M/S National Highways Authority Of ... vs M/S Hindustan Construction Co Ltd on 12 January, 2022

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Delhi High Court

M/S National Highways Authority Of ... vs M/S Hindustan Construction Co Ltd on 12 January, 2022

1. The National Highways Authority of India (hereinafter 'NHAI') has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter 'the A&C Act') impugning an Arbitral Award dated 05.06.2013 (hereinafter 'the impugned award') Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 1 of 29 By:DUSHYANT RAWAL passed by the Arbitral Tribunal comprising of three members, Shri P. Sridharan, Sh. Pawan Kumar, and Shri D. Sree Ramamurthy as the Presiding Arbitrator (hereinafter 'the Arbitral Tribunal'). The impugned award was delivered by Shri P. Sridharan and Shri D. Sree Ramamurthy. Sh. Pawan Kumar entered a separate dissenting opinion.

2. The impugned award was rendered in the context of disputes that had arisen between the parties in relation with an agreement dated 26.02.2005 (hereinafter 'the Agreement'). By the impugned award, the Arbitral Tribunal awarded a sum of ₹4,69,42,964/- towards the balance outstanding amount for the work of 40 mm thick Bituminous concrete (Dispute no. 4), ₹134,75,04,491/- towards the additional costs incurred in the extended period from 15.11.2007 till 23.11.2010 and, ₹11,08,93,494 towards the additional costs incurred in the extended period from 24.11.2020 till 02.05.2011 (Dispute no. 5). The Arbitral Tribunal further awarded simple interest at the rate of 10% per annum for the pre-award period and future interest at the rate of 15% per annum from the date of the award till its realization, in case the awarded amount was not paid by NHAI within a period of ninety days.

3. This Court had examined the petitioner's challenge to the impugned award in respect of Dispute No. 4 and by an order dated 13.09.2013, rejected the same. Thus, the principal controversy that remains to be addressed relates to the award for additional costs incurred during the extended period of the contract on account of the delays (referred as Dispute no. 5).

Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 2 of 29 By:DUSHYANT RAWAL

Factual Context

4. NHAI invited tenders for the works regarding "Construction of Chennai Bypass Phase - II Connecting NH-4 & NH-5 and Widening of Chennai Bypass Phase -I connecting NH-45 & NH-4 in Tamil Nadu"

(hereinafter 'the Project'), on the terms and conditions stipulated in the Instructions to Bidders (ITB).

5. Pursuant to the aforesaid invitation to tender, the respondent (hereinafter 'HCC') submitted its bid for executing the Project on 15.12.2004. HCC's bid was accepted by NHAI and a contract for implementation of the Project for an amount of ₹404,97,93,145/- was awarded to HCC by a Letter of Acceptance dated 25.01.2005 (hereinafter the 'LOA')

6. In terms of the LOA, NHAI called upon HCC to furnish a Performance Security in the form of an unconditional Bank Guarantee of an amount equivalent to 10% of the contract price, in accordance with Sub-clause 35 of Section I of the ITB and Sub-clause 10 of Section III, Volume I of the Tender Documents, within a period of twenty-eight days after receipt of the LOA.

7. Thereafter, on 26.02.2005, the parties entered into the Agreement for execution of the said Project. In terms of the Agreement, HCC was required to complete the Project within a period of thirty months from the date of commencement of the works. Further, in terms of Clause 47.1 of the General Conditions of Contract (hereinafter 'GCC'), HCC was liable to pay liquidated damages to NHAI in the event of failure to Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 3 of 29 By:DUSHYANT RAWAL achieve substantial completion within the stipulated period. It was stipulated that the works would be completed on or before 14.11.2007.

8. On 15.05.2005, the Engineer issued a notice to HCC to commence the work. The Project would be completed within the said period of thirty months thereafter.

9. HCC claims that due to certain impediments like delay caused in execution of road works, structures, Adayar Bridge, Porur Bridge, Grade Separator- 1, Cooum Bridge, elevated corridor, rail over bridge, Grade Separator- 2, underpasses and bandhs, it was unable to execute the work within the stipulated timeline. Accordingly, by various communications, it submitted applications in terms of Clause 44.1 of the GCC and sought extension of time (hereinafter 'EOT') for completion of the Project. HCC had also stated in the applications that as in terms of the Agreement, it would be entitled to all the additional costs associated with and arising out of the delays and the same would be submitted separately for the determination and certification of the Engineer.

10. The Engineer had determined that the EOT for a period of forty- two months was justified and recommended the same. NHAI approved the same and the date for completion of the Project was extended from 14.11.2007 till 15.05.2011. The work was completed on 02.05.2011 and the Taking Over Certificate was issued by the Engineer on the same date.

Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 4 of 29 By:DUSHYANT RAWAL

11. Against the aforesaid delay and extended period of stay on the Project site, HCC claimed that it had incurred huge additional costs on account of manpower, equipment, machineries and other resources being deployed at the site and therefore, it quantified the claims under the below mentioned categories and submitted the same to the Engineer:-

(i) Additional overhead expenses in the extended periods which were not provided for in the contract price

(ii) Additional expenses owing to underutilization and extended stay of plant and Equipment at site.

(iii)Finance charges (Interest) on account of the delayed recovery of the component of overhead and profits.

(iv) Loss of earning capacity and profits on account of the extended period of the Contract.

(v) Additional expenditure on labour/supply deployed in extended period.

(vi) Additional expenditure on account of uncovered component of escalation for steel.

(vii) Additional expenditure on account of uncovered component of escalation for cement.

(viii)Additional expenditure on account of uncovered component of escalation for bitumen.

(ix) Additional expenditure on account of uncovered component of escalation for HSD.

12. The Engineer determined the additional costs and recommended the same to NHAI for approval. However, HCC was dissatisfied with the said assessment and, in terms of Clause 67.1 of Conditions of Particular Application (hereinafter 'COPA'), it issued a Notice of Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 5 of 29 By:DUSHYANT RAWAL Dispute to NHAI. Thereafter, HCC approached the Dispute Resolution Board (hereinafter 'the DRB'). The DRB could not issue its recommendation within the stipulated time as contained in the Agreement. And, HCC invoked the arbitration agreement.

13. The claims made by HCC in the Statement of Claims are tabulated below:

                               CLAIM              PARTICULARS                 AMOUNT

                               Claim No.1/        As the new rate for the new ₹48,547,672.49/-
                               Dispute No.        item of 40mm thick BC.
                               4
                               Claim No.2/        Additional costs incurred in ₹205,95,91,225.59/-
                               Dispute No.        the extended period of
                               5                  contract from 15.11.2007 to
                                                  02.05.2011 on account of
                                                  delays not attributable to the
                                                  respondent and payment of
                                                  interest at the rate of 18%
                                                  from the date of cause of
                                                  action.

14. NHAI filed its Statement of Defence, however, it did not raise any counter-claims.

15. By the impugned award rendered on 05.06.2013, the Arbitral Tribunal partly allowed HCC's claim in respect of Dispute No.4 and awarded a sum of ₹4,69,42,964/- in respect of Claim No. 1/Dispute no.

4. This Court dismissed the challenge to the award against Dispute No.4 by the order dated 13.09.2013.

Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 6 of 29 By:DUSHYANT RAWAL

16. Further, the Arbitral Tribunal allowed the claim of HCC in respect of Dispute No. 5. The Arbitral Tribunal found that HCC was not responsible for the delay and the extension of the contract period from 15.11.2007 to 15.05.2011 was on account of delays/default by NHAI. The Arbitral Tribunal awarded a sum of ₹134,75,04,491/- towards additional costs incurred in the extended period from 15.11.2007 till 23.11.2010 and ₹11,08,93,494/- towards additional costs incurred in the extended period from 24.11.2010 till 02.05.2011 (Dispute no. 5). The Arbitral Tribunal also directed NHAI to pay simple interest at the rate of 10% per annum for the period prior to the award and future interest at the rate of 15% per annum from the date of the award till its realization, in case the awarded amount was not paid by NHAI within a period of ninety days.

17. One of the learned Arbitrators, Sh. Pawan Kumar, did not concur with the impugned award in entirety. A tabular statement summarizing the amounts payable to HCC in his opinion, is reproduced below:-

SI Subheads for Claim of Additional Amount awarded in no. Cost in extended period crore 1 Additional Overhead Costs in ₹32.54 extended period 2 Additional cost due to extended stay ₹13.84 of Plant & Equipment 3 Additional Expenses by way of ₹9.454 Financing Charges 4 Additional costs towards loss of ₹19.223 earning capacity and profits Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 7 of 29 By:DUSHYANT RAWAL 5 Additional Labour cost incurred in the ₹3.159 extended period 6 Additional cost incurred in the Claim is rejected extended period on account of uncovered compensation of Steel costs.

7 Additional cost incurred in the Claim is rejected extended period on account of uncovered compensation of Cement costs.

8 Additional cost incurred in the Claim is rejected extended period on account of uncovered compensation of Bitumen costs 9 Additional cost incurred in the Claim is rejected extended period on account of uncovered compensation of POL costs.

