National Highways Authority of India v. M/S Suncon Soma (JV)

13. In other words, it is her submission that the respondent was within its right in the facts of the case to make a claim as considered and granted by the Arbitral Tribunal. She submits, the plea urged by Mr. Kumar on the non maintainability of the claim of the respondent herein is totally misconceived. It is her contention that award in question does not require any interference by this Court, keeping in view the settled position of law in terms of the judgment of the Supreme Court in the case of McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181.

14. Having heard the learned counsel for the parties, the limited challenge of the petitioner to the impugned award dated July 15, 2022 of the Arbitral Tribunal is only to the extent of claim O.M.P. (COMM) 471/2022 Page 9 No.4 whereby the Arbitral Tribunal has granted an amount of ₹8,12,44,686/-, which is ₹1,25,11,684/- more than the amount granted by the DRB i.e., ₹6,87,33,000/- and part of Claim No.5 under two heads being Compensation for plant and machinery and Cost towards deployment of manpower & fixed expenses.

15. Insofar as Claim No.4 is concerned, the issue is whether the Arbitral Tribunal is justified in granting the amount of ₹8,12,44,684/- as against ₹6,87,33,000/- granted by the DRB.

16. It is reiterated that the petitioner has not challenged the grant of ₹6,87,33,000/- by the DRB. Having said that, reliance has been placed by Mr. Kumar on clause 67.[1] of the CA which reads as under:- “If any dispute arises between the Employer and the Contractor in connection with, or arising out of, the Contract or the execution of the Works, whether during the execution of the Works or after their completion and whether before or after the repudiation or other termination of Contract, including any disagreement by either party with any action, inaction, opinion, instruction, determination, certificate or valuation of the Engineer, the matter in dispute shall, in the first place, be referred to the Disputes Review Board (“the Board”). The Board shall be established when each of the three Board Members has signed a Board Member’s Declaration of Acceptance as required by the DRB’s rules and procedures (which, along with the declaration of acceptance form, are attached as O.M.P. (COMM) 471/2022 Page 10 Annex “A-III” to these Conditions of Particular Applications – Part II). The Board shall comprise three Members experienced with the type of construction involved in the Works and with the interpretation of contractual documents. One Member shall be selected by each of the Employer and the Contractor and approved by the other. If either of these Members is not so selected and approved within 56 days of the date of the Letter of Acceptance, then upon the request of either or both parties such Member shall be selected as soon as practicable by the appointing authority specified in the Appendix to Bid. The third Member shall be selected by the other two and approved by the parties. If the two Members selected by or on behalf of the parties fail to select the third Member within 14 days after the later of their selections or if within 14 days after the selection of the third Member, the parties fail to approve that Member, then upon the request of either or both parties such third Member shall be selected promptly by the same authority specified in the Appendix to Bid who shall seek the approval of the proposed third Member by the parties before selection but, failing such approval, nevertheless shall select the third Member. The third Member shall serve as Chairman of the Board. In the event of death, disability, or resignation of any Member, such Member shall be replaced in the same manner as the Member being replaced was selected. If for whatever other reason a Member shall fail or be unable to serve, the Chairman (or failing the action of the Chairman then either of the other members) shall inform the parties and such nonserving Member shall be replaced in the same manner as the Member being replaced was selected. Any replacement made by the parties shall be O.M.P. (COMM) 471/2022 Page 11 completed within 28 days after the event giving rise to the vacancy on the Board, failing which the replacement shall be made by the Appointing Authority in the same manner as described above. Replacement shall be considered completed when the new Member signs the Board Member’s Declaration of Acceptance. Throughout any replacement process the Members not being replaced shall continue to serve and the Board shall continue to function and its activities shall have the same force and effect as if the vacancy had not occurred, provided, however, that the Board shall not conduct a hearing nor issue a Recommendation until the replacement is completed. The recommendation of the Board shall be binding on both parties who shall promptly give effect to it unless and until the same shall be revised, as herein after provided, in an arbitral award. Unless the Contract has already been repudiated or terminated, the Contractor shall, in every case, continue to proceed with the Works in accordance with the contract. If either the Employer or the Contractor is dissatisfied with any Recommendation of the Board, or if the Board fails to issue its Recommendation within 56 days after receipt by the Chairman of the Board of the written Request for Recommendation or any extension mutually agreed upon by the Employer and the Contractor, then either the Employer or the Contractor may, within 28 days after the expiry of the said period, as the case may be, give notice to the other party, with a copy for information to the Engineer, of his intention to commence arbitration, as hereinafter provided, as to the matter in dispute. Such notice shall establish the entitlement of the party giving the same to commence arbitration, as hereinafter provided, as to such dispute and subject O.M.P. (COMM) 471/2022 Page 12 to Sub-Clause 67.4, no arbitration in respect thereof may be commenced unless such notice is given. If the Board has issued a Recommendation to the Employer and the Contractor within the said 56 days or any extension mutually agreed upon by the Employer and the Contractor and no notice of intention to commence arbitration as to such dispute has been given by either the Employer or the Contractor within 28 days after the parties received such Recommendation from the Board, the Recommendation shall become final and binding upon the employer and the contractor. Whether or not it has become final and binding upon the Employer and the Contractor a Recommendation shall be admissible as evidence in any subsequent dispute resolution procedure, including any arbitration or litigation having any relation to the dispute to which the Recommendation relates. All Recommendations which have become final and binding shall be implemented by the parties forthwith, such implementation to include any relevant action of the Engineer. If during the contract period, the Employer and the Contractor are of the pinion that the Disputes Review Board is not performing its functions properly, the Employer and the Contractor may together disband the Disputes Review Board and reconstitute it. A new board shall then be selected in accordance with the provisions applying to the selection of the original Board as specified above, except that words “within 28 days after the Letter of Acceptance” shall be replaced by the words “within 28 days after the date on which the notice disbanding the original Board became effective”. O.M.P. (COMM) 471/2022 Page 13 The Employer and the Contractor shall jointly sign a notice specifying that the Board shall stand disbanded with effect from the date specified in the notice. The notice shall be posted by a registered letter with AD or delivered personally to each Member of the Board. A Member shall be deemed to have received the delivery of the letter even if he refuses to do so.”

