NTPC Limited v. Larsen and Toubro Limited

1. The present petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996, inter-alia seeking setting aside of the Arbitral Award dated 23.08.2023 (hereinafter referred to as "the impugned Award") passed by the Ld. Arbitral Tribunal Comprising of Justice Dipak Misra, Justice K.K. Lahoti and Justice Parthasakha Datta in the Arbitration case titled as "M/s Larsen and Toubro Ltd Vs. NTPC Limited". The summary of the award as encapsulated by the learned Arbitral Tribunal is inter-alia as under:

2. Briefly, stated the facts are that, the Petitioner had initiated the project for setting up of 2 x 800 MW Darlipali Supe Thermal Power Project, Stage I in the Sundargarh District of Odisha and for the said purpose, the Petitioner floated a tender by Invitation for Bid dated 24.02.2014 for Main Plant and Offsite Civil Works Package for the Project. The Respondent submitted its complete bid and was the lowest bidder. The Petitioner issued a letter of Award dated 12.08.2014 in favour of the Respondent. The parties subsequently entered a contract on 14 November 2014 numbered as CS-9549-315A(R)- 9-CS-COA-6196 for the work of Main Plant & Offsite Civil Works Package for Darlipalli Super Thermal Power Plant, Stage -1 (2 X 800MW). Cause of action between the parties arose when The Ministry of Labour and Employment, Government of India issued notification under the Minimum Wages Act, 1948, increasing the daily rates of minimum wages payable to workmen with effect from 19 January 2017 which resulted in the claim for additional cost on account of the above Notification. In view of the arbitration clause, the matter was referred to learned Arbitral Tribunal and the tribunal after hearing passed the impugned award.

3. The award has been challenged by the petitioner under Section 34 of the Arbitration and Conciliation Act primarily on the following grounds: i. Ld. Tribunal ignored the absence of term “Notification” in GCC clause 10.4.[3] which indicated the intention of parties for exclusion of notification from the ambit of change in law. Tribunal also didn‟t consider “South East Asia Marine Engineering and Construction Ltd. vs. Oil India Ltd.” judgement where Hon‟ble Supreme Court held that document forming a written contract has to be read as a whole and so far as possible as mutually explanatory. ii. Tribunal also did not take into consideration Section 3(1)(b) of the Act which provided for the review of the rate of minimum wages fixed by the govt. at intervals as deemed fit. The award has further been challenged on the ground that the tribunal mistook the Price Adjustment clause in Clause 6 of SCC which compensated the Respondent for the variation in the rate of labour costs and considered the rate increase in the rate of minimum wages. The petitioner submitted that Clause 6 misses out any reference to the minimum wages or the components of minimum wages. It has been submitted that Clause 6 only compensates for labour and material. iii. The petitioner submitted that the expenditures incurred by the Respondent and the expenditure compensated under the Price Adjustment Clause were excluded from the ambit of Clause 10.4.3. and only the costs covered under the Price Adjustment clause can be compensated. It has been submitted that Clause 6.15.0 provided for no compensation to the Respondent for other expenditure incurred due to the increase in benefits of workers/labourers, and no other expenditure could be reimbursed. iv. The petitioner submits that the expenditure incurred due to reasons of delay and expenditure already compensated under the Price Adjustment Clause are excluded from the ambit of GCC Clause 10.4.3. By allowing the claim under given clause, the Respondent will be compensated twice for the same increase. In case of conflict between the clause 10.4.[3] of GCC and clause 6.15.0 of SCC, the latter will be preferred over the former. v. The petitioner submits that the price adjustment in any of the components is not limited to the increase in CPI, it affects the entire cost of labour which include all factors relating to labour and it forms an integral part of the bid. The tribunal wrongly concluded the Price Adjustment Formula as contained in SCC Clause 6 as it intended to compensate anything which could be foreseen or predicted. vi. The petitioner submits that the Tribunal‟s decision that Respondent cannot be solely responsible for the delays in performance and he cannot be denied benefit under GCC clause 10.4.3, was perverse because extensions were granted by the Petitioner while reserving the right to levy liquidated damages on the Respondent. vii. The petitioner submits that the Tribunal has erroneously concluded that when GCC Clause 10.4.[3] expressly stipulates and clearly manifests the intention of the parties to the effect that increase in the basic rates of wages owing to change in law would be compensated, the same ought to be given effect to and the question of any requirement for the bidders such as the Respondent to raise any pre-bid query in this regard relating to future increase in the cost of minimum wages does not arise at all. viii. The petitioner submits that the sum allowed by the Tribunal in favour of Respondent was based on wrong interpretation of the laws and terms of the contract and without appreciating the evidence placed on record. The respondent was already compensated worth INR 12.59 Crores as per Price Variation formula. It has been submitted that awarding the petitioner to pay a sum of INR 90284509/-, doubly compensates the respondent.

