Reliance is placed on National Building Construction Corporation v. Decor India Pvt. Ltd.(2004) SCC OnLine Del 243., wherein this Court held that “It is a settled law that where there is no escalation clause in the arbitration agreement, the arbitrator cannot assume jurisdiction to award an increased rate”. Thus, there is an apparent error in Arbitrator’s finding in this regard.
28. Once it was found that there was delay in execution of the Agreement due to the conduct of UOI. As a repercussion, they became liable for consequences of delay, on account of increase in prices even in the absence of any escalation clause. Food Corporation of India vs. A.M. Ahmed and Co. and Ors., AIR 2007 SC 82, K.N. Sathyapalan (dead) by LRs v. State of Kerala and Anr., (2007) 13 SCC 43., etc.
29. For extended period, the Arbitrator has relied upon Clause 10CC of GCC which provides the formula for calculation of price escalation. The challenge to Claim No. 5 is principally premised only on the Arbitrator’s interpretation of applicability of Clause 10CC. Even if Clause 10CC had a limited application and was only to apply for price variation only during the terms of the Agreement, mechanism therein could be adopted to calculate price escalation. In the aforesaid circumstances, the Arbitrator appears to have acted within his jurisdiction in allowing some of the claims on account of escalation. Further, the Arbitrator has excluded the component of overhead and profit and reduced the claim amount for a period of 12 months for which delay was apportioned against UOI. Therefore, the findings rendered to that effect are sustainable and cannot be disturbed in the present proceedings.
IN THE HIGH COURT OF DELHI AT NEW DELHI
O.M.P. (COMM) 44/2021
UNION OF INDIA Vs C AND C CONSTRUCTION LTD.
CORAM:
HON'BLE MR. JUSTICE SANJEEV NARULA
Author: SANJEEV NARULA, J.
Dated:28th October, 2021
1. The present petition under Section 34 of the Arbitration and
Conciliation Act, 1996, [hereinafter “the Act”] impugns the Award1 dated
27th December, 20192 whereby the Arbitrator has partly allowed the claims
of the Respondent. The summary of the Award is extracted hereinbelow: -
1 No. KV/MAA/391.
2 corrected vide Order dated 15th January, 2020.
O.M.P. (COMM) 44/2021 Page 2 of 19
SUMMARY OF AWARD
Claim No. Claim in Brief Amount of claim
in USD as per
SOC
Amount of
Award in
USD
1 Wrongful levy of
compensation
21,45,639.79 21,45,639.79
2 Work done but not paid &
reduction in rates
a) Items executed but not paid
b) Reduction in rates of extra
items
c) Reduction in rates of
deviated items
1,30,071.00
1,74,945,.37
2,49,357.68
Nil
4,191.87
2,12,606.73
3 Interest on account of
delayed payments
32,222.47 Not pressed
4 Additional Overheads for the
extended period
33,34,681.75 4,19,799.08
5 Escalation for work done
during extended period
13,07,752.99 2,84,120.98
6a Refund of recovery due to
non-deployment of technical
staff
1,75,400.00 Nil
6b Interest on withheld amount
of milestones
55,027.40 18,195.73
6c Release of amount withheld
for damage to chiller units
3,00,000.00 3,00,000.00
6d Recovery on account of
testing charges
36,000.00 Nil
7a Repair of damaged
installations
24,325.00 Nil
7b Reinstallation of 3
transformers
9,000.00 Nil
7c For carrying out operation of
installation
1,16,666.00 Nil
8 Non-utilisation of material
due to change of decision
1,84,469.74 Not pressed
9 Reimbursement of Business
Receipt Tax
53957.44 39881.59
10 Interest 15% pa 4.96% pa
Total (excluding interest) 83,29,516.63 34,24,435.77
O.M.P. (COMM) 44/2021 Page 3 of 19
BRIEF FACTS
2. The factual matrix in brief is as under: -
The Contract
3. The Respondent viz. M/s. C & C Construction Ltd. [hereinafter
“C&C”] being the L-1 bidder, was awarded the work of – “Construction of
Afghan Parliament building at Kabul, Afghanistan (SH: Bulk Electro
Mechanical Services)” [“BEMS”] vide letter of Award3 dated 15th January,
2013 for contract price of USD 21,456,396.90 [hereinafter “the
Agreement”], by the Petitioner viz. Union of India, through CPWD, New
Delhi [hereinafter “UOI”].