17. The said clause stipulates that if the employer or the contractor is dissatisfied with the recommendations of the DRB, either of them shall give notice to the other party of its intention to commence arbitration. It is a fact that the petitioner herein had conveyed its dissatisfaction to the recommendations made by the DRB in disputes No.1 to 4. The award on Claim No.4 is the subject matter of the challenge in this petition to the extent stated above. It is true that no notice was given by the respondent within 28 days expressing its dissatisfaction with the recommendations of the DRB, but while nominating its Arbitrator vide letter dated September 24, 2017, it had expressed that it may file counter claim with respect to the four disputes/claims.

18. The plea of Mr. Kumar was that respondent having not issued notice could not file Claim No.4 claiming a higher amount of ₹8,12,44,684/-, but the fact is that petitioner has expressed its dissatisfaction to the amount of ₹6,87,33,000/- granted by the DRB. The grant of said amount to the respondent has not attained finality even qua the petitioner. In other words, the grant of ₹6,87,33,000/- in favour of the respondent has been contested by O.M.P. (COMM) 471/2022 Page 14 the petitioner and in that sense the amount granted has not attained finality.

19. The contention of Mr. Kumar is that the Tribunal by granting the amount of ₹8,12,44,684/- i.e., ₹1,25,11,684/- in excess has not considered the recommendations of the DRB.

20. It is settled law that the recommendations of the DRB can act as evidence in the subsequent proceedings inter se parties and the Tribunal can factor/consider the recommendations to come to a conclusion.

