Sojitz-L&T Consortium vs Dedicated Freight Corridor ... on 18 January, 2024

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Delhi High Court - Orders

Sojitz-L&T Consortium vs Dedicated Freight Corridor ... on 18 January, 2024

1. This is a petition under section 9 of the Arbitration and Conciliation Act, 1996 seeking amongst other reliefs restraining of the respondents from acting upon letter dated 01.12.2023 and 12.01.2024 for invoking and/or encashing all or any of the Retention BGs [INR 156,08,61,000 (BG Nos. 0999916BG0001306 and 0999914BG0001603), JPY 3,68,25,91,540 (BG Nos. 099915FG0000299 and 0999917FG0000022), USD 6,71,281 (BG Nos. 0999917FG0000023 and 099915FG0001100) & EURO 84,254 (BG Nos. 0999917FG0000021 and 0999915FG0001102] and Performance BGs No. This is a digitally signed order.

The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 24/01/2024 at 22:28:34 054BG00027818 [INR 1,52,71,44,326, JPY 70,60,18,179, USD 9,49,484 & EURO 1,17,898] which are valid till 31.03.2024.

2. It is stated by Mr. Nayar, learned senior counsel for the petitioner that the invocation is contrary to the terms of the agreement.

3. The brief facts are that a contract agreement was executed on 06.08.2013, wherein the petitioner was required to execute the works of Design and Construction of Double Line Railway for a total lump sum Contract Price amounting to INR 6699.50 crores, inclusive of all taxes.

4. The petitioner furnished retention bank guarantee and informed the same to the respondent vide letter dated 03.07.2013. As on date, the petitioner has furnished retention BGs [INR 156,08,61,000, JPY 3,68,25,91,540, USD 6,71,281 & EURO 84,254] and Performance BGs [INR 1,52,71,44,326, JPY 70,60,18,179, USD 9,49,484 & EURO 1,17,898] which are valid till 31.03.2024.

5. For undertaking the project, the petitioner was required to import Head Hardened Rails ("HH Rails") from Japan. The Basic Customs Duty ("BCD") on import of HH Rails attracted a levy of 10%. However, in 2011, India and Japan entered into a Comprehensive Economic Partnership Agreement ("India-Japan CEPA") to boost the economy of the countries.

6. Pursuant to the said agreement, the BCD on import of HH Rails was reduced to NIL in 11 equal instalments starting from 2011.

7. Accordingly, after factoring in the drastic reduction of the BCD on import of HH Rails from Japan on the base rate was 8.2% which was indicated by the petitioner in its bills.

8. In the year 2015, the respondent while submitting interim payment certificate (IPC) withheld amount of Rs. 71,76,366/- and Rs. 1,40,81,758/-

This is a digitally signed order.

9. However, the Engineer appointed by the respondent subsequently determined that there is no change in legislation subsequent to the base rate w.r.t. levy of BCD and released the withheld amount.

10. It is stated that in the year 2023, after a lapse of 8 years, the Engineer suo moto raised and re-determined the amount payable by the petitioner to the respondent on account of change in the levy of BCD. On the basis of the said re-determination, the performance bank guarantees are sought to be encashed.

11. I have heard Mr. Nayar, learned senior counsel appearing for the petitioner.

12. On 08.05.2015, the engineer of the respondent adjudicated the amount withheld by the respondent subject to change in BCD and held as under:

"6. With reference to the conclusion at para 5 above, Engineer determines that:

a) There is no Change in Law subsequent to the Base Date with respect to the applicable Custom Duty on HH Rails being imported from Japan;

b) Accordingly, payment of the withheld amount of Rs.

71,76,366/- and Rs. 1,40,81,758/- from IPC-15 and IPC- 17 respectively is eligible to be released to SLT;

c) The said amount shall be certified for payment in subsequent IPC-18."

13. A perusal of the letter shows that the Engineer, who was the authority to determine the said factum, came to the conclusion that the respondent had incorrectly withheld the amount of Rs. 71,76,366/- and Rs. 1,40,81,758/- from IPC-15 and IPC-17 and consequently released the same to the petitioner.

This is a digitally signed order.

The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 24/01/2024 at 22:28:35

14. As per Clause 3.5 of the Comprehensive Economic Partnership Agreement viz. Federation Internationale Des Inquenieulrs Counsel (FIDIC), 1999, („the Agreement‟), it is the "Engineer" who is to determine the amount payable under the terms of the contract.

15. In addition, each party to the Agreement, if aggrieved by the order of the Engineer, is to proceed under Clause 20 of the Agreement and more particularly Clause 20.04, which reads as under:

"20.4 Obtaining Dispute Adjudication Board's Decision:

If a dispute (of any kind whatsoever) arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works, including any dispute as to any certificate, determination, instruction, opinion or valuation of the Engineer, then after a DAB has been appointed pursuant to Sub-Clauses 20.2 (Appointment of the DAB) and 20.3 (Failure to Agree DAB) either Party may refer the dispute in writing to the DAB for its decision, with copies to the other Party and the Engineer. Such reference shall state that it is given under this Sub-Clause.

