Gammon India Limited & Anr. v. National Highways Authority of India

1. Compensation for losses incurred on account of extra expenditure incurred on increased cost of materials, labour, POL etc. for the balance work executed beyond the stipulated date of completion – Rs.1456.83 lacs.

2. Payment of tack coat – Rs. 49,17,00,822/-

3. Interest pendentelite and future @ 18% p. a. on the award sum under claim No.1 and claim No.2.

4. Cost of Arbitration proceedings.”

16. The contractor’s claim for compensation for losses on account of extra expenditure incurred on material, labour and POL etc., quantified at ₹1456.83 lacs, was premised on the basis that NHAI had breached the terms of the contract. According to the contractor, execution of the works had been delayed for the reasons attributable to NHAI, including the following: (i) delayed appointment of the engineer; (ii) delayed handing over of the possession of the site; (iii) delayed payments/non-payments for work done; (iv) delayed decision-making including for use of CRBM-60 in BC; (v) failure to extend the time for completing the contract; (vi) failure to constitute the DRB within time. NHAI had resisted the said claims including on the ground that the same were barred by limitation. The Second Arbitral Tribunal found that the claims were within time and proceeded to evaluate the allegations regarding breach of contract on the part of NHAI. The Second Arbitral Tribunal found that that delay in appointment of the Engineer had “practically little adverse effect on the progress of work”. Insofar as the site handing over is concerned, the Second Arbitral Tribunal held that NHAI had breached the contractual provision in the matter of handing over the hindrance free work site to the contractor. However, the Second Arbitral Tribunal also held that the contractor’s progress was slow even after the complete site was available. The Second Arbitral Tribunal rejected the contractor’s contention that there was any significant delay in release of payments. It held that although there was a “small delay” in the release of two payments, however, the same did not hinder the performance of the contract. Further, in terms of Clause 60.[8] of the COPA, the contractor was entitled to interest. Insofar as the allegation that NHAI had delayed communicating its decision regarding mix design of BC is concerned, the same was found to be unmerited. The Second Arbitral Tribunal noted that the First Arbitral Tribunal had also found that the contractor did not deserve any compensation on this count. The allegation that there was delay on account of failure on the part of NHAI to grant extension of time, was not accepted by the Second Arbitral Tribunal for two reasons. First, that it did not constitute a breach of contract; and second that the issue regarding extension of time was not before the Second Arbitral Tribunal. The Second Arbitral Tribunal also rejected the contention that there were any adverse effects by not constituting the DRB at the material time.

17. Insofar as the contractor’s claim for compensation is concerned, the Second Arbitral Tribunal held that the contract provided for price adjustment formula and the contractor was not entitled to any payment beyond the amount payable in terms of the said clause (Clause 70 of the contract). The contractor’s claim for payment of ‘tack coat’ was also rejected. Consequently, the contractor’s claim for interest was also rejected by the second award dated 21.02.2011. The Third Arbitration

18. On 24.03.2008, seven disputes were referred to the DRB. However, the parties were not satisfied by the recommendations of the DRB. By a letter dated 23.12.2008, the contractor issued a notice invoking arbitration in respect of certain disputes. The Third Arbitral Tribunal stood constituted on 26.06.2009 by the presiding arbitrator accepting the appointment.

19. The claims under the following heads were filed before the Third Arbitral Tribunal:

20. The Third Arbitral Tribunal rendered the Third Award on 20.02.2012. In respect of Claim no.1, the contractor was awarded a sum of ₹6,53,29,160 along with interest at the rate of 10% per annum compounded monthly in respect of the amounts withheld by NHAI from the date that each of such withheld amounts were due till the date of notice of arbitration. The Third Arbitral Tribunal found that the imposition of liquidated damages by NHAI was unjustified and illegal. The Third Arbitral Tribunal found that NHAI had failed to establish that the delay in completion of the works was for reasons attributable to the contractor and it was entitled to a further extension of time. Further, the Third Arbitral Tribunal found that recovery of liquidated damages was not in accordance with the terms of the contract as prior notice for imposition of liquidated damages was not provided.

21. The contractor was awarded a sum of ₹3,30,225 along with interest at the rate of 10% per annum compounded monthly on the amounts illegally recovered by NHAI from the date of recovery till the date of notice of arbitration. The Third Arbitral Tribunal found that the amount was recovered towards Cess when the liability of payment of Cess was not in force in the State of Orissa.

