Rajasthan High Court - Jaipur
State Of Rajasthan Thr Chief Er vs M/S A N S Infrastructure Pvt Ltd on 22 August, 2019
Author: Alok Sharma
Bench: Mohammad Rafiq, Alok Sharma
HIGH COURT OF JUDICATURE FOR RAJASTHAN
BENCH AT JAIPUR
D.B. Civil Miscellaneous Appeal No. 4761/2017
State Of Rajasthan Through Chief Engineer Roads, Public
Works Department, Rajasthan
----Appellant-Non Claimant
Versus
M/s. A.N.S. Infrastructure Pvt. Ltd., Having Its Office At E2/b1
Extension, Mohan Cooperative Industrial Estate, Mathura Road,
New Delhi-110014
----Respondent-Claimant
D.B. Civil Miscellaneous Appeal No. 4638/2017 M/s ANS Infrastructure Private Limited Through Its Authorized Representative Shri Om Rattan Goel, Vice President of the Company having its Registered Office At E-2/B-1, Extension, Mohan Cooperative Industrial Estate, Mathura Road, New Delhi-110014
----Claimant-Appellant Versus
1. State Of Rajasthan Through Its Chief Engineer Roads, Public Works Department, Rajasthan
----Non Claimant Respondent
2. Shri Inderjeet Khanna, Arbitrator Mahodaya, A-241, Shivananda Marg, Malviya Nagar, Jaipur (Raj.) ..Proforma Respondent For Appellant(s) : Mr. Rajendra Prasad, Sr. Advocate with Mr. Ashish Sharma Mr. Rajesh Maharshi, AAG with Mr. Udit Sharma for the non Claimant-
State For Respondent(s) : Mr. R.K. Agarwal, Sr. Advocate with Mr. Ashish Upadhyay for the claimant company HON'BLE MR. JUSTICE MOHAMMAD RAFIQ HON'BLE MR. JUSTICE ALOK SHARMA Judgment Date of Judgment :: 22/08/2019 (PER HON'BLE ALOK SHARMA, J.) REPORTABLE (Downloaded on 28/08/2019 at 10:43:18 PM) (2 of 70) [CMA-4761/2017] These two appeals under Section 37 of the Arbitration and Conciliation Act, 1996 (hereafter `the Act of 1996') have been filed one by the Concessionaire, the claimant company as the Concessionaire (hereafter `the Concessionaire') under the Concession agreement dated 8-7-2005 and the other by the non claimant State (hereafter `the State'). Both are aggrieved of the order dated 12-5-2017 passed by Commercial Court (Additional District Judge No.1) Jaipur Metropolitan, Jaipur. The State against the court's refusal to allow its objections under Section 34 of the Act of 1996 against the award dated 15-1-2015 as modified by the Arbitrator on 9-3-2015, and the Concessionaire against the court's refusal to enhance the award amount, the State seeks the award as also the order upholding it passed by the Commercial Court to be quashed and set aside. The Concessionaire seeks its (Downloaded on 28/08/2019 at 10:43:18 PM) (3 of 70) [CMA-4761/2017] enhancement to Rs.220.19 crores from Rs.43.7281 crores, as awarded by the Arbitrator, along with interest 8.5%. These two appeals are thus being together decided.
The facts of the case are that the State floated a Notice Inviting Tender (NIT) for improvement of (i) Kaman-Nandgaon- Kosi road 54 to 64/200, (ii) Kaman Byepass-SH-44, Kaman- Jurhera-Punhana Road 0/0 to 20/0 Km. and (iii) Kaman-Pahadi Road 0/0 to 22/0 km. (Roads 1, 2, and 3 respectively). On receiving the sole bid of the Concessionaire, letter of acceptance in terms of the NIT was issued on 14-12-2004. The concession period agreed was 98 months, including 12 months of construction. A Concession Agreement (CA) was accordingly executed on 8-7-2005.
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(4 of 70) [CMA-4761/2017] In the definition clause of the CA "Exempted Vehicles"
were stated to mean the vehicles specified as such in the fee notification. "Fee" meant the user fee chargeable to vehicles using the project facility i.e. Roads 1, 2 and 3 in accordance with the Fee notification. "Fee Notification" meant the notification issued by the State of Rajasthan under any law for the time being in force, as amended time to time, authorizing the levy and collection of the fee by the Concessionaire under the CA. The project cost for the three roads under the CA was estimated at Rs.35.6611 crores. Clause 1.2(a) of the CA relating to "interpretation" provided that "unless the context otherwise requires any reference to a statutory provision shall include such provision as is from time to time modified or re-enacted or consolidated so far as such modification or reenactment or (Downloaded on 28/08/2019 at 10:43:18 PM) (5 of 70) [CMA-4761/2017] consolidation applies or is capable of applying to any transactions entered into hereunder". Clause 1.2.3 provided that in case of any ambiguity between the two articles of the CA, the provision of the specific Article shall prevail, and between the Article and Schedule, prevail shall the article. Clause 4.1(a) provided that "subject to the provision of the CA the Concessionaire shall during operations period be entitled to levy, demand and collect fee in accordance with the fee notification as per schedule-F and to appropriate the same. Clause 4.1(b) provided that the Concessionaire shall not levy and collect any fee until it has received the completion certificate. Clause 4.1(c) provided that "the Concessionaire shall not collect any fee in relation to Exempted Vehicles." Clause 6.1 provided that the "Steering Group" comprising of Superintending Engineer (Chair Person), (Downloaded on 28/08/2019 at 10:43:18 PM) (6 of 70) [CMA-4761/2017] Executive Engineer having territorial jurisdiction of project site or Engineer-in-charge, if appointed (PWD Engineer) Concessionaire or his authorized representative, representative of lending financial institution and representative of Collector of the district not below the rank of ADM will be constituted by the State through an official order. The Steering Group was to hold meetings with a quorum of atleast three members including the Chairman at least once every month to review the progress during the implementation period and every three months during the operation period. The Steering Group was to carry out such functions and exercise such powers as prescribed/ conferred under the CA. Under Clause 8.2(b) the completion certificate was to be issued, following twenty days of the communication by the Concessionaire to Superintending Engineer after actual (Downloaded on 28/08/2019 at 10:43:18 PM) (7 of 70) [CMA-4761/2017] construction/ removal of deficiencies, defaults, if any, in regard to each of the three roads. Clause 15 of the CA related to the dispute resolution mechanism in respect of the disputes arising out of or relating thereto. Thereunder a dispute was first to be resolved by the Steering Group. On its failure to resolve the dispute, the same was to be resolved by the Standing Committee constituted of (i) Secretary to Government, PWD, (ii) Finance Secretary or his nominee, not below the rank of Deputy Secretary, (iii) Law Secretary or his nominee, not below the rank of Joint Legal Remembrancer, (iv) Chief Engineer cum Additional Secretary, PWD, (v) Chief Engineer concerned (Member Secretary). On failure of the Standing Committee, the disputes were to be referred to an Arbitrator generically identified as an Ex-Chief (Downloaded on 28/08/2019 at 10:43:18 PM) (8 of 70) [CMA-4761/2017] Secretary of the State of Rajasthan who was then to resolve such disputes referred to him.
Under the CA the project work i.e. the construction of the three roads was to be completed within one year of the handing over of the project site i.e. 16-8-2005 till 15-8-2006. The project work under the CA relating to two of the three roads was however completed on 30-6-2008 and of the third road was completed on 31-12-2008 i.e. after a delay of 55 and 215 days respectively. The completion certificates were issued on 24-11- 2009, but prior thereto a substantial completion certificate had earlier been issued on 18-2-2009. The permission for collection of fee was granted on 25-8-2008 for roads No.1&2 and for road (Downloaded on 28/08/2019 at 10:43:18 PM) (9 of 70) [CMA-4761/2017] No.3 on 5-8-2009, prior to the issue of the final completion certificate.
That effective 3-7-2008 mining activities in the Aravali hill areas of Kaman and Deeg was banned. Resultantly mining activities/ mineral excavation was discontinued for reason of which the transportation of minerals through trucks and other vehicles using the three roads is alleged to have been adversely affected. The Concessionaire however continued to collect the notified toll fee under the CA without any demur till 9-2-2010.