TOTAL ₹78.216

18. Aggrieved by the impugned award, NHAI filed the present petition.

Submissions

19. Mr. Awasthi, learned counsel appearing for NHAI assailed the impugned award, essentially, on three grounds. He referred to Clause 44.1 of the GCC and submitted that mere grant of EOT would not automatically entitle the contractor (HCC) to claim additional costs and, HCC was liable to prove that the delay in execution of works was attributable to NHAI and it had suffered losses on this account. He Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 8 of 29 By:DUSHYANT RAWAL submitted that the decision of the Arbitral Tribunal to allow HCC's claim on the ground that grant of EOT amounts to admission of delay on the part of NHAI, is erroneous and deserves to be set aside.

20. He referred to the decision of this Court in the case of M/s Kailash Nath and Associates v. New Delhi Municipal Corporation:

2002 (3) Arb LR 631, in support of his contention that mere grant of EOT would not amount to an admission that the delays were attributable to NHAI and further, non-imposition of the liquidated damages at the material time of granting EOT, does not in any manner mean that NHAI had admitted that the delay was for reasons attributable to it.

21. Second, he submitted that the delays in execution of the Project were not attributable to NHAI. He referred to Clause 42 of the GCC and submitted that NHAI had handed over the possession of the Project site in accordance with the schedule as contained in the said clause. He submitted that Clause 42 of the GCC only casted an obligation on NHAI to hand over possession of the site and the duty to remove obstructions and hindrances was that of HCC. Thus, HCC was not entitled to any compensation for delay in handing over of the site. He also contended that HCC had failed to prove that there had been any delay in road works and thus, it was not entitled to any compensation for delay caused due to insufficient road works.

22. He further contended that HCC was not liable for any compensation on account of delay in issuance of GFC drawings as the same had been issued in a timely manner. He referred to Clauses 51.1.

Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 9 of 29 By:DUSHYANT RAWAL

and 51.2 of the GCC and submitted that the Engineer was empowered to make additions/alterations and omissions in the work and, the same would be valued as per Clause 51.2 of the GCC. Thus, HCC was liable to be compensated as per the said clause. Further, the allegation of delays in structure viz Box Pushing Under Pass, Adayar Bridge, Porur Bridge etc. are false and contrary to the records and thus, HCC is not liable to be compensated for the same. He also submitted that there was no clause in the Agreement that stipulated for any additional costs in case of stoppage of works due to a strike (bandh) and thus, the claims of HCC on account of additional costs incurred due to delay in execution of the Project, are not sustainable.

23. Lastly, he submitted that in terms of Section 73 of the Indian Contract Act, 1872, HCC had to prove that there had been a breach of the contractual provisions and, such a breach resulted in it incurring a loss. He submitted that none of the aforesaid conditions were met by HCC as NHAI was not responsible for the delay in execution of the Project, which had resulted in the alleged loss and further, HCC failed to provide any evidence or supporting documents to substantiate its claims. He further contended that the Arbitral Tribunal had erred in relying upon the certificates issued by the Chartered Accountant as the same held no evidentiary value.

24. Mr Agarwala, learned counsel appearing for HCC, countered the aforesaid submissions. He submitted that the contention of NHAI that the Arbitral Tribunal had proceeded exclusively on the basis that there Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 10 of 29 By:DUSHYANT RAWAL had been a grant of EOT without imposition of Liquidated Damages, is erroneous.

25. Next, he submitted that in terms of Clause 110 of the Technical Specifications and Clause 1.3.3 of ITB, NHAI was obliged to provide encumbrance free land and HCC was only responsible for coordination and hence, there was no breach by HCC. He referred to the decisions of this Court in M/s National Highways Authority of India v. CEC-HCC Joint Venture: FAO(OS)(COMM) 130 of 2017, decided on 04.07.2017 and National Highways Authority of India v. Patel - KNR (JV): OMP (COMM) 201/2018, decided on 14.05.2018, which was upheld by the Division Bench of this Court in National Highways Authority of India v. Patel KNR (JV): FAO (OS) (COMM) 184/2018, decided on 24.12.2019. He also referred to the decision of the Supreme Court in HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (India) Ltd.: (2018) 12 SCC 471, in support of his contention that the interpretation of the terms of the contract lie within the domain of the Arbitral Tribunal.

26. Next, he referred to the decision of the Supreme Court in McDermott International Inc. v. Burn Standard Co. Ltd & Ors.:

(2006) 11 SCC 181, in support of his contention that the Arbitral Tribunal had awarded additional costs on the basis of evidence and applicable guidelines/formulae based on trade usages, which could not be read to be in contravention with Sections 23 or 34 of the A&C Act.

Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 11 of 29 By:DUSHYANT RAWAL

27. Next, he submitted that the quantification of the compensation was based on documents submitted before the Engineer and NHAI, and the same cannot be discarded under Section 34 of the A&C Act as they were admitted by the parties and the parties had dispensed with their rights to file affidavits or examine any witness. He referred to the decisions in the case of Canara Nidhi Ltd. v. M. Shashikala & Ors.:

(2019) 9 SCC 462 and Thyssen Krupp Werkstoffe GMBH v. Steel Authority of India Ltd.: FAO (OS) No. 258/2010, decided on 07.04.2011. He further referred to the decision of Madhya Pradesh Power Generation Co. Ltd. & Anr. v. Ansaldo Energia SPA & Anr.:

(2018) 16 SCC 661, in support of his contention that the appreciation of quantity and quality of evidence lies within the domain of the Arbitral Tribunal.

28. Lastly, he submitted that the issues arising in the present case have been squarely covered by the decisions of this Court in M/s National Highways Authority of India v CEC-HCC Joint Venture:

(supra); NHAI v. M/s Hindustan Construction Co. Ltd.: FAO (OS) 116/2017, decided on 11.09.2017; and National Highways Authority of India v. M/s Hindustan Construction Co. Ltd.: FAO (OS) 402/2014, decided on 24.02.2016.

Reasons and Conclusion

29. The first and foremost question to be addressed is whether the finding of the Arbitral Tribunal that the extension of the contract period from 15.11.2007 to 15.05.2011 was on account of delays/defaults of Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 12 of 29 By:DUSHYANT RAWAL NHAI/Engineer, is perverse and erroneous and vitiates the impugned award on the ground of patent illegality.

30. It was earnestly contended by Mr Awasthi that the finding of the Arbitral Tribunal is based solely on the ground that NHAI had granted EOT on the recommendations made by the Engineer. He had further contended that grant of EOT does not imply that the delay for which the extension was granted was on account of NHAI and therefore, the reasoning of the Arbitral Tribunal is fundamentally flawed.

31. Undisputedly, HCC had applied such extensions stating the reasons for the delay. The said reasons were examined by the Engineer before recommending the same to NHAI. NHAI had accepted the same and had granted the EOT. The Arbitral Tribunal found that NHAI could not dispute the reasons for which EOT was granted. Plainly, the said conclusion cannot be faulted.

32. The Arbitral Tribunal had also examined Clause 44 of the GCC, which reads as under:

"44.1 In the event of:

(a) The amount or nature of extra or additional work, or

(b) Any cause of delay referred to in these Conditions, or

(c) Exceptionally adverse climatic conditions, or

(d) Any delay, impediment or prevention by the Employer, or Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 13 of 29 By:DUSHYANT RAWAL

(e) Other special circumstances which may occur, other than through a default of a breach of contract by the Contractor or for which he is responsible, being such as fairly to entitle the Contractor to an extension of the Time for Completion of the Works, or any Section or part thereof, the Engineer shall, after due consultation with the Employer and the Contractor, determine the amount of such extension and shall notify the Contractor accordingly, with a copy of the Employer."

33. The Arbitral Tribunal had reasoned that Sub-clause (e) of Clause 44 indicates that the extension of time would be available to a contractor for the delay caused due to reasons for which he was not responsible. It, thus, followed that NHAI had granted EOT after accepting that HCC was not responsible for the delay and the EOT was justified.

34. The Arbitral Tribunal also noted that in terms of Clause 6.4 of the GCC, EOT would be available on account of failure or inability of the Engineer to issue drawings or any instructions within the reasonable time. Similarly, under Clause 12.2 of the GCC, EOT was contemplated if the contractor had encountered any physical obstruction or physical conditions, which are not foreseeable by any experienced contractor. Clause 42.2 of the GCC also contemplated EOT for failure on the part of the employer to give possession in accordance with Clause 42.1 of the GCC.

35. The Tribunal noted that the EOT in terms of Clauses 6.4, 12.2 and 42.2 of the GCC would also entitle the contractor for an additional cost that may be incurred by it. These conditions were also covered Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 14 of 29 By:DUSHYANT RAWAL under the rubric of Clause 44 of the GCC. In view of the above, the Arbitral Tribunal held that any extension of time under Clause 44.1 of GCC for reasons as stated in Clauses 6.4, 12.2 and 42.2 of the GCC or for any reasons attributable to NHAI or the Engineer, would entitle HCC to EOT as well as additional cost that it may be compelled to incur. This Court is unable to find any fault in the aforesaid reasoning.