4. The schedule date of commencement of the said project was 06th
February, 2013 and date of completion was 05th February, 2014.
Constitution of the Arbitral Tribunal
5. Disputes arose between the parties and C&C referred nine claims for
settlement before the three-member Dispute Redressal Committee [“DRC”]
constituted by the Director General, CPWD in terms of Clause 25 of the
General Conditions of Contract [hereinafter “GCC”]. DRC gave its decision
on 26th July, 2017, but the recommendations made therein were not accepted
by UOI.
6. UOI invoked arbitration under Clause 25 and Sh. K.K. Varma, (Retd.)
Additional Director General, CPWD, was appointed as the Sole Arbitrator
O.M.P. (COMM) 44/2021 Page 4 of 19
vide letter dated 21st September, 2017 for adjudication of claims and to make
a declaratory award on the decision of DRC.
7. C&C was not satisfied with the restricted reference of seven claims
for adjudication and invoked arbitration vide its letter dated 29th September,
2017 and requested for reference of nine claims for adjudication. Acceding
to C&C’s request, Director General, CPWD vide letter dated 03rd October,
2017 in continuation of his earlier letter dated 21st September, 2017, referred
nine claims of C&C to the Sole Arbitrator for adjudication. The claims of
UOI were withdrawn, as recorded in the Award, and claims of C&C were
adjudicated in arbitration.
8. The Sole Arbitrator, after hearing the parties and considering the
material on record, passed the impugned Award on 27th December, 2019.4
UOI impugns the Award qua three claims – viz. Claims No. 1, 4 and 5,
which are taken up separately.
CLAIM-WISEOBJECTIONS AND ANALYSIS
I. CLAIM NO. 1 –WRONGFUL LEVY OF COMPENSATION
9. Mr. Ripudaman Bhardwaj, CGSC makes the following submissions: -
(i) The Arbitrator has failed to appreciate the fact that Clause 2 of GCC
is a binding condition accepted by both the parties and any action(s)
in conformity with the Clause 2 is fully justified.
(ii) The Arbitrator has erroneously relied upon the judgment of Apex
3 01/Dir(PM)/CPWD/Kabul/2013-14.
4 UOI filed application(s) for making correction(s) and which was decided by the Tribunal vide its Order
dated 15th January, 2020.
O.M.P. (COMM) 44/2021 Page 5 of 19
Court in the matter of J.G. Engineers v. Union of India5 without
appreciating the facts and circumstances of the instant case and has
wrongly held that the aforesaid claim is not an “excepted matter”. In
this regard, reliance is placed on a recent judgment of Supreme Court
in the matter of Mitra Guha Builders (India) v. Oil and Natural Gas
Corporation6 wherein the Court held that levy of liquidated damages/
compensation under Clause 2 of GCC is final and cannot be subjected
to arbitration. In light of the aforesaid, observations of the Arbitrator
regarding arbitrability of the said claim are patently erroneous and not
sustainable in law.
(iii) While adjudicating Claim No. 4 (viz. Additional Overheads for
extended period), the Arbitrator has compensated C&C for the delay
caused by UOI. The Arbitrator, however, failed to appreciate the fact
that C&C was also in breach due to delay caused in completion of
work. Therefore, the action of UOI to levy compensation in terms of
Clause 2 is lawful as per Section 74 of the Indian Contract Act, 1872
[hereinafter “Contract Act”].
(iv) Apart from the embarrassment for the country due to delay(s) in
completion of Afghan Parliament building, UOI also suffered
terminal losses by way of additional expenditure(s) towards salaries
of technical staff. Loss of Rs. 17.18 Crores was borne by UOI due to
variation in exchange rate during the extended period. Therefore,
decision of the Arbitrator of revoking levy of compensation in favour
of C&C is perverse, opposed to public policy, and contrary to facts
5 (2011) 5 SCC 758.
6 (2020) 3 SCC 222.
O.M.P. (COMM) 44/2021 Page 6 of 19
and notion of justice.
10. Per Contra, Mr. Vikas Goel, counsel for C&C makes the following
assertions: -
(i) The award qua Claim No. 1 is based on findings of fact i.e., review
whereof is beyond the jurisdiction of this Court under Section 34 of
the Act.
(ii) UOI had itself referred Claim No. 1 to arbitration vide letter dated 21st
September, 2017.
