreement. Since, the necessary
repairs were not undertaken, NHAI pre-closed certain stretches.
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19. The Arbitral Tribunal found that NHAI was within its right to
engage another agency to execute the works but the expenditure,
claimed to have been incurred by NHAI, was not supported by any
evidence. In view of the above, the Arbitral Tribunal awarded a sum of
₹47,07,951/-, which was recovered from the petitioner by encashment
of the Bank Guarantee, along with interest at the rate of 9% per annum
(quantified at ₹7,76,812/-), in favor of the petitioner and against NHAI.
Submissions
20. Mr Arora, learned counsel appearing for the petitioner assailed
the impugned award on, essentially, two fronts. First, he submitted that
the Arbitral Tribunal had not addressed the disputes raised by the
petitioner. He contended that the Arbitral Tribunal had not considered
that NHAI was guilty of misrepresentation and had committed fraud by
concealing the condition of the Highway. He submitted that the Arbitral
Tribunal had found that the Highway was in a very poor condition and
the same could not have been discovered by visual inspection.
However, the Arbitral Tribunal has not returned any finding in respect
of the said contention. He submitted that similarly, the Arbitral
Tribunal had not exercised its jurisdiction to determine the value of the
extra work executed by the petitioner. He submitted that although, the
Arbitral Tribunal had not rejected the petitioner's claim that it had in
fact carried out extra work, it had denied the petitioner's claim solely
on the ground that the same was not approved by NHAI. He submitted
that in terms of Clause 47 of the Contract, the Arbitral Tribunal had full
power to "open up, review and revise any decision, opinion, instruction,
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determination, certificate or valuation of the Engineer related to the
dispute". However, the Arbitral Tribunal had not exercised its
jurisdiction. Next, he submitted that the Arbitral Tribunal had
completely ignored the correspondence on record, which established
that the petitioner was directed to follow the oral instructions of the
Engineer and it had, accordingly, executed the works. Securing
approval of NHAI was merely an administrative exercise which was
required to be done by the Engineer.
21. He submitted that the Arbitral Tribunal had grossly erred in
interpreting Clause 26 of the Contract as disentitling the petitioner for
payment of extra work. He submitted that the scope of Clause 26 of the
Contract was limited. It merely provided that no payments would be
made towards 'repairs; it did not preclude payment for extra work.
22. Lastly, he submitted that on the principle of quantum meruit, the
petitioner was entitled to payment of the work done notwithstanding
that it was beyond the terms of the Contract.
23. Mr Jain, learned counsel for NHAI countered the aforesaid
submissions. He submitted that the petitioner had not executed any
extra work and its claim in this regard was unsustainable. He submitted
that the petitioner was required to submit monthly statements for the
value of the work executed with detailed measurements but it had not
submitted any such periodic statements. Thus, the extra work as claimed
by the petitioner was neither inspected nor recorded in the Measurement
Book. He submitted that there was no evidence on record that any extra
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work was done and therefore, the question of the petitioner making a
claim for the same did not arise. He submitted that merely because
estimates for certain works were submitted, did not imply that the said
work was executed.
Reasons and Conclusion
24. The first question to be addressed is whether the Arbitral
Tribunal has failed to address the disputes raised before it. As noted
above, the petitioner claims that it had raised a claim of damages on
account of fraudulent misrepresentation and the said contention was not
considered. A plain reading of the Statement of Claims indicates that
the petitioner had averred that NHAI had concealed the condition of the
Highway. It claimed that NHAI was aware of the inherent defects of
the Highway and yet it invited tenders for carrying out superficial repair
works, which would not address the damage to the Highway. However,
it is clear that the petitioner had not founded any claim of damages on
account of fraudulent misrepresentation. Its claim was essentially for
extra work done and not that it had suffered a loss on account of
misrepresentation, which required to be compensated. The petitioner
claimed that during the course of the Contract as well as the Defect
Liability Period, it had to "execute numerous extra works due to
improper planning of the employer in connection with sub grade failure
as well as execution in peak rainy season". The petitioner's Claim no.1
was mainly founded on this averment. The Arbitral Tribunal had
considered the aforesaid claim. Thus, this Court is unable to accept that
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the impugned award is patently illegal as the Arbitral Tribunal had not
addressed the dispute raised by the petitioner.
25. The contention that the impugned award is vitiated by patent
illegality as the Arbitral Tribunal has not exercised its jurisdiction to re-
evaluate the decision regarding extra items, is unpersuasive. The
Arbitral Tribunal had examined the contractual provisions and had
found that NHAI's written approval was necessary for executing extra
items. Clause 28.1 of the Contract is relevant and is set out below:
"28. Variations
28.1 The Engineer shall, having regard to the
scope of the Works has power to order Variations he
considers necessary or advisable during the progress
of the Works. Such Variations shall form part of the
Contract and the Contractor shall carry them out. Oral
orders of the Engineer for Variations, unless followed
by written confirmation, shall not be taken into
account."
26. Admittedly, neither NHAI nor the Engineer had issued any
formal orders in writing for execution of the extra works claimed to
have been executed by the petitioner. The Arbitral Tribunal had held
that NHAI had retained control regarding the cost of the works and in
the absence of its written approval, the petitioner was not entitled to
claim any payment on account of the variation or extra work. Clearly,
the said decision cannot be held to be vitiated by patent illegality or one
that falls foul of the public policy of India.
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27. The Arbitral Tribunal also noted that the extra works claimed to
have been executed by the petitioner were during the Defect Liability
Period and the petitioner was not entitled to any payment for work done
during this period. It is important to note that the Contract in question
was for repair of the Highway, which was damaged at various places.
The petitioner was required to repair the damage and maintain the
stretch of the Highway during the Defect Liability Period. Clauses 26.1,
26.2 and 26.3 of the Agreement are relevant and are set out below:
"26. Correction of Defects noticed during the
Defect Liability Period.
26.1 It is the terms of contract that quality of
repair and maintenance work shall be of very high
standard, requiring no major repairs for at least 24
(Twenty four) months after the date of completion of
works.
26.2 If any defects including shrinkage, cracks,
other faults appear in the work within 24 (Twenty
four) months of "Taking over" certificate, the
Engineer shall give notice to the Contractor of any
defects before the end of the Defects Liability Period,
which begins at Completion, and is for 24 (Twenty
tour) months thereafter. The Defects Liability shall be
extended for as long as defects remain to be
corrected.
26.3 Every time notice of a defect is given, the
Contractor shall correct the notified defect at his own
cost within the length of time specified by the
Engineer's notice. If the contractor is in default, the
Engineer shall cause the same to be made good by
other workmen and deduct the expense from any
sums that may be due to the contractor."
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Signing Date:29.03.2022
28. The petitioner's contention that the afore-mentioned clauses only
covered repair work and did not cover 'extra work' required to maintain
the Highway, is unpersuasive. In any view of the matter, the question
as to interpretation of an agreement is one that falls squarely within the
jurisdiction of the Arbitral Tribunal. The Arbitral Tribunal's decision to
hold that the petitioner was not entitled for any payment for carrying
out any work during the Defect Liability Period cannot by any stretch
be held to be perverse or one that no reasonable person could accept.
The said view is certainly a plausible view, if not the correct view.
29. This Court finds no infirmity with the impugned award. The
petition is unmerited and accordingly, dismissed.
VIBHU BAKHRU, J
MARCH 28, 2022
dr/v
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Signing Date:29.03.2022