36. It is not NHAI's case that it is not liable to compensate HCC for any additional cost that it may incur on account of reasons as stipulated in Clauses 6.4, 12.2 and 42.2 of GCC or for reasons attributable to NHAI.

37. The Arbitral Tribunal had concluded that EOT without levy of liquidated damages was thus granted to HCC for reasons that were not attributable to it. Having so concluded, the Arbitral Tribunal proceeded to examine the reasons stated by HCC in its applications for EOT, which were recommended by the Engineer and accepted by NHAI. It noted that HCC had generally sought extension on account of delay resulting from the following events:

"1. Delays in Road works.

2. Delays in Structures.

3. Delays in Adayar Bridge.

4. Delays in Porur Bridge

5. Delays in Grade Separator-I

6. Delays in Cooum Bridge.

7. Delays in Elevated Corridor.

8. Delays in Rail Over Bridge (ROB).

9. Delays in Grade Separator-II.

10. Delays in Underpasses.

Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 15 of 29 By:DUSHYANT RAWAL

11. Delays due to Bundhs, etc"

38. The Engineer had examined the aforesaid reasons and had assessed HCC's entitlement for EOT against each application made by it. According to the Engineer, HCC was entitled to EOT of 1278 days (41.9 months) for reasons that fell under Clause 44 of the GCC. It is material to note that HCC had sought extension of time for 52.82 months. However, the extension as claimed was not allowed in entirety.

39. The Arbitral Tribunal concluded that NHAI was unable to establish from the record that any of the delays that had occurred from 15.11.2007 to 15.05.2011 were caused for reasons attributable to HCC.

40. The delays on account of which the Engineer had recommended the EOT were set out by the Arbitral Tribunal in a table appended as Appendix 3 to the impugned award. A plain examination of Appendix 3 indicates that the reasons for the delay stated therein could not be attributed to HCC.

41. The Arbitral Tribunal had examined the reasons as stated in Appendix 3 to the impugned award and concluded that the delays were attributable to NHAI/Engineer and, the same entitled HCC to claim compensation for the additional cost incurred by it.

42. In view of the above, the contention that the Arbitral Tribunal had simply accepted HCC's claim for cost/loss incurred during the additional period, merely because NHAI had granted EOT without levy of liquidated damages, is erroneous. The Arbitral Tribunal had Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 16 of 29 By:DUSHYANT RAWAL examined the reasons for which the EOT was granted. The fact that the Engineer had recommended EOT under Clause 44 of the GCC and NHAI had approved the same did imply that none of the reasons were attributable to HCC. However, the Arbitral Tribunal's conclusion that the delays were attributable to NHAI/Engineer is not premised solely on the basis that the EOT was granted, but also on examination of various reasons on account of which such extensions were granted.

43. In addition to the above, the Arbitral Tribunal also noted that HCC had granted price adjustments under Clause 70.5 of the COPA and that also reinforced the reason that EOT was not on account of delay attributable to HCC.

44. The Arbitral Tribunal had also examined the progress reports relied upon by NHAI and found that the said report did not indicate that there was any fault or any shortfall in the progress of works on account of any reason attributable to HCC.

45. The second question to be examined is whether the decision of the Arbitral Tribunal that NHAI was liable for certain delays is patently erroneous.

46. One of the principal reasons for the delay in completion of the Project was the delay in handing over the encumbrance free land. Mr Awasthi had contended that the Arbitral Tribunal had grossly erred in its finding that there was any fault on the part of NHAI on account of delay in handing over of the site. He submitted that in terms of Clause 42.1 of the GCC, NHAI was obliged to handover land as per the Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 17 of 29 By:DUSHYANT RAWAL schedule provided therein and there was no dispute that NHAI had done so. However, HCC had alleged that the land was not free from hindrances. He submitted that the contract did not provide that NHAI would remove obstructions or hand over hindrance free land. On the contrary, it was HCC's obligation to remove the obstruction and hindrances including any encroachment and therefore, the decision of the Arbitral Tribunal that there was delay on the part of NHAI in providing the land is, ex facie, erroneous. However, Mr Awasthi conceded that the said issue was covered against NHAI by a decision of this Court in National Highways Authority of India v. Patel - KNR (JV) (supra) as upheld by the Division Bench of this Court in National Highways Authority of India v. Patel - KNR (JV) (supra). Thus, the decision of the Arbitral Tribunal that NHAI was required to provide hindrance free land to enable HCC to carry on the work fronts, cannot be faulted.

