Rajasthan High Court - Jaipur
Public Works Department vs Nagaur Mukundgarh Highways Pvt Ltd ... on 25 October, 2024
Bench: Pankaj Bhandari, Praveer Bhatnagar
[2024:RJ-JP:45029-DB]
HIGH COURT OF JUDICATURE FOR RAJASTHAN
BENCH AT JAIPUR
D.B. Civil Miscellaneous Appeal No. 1515/2023
Public Works Department, Government Of Rajasthan Jaipur
----Appellant-Applicant
Versus
Nagaur Mukundgarh Highways Pvt Ltd, Having Its Registered
Office At GR House, Hiran Magri, Sector 11 Udaipur, Rajasthan
Through Director.
----Respondent-Non-Applicant
For Appellant(s) : Major R.P Singh Senior, Adv. assisted by Mr. Hemant Kothari, Adv. & MR.
Ashish Poonia, Adv.
For Respondent(s) : Mr. R.N. Mathur, Sr. Adv. assisted by Mr. Pradyuman Dubey, Adv., Mr. D.S. Raghav, Adv., Mr. Shailendra Singh, Adv. & Ms. Jasmin Sokhi, Adv.
HON'BLE MR. JUSTICE PANKAJ BHANDARI HON'BLE MR. JUSTICE PRAVEER BHATNAGAR Judgment Reserved on :: 01/08/2024 Pronounced on :: 25/10/2024 (Per Praveer Bhatnagar, J):-
1. Appellant has preferred this Civil Miscellaneous Appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (for short 'the Act') aggrieved by the Order dated 01.03.2023 passed by learned Commercial Court No.1, Jaipur Metropolitan-II, whereby application filed by the appellant under Section 34 of the Arbitration and Conciliation Act, 1996 was dismissed.
2. Succinctly stated, the facts of the case are that the claimant-respondent is a Special Purpose Vehicle (SPV) (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (2 of 25) [CMA-1515/2023] incorporated by M/s. G.R. Infra Project Limited. Appellant is a Department under the Government of Rajasthan and is mainly entrusted with infrastructure development activities, including construction and maintenance of roads. The dispute between the parties relate to the claims made by the claimant-respondent in the Arbitration proceedings held before the Arbitral Tribunal in relation to the Concession Agreement dated 03.03.2017 entered into between the parties for development and maintenance of certain roads and highways, being Peelibanga- Lakhuwali section of MDR-103, Sardarshahar- Loonkaransar section of SH-6A, Churu- Bhaleri section of SH-69, Sanju- Tarnau section of SH-60, Roopangarh- Naraina section of SH-100 and Nagaur- Tarnau- Deedwana- Mukundgarh section of SH-8,19,60,82-A & 83 (total length: 393.71 kms.) in the State of Rajasthan for two Two- Laning/ Intermediate Laning thereof (Project) on design, build, operate, maintain and transfer (DBOMT) basis.
3. Respondent filed a claim before Arbitral Tribunal claiming the following- (i) Claim for bonus on early completion; (ii) Claim on account of positive change of scope; (iii) Claim for additional cost on account of GST; (iv) Claim for interest due to delay in payment during the construction period;(v) Claim for interest due to delay in annuity and O & M payment;(vi) Claim for interest and other costs. Appellant contested the above claims on merits and had also raised preliminary objections regarding jurisdictional challenge to the constitutionality of the Arbitral Tribunal. Claim was also objected on the ground that the claim was settled in Conciliation and the Tribunal had exceeded its (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (3 of 25) [CMA-1515/2023] jurisdiction. Learned Arbitral Tribunal vide Award dated 22.05.2022 amended vide order dated 27.06.2022 has awarded an amount of Rs.119.5 crores (apart from interest and other costs) and has allowed the claim of the respondent. Thereafter, application filed by the appellant under Section 34 of the Act was dismissed by the Commercial Court vide order dated 01.03.2023, aggrieved by which, the present appeal under Section 37 of the Act has been filed.