On 10-2-2010, after a period of seventeen months of the mining ban of 3-7-2008, the Concessionaire invoked the Additional Clause of the CA, which reads as under:-(Downloaded on 28/08/2019 at 10:43:18 PM)
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"Additional Clause
If due to order of any court of law or any
Government mining or crushing activity in the Aravali hills of Kaman area of Rajasthan is prohibited, then the Concession period would be suitably extended to make good such material adverse effect on the project.
However, if the project becomes unviable as a consequence of the prohibitory orders then the Government undertakes to reimburse the Concessionaire such amount covering capital cost, interest, other expenses including consequential effect thereof and profit as would be required to make the project viable again.
Note: For assessment of viability of the project, traffic census would be conducted at the time of commencement of project and at the time of claim of compensation by the Entrepreneur on account of prohibition of mining capacity. The census would separately classify the categories of vehicles carrying mining material and other material for these three roads."
In its notice dated 10-2-2010 the concessionaire asserted that as the project had become unviable, following prohibitory orders resulting in a ban on mining activities in the Kaman and Deeg area, as a consequence of the depleted traffic vis-a-vis as was reckoned for when the bid was made and the CA executed and signed. The Concessionaire claimed that the State should make the project viable again as was its obligation under the Additional Clause of the CA by paying it such amounts as would (Downloaded on 28/08/2019 at 10:43:18 PM) (11 of 70) [CMA-4761/2017] cover its capital cost, interest, other expenses, including consequential effect thereof and profit.
That following the invocation of the Additional Clause to the CA on 10-2-2010, as per the note thereto the State conducted a traffic census on the three roads between 31-3-2010 and 2-4- 2010. This in view of the fact that such a traffic census was to be necessarily conducted soon following invocation of the Additional Clause as the unviability was to be assessed effective the invocation. Subsequently however a joint traffic census over the three project roads under the CA was conducted in August, 2010. And thereafter on the Chief Engineer's letter between 23- 10-2010. 6.00 AM and 26-10-2010, 6.00 AM., in its meeting of 26-10-2010 the Steering Committee recorded that based on the joint traffic census, the Exempted Vehicles were not to be taken less than 15% of the volume of traffic each day on the three project roads.
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(12 of 70) [CMA-4761/2017] It appears that the Concessionaire prior to the joint traffic census between 23-10-2010 and 26-10-2010 had filed writ petition SBCWP No.10420/2010 before this court inter-alia praying that its representation to the State Government for payment of amounts under the Additional Clause to the CA be expeditiously addressed. The said petition was disposed of on 2- 8-2010 as under:-
"The learned counsel for the petitioner states that he has already filed representation before the respondents, but the same has not been decided by the respondents. He wants that his representation should be decided within a period of three months.
In view of this I dispose of this writ petition with the following directions:
i) The representation which is pending before the respondents be decided within a period of three months."
At this stage, it would be appropriate to refer to the Rajasthan Road Development Act, 2002 (hereafter `the Act of 2002') which was enacted for development of roads and private participation in the development of roads in the State and matters connected therewith and ancillary thereto. Section 9 thereof (Downloaded on 28/08/2019 at 10:43:18 PM) (13 of 70) [CMA-4761/2017] empowers the State Government by way of notification in the Official Gazette to make rules for the purpose of the Act. The Rajasthan Road Development Rules, 2002 (hereafter `the Rules of 2002') were promulgated vide notification dated 20-2-2002 in the exercise of the aforesaid powers. For the present it would suffice to record that Section 5 of the Act of 2002 pertains to development of road infrastructure in the State in the Public Private Partnership Mode. Rule 5 of the Rules of 2002 speaks of an Empowered Committee to select subsidized BOT projects on the basis of fixed or variable subsidy.
Subsequent to the court's order dated 2-8-2010 in SBCWP No.10420/2010, the Concessionaire appears to have made representation/s in furtherance/ additional to its earlier representations to the Minister, Public Works Department, who headed the Empowered Committee, referable to rule 5 of the Rules of 2002 on or about 18-1-2011. The Empowered Committee constituted of nine members, considered the (Downloaded on 28/08/2019 at 10:43:18 PM) (14 of 70) [CMA-4761/2017] concessionaire's representation on 9-3-2011. Its conclusions, as recorded, were as under:
"In compliance of Empowered Committee meeting held on 18-1-2011 Agenda Item No.3 a meeting has been called vide meetings notice No.1393 dated 24-2-2011 in Chairmanship of Secretary, PWD, GoR on dated 28-2- 2011. The following Committee members and Officers were attended the meeting:
1. Shri Chiranji Lal, Chief Engineer & Addl.Secy PWD
2. Shri D.C. Katara, Advisor (Infra) PWD Rajasthan Jaipur.
3. Shri P.P. Mathur, Additional Chief Engineer (BOT) PWD Rajasthan Jaipur
4. Shri M.L.Meena, Addl. Chief Engineer, PWD Zone Bharatpur
5. Shri Uttam Kumar, Superintending Engineer PWD Circle Dausa
6. Shri Baldev Mathur, Superintending Engineer PWD Circle Bharatpur
7. Shri Satyendra Kumar, EE (BOT) PWD Raj., Jaipur
8. Shri R.K. Meena, Asstt. Engineer (BOT) PWD Raj.
Jaipur
9. Shri Om Goel, Representative ANS Infrastructure Pvt. Ltd., New Delhi The details and process followed for calculating amounts though concessionaire was entitled to under the Additional Clause were set out by Shri Baldev Mathur Superintending Engineer, PWD Circle Bharatpur to all committee members and detailed discussion were held on various points raised by Enterpreneur vide his letter (representations) dated 18-1-2011 & 24-2-2011.
1. Point No.1 to 4 of ANS letter dated 18-1-2011: Points are related to date of commencement, toll collection start date, project IRR were discussed in detail.
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(15 of 70) [CMA-4761/2017] Decision:
The Project IRR @ 43.541% was not considerable on the ground that delay in signing the agreement was on the part of Enterpeneur and also IRR @ 39.575% had been calculated on the basis of figures quoted in the bid by the Enterpreneur at the time of bidding.
2. Point No.5 related with exempted vehicles: The point was also discussed in the light of contractual provision which contain Annexure `A' where fee recoverability of the traffic was 95% Decision:
Recommendation of steering committee regarding exempted vehicles amount @ 15% was found beyond the BOT rules and provision of agreement. Hence not acceptable.
3. Point No.6 related with cut of date for reduced traffic: This point was also discussed in detail. SE PWD Bharatpur has put up the letters of dated 25-2-2011 from Mining Deptt. & Forest Department having details as below:
(i) Mining Deptt. Letter dated 25-2-2011: in compliance of Hon'ble High Court, mining activities have remained stopped since 3-7-2008, however the excavated material was allowed to be lifted from mining site.
(ii) Forest Department letter dated 25-2-2011: By the order of Collector, Bharatpur dated 8-2-2008 and 13-2-2008, 5232.57 Hect. Land has been transfer to Forest Deptt. and gazette notification of same has been published on 27-11-2009.
It was known fact that under the contractual obligation on the point of Entrepreneur "Force major clause 11.9 duty to report". It was on the part of Entrepreneur to submit to the department regarding invoking the additional clause and take action accordingly. The Entrepreneur however retained to act in this manner till 10-2-2010 and chose the path of writing some letters earlier to 10-2-2010 regarding lesser amount of collection from toll.
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Decision:
SE, PWD Bharatpur was asked to submit more
details regarding shifting/ closing of crushers. It was also noticed that figures of traffic, traffic survey conducted "March-April 2010 and October, 2010 varied considerably. SE, PWD Bharatpur was asked to collect the figures from the other departments like Sale Tax Chowki etc. it was also decided that a seven days fresh joint traffic survey may be conducted with consent of Enterpreneur before 15 March, 2011. Enterpreneur was asked to give his consent within 3 days.
It was decided to refer the matter for legal opinion about adopting cut of date for reduced traffic.
4. The Enterpreneur put forward one more representation dated 24-2-2011 regarding calculation of compensation amount. The contents were discussed in brief. Decision:
It was decided that BOT Cell should examine the issues in the letter and come up with its conclusion in next meeting.