(iii) Reliance placed by UOI on Mitra Guha (supra) is erroneous and is
distinguishable on facts and law. In Mitra Guha (supra), the
contractual clause was substantially different than the one in the
instant case. Therein, none of the parties raised the issue(s) of
validity/ or voidability of contractual provision. The said case was
also not cited before the Arbitrator and besides, the judgment in J.G.
Engineers (supra) has been correctly followed.
(iv) In support of his contentions, reliance was placed upon the decision of
this Court in DSIIDC v. H.R. Builders7.
ANALYSIS
11. Claim No. 1 pertains to wrongful levy of compensation for the delay
in completion of BEMS work and whether C&C is entitled to extension of
time without levy of compensation in terms of Clause 2 of GCC. The
Arbitrator held that the action of UOI to levy compensation in terms of
Clause 2 was wrongful and legally untenable and awarded an amount of
7 2021 SCC OnLine Del 3997. Reliance is placed on para 28-31, 35-36, 38-41.
O.M.P. (COMM) 44/2021 Page 7 of 19
USD 21,45,639.79/- as refund. Mr. Bhardwaj has argued that the aforesaid
claim forms part of “excepted matter” premised on Clause 2 of GCC.
12. To deal with this objection, it would be necessary to refer to the
clause for ‘Settlement of Disputes & Arbitration’ [viz. Clause 25], which
reads as under: -
“CLAUSE 25
Except where otherwise provided in the contract, all questions and disputes
relating to the meaning of the specifications, design, drawings and
instructions here-in before mentioned and as to the quality of workmanship
or materials used on the work or as to any other question, claim, right,
matter or thing whatsoever in any way arising out of or relating to the
contract, designs, drawings, specifications, estimates, instructions, orders
or these conditions or otherwise concerning the works or the execution or
failure to execute the same whether arising during the progress of the work
or after the cancellation, termination, completion or abandonment thereof
shall be dealt with as mentioned hereinafter:
(i) If the contractor considers any work demanded of him to be outside the
requirements of the contract, or disputes any drawings, record or decision
given in writing by the Engineer-in-Charge on any matter in connection
with or arising out of the contract or carrying out of the work, to be
unacceptable, he shall promptly within 15 days request the Superintending
Engineer in writing for written instruction or decision. Thereupon, the
Superintending Engineer shall give this written instructions or decision
within a period of one month from the receipt of the contractor's letter.
If the Superintending Engineer fails to give his instructions or decision in
writing within the aforesaid period or if the contractor is dissatisfied with
the instructions or decision of the Superintending Engineer, the contractor
may, within 15 days of the receipt of Superintending Engineer's decision,
appeal to the Chief Engineer who shall afford an opportunity to the
contractor to be heard, if the latter so desires, and to offer evidence in
support of his appeal. The Chief Engineer shall give his decision within
30 days of receipt of contractor's appeal. If the contractor is dissatisfied
with the decision of the Chief Engineer, the contractor may within 30 days
from the receipt of the Chief Engineer decision, appeal before the Dispute
Redressal Committee (DRC) along with a list of disputes with amounts
claimed in respect of each such dispute and giving reference to the
O.M.P. (COMM) 44/2021 Page 8 of 19
rejection of his disputes by the Chief Engineer. The Dispute Redressal
Committee (DRC) shall give his decision within a period of 90 days from
the receipt of Contractor's appeal. The constitution of Dispute Redressal
Committee (DRC) shall be as indicated in Schedule 'F'. If the Dispute
Redressal Committee (DRC) fails to give his decision within the aforesaid
period or any party is dissatisfied with the decision of Dispute Redressal
Committee (DRC), then either party may within a period of 30 days from
the receipt of the decision of Dispute Redressal Committee (DRC), give
notice to the Chief Engineer for appointment of arbitrator on prescribed
proforma as per Appendix XV, failing which the said decision shall be
final binding and conclusive and not referable to adjudication by the
arbitrator.