4. It is contended by learned Senior Advocate- Major R.P. Singh that the learned Arbitral Tribunal committed grave error in rejecting the preliminary objections of the appellant, on two grounds: (i) that the conciliation proceedings cannot be referred during the arbitration proceedings and (ii) that appointment of Arbitrator by PWD amounts to waiver or acquiescence as to adjudication of disputes through arbitration. It is also contended that the findings are completely perverse as it was the positive case of the appellant- PWD that vide second conciliation meeting, parties had agreed to a solution and minutes of the meeting were duly signed by both the parties. The document was referred in the arbitration proceedings only for the purpose of showing the factum of settlement and not for supporting the case of PWD on merits, hence, Section 81 of the Act was not applicable. It is also contended that rejection on the other ground that the Arbitrator was appointed by PWD, is also improper as Section 16(2) of the Act clearly provides that a plea that the Arbitration Tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence, however, a party shall not be (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (4 of 25) [CMA-1515/2023] precluded from raising such a plea, merely because that he has appointed or participated in the appointment of an Arbitrator. It is argued that preliminary objections to the jurisdiction of the Arbitral Tribunal were raised alongwith statement of the defence itself, as such the preliminary objections were duly raised in compliance of the Section 16(2) of the Act. It is further contended that an alternative argument was also raised that if conciliation has failed, the party should have resorted to capital DRB under Article 38.4 of the Agreement before going into arbitration. It is argued that the findings of the Tribunal is perverse as it disregards the basic statutory scheme embedded in Section 16(2) of the Act.
5. Learned counsel has drawn our attention towards Clause-23.5, 23.6.1, Article-15 of COD, Clause-14.3.2 & Clause- 23.9.1 and has argued that if bonus was to be calculated on 100% of completion cost, provision similar to Clause-23.9.1 which is for annuity and O&M payments would have been made by the parties. It is argued that the bonus is to be calculated on the completed part i.e. 93.45% work after deducting the works under negative change of scope which have admittedly, not been done by the claimant. It is argued that to counter the above argument, reliance has been placed on Clause- 1.1 of the Agreement, which provides that 'the words and expressions beginning with capital letters and defined in this Agreement (including those in Article
42) shall, unless the context otherwise requires, have the meaning ascribed thereto.' It is further argued that the claimant's claim that since the completion cost is a defined capitalized term in Clause 23.6, its meaning cannot be changed. It is also argued (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (5 of 25) [CMA-1515/2023] that even Clause 1.1 recognizes that even for capitalized terms, the meaning may be different if the context otherwise requires. It is stated that Clauses- 14.3.2 and 23.9.1 specifically guide as to how completion cost is to be given effect in case COD is achieved upon issuance of PC. It is contended that if claimant's method of computation of bonus is relied upon, it would render both Clauses- 14.3.2 & 23.9.1 otiose.
6. It is contended that the learned Tribunal has not given any reasons for awarding bonus as claimed by the claimant. It has merely mentioned in the order that 'In our view, claimant's method of computation of Bonus is correct.' It is contended that the said order cannot be said to be in accordance with Section 31(3) of the Arbitration Act as mere recording of arguments of both parties does not amount to giving of reasons as per Section 31(3) of the Arbitration Act. Reliance in this regard is placed on Dyna Technologies Pvt. Ltd. Vs. Crompton Greaves Ltd. (2019) 20 SCC 1 and Delhi Metro Rail Corporation Limited Vs. Delhi Airport Metro Express Pvt. Ltd. (2024) 6 SCC 357, wherein it was held that an award without reasons would suffer from patent illegality. It is contended that the claimant's method of computation is perverse and patently illegal as it completely ignores vital provisions of the agreement.
7. It is argued that as per Clause- 23.5, bonus is payable on achieving COD and calculated as percentage completion cost. It is contended that the Arbitral Tribunal has erred in coming to the conclusion that IRC manual merely specifies the technical methods and manner of designing and construction of pavements and that (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (6 of 25) [CMA-1515/2023] it does not define the scope of the Concession Agreement. It is argued that at one place, the Tribunal is accepting that IRC Manual specifies the manner of designing and in the same line holds that it does not define the scope of the Concession Agreement. It is argued that Clause- 2.1 deals with scope of the project which include: the construction of the project on the site set forth in schedule-A, as specified in Schedule-B; the facilities at the site are to be as per Schedule-C and; everything has to be in conformity with the specifications and standards set forth in Schedule-D. It is argued that Schedule-B is prepared on the basis of preliminary investigations of the Public Works Department as to the requirement of works in various road stretches and further, Schedule-B itself specifies that the work has to be completed in conformity with the specifications and standards in Schedule-D. It is contended that as per the Clauses given under Schedule-D, laning shall be completed by the concessionaire in conformity with the specifications & standards set forth in Annexure-1 of Schedule-D and Highway-I shall be constructed in conformity with the specifications and standards specified in Annexure-1 of b Schedule-D.