47. It is also necessary to note that the decision of the Arbitral Tribunal is based on construction of the terms of the contract including the 'Instructions to Bidders' and it is well settled that the matter as to the interpretation of a contract falls within the jurisdiction of an arbitral tribunal. Thus, unless the interpretation is found to be ex facie perverse, which no reasonable person could accept, no interference would be warranted in proceedings under Section 34 of the A&C Act.

48. Mr Awasthi had referred to various grounds of delay to assail the decision of the Arbitral Tribunal. First, he submitted that the Arbitral Tribunal had erred in proceeding on the basis that there was any delay Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 18 of 29 By:DUSHYANT RAWAL on account of insufficient ROW. He submitted that in fact, the ROW provided was not insufficient and did not impede the work in any manner. Next, he submitted that HCC could not claim any delay on account of issuance of GFC drawings because HCC had not given any notice regarding the work being hampered on account of non- availability of drawings. Similarly, he stated that the Arbitral Tribunal had erred in allowing any compensation on account of delay resulting from the change in the scope of works after the floods as any variation would be valued in terms of Clause 52.1 of the COPA and, no further amount would be payable to HCC. He had also submitted that there was no delay on account of providing the structure, such being Box Pushing Underpass, Adayar Bridge, Porur Bridge, Grade Separator-I, Column Bridge, Elevated Corridor, Rail over Bridge, Grade Separator-II and Underpass. And, any allegations in this regard were false. Lastly, he also submitted that no amount could be claimed on account of delay resulting from stoppage of work due to a bandh (strike).

49. The impugned award indicates that the Arbitral Tribunal had examined the reasons and was not persuaded to accept the contentions as advanced by NHAI mainly for the reason that the delays due to the aforesaid reasons were accepted by the Engineer and it had recommended EOT on the said basis. NHAI could not contend to the contrary as it had approved the extension of time for the said reasons.

50. It is also necessary to note that HCC had provided a detailed explanation for the delays resulting due to the aforesaid reasons. The decision of the Arbitral Tribunal to accept the same cannot be assailed Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 19 of 29 By:DUSHYANT RAWAL in these proceedings. There was ample material on record to establish that the Project had been delayed on account of the aforesaid reasons. Appendix 3 to the impugned award does not indicate that any material delay on account of the strike (bandh) was considered. This Court is not persuaded to accept that any interference is warranted with the impugned award, in this regard.

51. In Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd.: (2021) SCC OnLine SC 695, the Supreme Court had faulted the approach of the courts to relook at the evidence and re- evaluate the same for determining whether the award is vitiated by patent illegality. The Court had explained that a mere erroneous decision regarding any question of law or fact does not fall within the scope of patent illegality under Section 34(2A) of the A&C Act. Patent illegality as contemplated under Section 34(2A) of the A&C Act is the one that goes to the root of the matter. This Court is, thus, not persuaded to re-examine the evidence and material as considered by the Arbitral Tribunal. Clearly, the decision of the Arbitral Tribunal is not one that is based on no material or evidence. This Court had briefly examined the material available on record. It is apparent that the issues sought to be raised are at best contentious issues. This Court is unable to accept that the impugned award is, ex facie, erroneous. Therefore, the findings of the Arbitral Tribunal are immune from challenge in these proceedings.

52. The last question to be examined is whether the quantification of compensation is vitiated on account of the same being based on no evidence at all. Mr Awasthi had contended that HCC had failed to Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 20 of 29 By:DUSHYANT RAWAL prove the loss and the additional cost suffered by it and therefore, even if it was accepted that HCC was entitled for compensation of cost suffered by it due to extension of the contract, no amount was payable to HCC. Mr Awasthi had relied upon the decision of the Supreme Court in Kailash Nath and Associates v New Delhi Municipal Corporation (supra), in support of his contention.

53. A bare perusal of the impugned award indicates that the aforesaid contention is based on an erroneous premise that the arbitral award is based on no material at all. The Arbitral Tribunal had entered award under the following heads:

1. The additional cost incurred on the Onsite and Offsite overhead expenses in the extended period;

2. The additional cost incurred towards retention of Contractors equipment in extended period;

3. Finance charges (interest) on account of delayed recovery of overheads and profits;

4. Loss of earning capacity and profit due to prolongation of execution of the works to extended period.

5. The additional cost incurred in the extended period due to uncovered compensation in Labour costs;

6. The additional cost incurred in the extended period due to uncovered compensation in steel costs;

7. The additional cost incurred in the extended period due to uncovered compensation in cement costs;

8. The additional cost incurred in the extended period due to uncovered compensation in Bitumen costs;

Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 21 of 29 By:DUSHYANT RAWAL

9. The additional cost incurred in the extended period due to uncovered compensation in POL costs;

54. The Arbitral Tribunal had rendered the impugned award under the aforesaid heads after examining the material available on record. In respect of additional cost towards onsite overhead expenses, the Arbitral Tribunal had awarded a sum of ₹59,69,71,677/- for the period 15.11.2007 to 23.11.2010, after reviewing the audited accounts.