21. In the present case, it need to be seen whether the Tribunal was justified in allowing the claim of the respondent and granting the amount of ₹8,12,44,684/- by an excess of ₹1,25,11,684/- over and above what has been granted by the DRB, i.e., ₹6,87,33,000/-. In this regard, it is necessary to reproduce the final conclusion of the DRB and the Arbitral Tribunal in the following manner:- “5. Decision of DRB The DRB unanimously decides that the Contractor is entitled to be paid the excess cost incurred. The Engineer decision is rejected. Examination of amount claimed by the Contractor: The Contractor had submitted the details of the claim with their original submission on 11.03.2016 volume I, Rs. 8,12,44,684 as difference of cost of spalls materials procured from open market and that could have produced at their own plant. The Contractor has submitted the details of breakup of the rate on 05.10.2016 and the rate of aggregate as produced from the plant as Rs.371.00 per MT in 2008, Rs.371.00 in 2009, Rs. 370.[5] in 2010, Rs.366.[6] in 2011, Rs, 424.30 in 2012, Rs.421.[7] in 2013 and O.M.P. (COMM) 471/2022 Page 15 Rs.580.[8] in 2014. The rise in the Contractor lowest rate in 2010 compared to the highest rate in 2014 comes to 113% in 6 years i.e. 18.9% per year. Correspondingly market rate is 149% i.e. 24.83% per year in respect of out sourced supplier~. There is difference of 5.93% on higher side in respect of market procurements. The owner produced material also could suffer the market fluctuations. The owner produced material cost needs to be adjusted by higher cost of 5.93%. The claimed amount thus will be 0.9407 say 0.94 i.e. Rs.0.94 x 8, 12, 44,684 i.e. Rs. 7, 63, 70,000/-. The cost shall not include the profit. The reduction of 10% is applied. The amount works out as Rs.6,87,33,0001-. The details furnished by the Contractor could not be verified for exactness but these appear to be reasonable. This exercise should have been now done by the Engineer in spite of rejection as untenable due to want of contemporary records The DRB has done its best in view of the justification of the Contractor's pleadings and no comment from the Engineer/Employer.”

ARBITRAL TRIBUNAL “11.3.24. Due to the aforesaid non foreseeable situation the Contractor had to incur additional expenditure by way of procuring the stone metal from the market required for the works at higher cost so as to maintain and achieve the planned progress in the best interest of the project, until April 2010 when their quarry and crusher were made functional. 11.3.25. AT unanimously decides that due to the above stated abnormal delays in granting approval for installation of Crusher and quarry, the Contractor is entitled under Clause 12.[2] of the CA to be paid the excess cost incurred by them in procuring the stone metal from the market at higher cost till the permission for quarrying was made O.M.P. (COMM) 471/2022 Page 16 available to them. Originally the Claimant Contractor had submitted the details of the claim in the statement at Pg 2843/CD-12 for an amount of Rs.8,12,44,684/. The Claimant thereafter made alternative calculations in order to corroborate its claim no.4 and the alternative calculations have been made on the basis of contemporary record including IPCs. By the aforesaid alternative calculations, the total amount of the Claim comes to Rs. 14,78,88,944/-, Pg37/CD-27. It may be mentioned here that the statement of suppliers’ invoices as well as the ledgers based on which above amount has been worked out have been duly checked by the Chartered Accountant, Pg 36 to 46 and 47 to 80/CD-330 refer. It is noted that the escalation has also been paid for local materials, and upto April, 2010, Pg310/CD-23, it works out to Rs.3,29,82,147/-, Pg 310/CD23 refers. The net amount of Claim as per revised calculations will thus be Rs. (14,78,88,944-3,29,82,147) = Rs. 11,49,06,797/-. However the Claimant Contractor has already restricted the claim to Rs.8,12,44,684/-. The Respondent did not give any comments on quantification of the Claims despite repeated reminders by AT. 11.3.26. In view of above, against Claim No.4 a Sum of Rs. 8,12,44,684/- is awarded in favour of the Claimant Contractor.”