8. Schedule-D has provisions incorporating IRC Manual for the purposes of specifications and standards. Schedule-D provides that manual of specifications and standards would apply. Development of Highway-I shall conform to the Manual of specifications and standards for two laning of highways through public private partnership published by IRC and an authenticated copy of the Manual has been provided to the concessionaire as (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (7 of 25) [CMA-1515/2023] part of the bid document. It is contended that the claimant's claim for additional works were part of the very scope of the Agreement and claimant has not denied the fact that such works were required under the IRC Manual. In fact, the claimant has admitted that the purported additional works were in fact undertaken to ensure that the project lasts its design life for 15 years and to comply with the provisions of the Concession Agreement and schedules thereof. It is argued that the Tribunal did not examine the material clauses of the IRC Manual and non-examining of the relevant material amounts to perversity and patent illegality on the fact of it.
9. With regard to the claim for GST, it is contended that Clause-35.3 of the Concession Agreement is the only way to calculate compensation for change in law, which is borne out of the plain reading of Clauses-35.1 & 35.3. Clause-35.1 provides the protection so as to place the concessionaire in the same financial position as it would have enjoyed had there been no such change in law; Clause-35.2 deals with reduction in costs due to change in law for the benefit of PWD and; Clause-35.3- 'Protection of NPV' reads 'Pursuant to the provisions of Clauses-35.1 and 35.2 and for the purposes of placing the concessionaire in the same financial position as it would have enjoyed had there been no change in law, the parties shall rely on the financial model to establish a net present value of the net cash flow and make necessary adjustments in costs, revenues, compensation or other relevant parameters, as the case may be, to procure that the NPV of the net cash flow is the same as it would have been if no change in (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (8 of 25) [CMA-1515/2023] law had occurred.' It is argued that the only mode of calculating the compensation on account of change in law is based on the financial model. It is also argued that the facts that existence of financial model; the claim for GST is not based on financial model and; no reason has been preferred as to why claim is not based on financial model, have not been denied by the claimant It is contended that before GST was introduced, VAT and Service Tax were levied and thus, the claimant cannot justify to claim 90% of the entire GST liability towards change in law.
10. It is contended that the total claim made before the Tribunal was Rs.92 crores without interest. As per the affidavit filed by the claimant's witness, pursuant to cross-examination, it was revealed that the total GST deposited by the claimant was Rs.71.14 crores, out of which, Rs.71.11 crore was paid through input tax credit and only Rs.2.70 Lakhs was paid to the Department in cash. It is argued that the entire GST incurred by GR Infra for the current project shall be less than or equal to ITC claimed by the claimant of Rs.71.11 crores. It is contended that claimant is an SPV incorporated for the purpose of executing the project; a bid was submitted and was won by the holding company of the claimant i.e. GR Infra Projects Ltd.; claimant entered into a contract for Engineering, Procurement and Construction (EPC) with its holding company, GR Infra; Concession Agreement between claimant and PWD was for project cost of Rs.914.65 crores; the EPC Contract between claimant and GR Infra for the construction of the entire project was of (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (9 of 25) [CMA-1515/2023] Rs.747 crores and the actual cost claimed to have been Rs.786 crores.
11. Mr. R.N. Mathur, Sr. Advocate appearing for the respondent has vehemently opposed the appeal. It is contended that the argument of PWD that the arbitration was nullity because the conciliation was going on, is without any basis as the conciliation proceedings did not culminate into success and arbitration proceedings were initiated in accordance with the terms and conditions of the Agreement. It is contended that PWD by its letter dated 24.07.2020 appointed its Arbitrator, thereby consenting to arbitration. It is argued that after commencement of the arbitration proceedings, PWD fixed the second conciliation meeting on 27.07.2020. Thus, fixing or holding the second conciliation meeting cannot turn the clock back and nullify the arbitration which had already commenced on 02.07.2020. It is argued that the Nagore-Mukundgarh Highways Private Ltd. participated in the second conciliation meeting as it wanted to explore all avenues to have its payments released. It is contended that participating in conciliation meeting does not de-bar the respondent from proceeding with the arbitration proceedings and the arbitration proceedings cannot be said to be a nullity.