A further meeting in continuation of the earlier meetings of the Empowered Committee was held on 30-8-2011 on the issue of amounts payable to the Concessionaire under the Additional Clause of the CA dated 8-7-2005, it was decided as under:
1. The compensation amount of Rs.1407.36 lacs (payable on 31-8-2011) as per revised agenda note, is approved based on both the departmental traffic surveys in the month of March & April, 2010 and method of calculation as suggested above. In case of any delay beyond 31-8-2011 the amount may be revised (Downloaded on 28/08/2019 at 10:43:18 PM) (17 of 70) [CMA-4761/2017] accordingly.
2. Out of this amount Rs.112.73 lacs may be withheld by the department on the ground of maintenance of these roads as per report of field staff. The amount shall be reimbursed only after maintenance of the project roads as per BOT norms, failing which the department shall use this amount to carry out the necessary maintenance.
3. In case the order banning mining activities are withdrawn in future resulting into immediate increase in the traffic, the traffic survey will be conducted and the concession period will be revised accordingly.
4. The decision in the matter of making payment of compensation amount directly to the Concessionaire account or the designated Escrow Account will be taken by the department as per provisions of the agreement.
5. Toll should be continued on above roads through PWD till the recovery of compensation amount."
Dissatisfied with the amount of compensation of Rs.14.0736 crores under the Additional Clause of the CA dated 8- 7-2005, as determined by the Empowered Committee in its meeting of 30-8-2011, but yet having availed the said amount on or about 11-10-2011, the Concessionaire invoked the arbitration clause in the CA qua the dispute he raised with regard to the inadequacy of the amount paid to him under the Additional Clause. Failing to elicit any favourable response from the State (Downloaded on 28/08/2019 at 10:43:18 PM) (18 of 70) [CMA-4761/2017] Government for appointment of an Arbitrator under clause 15 of the CA dated 8-7-2005, the concessionaire filed an application under Section 11 (6) of the Act of 1996 before this Court. Vide order dated 25-7-2014 passed by this court in SB Arbitration Application No.33/2013, Mr. Indrajeet Khanna, an ex Chief Secretary, State of Rajasthan was appointed as Arbitrator to resolve the dispute arising between the parties to the CA in regard to the amounts payable to the Concessionaire under the Additional Clause.
The Concessionaire raised a claim of Rs.220.19 crores under the Additional Clause, which was altogether denied by the State. The Arbitrator, considering the claims and objection thereto laid before it by the contesting parties, by his award dated 15-1- 2015 awarded Rs.43.6845 crores with interest @ 8.5% p.a. from (Downloaded on 28/08/2019 at 10:43:18 PM) (19 of 70) [CMA-4761/2017] 16-10-2013 till the date of payment to the Concessionaire as payable under the Additional Clause. The amount payable under the award aforesaid was rectified on 9-3-2015 following an application by the Concessionaire under Section 33 of the Act of 1996 to Rs.43.7281 crores with interest as earlier directed.
Both the Concessionaire and the State filed objections under Section 34 of the Act of 1996 to the award dated 15-1-2015 as rectified on 9-3-2015. The Commercial Court vide its order dated 12-5-2017 dismissed both the objections and upheld the award as passed. Hence these appeals under Section 37 of the Act of 1996.
Mr. Rajendra Prasad and Mr. Rajesh Mehrishi, AAG appearing for the State from time to time during extended (Downloaded on 28/08/2019 at 10:43:18 PM) (20 of 70) [CMA-4761/2017] hearings submitted that the arbitral award is quite clearly against public policy of India inasmuch as laws of the land have not been upheld and applied in the arbitration proceedings. They submitted that the award impugned flies in the face of both the Act of 2002 and the Rules of 2002 framed thereunder. Counsel submitted that Section 5 (i) of the Act of 2002 allows the State Government to enter into an agreement with private person/ entities in relation to the development of any road or any section thereof. They submitted that quite evidently the NIT for the work in issue, was in respect of an infrastructure project with private participation on Build Operate and Transfer (BOT) basis. The NIT was formulated on the parameters referable to Rule 3 and Annexure-A of the Rules of 2002. Reference was made to Annexure-A of the Rules of 2002 to show that only 5% of the vehicles using the (Downloaded on 28/08/2019 at 10:43:18 PM) (21 of 70) [CMA-4761/2017] project roads following their construction were to be exempted from the collection of toll. The assessment of anticipated toll collection by the Concessionaire from roads developed by it was so made. They submitted that on that score Table-6 appended to the NIT in issue and as also modified and annexed to the Concessionaire's bid so testifies. For the purpose of recovery of all costs expended on the construction of the roads and profits from the levy of toll on the users, the percentage of exempted vehicles is consistently taken to be 5%. Counsel submitted that yet the Arbitrator refused to accept the applicability of the Rules of 2002 promulgated when the Rajasthan Road Development Ordinance 2002 (Ordinance 2002) was operative to the CA dated 8-7-2005 on the specious ground that as the Rules of 2002 had been promulgated under the Rajasthan Road Development (Downloaded on 28/08/2019 at 10:43:18 PM) (22 of 70) [CMA-4761/2017] Ordinance, 2002 they could not relate to the Act of 2002. In so doing the Arbitrator committed a patent illegality as Section 10 of the Act of 2002 which repealed the Ordinance of 2002, saved the Rules framed under it. Counsel submitted that further in terms of clause 16.1(vi) of the CA dated 8-7-2005 the parties thereto were bound by all obtaining laws--hence also the Act of 2002 and so too the Rules of 2002 attracted to the resolution of disputes between the parties. Counsel, then to buttress their contention of the Act of 2002 and Rules of 2002 being also relevant for considering the claim under the Additional Clause to the CA, drew the Court's attention to Clause 17.4 of the CA which provided that the agreement would be construed and interpreted in accordance with and governed by the laws of India. Counsel also referred to the State's letter of acceptance dated 14-12-2004 (Downloaded on 28/08/2019 at 10:43:18 PM) (23 of 70) [CMA-4761/2017] to the Concessionaire's bid, which unequivocally asserted that the contract would be governed by the terms and conditions set out in NIT. And yet the Arbitrator recklessly, evidencing complete non- application of mind, if not worse submitted counsel, held that the Rules of 2002 were a mere foundation for the project formulation and relevant for its implementation, but its provisions were not germane for the purpose of computation of amounts payable to the Concessionaire under the Additional Clause whereunder it was the obligation of the State to make the CA viable. They submitted that the arbitrator also overlooked the law of contract in holding that the State's letter of acceptance dated 14-12-2004 in respect of the concessionaire's bid, making the terms of NIT part of the contract notwithstanding, the terms and conditions of the NIT were not part of the contract. It was submitted that the (Downloaded on 28/08/2019 at 10:43:18 PM) (24 of 70) [CMA-4761/2017] Arbitrator on his multiple misdirections above stated, consequently perversely held based the joint traffic census between 23-10-2010 and 26-10-2010 that the percentage of exempted vehicles subsequent to the invocation of the Additional Clause would be 15% effective 10-2-2010 albeit prior thereto it would be 5% as per the agreement between the parties. Counsel submitted that the decision of the Steering Committee taken on 26-10-2010 to treat the exempted vehicles as 15% also based on the joint traffic census between 23-10-2010 to 26-10-2010 was negated, by the Empowered Committee under the Act of 2002 following the direction of this court in SBCWP No.10420/2010, disposed of on 2-8-2010, by which the State Government was was required to dispose of the Concessionaire's representation with regard to the amounts payable under the Additional Clause (Downloaded on 28/08/2019 at 10:43:18 PM) (25 of 70) [CMA-4761/2017] within three months. The Empowered Committee's decision on 18-1-2011 to reimburse the Concessionaire 23.04 crores under the Additional Clause was required by the Concessionaire in the SBCWP No.10420/2010 to be adhered to and the amount paid to it subject to claims to further amounts under the said clause. That decision of the Empowered Committee was subject to the approval of the Finance Department--which was not forthcoming. Subsequently in its meeting of 9-3-2011 the Empowered Committee decided on a reconsideration of the matter that the percentage of exempted vehicles could not be 15% as decided by the Steering Committee but remain only at 5% as it was the basis of the project formulation and also so recorded in the Concessionaire's own bid document detailing the chart with its project cost to be expended and recoveries thereof with an (Downloaded on 28/08/2019 at 10:43:18 PM) (26 of 70) [CMA-4761/2017] IRR of 39.575% made by 16-10-2013 aid of concession period. Counsel submitted that the Arbitrator thus contrary to the contract between the parties has taken exempted vehicles at 15% as relevant to the computation of sum payable to the Concessionaire under the Additional Clause. That basis of computation of sums payable under the Additional Clause was wholly perverse and the conclusion on that count is unsustainable on the test of wednesbury reasonableness.