4. Mr. Rituraj Biswas, learned counsel for the petitioner has submitted that the award suffers from perversity, and infirmity and therefore, the impugned award is liable to be set aside.

5. Learned counsel submits that initially the contract was granted in 2014 which was extended from time to time and it is still subsisting and will remain in operation till March 2024.

6. Learned counsel submits that in between there was a revision of minimum wages on account of which the dispute arose and the arbitration clause was invoked by the respondent/claimant.

7. Learned counsel for the petitioner has invited the attention of this court to clauses 10.4.1, 10.4.2, and 10.4.[3] of GCC which read as under: “10.4.1. During the entire period of Contract, the Contractor and his Sub-Contractors shall, at all times abide by all existing labour enactments, rules made therein, regulations, notifications and bye-laws by the appropriate government, local authority or any other labour laws or notification that may be issued under any labour law prevailing as on the date seven(7) days prior to the date set for opening of the bids, published by the State or Central Government or Local Authorities. An illustrative list of applicable acts, notifications, rules etc. in connection with the labour as applicable is provided in SCC. This list is not in any way exhaustive and shall not absolve the Contractor from any of his liabilities or responsibilities in compliance with any other laws, regulations, notifications that may be in force during the tenure of Contract. 10.4.[2] The Contractor and his Sub-Contractors shall indemnify the Employer, from any action taken against the Employer by any competent authority in connection with the enforcement of the applicable laws, regulations, notifications, on account of contravention of any of the provisions therein, including amendments thereto. If the Employer is caused to pay or otherwise made liable, such amounts as may be necessary for non-observance of the provisions stipulated in the laws, rules, notifications including amendments, if any on the part of the Contractor and/or his Sub-Contractors, the Engineer- in-Charge / Employer shall have the right to deduct any such money from any amount due to the Contractor including his performance security, under the Contract. The Employer shall also have the right to recover from the Contractor any sum required or estimated as required for making good any loss or damage suffered / likely to be suffered by the Employer, on this account. 10.4.[3] If due to an enactment of any new Act or Statute and rules made thereunder or any modification to the Acts/Statute or rules made thereunder, all after seven (7) days prior to the date set for opening of bids and as a consequence thereof, the Contractor has to incur additional cost or expenditure, the same will be reimbursed by the Employer to the Contractor, excepting those due to reasons attributable to the Contractor and those being already compensated by other provisions of the Contract, like Price Adjustment, Taxes and Duties etc.”

8. Learned counsel submits that clause 10.4.[3] has wrongly been interpreted by the learned Arbitral Tribunal and despite the fact that „notification‟ was specifically excluded from clause 10.4.3, the learned Arbitral Tribunal has inter-alia held that the issuance of the notification resulting in the enhancement of minimum wages has amounted to a change in the law. Learned counsel submitted that in fact, clause 10.4.[3] is not applicable and therefore, the award is liable to be set aside.

9. Learned counsel has further submitted that the award is also in violation of the method given for the calculation of Contract Price Adjustment and has further submitted that clause 6.15.0 of SCC specifically provides that except as provided in the price variation clause, no other expenditure incurred by the Contractor, due to levy of additional/increase in royalty, insurance premium(s) benefits to workers/Labourers or any other Clause(s)/items(s) due to any reason whatsoever, shall be payable to the Contractor.

10. Learned counsel has also invited the attention of the court to the findings of the learned Arbitral Tribunal which has inter-alia wrongly held that any amendment made to the schedule in the Minimum Wages Act resulting in the enhancement of minimum wages amount to change in law.

11. Learned counsel has also invited the attention of the court that the learned Arbitral Tribunal has not taken into consideration the submissions made by Sh. Chetan Sharma, learned senior counsel and learned Additional Solicitor General of India that the Notification dated 19.01.2017 does not amount to a change in law under GCC Clause 10.4.[3] in as much as the 2017 Notification was issued under the provisions of the Minimum Wages Act, 1948 which enactment/statute existed 7 (seven) days prior to the opening of the bids and when the parties entered into the contract and, thus, there has been no enactment or modification due to change of law as contemplated by GCC Clause 10.4.3. Learned counsel submitted that the learned Arbitral Tribunal did not take into account that when it was in the contemplation of the parties, in view of the provisions of Section 3 of the Act, that the minimum rates of wages have to be revised at regular intervals not exceeding 5 years, it cannot be the intention of the parties to consider the Notification as a new Act or Statute or modification to such Act or Statute or to cover such a Notification under Clause 10.4.3.

12. The attention has also been invited to the findings contained in the arbitral award passed by the learned Arbitral Tribunal wherein the Arbitral Tribunal has wrongly distinguished the judgment of the Hon‟ble Supreme Court in South East Asia Marine Engineering and Construction Ltd. v. Oil India Ltd., reported in (2020) 5 SCC 164.