For a DAB of three persons, the DAB shall be deemed to have received such reference on the date when it is received by the chairman of the DAB Both Parties shall promptly make available to the DAB all information, access to the Site, and appropriate facilities, as the DAB may require for the purposes of making a decision on such dispute. The DAB shall be deemed to be not acting as arbitrator(s).

Within 84 days after receiving such reference, or the advance payment referred to in Clause 6 of the Appendix General Conditions of Dispute Adjudication Agreement, whichever date is later, or within such other period as may be proposed by the DAB and approved by both Parties, the DAB shall give its decision, which shall be reasoned and shall state that it is given under this Sub-Clause. However, if neither of the Parties has paid in full the invoices submitted by each member pursuant to Clause 6 of the Appendix, the DAB shall not be obliged to give This is a digitally signed order.

The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 24/01/2024 at 22:28:35 its decision until such invoices have been paid in full. The decision shall be binding on both Parties, who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award as described below. Unless the Contract has already been abandoned, repudiated or terminated, the Contractor shall continue to proceed with the Works in accordance with the Contract.

If either Party is dissatisfied with the DAB's decision, then either Party may, within 28 days after receiving the decision, give notice to the other Party of its dissatisfaction. If the DAB fails to give its decision within the period of 84 days (or as otherwise approved) after receiving such reference or such payment, then either Party may, within 28 days after this period has expired, give notice to the other Party of its dissatisfaction In either event, this notice of dissatisfaction shall state that it is given under this Sub- Clause, and shall set out the matter in dispute and the reason(s) for dissatisfaction. Except as stated in Sub-Clause 20.7 (Failure to Comply with Dispute Adjudication Board's Decision] and Sub-Clause 20.8 (Expiry of Dispute Adjudication Board's Appointment), neither Party shall be entitled to commence arbitration of a dispute unless a notice of dissatisfaction has been given in accordance with this Sub- Clause.

If the DAB has given its decision as to a matter in dispute to both Parties, and no notice of dissatisfaction has been given by either Party within 28 days after it received the DAB's decision, then the decision shall become final and binding upon both Parties."

16. On 08.05.2015, the Engineer in terms of Clause 3.5 came to a finding that no amount is due and payable by the petitioner on account of change in BCD.

17. In case the respondent was aggrieved by the said decision, the remedy lied with the respondent to approach the Dispute Adjudication Board (DAB) in terms of Clause 20. The same has not been done by the respondent. However, the Engineer of respondent on 22.08.2022 reviewed the decision This is a digitally signed order.

"4. On a review of the Engineer's decision at that time, it is noticed that

a) Contractor did not submit any supporting documents to prove that the Lump Sum Price Bid was calculated based on the progressive reduction in BCD on HH Rails from 8.2% during the currency of the contract, as per anticipated timelines for receipt of these rails.

b) In the Bills of Entry for HH Rails as submitted by SLT in Claim for reimbursement of increase in Countervailing Duty (CVD) for import of HH Rails from Japan with applicable Basic Customs Duty, BCD has been paid by the Contractor at reduced rate in range from 6.5% to 4.5% against the BCD rate as considered on the Base Date and included in the Contract Price i.e. 8.2%.

c) Though the India-Japan CEPA was signed before the Base Date of the contract, and the progressive reduction in BCD was mentioned therein, the fact remains that the actual reduction in BCD (from the Base Rate of 8.2%) took place after the Base Date.

d) Contractor has neither mentioned the fact of this reduction from the rate of 8.2%, in the Price Bid nor did he notify the Engineer in respect of such reduction in tax rates based on CEPA."

18. On the basis of the said review, the Engineer came to a finding that an amount of Rs. 70,75,25,996/- is due from the petitioner to the respondent in respect of reduction in basic customs duty. On 17.01.2024, the amount has been shown to be Rs. 90 crores.

19. I am of the view that Engineer, in terms of the Agreement, did not have the power to review the decision of 08.05.2015 made by the earlier Engineer who has adjudicated upon this issue with regard to change in the This is a digitally signed order.

20. If the respondent was aggrieved by the decision of 08.05.2015, the option available with the respondent was to initiate process under clause 20 of the Agreement.

21. In addition, a perusal of the relevant clause of the Performance Guarantee dated 02.07.2013 reads as under:

"Contract Price is payable, upon receipt by us of your first demand in writing accompanied by a written statement stating that the Contractor is in breach of its obligation(s) under the Contract, without your needing to prove or to show grounds for your demand or the sum specified therein."

22. The letter dated 17.01.2024 invoking the bank guarantee reads as under:

"Dear Madam,

1. With reference to SLT's letter dated 16.01.2024, under reference at S No 28, the issue has again been discussed with Employer. However, Employer has not agreed to defer the recovery of the claim till the decision of DAB is received in the matter.