22. The Third Arbitral Tribunal awarded a sum of ₹3,19,200 along with interest at the rate of 10% per annum compounded monthly from the dates of recovery till the date of notice of arbitration in favour of the contractor against Claim No.3. The contractor was also awarded refund of excess interest on discretionary advance (Claim no.5). In respect of Claim no.6, the contractor was awarded a sum of ₹96,58,926 along with interest at the rate of 10% per annum compounded monthly from the dates of recovery till the date of notice of arbitration. The Arbitral Tribunal awarded pendente lite and future interest at the rate of 10% per annum to be compounded monthly on Claim nos.1, 2, 3 and 6 from 23.12.2008 till the date of actual payment. The contractors claim on account of premature recovery of advance (Claim no.4) was rejected.

23. The challenge to the Third Award was rejected and NHAI has also discharged the same by payment of the amounts as awarded. Section 34 of the A&C Act

24. The appellants challenged the second award by filing an application under Section 34 of the A&C Act. The appellants assailed the impugned award on the ground that NHAI were responsible for the delays in appointing the Engineer; in handing over the site; and further delays caused by non-payment of dues. Additionally, there were delays in placing of variation order that had to be executed by Gammon and extension of time was not granted to Gammon.

25. The appellants also relied on the findings in the Third Arbitral Award and contended that the findings of the Second Arbitral Tribunal were contrary to the findings of the Third Arbitral Tribunal. The learned Single Judge held that “[t]hese awards have to independently stand on their own legs. Any attempt to conflate Award no.1 into Award No.2 or Award No. 3 into Award No. 2 would lead to extremely unpredictable consequences”. The learned Single Judge also found that the Second Award was well reasoned and therefore, was not amenable to challenge. The learned Single Judge held that it would be inappropriate to hold that an earlier award would be contrary to law due to the findings of a subsequent award. The learned Single Judge held that the findings of the majority in the impugned award are “clear and succinct” and there was no reason to interfere with the impugned award.

26. The learned Single Judge also issued certain practice directions with the object of avoiding any conflicting arbitral awards. The learned Single Judge directed that disclosures regarding other proceedings emanating from the same contract or series of contract be made. It was also directed that different disputes in respect of the same contract be referred to the same arbitral tribunal.

27. Mr. Dayan Krishnan, learned senior counsel appearing for the appellants, has assailed the impugned order, essentially, on two fronts. First, he submitted that the finding of the Second Arbitral Tribunal, with regard to the question of delay in execution of the work, was inconsistent with the Third Arbitral Tribunal in the Third Award. He pointed out that the question, whether the contractor was entitled to extension of time, was also inextricably linked with the issue whether the contractor was responsible for the delay. He submitted that the Third Award had attained finality and it would be contrary to public policy to sustain an award which is premised on the findings that are inconsistent and contrary to the findings in another award inter partes. Second, he submitted that the practice directions, issued by the learned Single Judge, were wholly beyond the jurisdiction. Reasons and conclusion

28. The first and foremost question, to be addressed, is whether the impugned award is liable to be set aside on the ground that it is inconsistent with the First Award or the Third Award. As noted above, the disputes between the parties were subject matter of three separate arbitral proceedings. Certain disputes between the parties were covered under the First Award, which was delivered on 05.10.2007. The Second Award – which is impugned in the present proceedings – was delivered on 21.02.2011. The Third Award was delivered on 30.02.2012. The challenge to the Third Award was resolved earlier and as stated above, NHAI has also discharged the Third Award by paying the amounts awarded under that award.

29. It is material to note that several of the contractor’s claims, which were the subject matter of the three arbitral proceedings, were founded on the assertion that NHAI was responsible for the delay in completion of the work. To a limited extent, this contention was accepted by the First Arbitral Tribunal. The Third Arbitral Tribunal, which was concerned with the claim regarding levy of liquidated damages by NHAI, also concluded that NHAI had been unable to establish that the delay in execution of the works were for reasons attributable to the contractor. The Third Arbitral Tribunal also found that there were certain delays on the part of NHAI. There may be merit in the contention that the impugned award is inconsistent with the other two awards, however, this Court does not consider it necessary to examine this aspect because the same is not relevant for determining whether the impugned award is liable to be set aside. Even if it is found that the findings in the impugned award are not reconcilable with the findings rendered in the other arbitral awards, the same would not be the reason to set aside the impugned award.