Counsel further submitted that the Arbitrator has acted contrary to the laws of India, whereunder the directions of the jurisdictional High Court are binding on all including quasi judicial authorities such as Arbitrator, within its jurisdiction. It was submitted that the Empowered Committee took a decision on (Downloaded on 28/08/2019 at 10:43:18 PM) (27 of 70) [CMA-4761/2017] the percentage of exempted vehicles following the consideration of Concessionaire's claims under the Additional Clause only following the High Court's direction on 2-8-2010 in SBCWP No.10420/2010. Consequently its decision could not be brushed aside by the Arbitrator on the legally flawed reasoning that the Empowered Committee was not part of the dispute resolution mechanism under clause 15 of the CA dated 8-7-2005 and until the standing committee also under clause 15 of the CA upset the decision of the Steering Committee it was binding on the parties thereto. Counsel submitted that in fact there was no reference of the dispute as to sums payable to the Concessionaire under the Additional Clause to the Steering Committee. Hence no decision contemplated by clause 15 at the instance of Steering Committee obtained. The Steering Committee just without the issue of (Downloaded on 28/08/2019 at 10:43:18 PM) (28 of 70) [CMA-4761/2017] exempted vehicles referred to it on its ipse dixit without jurisdiction recorded that the exempted vehicles should not be less than 15%. In any event the Empowered Committee--a superior body had overruled that decision.
For assuaging the conscience of the court, counsel pointed out that the Empowered Committee of the Government of Rajasthan and as provided under the Rules of 2002 was more broad based than the standing committee under clause 15 of the CA dated 8-7-2005. All member of the standing committee were included in the Empowered Committee and while the standing committee was headed by the Chief Engineer, the Empowered Committee was headed by the Minister PWD. In fact the (Downloaded on 28/08/2019 at 10:43:18 PM) (29 of 70) [CMA-4761/2017] Standing Committee was subsumed in the Empowered Committee.
Counsel for the State further submitted that the computation by the Arbitrator of amount purportedly payable by the State to the Concessionaire under the Additional Clause of the CA dated 8-7-2005 is also wholly unsustainable as table-Z in regard thereto annexed to the award is an unexplained hybrid of the Table 6 to the Concessionaire's bid, the charts of the Empowered Committee relating to its decision taken on 18-1- 2011 to pay a sum of Rs.23.04 crores to the Concessionaire under the Additional Clause to the CA and the charts of the Concessionaire in support of its claim before the Arbitrator for an amount of Rs.220 crores odd as allegedly payable to it under the (Downloaded on 28/08/2019 at 10:43:18 PM) (30 of 70) [CMA-4761/2017] Additional Clause. No methodology has been disclosed, as would be mandated by Section 31(3) of the Act of 1996 for preparation of Table-Z to the award in the manner it has been and award of Rs.43.6845 crores. Table-Z annexed to the award only invites speculation of the reasons, methodology and manner of its preparation. Counsel submitted that in preparing the Table-Z, the Arbitrator capriciously has not taken into account the considered decision of the Empowered Committee on 18-1-2011 in proceedings subsequent to the Court's order dated 2-8-2010 in SBCWP No.10420/2010 for holding that the Concessionaire was entitled to reimbursement, under the Additional Clause, only for a sum of Rs.14.0736 crores (inclusive of interest @ 10% from 1-5- 2010 to 31-8-2010) as one time capital grant to make the project viable as of 30-4-2010--with the remainder PPL (Project Cost) (Downloaded on 28/08/2019 at 10:43:18 PM) (31 of 70) [CMA-4761/2017] with the IRR of 39.575% thence adequately provided for from the collection of tolls at notified rates on the 3 projects roads and reduced to zero by the terminal date of the Concession i.e. 16-10- 2013. The project was thus made viable by the State and its obligation under the Additional Clause discharged on payment of the amount of Rs.14.07 crores.
Counsel emphatically submitted that the Additional Clause is not in the nature of an event of payment of damages or compensation generally understood in the law of contract as it was not to be activated on a breach of the CA by the State. They submitted that the Additional Clause in fact was/ is in the nature of funding a viability gap in the Public Partnership Project (as the CA was) when occasioned by a ban on mining in the Kaman and (Downloaded on 28/08/2019 at 10:43:18 PM) (32 of 70) [CMA-4761/2017] Deeg Tehsils (Kaman area) with the consequence of depleted flow of traffic with trucks carrying excavated minerals on the project roads. Counsel submitted that the Additional Clause should in the circumstance have been construed by the Arbitrator
--as was his obligation under Section 28(3) of the Act of 1996 in terms of the Trade usages in regard to viability gap funding for infrastructural projects under the Public Private Project (PPP) mode where the economic imperative of an infrastructural project did not match its financial viability. Counsel submitted that the Trade Usage in PPP infrastructural projects is that the differences in the cost plus and recoverable amounts from the project generated from the user fee of the project is reimbursed/ compensated by the concerned government as one time fixed capital grant. That was the intent of Additional Clause obliging (Downloaded on 28/08/2019 at 10:43:18 PM) (33 of 70) [CMA-4761/2017] the State to make the project viable in the event of the contingency of the mining ban in the Kaman area coming into effect. "Making a Project Viable" cannot be confused with sheer/ guaranteed returns as projected by the Concessionaire in his bid and accepted by the State. The Arbitrator has in the instant case therefore misdirected himself in so doing and preparing Table-Z annexed to the award with reference to anticipated toll collection reflected in Table-6--amongst other documents concerning themselves with the totality of anticipated toll collections during the concession period.
Counsel further submitted that the obligation of the State under the Additional Clause i.e. "to make the project viable" was thus to be exercised only in respect of the contingent event (Downloaded on 28/08/2019 at 10:43:18 PM) (34 of 70) [CMA-4761/2017] recorded mining ban in Kaman area (Kaman and Deeg Tehsils) and limited to ensuring that the Concessionaire's PPL amount with other components reflected in the flow chart for recovery of project costs, profits and other expenses was protected as has been on payment of Rs.14.07 crores on 11-10-2011. Nothing more.
Counsel submitted in so doing, the State was not required to carry to its account the impact of the Concessionaire's own defaults and failings, such as its delays in the road's construction
--which in the instant case were over two years--as also found by the Arbitrator himself in his award dated 15-1-2015 (9-3- 2015). During this period of delay, the loss of the amount of anticipated toll had to be borne by the Concessionaire. This is (Downloaded on 28/08/2019 at 10:43:18 PM) (35 of 70) [CMA-4761/2017] appropriately reflected in the chart prepared by the Empowered Committee at its meeting of 30-8-2011 reckoning for toll collection effective 16-8-2006 when it was supposed to be with the roads constructed as per the CA on or before 15-8-2006. At the said meeting a sum of Rs.14.07 crores (inclusive of interest) on amount was assessed as reimbursable to make the project viable as of 30-4-2010. The Arbitrator's chart i.e. table-Z annexed to the award determining the amounts payable under the Additional Clause instead glosses over the consequences of the Concessionaire's delay in the construction of roads and shockingly places the burden of resultant non collection of toll on the State. Counsel submitted that the State was not under the Additional Clause so obliged and suffer the financial consequence of the Concessionaire's own breach (delays) and (Downloaded on 28/08/2019 at 10:43:18 PM) (36 of 70) [CMA-4761/2017] provide by reckoning for it in the payments to make the project viable as required by the Additional Clause. The palpable perversity and gross arbitrariness in the award dated 15-1-2015 (9-3-2015) is thus established, submitted counsel, rendering it liable to be set aside.