It is a term of contract that each party invoking arbitration must exhaust
the aforesaid mechanism of settlement of claims/disputes prior to invoking
arbitration.8
(ii) Except where the decision has become final, binding and conclusive in
terms of Sub Para (1) above, disputes or difference shall be referred for
adjudication through arbitration by a sole arbitrator appointed by the
Chief Engineer, CPWD, charge of the work or if there be no Chief
Engineer, the Additional Director General of the concerned region of
CPWD or if there be no Additional Director General, the Director General
of Works, CPWD. If the arbitrator so appointed is unable or unwilling to
act or resigns his appointment or vacates his office due to any reason
whatsoever, another sole arbitrator shall be appointed in the manner
aforesaid. Such person shall be entitled to proceed with the reference from
the stage at which it was left by his predecessor.
It is a term of this contract that the party invoking arbitration shall give a
list of disputes with amounts claimed in respect of each such dispute along
with the notice for appointment of arbitrator and giving reference to the
rejection by the Chief Engineer of the appeal.
It is also a term of this contract that no person, other than a person
appointed by such Chief Engineer CPWD or Additional Director General or
Director General of works, CPWD, as aforesaid, should act as arbitrator
and if for any reason that is not possible, the matter shall not be referred to
arbitration at all.
It is also a term of this contract that if the contractor does not make any
8 Clause 25 (i) of the CPWD Works Manual, 2010 was modified vide Office Memorandum No.
DG/CON/255 issued by Authority of Director General, CPWD.
O.M.P. (COMM) 44/2021 Page 9 of 19
demand for appointment of arbitrator in respect of any claims in writing as
aforesaid within 120 days of receiving the intimation from the
Engineer-in-charge that the final bill is ready for payment, the claim of the
contractor shall be deemed to have been waived and absolutely barred and
the Government shall be discharged and released of all liabilities under the
contract in respect of these claims.
The arbitration shall be conducted in accordance with the provisions of the
Arbitration and Conciliation Act, 1996 (26 of 1996) or any statutory
modifications or re-enactment thereof and the rules made thereunder and
for the time being in force shall apply to the arbitration proceeding under
this clause.
It is also a term of this contract that the arbitrator shall adjudicate on only
such disputes as are referred to him by the appointing authority and give
separate award against each dispute and claim referred to him and in all
cases where the total amount of the claims by any party exceeds Rs.
1,00,000/-, the arbitrator shall give reasons for the award.
It is also a term of the contract that if any fees are payable to the arbitrator,
these shall be paid equally by both the parties.
It is also a term of the contract that the arbitrator shall be deemed to have
entered on the reference on the date he issues notice to both the parties
calling them to submit their statement of claims and counter statement of
claims. The venue of the arbitration shall be such place as may be fixed by
the arbitrator in his sole discretion. The fees, if any, of the arbitrator shall,
if required to be paid before the award is made and published, be paid half
and half by each of the parties. The cost of the reference and of the award
(including the fees, if any, of the arbitrator) shall be in the discretion of the
arbitrator who may direct to any by whom and in what manner, such costs
or any part thereof shall be paid and fix or settle the amount of costs to be
so paid.”
13. The Clause 25 (extracted above) provides for a mechanism wherein
different specified authorities are empowered to look into and determine the
questions/ disputes relating to the work in question. The afore-noted
provision also provides the contractor a contractual remedy of filing an
appeal before the DRC along with list of dispute(s) with amounts claimed in
respect of each such dispute(s). If any of the parties is dissatisfied with the
O.M.P. (COMM) 44/2021 Page 10 of 19
decision given by DRC, remedy lies in reference of the dispute(s) to
arbitration. Such reference can be made except for decision(s) which are
final, binding, and conclusive in terms of Sub-Para (1).
14. In the instant case, the matter was escalated till DRC which gave its
decision on 26th July, 2017. Aggrieved by such decision, UOI vide
communication dated 21st September, 2017 challenged the same by making
reference to Sole Arbitrator. The said communication enclosed a list of
claims which included the claim for wrongful levy of compensation of USD
21,45,639.79/- with interest thereon.
15. Since UOI assailed the decision of DRC and did not accept it to be
final and binding, and rather sought remedy of adjudication of disputes via
arbitration, it cannot categorise the same as an “excepted matter”. Further,
reliance placed by Mr. Bhardwaj on decision of the Supreme Court in Mitra
Guha (supra) to contend that the matter herein forms part of “excepted
matter” is devoid of merit. The said judgment is not applicable to the facts
of the instant case and is evidently distinguishable as it was rendered in the
context of a clause (extracted in the judgment in Para 16), which is quite
apart from Clause 25 of GCC in the present Petition. Clause 25 in Mitra
Guha (supra), specifically provided that - “the decision of the
Superintending Engineer regarding the quantum of reduction as well his
justification in respect of reduced rates for sub-standard work, which may
be decided to be accepted, will be final and would not be open to
arbitration.”. Thus, the clause visibly restricted arbitration on the decision of
SE regarding ‘quantum’ of reduction of rates ‘in case of sub-standard work’.