22. The DRB while giving its recommendations had primarily relied upon the details submitted by the respondents of the breakup of the rates of the material procured from the plant. The DRB had noted that the breakup of the rates given by the respondent shows an increase of 113% in 6 years i.e., 18.9% per year whereas the correspondent increase of market rates was 149% i.e., 24.83% per O.M.P. (COMM) 471/2022 Page 17 year. The difference of 5.93% being on higher side, the DRB has by applying a formula arrived at the figure of ₹6,87,33,000/-. Whereas, the Arbitral Tribunal has considered clause 12.[2] of the CA which stipulates excess cost incurred by the contractor in procuring stone / metal from the market at higher cost till the permission for quarrying was made available to it, shall be paid. There is no dispute that because of lack of approvals, the respondent contractor had to procure the stone / metal from the market. The Tribunal also considered that initial claim of the respondent was ₹8,12,44,684/- but thereafter made alternative calculations which brought the amount to ₹14,78,88,944/- based on the statement of invoices as well as ledgers, based on which amount was worked out and duly checked by a Chartered Accountant. It also noted that the escalation for local material was also paid up to April 2010 which worked out to ₹3,29,82,147/-. The Arbitral Tribunal had subtracted the amount of ₹3,29,82,147/from the amount of ₹14,78,88,944/- to reach an amount of ₹11,49,06,797/-. But the respondent having restricted its claim to ₹8,12,44,684/- the Tribunal granted the said amount only and not the higher amount. What is important to note is that the petitioner did not give its comments on the quantification of claim despite repeated reminders by the Arbitral Tribunal. In that sense, the petitioner did not contest the quantification given by the respondent herein based on the suppliers’ invoices and also the ledgers as duly checked by the Chartered Accountant. O.M.P. (COMM) 471/2022 Page 18

23. That apart, I find that the respondent being the claimant before the Arbitral Tribunal, was also within its rights to make a claim in the manner it did. That apart, even clause 67.[3] which reads as under, would make it clear that the Tribunal is within its rights to revise the amount as granted by the DRB. The amount of ₹6,87,33,000/- granted by the DRB has been revised to ₹8,12,44,684/- which the Tribunal is entitled to do under clause 67.[3] of the CA. Clause 67.[3] “Any dispute in respect of which the Recommendation(s), if any, of the Board has not become final and binding pursuant to Sub-Clause 67.[1] shall be finally settled by arbitration as set forth below. The Arbitral Tribunal shall have full power to open up, review and revise any decision, opinion, instruction, determination, certificate or valuation of the Engineer and any Recommendation(s) of the Board related to the dispute.” (emphasis supplied)

24. If that be so, the Arbitral Tribunal has considered evidence over and above what was available before the DRB. It is not a case where the recommendations of the DRB have been completely overlooked. Moreover, the finding of the Arbitral Tribunal is a finding of fact and the law in that regard being well settled, this Court is of the view that the conclusion arrived at by the Arbitral Tribunal cannot be interfered with.

25. Insofar as challenge to the award on claim No.5 of the Arbitral Tribunal is concerned as stated above, the challenge is limited to Compensation for plant and machinery and Cost O.M.P. (COMM) 471/2022 Page 19 towards deployment of manpower & fixed expenses. The amounts granted under both the heads are ₹4,24,03,868/- and ₹2,44,94,525/respectively.

26. With regard to the conclusion of the Arbitral Tribunal on the grant of compensation for plant and machinery, the submissions of Mr. Kumar are primarily the following:-

(i) That the Arbitral Tribunal despite holding the compensation claimed is not based on actual loss/real loss suffered, but is based on certain theoretical and empirical calculations which have to be given due attention, has not considered the same while granting the compensation.

(ii) The Arbitral Tribunal despite setting certain parameters for adjudicating the claims of Compensation for plant and machinery has failed to apply the same, except the mitigation factor.