Counsel for the State submitted that the CA did not provide for a joint traffic census following the invocation of the Additional Clause. Note to the Additional Clause merely provided that traffic census was to be held "at the time" of the invocation of the Additional Clause. And this has to be held to be a necessary requirement as the viability of the project was to be evaluated on the invocation of the Additional Clause. That traffic census was conducted between 31-3-2010 and 2-4-2010. In fact (Downloaded on 28/08/2019 at 10:43:18 PM) (37 of 70) [CMA-4761/2017] the Concessionaire while invoking the Additional Clause had rightly made no request for holding a joint traffic census and subsequent request for joint census was an afterthought. The traffic census on the toll roads in issue nearer to the date when the Additional Clause was invoked is relevant as the said date is/ was the cut off date when the project viability had to be evaluated and it had to be made viable by the State. A traffic census, even if joint, over eight months (23-10-2010 to 26-10-2010) after the invocation of the Additional Clause (10-2-2010) would not be reflective of the project non-viability at the time of invocation of the Additional Clause. The Empowered Committee in its meeting on 9-3-2011, following the Court's direction on 2-8-2010 to consider the Concessionaire's representation, as prayed for in SBCWP No.10420/2010, had also so rightly held. Counsel (Downloaded on 28/08/2019 at 10:43:18 PM) (38 of 70) [CMA-4761/2017] submitted that the Arbitrator in Table-Z annexed to the award yet proceeded to compute the purported amounts payable to the Concessionaire by the State for making the CA viable interalia not with reference to the traffic census over the three roads between 31-3-2010 and 2-4-2010, soon after the invocation of the Additional Clause but on the joint traffic census eight months subsequent to 10-2-2010 i.e. between October 23rd and 26th 2010. Counsel submitted that the Arbitrator has thus introduced a notified Additional Clause in the CA dated 8-7-2005 requiring the necessity of a joint traffic census not immediately following the invocation of the Additional Clause but later and irrelevant point of time. This distortion resulted in finding of an inflated and unjustified viability gap which was then required by the State to fill. Such manner of determination of amounts payable under the (Downloaded on 28/08/2019 at 10:43:18 PM) (39 of 70) [CMA-4761/2017] Additional Clause contrary to the terms of the Additional Clause is therefore wholly incompatible with the clause itself and therefore be set aside.
Counsel for the State then summed up their arguments with emphasis on the fact that the computation of amounts payable to the Concessionaire by the State under the Additional Clause as reflected in table-Z annexed to the award is (i) perverse to the facts on record; (ii) contrary to the CA and in fact of the Additional Clause itself; (iii) contrary to the operating law i.e. Act of 2002 and Rules of 2002 as necessarily required to be considered in the construction of the terms of the CA as per its clauses 16(1)(vi) and 17.4, and capricious, founded as it is without any discernible principles and is unreasoned against the (Downloaded on 28/08/2019 at 10:43:18 PM) (40 of 70) [CMA-4761/2017] mandate of Section 31(3) of the Act of 1996. Counsel submitted that the computation of amount payable to the Concessionaire as per Table-Z to the award dated 15-1-2015 (9-3-2015) is based on the ipse dixit of the arbitrator for the following reasons:
(a) The Arbitrator has for "making the project viable" taken the commencement of toll collection effective the second quarter of 2008-09 contrary to the agreed date in the CA which was 16-8-2006 i.e. the second quarter of 2006-07.
The Arbitrator's date of the commencement of toll collection with reference to the second quarter of 2008-09 entailed for the Concessionaire escape of the consequences of its delays in completing the project roads. The Additional Clause did not attract to adverse effect on the viability of the project for reason of the Concessionaire's delays. Only (Downloaded on 28/08/2019 at 10:43:18 PM) (41 of 70) [CMA-4761/2017] viability of the project attracted by the mining ban was to be make good by the State.
(b) The exempted vehicles were taken by the arbitrator at 15% effective 10-2-2010 contrary to the CA formulated as it was on the basis of the parameters set out in Annexure-A of the Rules of 2002, reflected in Table 6 of the NIT and the Concessionaire's own bid and despite the Arbitrator himself recording recognizing the terms of the CA that as per the CA upto 9-2-2010 only 5% exempted vehicles could be reckoned for.
(c) The relevant Traffic census of 31-3-2010 to 2-4-2010, the earliest after the invocation of the Additional Clause, was overlooked only for reason of it being unilateral despite the fact that in its letter dated 10-2-2010 invoking the (Downloaded on 28/08/2019 at 10:43:18 PM) (42 of 70) [CMA-4761/2017] Additional Clause no demand for a joint traffic census was made by the Concessionaire. And further in any event the CA did not provide for a joint traffic census and the Concessionaire only subsequent to several months sought a joint traffic census which could never reflect the viability of the project when it was to be assessed i.e. 10-2-2010 under the CA.
All the illegalities and perversities above resulted in the criterion for computation of amounts payable to the Concessionaire under the Additional Clause being a creation of the Arbitrator's ipse dixit and entailed a humongous award of Rs.43.7281 crores with interest thereon @ 8.5% p.a. from 16-10- 2013 till the date of payment. The Concessionaire had already been paid Rs.14.07 crores under the said Additional Clause on 11-10-2011 besides having collected toll on all user of vehicles (Downloaded on 28/08/2019 at 10:43:18 PM) (43 of 70) [CMA-4761/2017] till the end of the Concession period on 16-10-2013. Counsel submitted that the lack of the arbitrator's judicial approach in acting on his ipse dixit without any discernible principle in determining amounts payable to the Concessionaire and not in accordance with law and the terms of the CA is thus ex-facie evident, hence unsustainable and liable to be set aside on breach of public policy ground.
Counsel finally submitted that the Concessionaire's appeal seeking enhancement of the award amount on the basis of an alleged calculation error in the award dated 15-1-2015 (9-3-2015) does not fall within the scope of Section 34 of the Act of 1996 or an appeal thereagainst under Section 37 of the said Act. They submitted that far from the award amount being enhanced, the award itself deserves to be set aside for reasons, as submitted in the State's appeal. It was submitted that the Concessionaire's application for rectification under Section 33 of the Act of 1996 was adequately addressed by the Arbitrator. Counsel submitted (Downloaded on 28/08/2019 at 10:43:18 PM) (44 of 70) [CMA-4761/2017] that in any event the mere remark in Table-Z annexed to the award dated 15-1-2015 (9-3-2015) taking the date of commencement of Collection of toll on roads 1&2 as 21-7-2008 and for road No.3 as 21-1-2009 was of no event. This because, the amount of toll collected upto 9-2-2010 has been considered by the Arbitrator as per Table-6, i.e. on the basis of anticipated traffic flow. Subsequent to the Concessionaire's notice dated 10- 2-2010 invoking the Additional Clause, toll collected was taken by the Arbitrator on the basis of exempted vehicles at 15% and traffic flow based on the joint traffic census of 23-10-2010 to 26- 10-2010. Nothing in Table-Z to the award dated 15-1-2015 (9-3- 2015) therefore, even if it were to be upheld despite the contentions in the State's appeal, requires to be rectified as prayed for by the Concessionaire in its appeal.
Counsel submitted that for all the aforesaid submissions the State's appeal against the order dated 12-5-2017 passed by the Commercial Court under Section 34 of the Act of 1996 (Downloaded on 28/08/2019 at 10:43:18 PM) (45 of 70) [CMA-4761/2017] dismissing State's objection against the award dated 15-1-2015 (9-3-2015) be allowed and the award be set aside as being contrary to public policy on various counts detailed above--all within the scope of Section 34(2)(b) of the Act of 1996. And the Concessionaire's appeal be dismissed.