12. It is contended that the contention of counsel for the appellant that all issues were resolved in the second conciliation meeting is contrary to the record and the evidence of the witnesses of PWD. It is contended that the appellant's witnesses did not depose that the claim of GST was settled. It is contended that in reply to question No.37, the appellant's witness replied that (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (10 of 25) [CMA-1515/2023] in meeting dated 27.07.2020, almost all points were discussed except interest on delayed payment, which goes to show that all the claims of the respondent were not discussed in the second conciliation meeting, much less resolved. It is also argued that no payment whatsoever was made by the appellant to the respondent before filing the statement of claim on 09.10.2022 and part payment of bonus was made after the statement of claim was filed on 16.10.2022. It is also argued that there is a bar under Section 81 of the Act prohibiting reliance upon or production of conciliation proceedings in arbitration. Thus, whatever proceedings took place in conciliation proceedings cannot be referred to by the appellant and cannot be taken note of by the Court.
13. It is contended that contention of counsel for the appellant that the arbitration was pre-mature because DRB mechanism was not followed, is also without any force as there was no DRB in place. It is contended that as per Clause 38.3.1(a) of the CA, DRB should have been constituted before the appointed date i.e. before 04.09.2017. As per Clause 38.3.1(a) of the CA, the terms and conditions of appointment of the DRB members was to be in accordance with Schedule-U to the CA It is argued that CA was unilaterally prepared by PWD and was not negotiated between the parties and, therefore, it was the sole obligation of the appellant- PWD to insert Schedule-U in the C.A and take steps for constitution of DRB. It is further contended that in absence of Schedule-U, no DRB could be appointed. It is also contended that by letter dated 26.02.2020, Nagore Mukundgarh Highway Pvt. Ltd. appointed its DRB member and requested PWD to appoint its (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (11 of 25) [CMA-1515/2023] member so that DRB could be constituted, but the PWD by their letter dated 03.03.2020 refused to appoint its DRB member and informed the respondent that appellant would take up the appointment of DRB after the conciliation process was over. It is contended that in these circumstances, the appellant's argument is malafide and misleading. PWD cannot be allowed to take advantage of its own wrong.
14. With regard to the bonus, it is contended that it is undisputed that the construction work was completed 394 days ahead of the scheduled completion date. There is a provision in the Agreement with regard to bonus. The dispute between the two parties is that as per the computation and quantum of bonus according to the appellant, it should be Rs.119.65 crore, however, as per the respondent it is Rs.130.88 crore. It is contended that Clause- 23.5 specifies and is the only Clause in the C.A. dealing with bonus. As per formula given in this clause, bonus 1/30% of the completion cost x number of days by which COD (Commercial Operation Date) precedes the SCD (Scheduled Completion Date- 03.09.2019). It is contended that the completion cost is defined in Clause 23.6.1 as the project cost adjusted for Price Index Multiple as of COD. Project cost is given in Clause 23.1 as Rs.914,27,00,000/-. It is contended that by applying Price Index Multiple as of 06.08.2018 to project cost of Rs.914,27,00,000/-, the completion cost works out to Rs.996,55,43,000/-. It is contended that both IE and PWD have accepted the said completion cost vide their letters dated 24.09.2018 and on 28.12.2018, respondent and PWD have admitted in its statement (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (12 of 25) [CMA-1515/2023] of defence filed before the Arbitral Tribunal that the completion cost is Rs.996,55,43,000/-. By applying the formula given in Clause 23.5 to the agreed completion cost, the bonus entitlement of the respondent comes to Rs.130.88 crore. It is contended that this has been upheld both by the Arbitral Tribunal and Commercial Court under Section 34 of the Arbitration Act.