O.M.P. (COMM) 44/2021 Page 11 of 19
In the instant case, the arbitration clause [viz. Clause 25] as extracted above,
is distinct.
16. That said, the facts of the present case are closer to those which arose
in J.G. Engineers (supra). The Respondent therein similarly contended that
the arbitrator has considered and allowed some claims which were
“excepted matters” and therefore, non-arbitrable. The Supreme Court, after
analysing contractual terms which are nearly identically worded, inter-alia,
held that the decision as to who is responsible for the delay in execution and
who committed breach is not made subject to any decision of the
respondents or its officers, nor excepted from arbitration under any
provision of the contract. Only the consequential decision of SE with regard
to quantification/ levy of liquidated damages, is made final only “if there is
no dispute as to who committed the breach. That is if the contractor admits
that he is in breach or if the arbitrator finds that the contractor is in
breach”. The view expressed by the Supreme Court in the said decision
resonates with the facts of the present case. The question whether the other
party has committed breach or not cannot be decided by the party alleging
breach thereof. One of the parties to an agreement cannot reserve to himself
the power to adjudicate whether the other party has committed breach. Such
question(s) can only be determined by an adjudicatory forum viz. a Court or
an Arbitral Tribunal.9
17. It must be borne in mind that the subject matter of the aforesaid claim
9 See: J.G. Engineers (supra)
O.M.P. (COMM) 44/2021 Page 12 of 19
i.e., computation of the liquidated damages levied by UOI is concentrated on
identifying the party that caused the delay. Thus, UOI cannot be permitted to
argue that on this aspect. The decision rendered by the Arbitral Tribunal
cannot be open to challenge and is final and binding. Therefore, the Court
does not find any merit in this contention urged by UOI.
18. The second limb of Mr. Bhardwaj argument challenging the
impugned Award on the aforesaid Claim shall be dealt in the succeeding
paragraphs while discussing the challenge to Claim No. 4 as the same is
premised on the finding rendered by the Arbitrator regarding the said claim.
II. CLAIM NO. 4 – ADDITIONAL OVERHEADS DURING EXTENDED PERIOD
19. Mr. Bhardwaj, CGSC makes the following submissions: -
(i) The Arbitrator has failed to appreciate the fact that C&C is also
responsible for delay over 8 months, in execution of work and hence,
the competent authority rightly imposed liquidated damages.
(ii) The Arbitrator while awarding Claim No. 4 in favour of C&C failed
to appreciate that it had already compensated C&C for the delay
caused by UOI (in Claim No. 1), however, on delay caused by C&C
neither any compensation/ damages nor proportional reduction of the
compensation amount, have been awarded in favour of UOI. Hence,
equity has not been balanced at all. Findings are against the principles
of natural justice as the Arbitrator holds C&C is entitled to
compensation due to delay caused on their account; UOI is entitled to
be compensated for delay of 240 days caused by C&C.
O.M.P. (COMM) 44/2021 Page 13 of 19
20. Mr. Goel, controverts as follows: -
(i) While adjudicating Claim No. 1, the Arbitrator held that the work of
Parliament building itself was completed on 15th February, 2016 [and
the subject work on 21st February, 2016]. The Arbitrator held that the
work of installation covered under the scope of the Agreement could
be completed only after completion of the Parliament building. The
Arbitrator rightly held that the C&C was entitled to extension of time
till the actual date of completion of work – viz. 21st February, 2016,
without levy of compensation. Therefore, UOI could not be
compensated for any alleged delay.
(ii) Further, while adjudicating Claim No. 4, the Arbitrator apportioned
delay between the parties in the ratio of 60:40 only for the purpose of
determining financial implication of the delay. It was not a
determination by the Arbitral Tribunal regarding the entitlement of
full extension of time till the date of actual completion viz. 21st
February, 2016.