Mr. R.K. Agrawal, Senior Advocate appearing with Mr. Ashish Upadhyay for the Concessionaire submitted that the project under the CA dated 8-7-2005 became unviable due to prohibition of mining activities in the Kaman area--Kaman and Deeg tehsils which was the main source of collection of toll from the vehicles carrying the excavated minerals on the three project roads. And the issue of consequential non-viability of the CA on the one hand and the obligation of the State to make it viable under the Additional Clause on the other cannot be seriously disputed as the State itself has paid a sum of Rs.14.07 Crores to the Concessionaire on it being so computed by the Empowered Committee at its meeting of 30-8-2011. What remained, Mr.R.K. (Downloaded on 28/08/2019 at 10:43:18 PM) (46 of 70) [CMA-4761/2017] Agarwal submitted, was the further payments due for reason of being short paid under the Additional Clause. On dispute raised in regard thereto by the Concessionaire, and yet no arbitrator under clause 15 of the CA dated 8-7-2005 being appointed despite notice, the Concessionaire moved an application before this court under Section 11(6) of the Act of 1996. A sole Arbitrator was then appointed on 25-7-2014 by the Court in SB Arbitration Application No.33/2013. The Arbitrator following submission of claim and the reply thereto has on his construction of the terms of the CA dated 8-7-2005 and evidences before him vide his award dated 15-1-2015 (9-3-2015) determined that an additional amount is Rs.43.7281 crores with interest @ 8.5% p.a. from 16-10-2013 till the date of payment was payable to the Concessionaire under the Additional Clause. The determination of the quantum payable to the concessionaire was/ is a question of fact which cannot be challenged on objections under Section 34 or for that matter in appeal under Section 37 of the Act of 1996. The Commercial Court has rightly rejected the State's objections against the award dated 15-1-2015 (9-3-2015) for (Downloaded on 28/08/2019 at 10:43:18 PM) (47 of 70) [CMA-4761/2017] reason of no ground under Section 34 of the Act of 1996 being made out. And so should this court.
Mr.R.K. Agarwal submitted that exempted vehicles at 15% effective 10-2-2010 for computation of the amounts requisite for making the project viable (as per the Additional Clause) were taken into consideration by the Arbitrator on the basis of the decision of the Steering Committee, constituted under the CA dated 8-7-2005, on 26-10-2010. The said decision of the Steering Committee was not overruled by the superior Standing Committee visualized under Clause 15 of the CA and hence attained finality. The decision of the Empowered Committee taken on 9-3-2011 or otherwise to set aside the decision of the Steering Committee taken on 26-10-2010 was rightly held by the Arbitrator to be of no consequence/ effect as such a committee was not contemplated under the CA. Further the arbitrator has rightly taken into consideration the joint traffic census of 23-10- 2010 to 26-10-2010 vis-a-vis the unilateral traffic census of 31-3- (Downloaded on 28/08/2019 at 10:43:18 PM)
(48 of 70) [CMA-4761/2017] 2010 to 2-4-2010 without notice to the Concessionaire. The later traffic census was consonant with fair play and transparency.
Mr.R.K. Agarwal further submitted that the delay in the construction of the roads No.1&2 upto 30-6-2008 and road No.3 upto 31-12-2008 respectively was for reasons attributable the State. That delay could not therefore have an impact on the obligation of the State to make the project viable. Mr.R.K. Agarwal submitted that the Arbitrator having construed the terms of the CA in his wisdom and no malice having been attributed to him, there is no scope/ ground with the Court in an appeal under Section 37 of the Act of 1996 to interfere with the award dated 15-1-2015 (9-3-2015) and the Commercial Court's order on the State's objection under Section 34 of the Act of 1996 refusing to set it aside.
Mr.R.K. Agarwal in support of his contention relied on the judgment by the Apex Court in Associate Builders Vs. DDA (Downloaded on 28/08/2019 at 10:43:18 PM) (49 of 70) [CMA-4761/2017] [(2015)3 SCC 49] setting out the narrow scope of the Court's jurisdiction in addressing objections to an award and holding that determination of compensation/ damages by the Arbitrator could not be a subject matter of consideration on objections under Section 34 of the Act of 1996. He prayed that for the aforesaid reasons the State's appeal--a mere continuation of section 34-- be dismissed.
Mr.R.K. Agarwal on the Concessionaire's appeal submitted that it does not seek to challenge the award dated 15-1-2015 (9-3- 2015) or pray for its modification, but is only praying that the mathematical calculation in Table-Z annexed to the award be made consonant with the specific finding of the Arbitrator that the State was responsible for the delays of 55 days and 215 days in granting permission for collection of toll, in respect of roads No.1&2 and road No.3 respectively despite intimation of completion of the roads to the Engineer in charge. Counsel submitted that the at Column No.13 in the remarks column of Table-Z, the date of commencement of toll collection in respect (Downloaded on 28/08/2019 at 10:43:18 PM) (50 of 70) [CMA-4761/2017] of road Nos.1 & 2 completed on 30-6-2008 has been taken as 21- 7-2008, when in fact it was 25-8-2008 as found by the Arbitration in his award and the commencement of toll collection for road No.3 it has been taken as 21-1-2009, when in fact it was 5-8- 2009. Counsel submitted that therefore the computation of amounts payable to the Concessionaire under the Additional Clause in Table-Z annexed to the award be accordingly rectified on the basis of findings of the Arbitrator.
Heard. Considered.
The Arbitrator under his award dated 15.1.2015 rectified on 9.3.2015 determined the reimbursement / compensation payable to the concessionaire in terms of additional clause of the CA dated 8.7.2005 at Rs. 43.7281 crores and held that such payment would entail discharge of the obligation of the State to make the project in issue viable after it was adversely affected on its viability by greatly reduced collection of toll resulting from lesser (Downloaded on 28/08/2019 at 10:43:18 PM) (51 of 70) [CMA-4761/2017] vehicular traffic following the mining ban in the Kaman and Deeg tehsils (Kaman area) effective 3.7.2008. The determination of the amounts payable to the concessionaire under the additional clause being primarily a question of fact would ordinarily be beyond the ken of the court's jurisdiction against awards under Section 34 of the Act and appeals thereagainst under Section 37 of the Act of 1996. Yet, it cannot be gainsaid that no matter how limited by statute the court's jurisdiction under Section 34 and 37 of the Act of 1996 be, it can be exercised even in respect of determination of amounts payable under a contract, when the determination is palpably perverse, arbitrary, capricious, reflects lack of judicial approach and is contrary to the public policy of India in the sense of contravention of the fundamental policy of Indian law and notions of justice.
In M/s. Sikkim Subba Associates Versus State of Sikkim 2001 (5) SCC 629, the Apex Court held that where the award for (Downloaded on 28/08/2019 at 10:43:18 PM) (52 of 70) [CMA-4761/2017] damages (also a question of fact - it may be noted) was wholly uncalled for and illegal, it deserved to be set-aside.
In the case of Associate Builders versus DDA (2015) 3 SCC page 49 in the context of scope of the powers of the courts under Section 34 & 37 of the Act of 1996, the Court held that the ground of the award being in conflict with the public policy of India and intervention thereon can follow inter-alia on a court finding that the arbitrator lacked in a judicial approach; the award could not pass the test of Wednesbury reasonableness ; and the arbitrator disregarded the terms of the contract and operating law in passing the award. It was further held that an award under the Act of 1996 could be also interfered with in the event it was so arbitrary or capricious or perverse. That it shocked the conscience of the court.
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(53 of 70) [CMA-4761/2017] We are of the considered view that the additional clause to the CA dated 8.7.2005 making it obligatory for the State to make the project viable entailed determination and payment by way of a reimbursement of a one time capital grant as compensation to the concessionaire to the extent it was necessitated by the mining ban in the Kaman area (Kaman and Deeg teshils). The words "making viable" in the additional clause visualise a situation similar if not identical to a viability gap being funded. A viability funding gap is a well known concept in public private partnership projects where the economic necessity of the project is unequal to its financial viability. In such situations the State takes upon itself in public interest to supply the financial gap through a one time capital grant between the cost of the project and the financial returns therefrom. The additional clause of the CA dated 8.7.2005 was such a mechanism of viability gap funding to be brought into play in the circumstance detailed therein. The claim of the concessionaire invoking the additional clause under its letter (Downloaded on 28/08/2019 at 10:43:18 PM) (54 of 70) [CMA-4761/2017] dated 10.2.2010 was required to be accordingly considered by the arbitrator.