15. With regard to the computation made by the appellant- PWD, it is contended that the same is fundamentally incorrect as the appellant has calculated the bonus on project cost of Rs.914,27,00,000/- in place of completion cost of Rs.996,55,43,000/-. It is argued that the only cost relevant for bonus computation is the completion cost of Rs.996,55,43,000/- determined under Clause 23.6.1 because Clause 23.5 uses the expression completion cost in a capitalized manner. This means the said expression as defined in Clause 23.6.1 is relevant. It is argued that Clause 1.1 of the CA clearly provides that 'The words and expressions beginning with capital letters and defined in this Agreement (including those in Article 42) shall, unless the context, otherwise requires, have the meaning ascribed thereto herein. It is argued that the argument of the appellant that since only 93.45% of the work was completed, therefore, bonus should be calculated on 93.45% of the project cost, is incorrect, as Clause 23.5 stipulates that bonus is to be computed on the basis of the completion cost and number of days by which COD precedes the SCD and makes no reference whatsoever to the percentage of completion achieved as of COD. The clause does not say that bonus will be proportionate to the work completed. (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (13 of 25) [CMA-1515/2023]
16. It is contended that PWD has taken recourse to Clause- 14.3.2, 15 and 23.9.1 of the Concession Agreement, which are wholly unrelated to bonus and applied a highly convoluted interpretation to justify its computation. It is contended that these clauses pertains to entitlement of Provisional Certificate to the concessionaire upon completion of 90% of the project and the respondent will become entitled to receive annuity and O&M payments. None of these clauses even remotely deal with the computation of bonus. It is further contended that Clause 1.4.2(a) of the CA states that between two or more clauses of this Agreement, the provisions of a specific Clause relevant to the issue under consideration shall prevail over those in other Clauses. It is argued that only Clause 23.5 is to be relied upon and referred to for the purposes of computation of bonus. It is also contended that there is no illegality in grant of interest on the unpaid amount of bonus as both the CA as well as the Act empowers the Arbitral Tribunal to grant such interest.
17. It is also contended that the appellant's arguments that no change of scope order as contemplated in Clause-16.2.3 was not issued, hence, the claim on account of change of scope is not maintainable, cannot be accepted. In this regard, it is contended that all works under change of scope were performed by the respondent to make the project safer and more reliable for the users and in the interest of completing the project within time. It is also contended that all works performed under change of scope were duly notified to PWD before their execution and all such works were executed under the supervision and guidance of the (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (14 of 25) [CMA-1515/2023] Inspecting Engineer on the basis of designs and drawings approved by the Inspecting Engineer. It is contended that PWD was always aware of the positive change of scope works being executed by the respondent and it allowed respondent to execute them. PWD cannot take advantage of non-issuance of change of scope order.
18. With regard to contention of counsel for the appellant that all the additional work performed were part of the design obligations of respondent, it is contended by Mr. R.N. Mathur, Sr. Advocate that no relevant material was produced before the Arbitral Tribunal to establish that the additional works were part of design obligations of the respondent. It is contended that the respondent entailed reconstruction of certain stretches where the CA did not stipulate reconstruction and construction of additional lengths of rigid and flexible pavements over and above that were specified in the CA, such works were not covered under design obligations. With regard to contention of counsel for the appellant that Arbitral Tribunal had erroneously held that Recital A of CA is of no avail, it is contended that Recital A does not define the scope of the project, but merely describes the nature of the project, i.e., it is on Design, Built, Operate and Transfer basis. The scope of work is defined under Clause 2 of CA read with Schedules- A, B & C thereof.
19. With regard to GST impact on EPC cost, it is contended by Mr. R.N. Mathur, Sr. Advocate that the respondent's claim was for Rs.64.93 crores. Appellant has admitted that the claim is covered under Article 35, but disputes the quantum payable. The (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (15 of 25) [CMA-1515/2023] Inspecting Engineer recommended the claim of the respondent. Appellant also constituted an expert committee to examine the claim and the committee also recommended payment of Rs.57 crores to the respondent. It is contended that the main ground raised by the appellant is that the respondent did not provide all documents sought by the appellant for examination of this claim. In this regard, it is stated that the only documents that respondent could not provide were invoices for the materials procured for the project. This was so because the respondent's EPC contractor was executing several projects in Rajasthan at that time and used to procure material in bulk for all projects. Respondent had calculated the GST impact on EPC cost by adopting the Composition Tax Method under the Rajasthan Value Added Tax Act, where the submission of actual invoices is not required. This method according to Mr. R.N. Mathur, Sr. Advocate was not challenged or questioned by the appellant before the Arbitral Tribunal. It is further argued that the respondent computed the GST impact on the basis of the materials actually consumed in the project, which is a much more reliable way of computation. Moreover, the respondent had computed the costs of all material components of the project on the basis of the Schedule of Rates (SOR) applicable in the State of Rajasthan, as on the dates of such purchases. Such material consumption has been certified by the Inspecting Engineer. It is further contended that the calculation pertaining to the impact of GST on the EPC cost of the project was also certified by the statutory auditor of the EPC contractor of the respondent.