30. Mere inconsistency between two arbitral awards is not the ground for setting aside an award under Section 34 of the A&C Act. It is settled law that an arbitral award is amenable to challenge only on the grounds as set out in Section 34 of the A&C Act. It is difficult to accept that the arbitral award would fall foul of the public policy of India or can be held to be vitiated by patent illegality solely for the reason that the arbitral tribunal’s findings are inconsistent with the view expressed by another arbitral tribunal in another award. It is important to bear in mind that the Court, while considering an application under Section 34 of the A&C Act, is not required to readjudicate the merits of the disputes. The arbitral tribunal is the final arbiter of the disputes and its decision is final and binding on the parties. It is not open for the court to review the said decision on merits as the first appellate court and supplant its view in place of that of the arbitral tribunal. The decision of the arbitral tribunal is final unless it is liable to be set aside on any of the grounds set out in Section 34 of the A&C Act. It is well settled that unless the court finds that the decision of the arbitral tribunal is perverse or it is ex facie erroneous and vitiated by patent illegality and such illegality strikes at the root of the matter, it would be impermissible to interfere with the arbitral award. The arbitral award must be tested on the anvil of the grounds as set out in Section 34 of the A&C Act.

31. It is in the aforesaid view that the learned Single Judge had observed that each award must stand on its own legs.

32. The aforesaid issue was also considered in Glitter Overseas & Ors. v. MMTC Limited: 2022 SCC OnLine Del 2058. In the said decision (authored by the undersigned) this Court had observed as under:-

33. Mr. Krishnan also referred to the decision of the Supreme Court in National Highway Authority of India v. Progressive-MVR (JV): (2018) 14 SCC 688. In that case, the Supreme Court had authoritatively determined the question relating to an interpretation of a clause of the contract. This was for the reason that the dispute regarding the interpretation of that clause was repeatedly cropping up in various matters and various arbitral tribunals/courts had taken divergent views. In the said matter, the Supreme Court considered it apposite to examine the question to avoid any further uncertainty. We are not persuaded to accept that in every case where there is a difference of opinion between two arbitral tribunals, the court would necessarily determine the question involved and test the arbitral awards on the basis of the said determination.

34. Once it is understood that a court, while considering a challenge under section 34 of the A&C Act, does not adjudicate the merits of the disputes in the original action; the question of conflicting awards on the similar questions of fact, absent any of the grounds under section 34 of the A&C Act, does not present an issue that needs to be addressed. This court is not required to adjudicate as to which of the two conflicting awards has returned the correct finding. As stated above, if there are two plausible views and different arbitral tribunals take divergent views, it would be impermissible for the court to set aside the arbitral award solely for the reason that the findings of the arbitral tribunal are inconsistent with another award.

35. One may also observe that the Third Award was rendered after the Second Award and therefore, if the appellants’ contention is accepted – which we do not – that inconsistency between the findings of awards is a ground for setting aside an arbitral award, the Third Award would require examination on the ground of being inconsistent of the previous award.

36. Mr. Krishnan fairly did not advance any argument that the impugned award is, ex facie, vitiated by patent illegality. He confined his submissions to assail the impugned award on the ground that that the findings were inconsistent with the other awards and more particularly the Third Award.

37. The next question to be examined is with regard to practice directions issued by the learned Single Judge. Mr. Krishnan contended that it was not permissible for a court examining whether an arbitral award is required to be set aside under Section 34 of the A&C Act, to issue such wide practice directions. He submitted that the directions were more in the nature of a legislative exercise and thus, beyond the scope of examination under Section 34 of the A&C Act.

38. Ms. Padmapriya, learned counsel appearing for NHAI, did not counter the aforesaid submissions.

39. Before proceeding further, it is relevant to set out the directions which are sought to be assailed, in order that the same can be understood in the proper context. These directions are reproduced below:- “i. In every petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter “Section 34 petition”), the parties approaching the Court ought to disclose whether there are any other proceedings pending or adjudicated in respect of the same contract or series of contracts and if so, what is the stage of the said proceedings and the forum where the said proceedings are pending or have been adjudicated. ii At the time when a Section 34 petition is being heard, parties ought to disclose as to whether any other Section 34 petition in respect of the same contract is pending and if so, seek disposal of the said petitions together in order to avoid conflicting findings. iii In petitions seeking appointment of an Arbitrator/Constitution of an Arbitral Tribunal, parties ought to disclose if any Tribunal already stands constituted for adjudication of the claims of either party arising out of the same contract or the same series of contracts. If such a Tribunal has already been constituted, an endeavor can be made by the arbitral institution or the High Court under Section 11, to refer the matter to the same Tribunal or a single Tribunal in order to avoid conflicting and irreconcilable findings. iv. Appointing authorities under contracts consisting of arbitration clauses ought to avoid appointment or constitution of separate Arbitrators/ Arbitral Tribunals for different claims/disputes arising from the same contract, or same series of contracts.”

