Delhi High Court
National Highways Authority Of Inida vs Itd Cementation India Ltd. on 30 November, 2007
Equivalent citations: 2007(4)ARBLR555(DELHI)
Author: T.S. Thakur
Bench: T.S. Thakur, Veena Birbal
JUDGMENT T.S. Thakur, J.
1. This appeal arises out of an order dated 14th May, 2007 passed by a learned single Judge of this Court whereby OMP 432/2007 for setting aside the arbitral award has been dismissed. The controversy arises in the following circumstances:
2. The respondent entered into a contract with the appellant National Highway Authorities of India for widening of lanes and rehabilitation of the existing two lane carriageway of Vaniyambadi-Pallikonda section of NH-46 (from Km.49.00 to Km100.00). The contract was valued at Rs. 183,71,82,727/- after a rebate of 7% on the price offered by the claimant. Certain disputes in relation to the work in question appear to have arisen, one of which was on completion of the formalities prescribed under the agreement referred to arbitration as the same defied an amicable settlement between the parties in terms of the dispute resolution mechanism provided in the contract. This dispute related to reimbursement of additional royalty payable/paid by the claimant/respondent herein as a consequence of a notification revising upwards, the royalty called Seigniorage fee on minor minerals w.e.f. 1st November, 2002. An Arbitral Tribunal comprising three arbitrators eventually entered upon the reference made by them and formulated the following questions for determination:
1) Whether the increase in the rates of Royalty has caused additional cost to the Claimant and
2) Whether the increase in cost because of increase in the rates of Seigniorage Fee on materials like aggregate, sand and earth has been taken into account in the indexing of any inputs to the Price Adjustment Formula in Sub-Clause 70.3 (B) relating to the General Materials.
3. Dealing with the second question, the arbitrators took the view and, in our opinion, rightly so that if the respondent had incurred additional cost because of the change in the rates of Seigniorage fee and the fact of the said increase in the rates had not been taken into account in the indexing of any inputs to the price adjustment formulate in general materials then the claimant would be entitled to be paid the additional cost incurred by it. On the contrary, if the increase in rates had not, for any reason, resulted in any additional cost to the claimant or the fact of increase in the rates of Seigniorage fee was found to have been taken into account in the index of any inputs to the price adjustment formulae for general materials then the claimants would not be entitled to claim any such additional amount. Answering the second question in the negative, the arbitrators opined as under:
The other question now required to be answered by us is whether the additional cost because of change in the rates of Seigniorage fee has been taken into account in the indexing of any inputs to the Price Adjustment Formulae supra. We have examined the basket of materials whose cost variation is input in the estimation of the WPI. The minor minerals like earth, sand and aggregate used in highway construction works, do not find place in this basket. We are prepared to concede that the WPI is to an extent likely to indicate the rise or fall in the prices of these minor minerals also, but we are not inclined to accept that the full impact of the additional cost of these specific materials because of a subsequent change in legislation can be said to be taken care of in the inputs to the WPI, especially when these materials do not find place in the basket of materials for working out the WPI. This conclusion is further reinforced by the fact that the WPI is a single index applicable uniformly in all the states, the increase in Seigniorage fee can and does vary from state to state, depending upon the policies of the respective State Governments. Further, whereas the contract provisions relating to Price Adjustment as per Sub-Clauses 70.1 to 70.7 supra do not assure full compensation for rise or fall in prices, the additional cost on account of a subsequent legislation is stipulated to be paid in full.
4. Having said so, the arbitrators rejected the contention urged on behalf of the claimant that it was unnecessary for it to prove actual incurring of such additional cost. The contention that the claimant/respondent would be entitled to the difference in the royalty payable on the material by a theoretical calculation based on the agreed quantities, even without proving that any such additional cost had been actually incurring was rejected in the following words:
We are however, not inclined to agree with the Claimant that it is unnecessary for it to prove that a subsequent legislation has actually caused any additional cost to it. The contention of the Claimant itself, in this regard has been contradictory. On the one hand it itself asks for "Reimbursement of Increase in royalty Charges" in Claim No. 1 in its Statement of Claims, but on the other, it argues that since the subsequent legislation causes additional cost to it, it is entitled to the difference in the royalty charges as a matter of course by theoretical calculations on the agreed quantity, because of increase in the rates of royalty. Further, it is also a material fact that the Claimant itself has not claimed the additional cost on account of this change in legislation on a certain quantity of material procured by it apparently from sources other than those leased and quarried by it, thus acknowledging that no additional cost was incurred by it for a certain quantity of material. We are, therefore, inclined to agree with the contention of the Respondent and hold that the Claimant must prove that a subsequent legislation has caused it additional cost and its extent.