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20. It is next contended by Mr. R.N. Mathur, Sr. Advocate that the argument of appellant that method of NVP protection in Clause 35.3 is the only method of compensation provided in the CA was raised for the first time in its sur-rejoinder arguments and even then the Arbitral Tribunal has considered it. It is argued that the method of NPV protection is relevant only during the construction period as it aims to protect the cash flow of the contractor. In the present case, Clause 35.3 is inapplicable because when the claim was made, the construction was over and there was no question of protecting the cash flow. It is contended that the entire GST liability stands discharged by the respondent and/ or its EPC contractor, therefore, the only recourse is monetary compensation. It is contended that the submissions or non-submission of invoices is a matter of evidence and the arbitrator is the master of quantity and quality of evidence and Court cannot re-appreciate the evidence under Section 37 of the Arbitration Act. It is further contended that the argument of the appellant is misleading because it has recognized that the respondent is entitled to monetary compensation by paying Rs.16 crores towards this claim in cash and constituting the Committee to examine the claim. It is contended that the appellant's objections that the Arbitral Tribunal could not have relied upon Committees report and the same is violative of Sections 75 & 81 of the ACT is unfounded for the reason that the Expert Committee was constituted by the PWD itself under the Act and Arbitral Tribunal is competent to seeks reports from expert on technical issues. It is further argued that the GST impact on difference (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (17 of 25) [CMA-1515/2023] between Project Cost and the EPC Cost is payable and i.e. to the tune of Rs.8.63 crores. It is argued that the liability has been discharged by the respondent through Input Tax Credits. The issue is pending consideration before the Rajasthan High Court. It is contended that if it is held that 100% Input Tax Credits was available, then no compensation has been sought from the appellant. It is also contended that in the execution also, respondent has not claimed his amount and Arbitral Tribunal has awarded the claim in terms of Inspecting Engineer recommendations vide letter dated 28.01.2019.
21. We have considered the contentions.
22. The first issue for consideration before this Court is whether the arbitral tribunal wrongly entertained the claim as the claimant has resorted to the conciliation process.
23. Article 38 of the Concession Agreement deals with three probable mechanisms for refereeing disputes between the respondent and the claimant.
24. Indubitably, before invoking Arbitration Jurisdiction, the claimant took up the first mode, the conciliation procedure. The procedure did not attain the finality, so the claimant invoked the arbitration process. That factual aspect is verified from the statement of the Appellants' witness, Ms Sangeeta Sharma, who, in answer to question number 38, admits that the resolution was reached almost on all points but did not adhere to it as arbitration was invoked. Further, the record demonstrates that the first conciliation meeting was held on 11.3.2029. The appellant was served notice for invoking arbitration on 2.7.2020, and the second (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (18 of 25) [CMA-1515/2023] conciliation meeting was scheduled for 27.7.2020, i.e., after issuing the notice to arbitration. The evidence of RW-1 substantiates that no written terms of the settlement were ever arrived at between the parties. The appellant also did not object to the notice of arbitration on the grounds of the continuation of conciliation proceedings and appointed its nominee arbitrator, which amounts to acquiescence.
25. Further, Section 77 of the Act is relevant and reads as follows:-
"77. Resort to arbitral or judicial proceedings:- The parties shall not initiate, during the conciliation proceedings, any arbitral or judicial proceedings in respect of a dispute that is the subject-matter of the conciliation proceedings except that a party may initiate arbitral or judicial proceedings where, in his opinion, such proceedings are necessary for preserving his rights."
26. The phraseology of Section 77 of the Act itself is enough to demonstrate that the provision is discretionary and not mandatory. It provides an option for either party to invoke arbitration if the party believes it is imperative to preserve its rights. Therefore, in the light of the above provision, we believe the claimant was not precluded from invoking Arbitration proceedings.
27. The Delhi High Court in the matter of M/s Oasis Projects Ltd versus Managing Director, National Highway and Infrastructure Development Corporation Ltd (NHIDCL) (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (19 of 25) [CMA-1515/2023] 2023 LiveLaw (Del) 143 has also held that the agreement between the parties to explore conciliation before resorting to arbitration is not mandatory.