To determine the compensation payable as a one time capital grant - in the instant case as reimbursement under the additional clause, the Arbitrator could not act in a manner incompatible with the terms of the CA, the operating law i.e. the Act of 2002 and the Rules made thereunder and contrary to the "public policy of India" as the words have been ad nauseum construed by the Apex Court. He was to take into consideration, with due application of mind, all relevant facts impinging upon making the project viable and for the purpose determine the necessary capital grant payable by the State to the concessionaire as reimbursement / compensation. In so doing the arbitrator was also obliged to take into consideration the situation where the financial consequences suffered by the concessionaire were of its own making i.e. the delay of two years and more in completing (Downloaded on 28/08/2019 at 10:43:18 PM) (55 of 70) [CMA-4761/2017] the construction of the three roads resulting in the loss of toll revenue affecting the project's viability. Also to be considered were the parameters on which the project under the CA was formulated as reflected in the underlying Act of 2002 and the Rules of 2002 more particularly Annexure-A thereto whereunder the percentage of exempted vehicles was 5% (as also considered by the concessionaire in his own charts submitted with the bid documents and accepted on 14.12.2004). Further to be taken into consideration was the traffic census of the three project roads nearest to the date of invocation of the additional clause which required the traffic census at the time the clause was invoked. This for the reason that viability as of that date of the invocation was to be restored by the State and reimbursement accordingly made.
We are of the considered view that in determining the amounts payable to the concessionaire under the additional (Downloaded on 28/08/2019 at 10:43:18 PM) (56 of 70) [CMA-4761/2017] clause, the Arbitrator under his award dated 15.1.2015 (9.3.2015) has exhibited a non judicial approach and found amounts payable thereunder on his ipse-dixit without disclosing any discernible consistent rule in the making of Table Z to the award - the compensation payable chart. That renders his award arbitrary, capricious, unreasoned in the cross-hair of Section 31 (3) of the Act of 1996 and perverse to the facts on record to the extent it shocks the conscience of the court. For this conclusion, a bare look at Table Z annexed to the award where the amounts payable to the concessionaire as compensation / reimbursement have been projected would show that it does not, despite the Arbitrator's categorical finding that the concessionaire was solely responsible for the delay in the construction of the 3 roads for over two years, reflect the consequence thereof for the concessionaire. The Arbitrator overlooks the stark fact that the resultant non collection of user fee from the vehicles on the project roads during the period of delay could not be taken to impact the viability of the project to the State's account under the (Downloaded on 28/08/2019 at 10:43:18 PM) (57 of 70) [CMA-4761/2017] additional clause. Table Z to the award does not reckon for the loss of the toll during the period of delay in completion of the roads by the concessionaire. That lost revenue from collection of toll would have otherwise been debited to the PPL (capital cost & 15% interest). Instead in Table Z reduction in the PPL amount commences only from the second quarter of 2008-2009 and was so taken into the Arbitrator's computation of amounts payable by the State to the concessionaire under the additional clause. In so doing, the Arbitrator allowed escaping from his computation the aggregate toll for the three roads in issue which would have been collected effective 16.8.2006 till 21.7.2008 / 21.1.2009 in the event the construction of the roads would have been completed within 12 months from the date of commencement i.e. 16.8.2005 as provided for in the CA dated 8.7.2005. This conclusion was wholly incompatible with the terms of the CA dated 8.7.2005 and entailed a negative impact to the State's detriment on the calculation of outstanding PPL quarter to quarter effective 16.8.2006 and skewed the entire accounting exercise reflected in (Downloaded on 28/08/2019 at 10:43:18 PM) (58 of 70) [CMA-4761/2017] table Z of the award impugned. This aspect, date of commencement of toll effective 16.8.2006 amongst others had been appropriately reckoned for by the Empowered Committee in its meeting of 30.8.2011 where the one time reimbursement of Rs. 14.07 crore as of 30.4.2010 with interest @ 10% upto 31.8.2011 i.e. date of payment was found payable as compensation to the concessionaire. We are of the considered view that there could be no deviation from the mechanism adopted in Table 6 which provided for the PPL (cost of construction etc. and concessionaire's profit) with an IRR of 39.575% being fully paid out from the recovery of anticipated toll from the use of the three project roads from 16.8.2006 upto 15.10.2013 (86 months). Yet in Table Z the arbitrator changed the structure of Table 6 and reckoned for toll collection only for 75 months from 21.7.2008 to 5.10.2013 not considering the toll which could have been collected between 16.8.2006 to 21.7.2008 if the roads had been completed in time within 12 months by 15.8.2006 as per the requirement of the CA. Thus negative (Downloaded on 28/08/2019 at 10:43:18 PM) (59 of 70) [CMA-4761/2017] values due to delay in completing of the project by the concessionaire were not included in the calculation in Table Z of the award. Table Z to the award dated 15.1.2015 (9.3.2015) reflecting the amount of Rs. 43.7281 crores payable by the State to the concessionaire is vitiated by perversity, is contrary to the terms of the CA - the additional clause itself and non est. Amounts found payable by the Arbitrator to the concessionaire as compensation thus are liable to be set-aside on this count.
We are also of the considered view that the date effective which the vehicular traffic on the project road was to be taken as depleted for reason of the mining ban in Kaman area effective 3.7.2008 vis-a-vis the anticipated traffic flow on which the project was formulated and the CA entered into, had to be as per the plain language of the Additional Clause and reckoned on the basis of census of vehicular traffic held between 31.3.2010 and 2.4.2010 i.e. earliest to the concessionaire invoking the additional clause under its letter dated 10.2.2010. In any event no joint (Downloaded on 28/08/2019 at 10:43:18 PM) (60 of 70) [CMA-4761/2017] census was sought in the said letter dated 10.2.2010. The joint census of vehicular traffic later conducted between 23 rd October, 2010 and 26th October, 2010 no doubt on the CE's requisition on the concessionaire's request was an after-thought, too far removed from the date of the invocation of the additional clause on 10.2.2010 and hence not in consonance with the note thereto which provided that census of vehicular traffic be done at the time of invocation. We are of the considered view that in overlooking the traffic census of 31.3.2010 to 2.4.2010 and instead relying on that of 23.10.2010 to 26.10.2010, the Arbitrator acted contrary to the additional clause with the CA in that regard - which was beyond his remit and wholly incompatible with what was agreed.