(iii) Claim No. 4 is based on a finding of fact that cannot be interfered
with under Section 34 of the Act.10
ANALYSIS
21. The challenge to Claim No. 4 and the second ground of challenge to
Claim No. 1 is based on the apportionment of the delay in the ratio of 60:40
between UOI and C&C, respectively. The Arbitrator herein awarded
compensation in favour of C&C for additional overheads of the sum of USD
4,19,799.08/-.
10 Associated Builders v. Delhi Development Authority, (2015) 3 SCC 49.
O.M.P. (COMM) 44/2021 Page 14 of 19
22. Mr. Bhardwaj has argued that the findings on Claim No. 4 for
apportionment qua additional overheads during extended period, should also
be adopted for awarding Claim No. 1. Firstly, findings rendered by the
Arbitral Tribunal on the question of delay is purely a finding of fact, which
cannot be interfered by this Court while exercising limited jurisdiction under
Section 34 of the Act.11 The apart, it is to be noted that the apportionment of
delay by the Arbitrator under Claim No. 4 is only for the purpose of
determining the financial implication of delay. The Arbitrator, while giving
finding under Claim No. 1 held that the work of the Parliament building
itself was completed on 15th February, 2016 and the subject work which was
to be executed in the Parliament building was completed on 21st February,
2016. The work of installation covered under the scope of Agreement could
be completed only after the completion of Parliament building. In these
circumstances, the Arbitrator held that C&C was entitled to extension of
time till actual date of completion viz. 21st February, 2016 without levy of
compensation. The Arbitral Tribunal found that the Claimant therein (C&C)
was not accountable for the delay in completion of work and was thus
entitled to extension of time without levy of compensation. There is no
challenge to the afore-noted findings for Award of Claim No.1.
23. While deciding Claim No. 4, the question before the Arbitral Tribunal
was entirely different. This claim pertained to additional overheads during
extended period – financial implication of delay. Under the said Claim, the
Arbitrator was deciding the question of financial implication of delay caused
in execution of work. For computing the same, the Arbitrator examined the
11 See: Associated Builders (supra).
O.M.P. (COMM) 44/2021 Page 15 of 19
contractual work and observed that the same involved activities which are
both sequential and parallel. He observes – “While the sequential activities
cannot be performed independently, the parallel activities are independent
of each other.” In these circumstances, the Arbitrator was of the view that it
was impossible to assess and apportion the contributory effect of various
delays and defaults by either party. In these circumstances, the Arbitrator
approached the matter by making a reasonable estimation for apportioning
60% of the delay to UOI [60% of 600 days viz. 360 days/ 12 months] and
40% to C&C [40% of 600 days viz. 240 days] and accordingly, held that the
C&C was entitled to compensated by additional overheads for a period of
twelve months.
24. Once the contractor was held entitled to extension and not responsible
for delay, the mechanism adopted by the Arbitrator for finding out the
financial implication of overheads, is reasonable. Despite holding C&C
entitled to extension of time till 21st February 2016 without imposition of
compensation, the Arbitrator did not allow Claim No. 4 for the entire period
of delay and restricted the claim by apportioning the delay on reasonable
basis and as against claim of USD 33,34,681.70/-, only Rs. 4,19,799.08/- has
been awarded, giving UOI the benefit of contributory delay. Therefore, the
Court does not find any merit in the contentions urged by UOI impugning
the Award qua Claim No. 4. Concomitantly, the second ground of challenge
qua Claim No. 1 also does not sustain.
III. CLAIM NO. 5 – CLAIM FOR ESCALATION DURING EXTENDED PERIOD
25. Mr. Bhardwaj, CGSC, qua the aforesaid claim makes the following
O.M.P. (COMM) 44/2021 Page 16 of 19
assertions: -
(i) The Arbitrator has failed to appreciate UOI’s contention that Clause
10CC is not applicable. Clause 10CC has been wrongly applied
applicable beyond stipulated period of completion of work.
(ii) Reliance is placed on National Building Construction Corporation v. Decor India Pvt. Ltd.(2004) SCC OnLine Del 243., wherein this Court held that “It is a settled law that where there is no escalation clause in the arbitration agreement, the arbitrator cannot assume jurisdiction to award an increased rate”. Thus, there is an apparent error in Arbitrator’s finding in this regard.
(iii) The Arbitrator has failed to appreciate the fact that the very purpose of awarding escalation is to compensate for increase in costs of
materials due to prolongation of contract period. In the Agreement,
payment of work was done in USD, i.e., treated as constant currency
and escalation in prices, if any, are adjusted in the stronger USD with
the passage of time. Rate of USD $1 at the time of award of work [viz.