28. The Court pointed out that, as per Section 77 of the Arbitration and Conciliation Act, 1996 (A&C Act), arbitral proceedings can be initiated even when conciliation proceedings are pending in cases of urgency to preserve the party's rights.
29. Regarding resolving disputes through DRB, Clause 38.1(a) of the concession agreement stipulates that the DRB be constituted by the appointed date, i.e., 04.9.2017. On such a date, the DRB was not in existence. Moreover, even upon the claimant's request, the respondent refused to do so vide a letter dated 03.03.03.2022.
30. The appellant's contentions are unsustainable. We don't find that the arbitral tribunal was not empowered to entertain the dispute.
31. The second issue pertains to the computation of the bonus awarded to the respondent. It is not denied the claimant is not entitled to the Bonus on early completion of work. It is undisputed that Clause 23.5 of the concession Agreement pertains to Bonus on early completion and enumerates that:-
"23.5 Bonus on early completion In the event that the Concessionaire shall achieve COD more than 30 (thirty) days prior to the Scheduled Completion Date, the Authority shall pay to the Concessionaire a bonus equal to 1/30% (one by thirty per cent) of the Completion Cost for every day by which COD shall precede the Scheduled Completion date."(Downloaded on 09/11/2024 at 12:41:40 AM)
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32. It is also not in dispute that the claimant completed the work 394 days before the scheduled competition date. It is also admitted that during the pendency of the proceedings on 16.10.2020, the appellant had paid INR 1196500000/ towards the Bonus.
33. It is contended that the bonus should have been calculated for the completed part, i.e., for 93.45% of the work. In contrast, the Arbitral tribunal computed the Bonus on 100 % of the completion cost. Such computation contradicts Clauses 23.5, 23.6.1, 14.3.2, and 23.9.1 of the concession agreement and Article 15 of the COD. Further, the tribunal's finding is perverse as it has not assigned any cogent reasons.
34. At the outset, it is enough to state that the scope of interfering in the Award is minimal and that the court cannot act as an appellate authority to unsettle the award.
35. The constraints placed on the exercise of the power of a Court under Section 37 of the Act have been explored and enumerated in the case of Associate Builders v. Delhi Development Authority, (2015) 3 Supreme Court Cases 49, which are as follows:
"a) The Court, under Section 34(2) of the Act, does not act as a Court of Appeal while applying the ground of "public policy" to an arbitral award, and consequently, errors of fact cannot be corrected.(Downloaded on 09/11/2024 at 12:41:40 AM)
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b) A possible view by the arbitrator on facts has necessarily to pass muster as the Arbitrator is the sole judge of the quantity and quality of the evidence.
c) Insufficiency of evidence cannot be a grounds for interference by the Court. Re-examination of the facts to find out whether a different decision can be arrived at is impermissible under section 34(2) of the Act.
d) An award can be set aside only if it shocks the conscience of the Court.
e) Illegality must go to the root of the matter and cannot be of a trivial nature for interference by a Court. A reasonable construction of the terms of the contract by the arbitrator cannot be interfered with by the Court. Error of construction is within the jurisdiction of the Arbitrator. Hence, no interference is warranted.
f) If there are two possible interpretations of the terms of the contract, the arbitrator's interpretation has to be accepted, and the Court, under Section 34, cannot substitute its opinion over the Arbitrator's view."
36. In the case at hand, the arbitral tribunal, after construing Clause 23.6.1, which provides for the definition of completion cost, computed the amount under the heading "Bonus on early completion" and also awarded interest @ above the 4% (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (22 of 25) [CMA-1515/2023] of the Bank rate as per the Clause 41.4.1 due to delayed payment as per the Bank rates clearly outlined in the Clause 41.4.2 of the said agreement.
37. Whether the methodology applied by the claimant is correct or that of the respondent is a question arising from the interpretation of the Clauses enshrined under the concession agreement.