5. The next question that fell for consideration before the arbitrators was whether the claimant had produced any evidence to substantiate its claim that any such additional cost had been incurred. The arbitrators in that connection noted that although the claimant had produced some challans of payment of royalty to the Mining Department of the State of Tamil Nadu, the same did not indicate the quantity or the rate on the basis of which the amount paid was worked out. Certain certified statements of royalty paid by the claimant were also noticed but the said statements were also found to be lacking in details as to the quantity or the rate on the basis of which the amount paid was worked out. The arbitrators noted the admission of the claimant/respondent that the payments made by it were only provisional in nature. They also noticed that a dispute was pending between the claimants and the Mining Department on the question as to whether the royalty in question was to be paid on the stones extracted from the quarries or the aggregate crushed out of the same. Having said so, the arbitrators declined to go into the quantification of the impact of change in the rates of the royalty. In their opinion, the exact impact of the change in the rates of royalty was uncertain. That being so, the arbitrators declined to quantify the amount payable to the claimant, no matter there was some evidence on record to show that the claimant had paid royalty both before and after the notification enhancing the same became effective. The following passage states the reasoning of the arbitrators in this regard.
The claimant has produced in evidence some challans of payment of royalty to the Mining Department of the State of Tamil Nadu. But these challans do not exactly indicate the quantity or rate on the basis of which the amount paid is worked out. It has also filed certain certified statements of royalty paid by it. These also lack full details of the quantity and rate on the basis of which the amount paid is worked out. The Claimant itself has admitted that payment made so far are provisional. It has also now admitted that it has actually extracted stone from the quarries and then crushed it into aggregate in its own crushers and that there is a pending dispute with the Mining Department whether royalty is payable on the extracted stone or on the quantity of crushed aggregate. Under these circumstances, the position as to the exact quantification of the impact of change in the rates of royalty is still uncertain, therefore, find ourselves at a loss to work out the additional cost that might have actually been caused to and incurred by the Claimant even though there is evidence on record to show that the Claimant has paid royalty both before and after the Notification of the increase in the rates of royalty became effective.
6. On the above findings, the arbitrators granted what was described as a declaratory award holding that the claimant/respondent was entitled to additional cost incurred by it towards increase in the rates of Seigniorage fee w.e.f 1st November, 2002 on minor minerals like earth, sand and stone aggregate extracted after that day. What is significant is that the issue regarding quantification was left to be determined by the appellant National Highways Authority of India. The payment of the additional cost incurred by the claimant was to fall due to the respondents only in case it succeeded in satisfying the appellant as to the additional amount incurred by it on account of increase in the rates of Seigniorage fee. The award on that account was in the following words:
In these peculiar circumstances of the matter and in view of the fact that Claimant has itself now asked for a declaratory award, we hold that the Claimant is entitled to full reimbursement of the additional cost that it may have incurred because of the increase in the rates of Seigniorage fee with effect from 1st November, 2002, on minor minerals like earth, sand and stone/aggregate extracted after that date. Claimant may, accordingly, satisfy the respondents National Highways Authority of India about the exact additional cost incurred by it on account of payment by it of additional sum on account of increase in the rates of Seigniorage fee to the State of Tamil Nadu to claim reimbursement. In case the dispute with the State Mining Department of Tamil Nadu, whether Seigniorage fee is payable on extracted stone or the crushed aggregate still persists, the respondent NHAI may, for the present, reimburse additional cost of Seigniorage fee on stone instead of that on aggregate, if this works out to be less than that for aggregate. This amount may be finally settled on the basis of the outcome of the dispute with the State Mining Department.
7. On the question of interest, the arbitrators differed and by majority held the respondent/claimant entitled to interest @ 12% per annum from a date 14 days after it submitted final proof to the respondent of additional cost incurred by it because of increase in the rates of Seigniorage fee on minor minerals extracted by it and used for the work till realization.
8. Aggrieved by the above award, the appellant filed an OMP No. 432/2006 which was heard and dismissed by a Single Judge of this Court by the order impugned in this appeal. Before the learned Single Judge it was contended that the arbitrators had fallen in an error in holding the claimant entitled to the reimbursement of the additional cost incurred by it on account of a revision in the rates of Seigniorage fee. That contention did not impress the learned Single Judge who was of the view that the arbitrators having taken into account the provisions contained in the contract and placed an interpretation upon the same, there is no occasion for the Court to interfere as the interpretation was neither impermissible nor absurd. Relying upon the decisions of the Supreme Court in Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd. AIR 2003 SC 262, Mcdermott International Inc. v. Burn Standard Co. Ltd. and Ors. 2006 (2) Arb. L.R. 498 and State of UP v. Allied Constructions , the Court held that there was no question of setting aside the award made by the arbitrators and accordingly dismissed the petition with costs assessed at Rs. 5000/-. The present appeal, as already noticed earlier, assails the correctness of the said order.
