On 11th May, 2020 The High Court of Delhi, comprising of Justice Yogesh Khanna in the case of M/s SMS Ltd. v. Konkan Railway Corporation Ltd, held that the award which ignores vital evidence would be perverse and is liable to be set aside on the ground of patent illegality.
FACTS
Northern Railway was implementing the construction of Udhampur-Srinagar-Baramulla Rail Link Project in the State of Jammu and Kashmir. A part of the project was being constructed by Konkan Railway Corporation Limited on behalf of Northern Railway. The work Construction of B. G. Single line tunnel No.2 from Km 33.095 to 38.450 on Katra- Laole Section of Udhampur-Srinagar-Baramulla Rail Link Project was awarded by Konkan Railway Corporation Limited to M/s SMS Infrastructure Ltd at a cost of Rs.133,07,42,870/-. The completion period of the contract was 36.5 (thirty six and half) months upto 26.12.2006
Upto the date of completion i.e. till 26.12.2006 less than 10% of the work was completed, and extension was granted upto 31.12.2008 without levying any penalty. However claimants did not accept the extension up to 31.12.2008, saying any of the four options as proposed by respondent would require at least 4 years to complete the work.
In view of the financial crisis faced by the petitioner and due to unsafe conditions in approach road to Petitioner 2, the claimants on their own, suspended the work in May 2007.
Certain disputes arose between the parties during the execution of the contract, dated 23.01.2004 resulting in the present arbitration proceedings.
ARBITRAL TRIBUNAL FINDINGS
The Learned Tribunal held that no joint/agreed records were available to prove the idling, and therefore it worked out a “notional proportionate loss” that would have resulted due to underutilization. The Learned Tribunal held that
- The technical and special conditions of the contract had highlighted the adverse geology. Further, while it highlighted Clause 17A (iii) of the GCC Northern Railway which provided that in the event of a delay attributable to the respondent, the petitioner would only be entitled to an extension of the date of completion,
- In the present case where an extraordinary situation arose in the shape of a worse than expected shear zone; the remedy under Clause 17-A (ii) did not prove to be a remedy since the contract was ultimately foreclosed.
- The petitioner’s machinery could not be fully utilized as planned and therefore in the interest of “natural justice”, it considered some compensation.
- There was a delay of 10 months by the respondent in arriving at the decision to foreclose the contract.
- The petitioner had at various stages caused delays which affected the progress of the work and put the respondent to inconvenience delay in mobilization, inability to start / complete the P2 approach road in the specified period, inability to tackle shear zone, inability to do the road safety works.
The Learned Tribunal awarded a sum of Rs.0.7733 Crores (0.7083 + 0.065) to the petitioner as compensation for the losses incurred on account of idling and underutilization of men and machinery.
HIGH COURT OF DELHI
The High Court of Delhi held as follows:
- That the Arbitral Tribunal Award is arbitrary or perverse and the learned Arbitral Tribunal has not adopted a judicial approach.
- A finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
- The computation adopted by the Arbitral Tribunal is based on imaginary and impermissible parameters. The formula adopted of "notional proportionate loss" has no precedent.
- The Tribunal erroneously held, that idling period is deemed to be only 10 months, i.e. the period for which the Railways did not take decision on the issue of adoption of a new methodology for arriving at a new contract for tackling shear zone, and that since one of the option under exploration for arriving at a new contract based on a new methodology contemplated a period of 96 months for execution thus, the petitioner can only be awarded 10/96 part of the computed notional proportionate loss.
- For the purpose of computing the damages suffered from idleness, the only enquiry that was relevant was an enquiry as to extent to which the contract remained idle i.e. un-operated and, the resource deployment that thus remained idle.
- The Tribunals computation for claim qua manpower also suffers from the same infirmity that affects its computation of the loss towards investment on machines.
The High Court of Delhi further held that the award passed by the learned arbitrator is not sustainable in the eyes of law as the formula applied for grant of claim for machinery, manpower and overhead is perverse. The petition is allowed and impugned award set aside.
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