38. Whether clause 23.6.1 applies to computing the Bonus or the Bonus required to be calculated based on clause 23.1 on project cost is a question of interpretation of two Clauses, and the arbitral tribunal, after interpreting Clause 23.6.1, awarded the Bonus amount in favour of the claimant. Thus, we are of the view that if two views are plausible as per the interpretation of the Clauses enshrined under the concession agreement and the tribunal has interpreted in favour of the claimant, then on that ground, it is not permissible for this court to enter into the intricacies of the interpretation of Clauses enumerated in the agreement. It shall indeed amount to overreaching the tribunal's jurisdiction as an appellate authority. A reasonable construction of the terms of the contract cannot be interfered with unless it appears that the interpretation is patently unreasonable and against the express provision of the agreement. The third contention concerns the award granted to the claimant under the heading of Change of Scope. It is vociferously argued that the claimant did not give Notice under the Change of Scope, and the appellant issued no such order under Clause 16.2.1 of the concession agreement. The IRC Manual was not adhered to. (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (23 of 25) [CMA-1515/2023] Factually, it is not denied that the claimant did not execute the additional works. It is also admitted that the appellant did not inform the Claimant about its decision not to accept the extra work approvals given by the IE for such additional work and let the Claimant continue executing them. After reviewing the factual aspects coupled with the condition prescribed in Clause 16 of the concession agreement, the arbitral tribunal concluded that the appellant's deduction of the amount was incorrect and amounts to waiving the procedural requirement as prescribed under Clause
16.
39. The tribunal also elaborated on the above aspect on pages 47 to 52. Further, it concluded that the IRC Manual merely specifies the technical methods and manner of designing and does not define the scope of the concession agreement. The IRC Manual provides specifications for different kinds of roads and structures, and several of its provisions may not be relevant to a particular project. The tribunal's above finding also does not suffer from any patent illegality, as the document's crux is the project-specific concession agreement, which governs the entire project's conditions.
40. The next contention of the appellant was that all the additional works Claimed by the Claimant were, in fact, part of its design obligations under the Concession Agreement. The appellant never questioned the execution of further works but disputed their nature. After dealing with these factual aspects, the arbitral tribunal also concluded that the appellant had failed to satisfy how the additional works, which comprised the (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (24 of 25) [CMA-1515/2023] construction of additional Rigid or Flexible pavements, over and above was specified in the Concession Agreement. The works consisting of the reconstruction of stretches where only repair or strengthening works were specified in the Concession Agreement were part of the design obligations of the Claimant. The appellant's reliance on Recital A of the Concession Agreement was of no avail because the Recital merely describes the Project as one on a DBOT basis.
41. We do not find that the tribunal erred in arriving at the finding and went beyond the terms of the agreement. Therefore, this court cannot unsettle the award on these aspects.
42. The fourth contention questions the award of the GST claim to the claimant. It is fervently argued that the tribunal did not consider Clause 35.3 while awarding the GST amount to the claimant. The award further lacks cogent reasoning. The Arbitral Tribunal dealt with paras 44-72, i.e., under claim no. 3 (1). It is specifically mentioned that the GST came during the subsistence of the concession agreement and, more specifically, in para no. 51-61, it is specifically mentioned that the claimant had, to overcome the difficulty of providing the actual invoices, completed its GST claim on EPC costs by adopting the scheme of composition tax method under the Rajasthan Value added Tax Act where submission of actual invoices is not required for verification. On the factual aspect, the tribunal also recorded that the IE, in its letter number C 281 dated 28.1.2019 and the concerned committee, by its recommendation dated 22.5.2020, validated and approved the methodology adopted by the claimant. It is also (Downloaded on 09/11/2024 at 12:41:40 AM) [2024:RJ-JP:45029-DB] (25 of 25) [CMA-1515/2023] recorded that the claimant submitted all the documents about the computation of GST before the appellant, and this factual aspect remained unrefuted before the tribunal.
43. The record shows that the appellant did not raise the issue regarding the applicability of Clause 35.3 of the concession agreement during Arbitration proceedings and raised it only in this appeal.
44. We do not find any reason to interfere with the impugned order 01.03.2023.
45. The appeal is bereft of merit and hence dismissed. (Per Pankaj Bhandari, J):-
46. While agreeing with the deliberations and conclusion arrived at by the Brother Judge, I would just like to add that in the terms of the contract for early completion of project, bonus was provided for. The project was to be completed within two years, however, the same was completed in less than 11 months. The chances that the period was purposely kept more than the requisite time required for completion of the project is to be looked into by the State authorities as there is possibility of providing unlawful gain to the contractor.
(PRAVEER BHATNAGAR),J (PANKAJ BHANDARI),J
Ramesh Vaishnav/Chandan Mishra
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