9. Appearing for the appellant, Mr. Sethi made a two-fold submission before us. Firstly he argued that the interpretation placed by the arbitrators upon the provisions of the agreement executed between the parties was erroneous. It was urged that Clauses 70.1 to 70.7 did not entitle the respondent/claimant to any separate payment by way of increase in the rate of royalty. According to Mr. Sethi, the arbitrator could not have gone beyond the terms of the contract in the garb of placing an interpretation upon the provisions contained in the same and that any award that flew in the face of the contract was liable to be set aside.
10. Secondly, it was argued by Mr. Sethi that the award was imperfect inasmuch it left the question of quantification of the amount, if any, payable to the claimant undecided. It was submitted that the arbitrators having clearly observed that the material on record was insufficient to enable them to determine the amount payable on account of the extra cost incurred by the claimant, the logical result which ought to have followed was a rejection of the claim made before them. Instead of doing so the arbitrators had, according to Mr. Sethi, followed the unusual course of giving to the claimant a chance to produce material and to satisfy the appellant regarding the additional cost incurred by it on account of the payment towards revised Seigniorage fee. This was not, argued the learned Counse,l legally permissible inasmuch as the arbitral tribunal was duty bound to determine all questions in controversy including the question, as in the instant case, of the exact amount, if any incurred by the respondents towards the royalty payment. Failure of the arbitrators to discharge the essential adjudicatory function, argued Mr. Sethi, rendered the award legally bad and liable to be set aside.
11. On behalf of the respondents, it was per contra contended by Mr. George Thomas that the arbitrators were perfectly within their jurisdiction to interpret the terms of the contract and that any such interpretation could not be assailed on the ground that the same was against any provision contained in the agreement between the parties. Any such argument based on the violation of the terms of the contract, according to learned Counse,l would require the court to interpret the very same terms as have been interpreted by the arbitrators and to determine whether the interpretation which the arbitrators had preferred was correct. Such an exercise was, however, beyond the scope of the powers of the Court under the 1996 Act as indeed it was beyond the scope of the powers of the Court even under the Arbitration Act of 1940. The Single Judge was, in that view, justified in holding that the interpretation placed on the terms of the agreements by the arbitrators was not open to any criticism leave alone substitution by the interpretation which the Court may place upon the same.
12. In answer to the alternative submission urged by Mr. Sethi, it was contended by Mr. Thomas that there was material on record before the arbitrators from which they could quantify the precise amount payable to the respondent/claimant. It was argued that in the ordinary course, the arbitrators could and ought to have quantified the amount payable to the claimant, but such a quantification was not undertaken, in the instant case, in the interest of the appellant. It was submitted that the respondent/claimant had raised the dispute with the Government of Tamilnadu as regards the rate of Seigniorage fee payable to it. This rate was, according to Mr. Thomas, higher for aggregate than what was payable for stones. If the dispute was eventually resolved in favor of the respondent/claimant holding that Seigniorage fee was payable only on the stones extracted from the quarries, the liability of the appellant to reimburse the extra cost was bound to be so much less.
13. We have given our anxious consideration to the submission made at the bar and perused the record. The dispute between the parties, in the instant case, gave rise to two distinct issues, one touching upon the interpretation of the terms of the contract and the other relating to the quantification of the extra cost allegedly incurred by the respondent/claimant. On the question of interpretation, the arbitrators noticed the relevant provisions and came to the conclusion that since the basket of materials whose cost variation is an input for filing the WPI did not include minor minerals like earth, sand and aggregate used in heavy construction works, the additional cost of those specific materials did not include the full impact of the subsequent change in legislation. The arbitrators noted that the WPI was a single index applicable uniformly in all the states while the increase in Seigniorage fee varied from state to state depending upon the policies of the respective state Governments. The arbitrators also held that while the contractual provisions related to price adjustment as per Clauses 70.1 to 70.7, the additional cost on account of a subsequent legislation had to be paid in full. Suffice it to say that the arbitrators not only looked into the provisions of the contract but also examined the issues like whether minor minerals used for construction of highways were or were not included in the basket of materials whose cost variation is taken into consideration as an input in the assumption of the wholesale price index (WPI). Such being the position, simply because the interpretation placed by the arbitrators has not favored one or the other party can be no reason for the Court to interfere under Section 34 of the Act with the award made on any such interpretation. It is fairly well settled by a long line of decisions rendered by the Supreme Court that a Court dealing with a petition under Section 34 of the Arbitration and Conciliation Act, 1996 does not sit in an appeal over the arbitral award. That was the position even under the Arbitration Act of 1940. As a matter of fact, the scope of interference with an arbitral award has been substantially reduced under the new legislation and would be confined to the grounds set out under Section 34 of the Act as interpreted by the Supreme Court in Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd. AIR 2003 SC 262. We, therefore, see no reason to take a view different from the one taken by the learned Single Judge that the award made by the arbitrators cannot be interfered with simply on the ground that another interpretation of the terms of the contract, no matter equally plausible, was possible.