40. The impugned order states that the above directions have been issued to avoid multiplicity of tribunals and inconsistent/contradictory awards. The first two directions are with regard to the disclosures required to be made by parties approaching the court. Clearly, it is necessary for all parties approaching the court to disclose the material facts. Thus, even in absence of the said directions, it would be necessary for the parties to disclose other proceedings emanating from the same contract/series of contracts.

41. Mr. Krishnan had largely emphasized on the directions that require all petitions, filed under Section 34 of the A&C Act, to be heard together and that the same tribunal be appointed in respect of all disputes relating to a contract or series of contracts. He also submitted that if the arbitral awards emanating from the same contract are required to be examined independently, there is no requirement for the petitions challenging the arbitral awards, in respect of the same contract or series of contracts, to be clubbed together. He also stated that in long duration contracts, there may be multiple disputes arising at different stages; consequently, they would be subject matter of different arbitral proceedings and awards. In such cases, the direction that all petitions under Section 34 of the A&C Act challenging different awards be clubbed together would inevitably delay the proceedings.

42. A closer examination of the second direction merely indicates that the court had directed the parties to seek disposal of the petitions under Section 34 of the A&C Act together in order to avoid conflicting findings. Plainly, it is not necessary that all applications under Section 34 of the A&C Act, in respect of the same contract or series of contracts, be clubbed together in all cases. In a given set of facts, it may be expedient to club such petitions especially where it appears that there may be a possibility of conflicting decisions. In situations where there is a possibility of conflicting decisions, it may be apposite for the petitions under section 34 of the A&C Act to be heard together. It is always open for the parties in such circumstances to seek clubbing of petitions that involve similar issues for the purpose of expediting the proceedings and also to avoid inconsistent decisions. The question whether the petitions are required to be clubbed together would necessarily have to be determined in the facts of each case and if any party considers it apposite to seek clubbing of various petitions. The directions, issued by the learned Single Judge, cannot be misunderstood to mean that it is necessary in all cases that the applications filed under Section 34 of the A&C Act, in respect of disputes arising from the same contract or series of contracts, be clubbed together. It must be understood to enable either of the parties to apply for clubbing the petitions together. If any such application is moved, the court would consider the same on its own merits.

43. This Court is also of the view that the third and the fourth directions, which require that the disputes arising from the same contract or series of contracts be referred to the same tribunal, must not be read as setting forth a hard and fast rule. It is more in the nature of a suggestion to avoid inconsistent findings. Clearly, in cases where an arbitral tribunal is in seisin of the disputes arising from the contract or a series of contracts, it may be expedient to appoint the same arbitral tribunal to avoid inconsistent findings. There may be cases where it is not feasible or practical to appoint the same arbitral tribunal in respect of disputes arising from the same contract. In certain cases, the parties may also have reservations appointing the same arbitral tribunal. In such cases, the third and the fourth directions cannot be read to mean that it would be necessary to appoint the same arbitral tribunal in such cases, as well.

44. The observations of the learned Single Judge must be understood as suggestions to avoid a possible conflict of decision; these are not to be understood as practice directions, which require to be necessarily followed.

45. It is also relevant to note that the learned Single Judge had directed that the impugned order be placed before the Chief Justice for considering any modifications which are required to be made in the Rules of the Delhi High Court. This also indicates that the learned Single Judge has merely suggested that rules be made to incorporate appropriate directions. Section 18 of the Commercial Courts Act, 2015 also empowers the High Court to issue practice directions to supplement the provisions of Chapter-II of the said Act. The Delhi High Court has also issued practice directions in exercise of the said power. Section 18 of the Commercial Courts Act, 2015 also enables the High Court to issue practice directions by way of a notification. In the absence of such practice directions or rules, it would not be apposite to understand the directions issued by the learned Single Judge as mandatory and binding on all matters.

46. This Court pointedly asked Mr. Krishnan as to how the appellants are aggrieved by the present directions. He fairly states that the directions may not be relevant in the present appeal but there are other matters where the implementation of the aforesaid directions would prejudice the parties.

47. In view of the clarifications issued above, the aforesaid grievance also does not survive.

48. The appeal is dismissed with the aforesaid observations. Pending applications, if any, are also dismissed.

VIBHU BAKHRU, J AMIT MAHAJAN, J NOVEMBER 24, 2022