15th January, 2013] was Rs 54.5793/- and rate of USD $1 on the
actual date of completion [viz. 21st February, 2013] was Rs. 68.7355/-.
In this case, instead of enduring any loss due to delay in execution of
work, C&C enjoyed exchange rate variation benefits due to ‘USD
versus Rupees’ amounting to Rs. 17.17 Crores for the extended period
of completion.
(iv) There is no judicial application of mind while awarding amount
against this claim. The Arbitrator has relied on the amount worked
carried out by DRC, and merely reducing it to a period for 12 months.
That apart, the Arbitrator has neither mentioned nor determined
whether the amount worked out by DRC against this claim for period
of 24.87 months is correct or not. The Award against this claim is
hence perverse.
(v) The Award is also in conflict with basic notions of justice and is liable
to be set aside as being opposed to public policy.
26. Mr. Goel, makes the following contentions: -
(i) The Arbitral Tribunal rightly interpreted Clause 10CC which fell
within its domain. C&C was awarded Claim No. 5 as a claim for
damages and thus, findings of the Arbitrator on the same is not open
to challenge under Section 34 of the Act.
(ii) Further, the compensation awarded by the Arbitrator in respect of
Claim No. 5 was less than amount calculated by UOI, on its own,
before the DRC.
ANALYSIS
27. The Arbitral Tribunal awarded USD 2,84,120.98 against the claim of
USD 13,07,752.99/- under Claim No. 5 towards escalation during extended
period.
28. Once it was found that there was delay in execution of the Agreement due to the conduct of UOI. As a repercussion, they became liable for consequences of delay, on account of increase in prices even in the absence of any escalation clause. Food Corporation of India vs. A.M. Ahmed and Co. and Ors., AIR 2007 SC 82, K.N. Sathyapalan (dead) by LRs v. State of Kerala and Anr., (2007) 13 SCC 43., etc.
29. For extended period, the Arbitrator has relied upon Clause 10CC of GCC which provides the formula for calculation of price escalation. The challenge to Claim No. 5 is principally premised only on the Arbitrator’s interpretation of applicability of Clause 10CC. Even if Clause 10CC had a limited application and was only to apply for price variation only during the terms of the Agreement, mechanism therein could be adopted to calculate price escalation. In the aforesaid circumstances, the Arbitrator appears to have acted within his jurisdiction in allowing some of the claims on account
of escalation. Further, the Arbitrator has excluded the component of
overhead and profit and reduced the claim amount for a period of 12 months for which delay was apportioned against UOI. Therefore, the findings rendered to that effect are sustainable and cannot be disturbed in the present proceedings.
30. That said, the Court would like to observe that interpretation of the contractual terms falls within the exclusive domain of the Arbitrator. The Arbitrator has construed that Clause 10CC is attracted. The reasoning for this finding is that Clause 10CC contained a stipulation to the effect –
“…No such compensation shall be payable for the work for which the stipulated period of completion is equal to or less than the time as specified in Schedule F”. Finding a reference to Schedule ‘F’, the Arbitrator examined the same which reads as under: -
“Clause 10CC
Clause 10CC is to be applicable in contract
with stipulated period of completion exceeding NA
the period stipulated in next column.”
31. Noting the expression “NA” [viz. Not Applicable], the Arbitrator
concluded that since parties had not specified the time period, Clause 10CC
is applicable. It is settled law that the construction of contract falls within
the purview of the Arbitral Tribunal14 and even erroneous construction of
contract is not amenable to challenge under Section 34 of the Act unless the
Court finds it to be completely perverse.15 Nonetheless, as analysed above,
the Arbitrator has only borrowed the principles applicable under Clause
10CC of GCC to quantify the price escalation for the extended period and
therefore, for the reasons discussed above, the Court is not inclined to
interfere on this ground.
32. In view of the above, the Court does not find any merit in the present
petition and the same is dismissed along with pending applications.
SANJEEV NARULA, J
OCTOBER 28, 2021/nk
(corrected and released on: 07th December, 2021)
14 Associated Builders (supra) and McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11
SCC 181.
15 South East Asia Marine Engineering and Constructions Limited v. Oil India Limited, (2020) 5 SCC
164.
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