55. HCC had claimed a sum of ₹69,50,39,000/- for the period 15.11.2007 to 23.11.2010 and a further amount of ₹9,04,32,000/- for the period 24.11.2010 to 02.05.2011. The Arbitral Tribunal noted that HCC had submitted audited statements of additional costs certified by the Chartered Accountants in support of the aforesaid amounts. The Engineer had, based on the statements furnished by HCC, determined the costs under the sub-head by adopting percentage of 25% of the value as overheads for structure and, 8% of value for road works in respect of balance works which remained pending. The Arbitral Tribunal found that the audited statements duly certified by statutory auditors reflected the actual expenses incurred by HCC on overheads.

56. The Arbitral Tribunal had awarded additional amount to compensate HCC for their plant and equipment at site during the period of extended stay. The Arbitral Tribunal had examined the monthly reports and had found that HCC had claimed equipment charges only in respect of those equipment that were retained at site during the extended period. The petitioner had relied on the IS11590 [Indian Standard 'Guidelines For Working Out Unit Rate Cost of the Construction Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 22 of 29 By:DUSHYANT RAWAL Equipment Used For River Valley Projects']. The Arbitral Tribunal found that the said guidelines related to river valley projects but there was no distinguishing factor, which would render the said guidelines inapplicable. The Arbitral Tribunal noted that the equipment deployed in road projects were similar to those deployed in river valley projects and since HCC had not claimed charges for usage of the equipment but only the time related cost, the same would not be different.

57. In addition to the above, the Arbitral Tribunal also relied on a certificate issued by the Chartered Engineer. NHAI had objected to the said certificate on the ground that it was not supported by an affidavit filed by the Chartered Engineer and he had deposed as a witness and was subjected to cross-examination. The Arbitral Tribunal rejected the aforesaid contention and it held that the certificate of the Chartered Engineer was annexed with the claim as submitted to the Engineer. The Engineer/NHAI did not have any reservation with the said certificate at the material time. The Arbitral Tribunal noted that the Engineer had declined to ascertain the claim on the alleged ground that HCC had not furnished the equipment required for completion of the balance work. The Arbitral Tribunal found that the Chartered Engineer's certificate was a contemporaneous document, which could be relied on.

58. It is, thus, seen that the award in respect of machinery and equipment, which was retained at site, is based on relevant material and cannot be stated to be arbitrary or without any basis.

Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 23 of 29 By:DUSHYANT RAWAL

59. It is also important to mention that NHAI had, in the alternative, submitted that the claim for equipment charges be considered on the basis of hire charges of equipment as stipulated in the Ministry of Road Transport and Highways (MoRTH) Data Book. The Arbitral Tribunal found that if the amount was quantified on the said basis, it would be higher than the claims as quantified because hire charges of equipment as set out in the MoRTH Data Book also include the cost of operation of equipment, which could not be applied to determine the time related cost without including any cost of operation of equipment. This Court is unable to accept that the award of cost towards retention of equipment and machinery during the extended period warrants any interference in these proceedings.

60. The financing charges (interest on account of delay in recovery) is based on the overhead expenses and profits stipulated in the MoRTH Guidelines and is used for analysis of rates. The value of work done was evidenced by the interim payment certificates issued by the Engineer.

61. The Arbitral Tribunal had also awarded additional cost to compensate HCC for any uncovered rise in the cost of labour, steels, cement, bitumen and POL. The additional cost on account of labour were computed on the basis of various categories of labour deployed at site and as notified to the Engineer in the monthly progress reports. The increase in the labour wage was determined on the basis of notifications issued for rates applicable to various categories of labour. Similarly, the increase in the cost of steel, cement, bitumen and POL was computed on total quantities as certified by the Engineer and the Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 24 of 29 By:DUSHYANT RAWAL invoices submitted by HCC. The amount quantified by the Arbitral Tribunal, thus, cannot be stated to be without any relevant basis.