27. In this regard it is necessary to reproduce the finding of the Arbitral Tribunal on this claim in paragraph 12.3.3:-

28. The above will show that the Arbitral Tribunal did state that the calculations submitted by the respondent in different alternatives i.e., Alternatives 1 & 2 were taken into account based on the comparative study of the compensation sought by the respondent as per submissions made along with its Statement of Claim. Subsequently as in the two Alternatives which it has compiled and the fact that the respondent has not accounted for all its parameters in its quantification, it had applied the mitigation factor of 0.[8] to the compensation worked out by the respondent for the period between January 2014 to April 2015 in the Statement of Claim amounting to ₹5,30,04,835/- and granted ₹4,24,03,868/-. In other words, it has not considered the higher amounts as depicted in the Alternatives 1 & 2. Further, the Tribunal by noting that the claimant has not accounted for certain parameters, had applied the O.M.P. (COMM) 471/2022 Page 22 mitigation factor 0.[8] to the amount of compensation made in the Statement of Claim to arrive at the figure of ₹4,24,03,868/-. It is clear from the finding of the Arbitral Tribunal reproduced above that the Tribunal was conscious of the various parameters, but had still applied the mitigation factor of 0.8. Whether such an application is justified, or not, cannot be the subject matter of the challenge in a petition under Section 34 of the Arbitration and Conciliation Act, 1996 in view of the Judgment of the Supreme Court in the case of McDermott International (supra), wherein it was held as under:

29. Suffice to state, the scope of interference of Courts under Section 34 of the Arbitration and Conciliation Act, 1996 is very limited. For a party to successfully assail an arbitral award, it must show that the award has suffered from perversity or an error of law, or that the arbitrator has mis-conducted himself. The ground for assailing an award cannot include what the Court thinks is unjust on the facts of a case. In other words, the Court cannot substitute its view for the Arbitrator’s view on facts. In this regard, O.M.P. (COMM) 471/2022 Page 23 I may refer to the judgment of the Supreme Court in the case of NTPC Ltd. v. M/s. Deconar Services Pvt. Ltd., Civil Appeal NO. 6843/2014 decided on March 04, 2021, wherein the Apex Court held as under:

30. Further, the Supreme Court in Associate Builders v. Delhi Development Authority, Civil Appeal No. 10531/2014 decided on November 25, 2014, while setting aside the Judgment of a Division Bench of this Court, opined as under:

31. Hence this Court is of the view, that the Arbitral Tribunal is justified in arriving at the figure as it did and the same does not warrant any interference.

32. With regard to the challenge to the amount granted by the Arbitral Tribunal against the claim under the heading Cost towards deployment of manpower & fixed expenses, the submission of Mr. Kumar is that a mere application of mitigation factor of 0.[8] does not address the issue of inclusion of items by the respondent without providing any details, and as such, the Arbitral Tribunal ought to have rejected the claim as being perverse. Suffice to state, the Arbitral Tribunal has only applied the mitigation factor of 0.08 on the expenses projected by the respondent. It is noted that the Arbitral Tribunal has considered the submissions made in the Statement of Claim keeping in view the supporting documents and arrived at the figure of ₹3,06,18,155/-. It then applied the O.M.P. (COMM) 471/2022 Page 25 mitigation factor of 0.08 and worked out the amount to ₹2,44,94,525/-. There is some justification for the Tribunal to come to such a conclusion, more so when the Tribunal has clearly stated that the petitioner has not contested the quantification projected by the respondent herein. The law in this regard as referred to in paragraph 28 above is very clear inasmuch as the Tribunal having applied formula for working out the claim, and such application of formula not being arbitrary, the conclusion of the Arbitral Tribunal in that regard cannot be contested. In view of the above, the challenge of the petitioner with regard to this claim is also rejected.

33. Hence, the present petition filed by the petitioner is dismissed. I.A. 19352/2022 Dismissed as infructuous.

V. KAMESWAR RAO, J

NOVEMBER 28, 2022