2. Accordingly, SLT is advised to deposit the balance amount of the claim immediately, failing which the issuing bank(s) would be intimated by Employer for encashment of the BGs. Further, the revised calculations of the balance outstanding amount as on 15.01.2024 are enclosed, as per which, an amount of INR 90 crores (including interest upto 15-01-2024 and GST and Labour cess) is to be deposited by the Contractor."

23. The letter dated 12.01.2024 invoking the bank guarantee reads as under:

"Dear Madam,

1. In terms of Employer's letter dated 29.11.2023, under reference This is a digitally signed order.

The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 24/01/2024 at 22:28:35 at S No 21, it was advised that since substantial amount in respect of Employer's claim in respect of reduction in rate of Basic Customs Duty on HH Rails is still to be recovered, Contractor should deposit the balance amount of the claim (INR 72,28,51,150) within 10 days with the Employer. If the balance amount is not deposited within 10 days, the Employer will encash the available BGs and recover the amount. SLT was informed accordingly vide Engineer's letter dated 01.12.2023, under reference at S No 23.

2. Vide their letter dated 08.12.2023, under reference at S No 24, SLT had requested that the demand related to the present issue be deferred till the decision of DAB is communicated to the Parties, since the matter is already referred by Contractor to DAB for a decision.

3. Subsequently, vide letter referred at S. No. 26 above, the Engineer had requested Employer to consider the request from the Contractor regarding non encashment of BGs. The issue was also discussed with the Employer.

4. However, during the discussions, Employer has not agreed to consider the request from the Contractor for deferment of the recovery / non-encashment of the BGs. The balance amount of the Employer's claim, with interest up to 15.01.2024, would now be INR 73,05,37,582 (calculations enclosed). This is subject to adjustment on the basis of revised calculations, if any, in terms of discussions in DFCCIL Corporate Office on 02.01.2024 between Employer, Engineer and Contractor.

5. Accordingly, SLT is advised to deposit the balance amount of the claim by 17.01.2024 positively, failing which the Employer shall have no option but to encash the BGs."

24. The letter dated 01.12.2023 invoking the bank guarantee reads as under:

"Dear Madam,

1. With reference to their letter dated 27.11.2023, under reference at S No 19, SLT is advised to refer to Engineer's notification dated 19.04.2023, under reference at S No 14, in terms of which, Engineer has already determined the matter under FIDIC Sub-Cl. 3.5, for a total amount of INR 70,75,25,996 (Basic claim amount of INR 44,90,71,756 for HH This is a digitally signed order.

The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 24/01/2024 at 22:28:35 Rails and interest thereon up to 31.12.2022 as INR 25,84,54,240). Meanwhile, the interest has since been updated up to 30.11.2023, and the same is now INR 31,20,07,057. The revised total amount is INR 76,10,78,809. Details are enclosed.

2. In accordance with the intimation sent to SLT vide letter dated 10.10.2023, under reference at S No 18, recovery of an amount of INR 3,82,27,659 has been certified in respect of the above Employer's claim in IPC-120 of October 2023. Meanwhile, Employer has since advised that since substantial amount is still to be recovered, Contractor should deposit the balance amount of the claim (INR 72,28,51,150) within 10 days with the Employer. If the balance amount is not deposited within 10 days, the Employer will encash the available BGs and recover the amount.

3. SLT is requested to take necessary action accordingly to deposit the balance amount of Employer's claim."

25. A perusal of the same shows that there is no averment that the petitioner is in breach of the obligations under the Agreement and hence the invocation of 01.12.2023, 12.01.2024, and 17.01.2024 is not in terms of the Guarantee as there is no written statement accompanying the invocation letter stating that the petitioner is in breach of its obligations under the contract.

26. Issue notice to the respondent on the petitioner taking steps within 1 week from today, returnable on 20.02.2024.

27. For the above said reasons, till the next date of hearing, the respondent are restrained from invoking and/or encashing all or any of the Retention BGs [INR 156,08,61,000 (BG Nos. 0999916BG0001306 and 0999914BG0001603), JPY 3,68,25,91,540 (BG Nos. 099915FG0000299 and 0999917FG0000022), USD 6,71,281 (BG Nos. 0999917FG0000023 and 099915FG0001100) & EURO 84,254 (BG Nos. 0999917FG0000021 This is a digitally signed order.

The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 24/01/2024 at 22:28:35 and 0999915FG0001102] and Performance BGs No. 054BG00027818 [INR 1,52,71,44,326, JPY 70,60,18,179, USD 9,49,484 & EURO 1,17,898] which are valid till 31.03.2024 pursuant to letters dated 01.12.2023, 12.01.2024, and 17.01.2024.

28. Dasti JASMEET SINGH, J JANUARY 18, 2024/DM This is a digitally signed order.

The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 24/01/2024 at 22:28:35

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Delhi High Court - Orders