14. That brings us to the second limb of Mr. Sethi's argument that while directing reimbursement of the additional cost, if any, incurred on account of the revision in the rate of Seigniorage fee, the arbitrators were called upon to quantify the amount actually incurred by the claimant and to be reimbursed by the appellant. The arbitrators have not admittedly determined that vital aspect on account of lack of material particulars necessary for a proper determination of the amount. The arbitrators have found the documents to be deficient in particulars, thereby disabling them from quantifying the amount incurred by the respondent towards additional cost. It is true that a claim before the arbitrators must, as in a civil Court, be satisfactorily substantiated to enable the party making the claim to relief. Failure on the part of the claimant to do so should in the ordinary course result in rejection of the claim. That, however, is not an invariable rule. It is possible in certain situations to leave the actual quantification to be made by a party or an agency to be nominated by the arbitrators on principles which the arbitrators have laid down. The case at hand was not, however, one such case where determination of the principle itself could result in the quantification of the amount by a simple process of calculation. As held by the arbitrators themselves the claimant was not entitled to payment on the basis of a bare calculation of the quantities supplied or used in the constructions. It was required to prove that the additional amount being claimed was actually incurred by it. This would, in the context of the case at hand, imply that it had actually paid the additional amount to the Government of Tamilnadu towards the revised Seigniorage fee. No payment on account of the revised fee could be claimed by the respondent on the basis of an assumption that the same had been paid. The argument based on an assumed payment of the revised fee was clearly turned down by the arbitrators thereby obliging the claimant to establish by reference to evidence that the amount claimed by way of reimbursement had actually gone into the coffers of the State. This was a controversial area and did not involve a simple multiplication of a rate or application of a principle to admitted figures. It depended upon whether the material had been provided from legitimate sources and whether payment of the Seigniorage fee had been made by the respondent while obtaining the said material. Determination of these disputed questions of fact was absolutely essential for quantification of the amount and its reimbursement. That determination was permissible only at the hands of the arbitrators. The same could not be delegated to any other person or authority. Inasmuch as the arbitrators not only left the issues regarding quantification of the amount open but required the same to be decided by the appellant who was a party to dispute, they committed a mistake. To make the payment of the amount to the claimant by the respondent dependent upon the satisfaction of the appellant who has to make such a payment was not a workable solution. We say so because the award does not provide for any remedy to the claimant in case the appellant were to reject the claim in toto or accept the same only in part. We asked Mr. Thomas whether his client was prepared to make a statement that it would accept without any demur the determination of the amount by the appellant and seek no relief against it. He declined to make that statement. All that he argued was that such a situation may be hypothetical and the court could not set aside the award on the assumption that there would be an unfair refusal of the amount by the appellant. We are not impressed by that submission. If it was not necessary to quantify the amount for an effective and final adjudication of the dispute between the parties, we may have ruled in favor of the respondent and given quietus to the controversy, but quantification of the amount is, in our opinion, a major area of controversy between the parties. We are therefore, of the view that even when the claim made by the respondents may not have been rejected in toto simply because the material produced was not sufficient for the arbitrators to quantify the amount, it was necessary that the amount was quantified instead of being left open for determination by the Appellant.
15. In the result, we allow this appeal and set aside the judgment and order passed by the learned Single Judge and also the award made by the arbitrators to the extent the award fails to quantify the exact amount payable to the respondent towards the alleged cost incurred by it on account of the revised Seigniorage fee payable to the Government of Tamil Nadu. Consequently, the matter shall stand remitted back to the arbitrator but only on the limited issue of quantification of the amount. The parties shall be provided an additional opportunity to adduce evidence on the question of quantification of the amount before making a fresh award. We make it clear that since the dispute between the respondent/claimant and the Government of Tamilnadu as to the rate of Seigniorage fee is pending, the arbitrators shall be free to determine the amount, if any actually paid by the respondent, subject to the stipulation that in case the Government refunds the excess amount or any part of the same, any such refund shall ensure for the benefit of the appellant.
16. No costs.