We are further of the view that for the purpose of computation of amounts payable to the concessionaire under the additional clause invoked on 10.2.2010, the un-viability of the project flowing the mining ban in the Kaman Area (Kaman & (Downloaded on 28/08/2019 at 10:43:18 PM) (61 of 70) [CMA-4761/2017] Deeg teshils) had to be inter-alia assessed on the basis of parameters for project formulation in the first instance, as reflected in Table 6 of the NIT issued in the year 2004 and also the table / chart submitted by the concessionaire itself with the bid, both of which provided for 5% exempted vehicles. That was also in consonance with the basis of project formulation under the Act of 2002 and the Rules of 2002 made thereunder more particularly Annexure-A to the Rules which set out the norms for project formulation where the State was entering into a Public Private Partnership for building of roads and provided for only 5% of exempted vehicle. The Arbitrator instead perversely held the Act of 2002 and the Rules of 2002 to be wholly irrelevant and on the basis of the purported decision of the overruled meeting of the Steering Committee on 26.10.2010 came to hold that while the percentage of exempted vehicles (otherwise liable to pay toll) upto 9.2.2010 would be 5%, effective 10.2.2010 when the additional clause was invoked by the concessionaire, it was to be taken at 15%. In so doing, the Arbitrator has circumvented the (Downloaded on 28/08/2019 at 10:43:18 PM) (62 of 70) [CMA-4761/2017] relevance of the decision of the Empowered Committee headed by the PWD Minister in its meeting of 9.3.2011 following the court's order dated 2.8.2010 in SBCWP No. 10420/2010 filed at the instance of the concessionaire itself, where the State Government was directed to decide the concessionaire's claim under the additional clause. The Empowered Committee had held that as per norms under which the project was formulated i.e. Rules of 2002, and the concessionaire's bid submitted and accepted, the exempted vehicles could only be taken at 5% alone and that the decision of the Steering Committee headed by the Superintending Engineer, PWD finding exempted vehicles at 15% was contrary to the CA. The Arbitrator also overlooked the fact that the Empowered Committee was constituted of (i) Hon'ble PWD Minister, Rajasthan (Chairman); (ii) Principal Secretary, PWD, Rajasthan, (iii) Special Secretary (Exp.) Finance, Rajasthan; (iv) Secretary, PWD, Rajasthan, Jaipur, (v) CE & AS, PWD, Rajasthan, (vi) Adviser (Infra) PWD, Rajasthan,
(vii) CE (Road), PWD, Rajasthan, Jaipur (viii) Addl. Chief (Downloaded on 28/08/2019 at 10:43:18 PM) (63 of 70) [CMA-4761/2017] Engineer (BOT), PWD, Jaipur, (ix) CAO, PWD, Jaipur (its members) and was larger than and subsumed the Standing Committee under the CA constituted of (i) Secretary to Government, PWD, (ii) Finance Secretary or his nominee, not below the rank of Deputy Secretary, (iii) Law Secretary or his nominee not below the rank of Joint Legal Remembrancer, (iv) Chief Engineer cum Addl. Secretary PWD, (v) Chief Engineer concerned (Member Secretary) which was superior to the Steering Committee in the CA. All members of the Standing Committee were also members of the Empowered Committee. Consequently, the conclusions of the Empowered Committee in its meeting held on 9.3.2011 specifically negating the decision of the Steering Committee in its meeting dated 26.10.2010 could not have been overlooked as was done by the arbitrator in a non judicial approach. For the aforesaid reason, we are of the considered view that the Arbitrator acted in a manner contrary to his obligations as a quasi judicial authority bound by the final judgment of the jurisdictional high court directing the State to (Downloaded on 28/08/2019 at 10:43:18 PM) (64 of 70) [CMA-4761/2017] decide the concessionaire's representation to it qua its claims under the additional clause. The Arbitrator instead perversely relied on the Steering Committee 's overruled decision dated 26.10.2010 and in a manner patently illegal held that the exempted vehicles subsequent to 10.2.2010 were to be taken as 15%. Besides, the arbitrator also failed to apply his mind and consider that the Steering Committee's jurisdiction under clause 15 of the CA was limited to the issues relating to the working of the concession agreement and did not extend, moreso without reference on the issue being made to it, to varying its terms and taking a decision contrary to the Rules of 2002 which provided for exempted vehicles at 5% and which also was the basis of the parameters on which the project was formulated, informed the NIT issued in the year 2004 and the bid was submitted by the concessionaire itself.
Further even a studied and searching view of table Z annexed to the award under which payments of Rs. 43.7281 (Downloaded on 28/08/2019 at 10:43:18 PM) (65 of 70) [CMA-4761/2017] crores has been directed to be made by the State to the concessionaire alongwith interest @ 8.5% effective 16.10.2013 till the date of payment, indicates that no discernible principle on which the table is based is ascertainable. The table is an outcome of the ipse-dixit of the Arbitrator in extrapolating the figures from varied sources without any stated reasons. Table Z is an unexplained, unjustified and unreasoned hybrid of Table 6 of the NIT issued in the year 2004, Table submitted with the concessionaire's claim for Rs. 220 crore odd before the arbitrator and the recommendations of Empowered Committee in its meeting of 18.1.2011 without considering the recommendations of the Empowered Committee at its meeting of 30.8.2011.
Following the invocation of the additional clause on 10.2.2010 by the concessionaire, based on the vehicular traffic census of 31.3.2010 to 2.4.2010, the delays of over two years attributable to the concessionaire in completion of project road and taking into consideration the exempted vehicles at 5% of the (Downloaded on 28/08/2019 at 10:43:18 PM) (66 of 70) [CMA-4761/2017] vehicular traffic as was the basis of project formulation under Annexure-A to the Rules of 2002 as also the concessionaire's own bid, the State taking 30th April, 2010 as the relevant date to discharge its obligation to make the project viable under the Additional Clause proceeded to calculate Rs. 14.0736 crores as the amounts reimbursable to the concessionaire as a one time of capital grant and interest thereon. With that one time capital grant and the project being made viable as of 30.4.2010, effective 1 st May, 2010 even with the lesser traffic flow, as captured in the census of 31.3.2010 and 2.4.2010 on the three project roads of the CA dated 8.7.2005 the project was rendered viable. It is also important to note that aside of the receipt of the aforesaid one time capital cost - as reimbursed from the State, the concessionaire has also collected toll on the vehicular traffic following completion of roads (after due permission by the State) till the end of the concession period on 16.10.2013. (Downloaded on 28/08/2019 at 10:43:18 PM)
(67 of 70) [CMA-4761/2017] We are therefore, of the considered view that the award of Rs. 43.6845 crores by the Arbitrator to the concessionaire under his award dated 15.1.2015 rectified to Rs. 43.7281 crores on 9.3.2015 is vitiated by his complete lack of judicial approach. The arbitrator has perversely determined the basis of calculation for computation of amount payable as compensation under the additional clause. The basis of calculation i.e. (i) date of commencement of toll collection (ii) percentage of exempted vehicles (iii) the date of relevant traffic census were determined by the arbitrator contrary to the specific terms of the CA and the additional clause itself. The arbitrator's act of overlooking both the Rules of 2002 as also Annexure-A thereto is contrary to clause 17.4 of the CA which provided that this agreement shall be construed and interpreted in accordance with and governed by the laws of India is clear breach of public policy of India of contractual disputes been adjudicated as per obtaining law and terms of the particular contract. Further the Arbitrator in not considering the over-ruling of the Steering Committee by the (Downloaded on 28/08/2019 at 10:43:18 PM) (68 of 70) [CMA-4761/2017] Empowered Committee overlooked the fact that the Empowerment Committee has considered the concessionaire's representation pursuant to the order dated 2.8.2010 passed by the High Court on the concessionaire's own petition and his prayer to have his representation in respect of its claim under the additional clause decided by the State Government (which under the Act of 2002 is the Empowered Committee).
In MP Power General Company Ltd. Versus Ansaldo Energia Spa and anr - (2018) 16 SCC 661, the Apex court held that an award is open to challenge under Section 34 (2) (b) of the Act of 1996 when the Arbitrators fail to draw an inference which they ought to have drawn and instead draw an inference which on the face of it is wholly untenable and results in the miscarriage of justice.
Finally we find that the conclusions of the arbitrator in Table Z to the award for awarding the sum of Rs. 43.7281 crores (Downloaded on 28/08/2019 at 10:43:18 PM) (69 of 70) [CMA-4761/2017] to the concessionaire under the additional clause of CA are not founded on any discernible principle and wholly unreasoned.
In the case of Som Datt Builders Versus State of Kerala 2009 (10) SCC 259, the Apex Court held that the requirement of reasons in respect of award under Section 31 (3) of the Act of 1996 is not an empty formality as it guarantees fair and legitimate consideration of the controversy by the arbitral tribunal. And although the Arbitral Tribunal was neither expected to pass an award like a court nor expected to give elaborate and detailed reasons in support of its finding/s, yet it mere noticing the submissions of the parties or referring to documents was no substitute for reasons which the arbitral tribunal was obliged to give under Section 31(3) of the Act of 1996. The importance of reasons being indicated for passing of the award was recognized by the Court as the reasons reflect that mental processes leading to a particular conclusion by the arbitrator. Absence of reasons in passing of the award in the manner enunciated by the Apex Court (Downloaded on 28/08/2019 at 10:43:18 PM) (70 of 70) [CMA-4761/2017] was held to entail the award itself being legally flawed and liable to be quashed and set-aside.
The upshot of the aforesaid discussion is that the award dated 15.1.2015 (9.3.2015) as also the judgment of the Commercial Court refusing to interfere therewith under Section 34 of the Act of 1996 are both, in the circumstances liable to be set-aside. They both are set-aside and quashed.
State's Appeal allowed.
Consequent to the State's appeal being allowed and the award dated 15.1.2015 rectified on 9.3.2015 being quashed and set-aside, the concessionaire's appeal for rectification of the award amount is liable to be dismissed. It is accordingly dismissed.
(ALOK SHARMA),J (MOHAMMAD RAFIQ),J
DILIP KHANDELWAL
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