62. In addition to the above, the Arbitral Tribunal has awarded a sum of ₹28,46,09,611/- as loss of earning capacity and profit due to prolongation of the work from 15.11.2007 to 23.11.2010. And, a sum of ₹49,73,726/- on the aforesaid count for the period from 24.11.2010 to 02.05.2011. HCC's claim on the aforesaid ground is premised on the basis that if the Agreement was completed within the stipulated period, it could deploy its resources to earn profits. Since its resources were held up for executing the contract in question, it is entitled to the cost of the resources (which has been awarded) and in addition, the profits that it would have earned by its revenue generating apparatus. It is apparent that to establish such a claim; it would be essential for HCC to prove that (i) it had opportunities to deploy its resources at the material time; (ii) that it could not do so as the resources were held up due to prolongation of the work; and (iii) the opportunities as available would yield certain profit.

63. The Arbitral Tribunal found that HCC had established that it had another contract of a similar nature at the scheduled time for completion of the Agreement. The Arbitral Tribunal has awarded 10% of the said value of the work executed during the extended period as loss of profits. However, there is no basis for determining that HCC could have earned profit at that rate. In any event, the impugned award does not indicate any such basis. The expected margin of profit is based on numerous factors such as the nature of contract and the extent of competition. It is Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 25 of 29 By:DUSHYANT RAWAL well recognised that in the event of spare capacity, an entrepreneur may be willing to deploy his spare revenue generating apparatus for any amount in excess of its variable costs and not necessarily at an amount that would cover all its costs . It was, thus, essential for the Arbitral Tribunal to make an assessment as to whether there was expectation of any profit by deployment of resources at the material time and, if so, at what rate. Such a determination was required to be made on some material. However, the impugned award indicates no basis for assessing the rate of profit at 10%. NHAI had contested the said claim on the ground that the same was based on surmises and assumptions. Thus, the question whether there was any basis for such assumption was an issue before the Arbitral Tribunal. And, the Arbitral Tribunal has not indicated any basis for assuming that HCC would have earned additional profit at the rate of 10%.

64. The Arbitral Tribunal had referred to the decision of the Supreme Court in Bharat Coking Coal Ltd. v. L.K. Ahuja: (2004) 5 SCC 109 and, on the strength of the said decision, concluded that HCC had established its claim. The said conclusion is ex facie erroneous. In Bharat Coking Coal v. L.K. Ahuja's (supra) case, the Supreme Court had set aside the award of additional profit. The relevant extract of the said decision is set out below :

"23. Claim 8 has been rejected by the arbitrator. Now we proceed to consider Claim 9 for loss arising out of turnover due to prolongation of work. The claim made under this head is in a sum of Rs 10 lakhs. The arbitrator rightly held that on account of escalation in wage and Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 26 of 29 By:DUSHYANT RAWAL prices of materials compensation was obtained and, therefore, there is not much justification in asking for compensation for loss of profits on account of prolongation of works. However, he came to the conclusion that a sum of Rs 6,00,000 would be appropriate compensation in a matter of this nature being 15% of the total profit over the amount that has been agreed to be paid. While a sum of Rs 12,00,000 would be the appropriate entitlement, he held that a sum of Rs 6,00,000 would be appropriate. He also awarded interest on the amounts payable at 15% per annum.

24. Here when claim for escalation of wage bills and price for materials compensation has been paid and compensation for delay in the payment of the amount payable under the contract or for other extra works is to be paid with interest thereon, it is rather difficult for us to accept the proposition that in addition 15% of the total profit should be computed under the heading "Loss or Profit". It is not unusual for the contractors to claim loss of profit arising out of diminution in turnover on account of delay in the matter of completion of the work. What he should establish in such a situation is that had he received the amount due under the contract, he could have utilised the same for some other business in which he could have earned profit. Unless such a plea is raised and established, claim for loss of profits could not have been granted. In this case, no such material is available on record. In the absence of any evidence, the arbitrator could not have awarded the same. This aspect was very well settled in Sunley (B) & Co. Ltd. v. Cunard White Star Ltd. [(1940) 1 KB 740 : (1940) 2 All ER 97 (CA)] by the Court of Appeal in England. Therefore, we have no hesitation in deleting a sum of Rs 6,00,000 awarded to the claimant."

[Emphasis Supplied] Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 27 of 29 By:DUSHYANT RAWAL

65. It is clear from the above that the Supreme Court had emphasised that a claim for loss of profit could not have been awarded in the absence of any evidence. In the present case, there is no evidence - at any rate, none that the Arbitral Tribunal has adverted to - that establishes that HCC could have earned additional profit at the rate of 10% (over and above the profit included in the contract price) of the work executed during the prolongation period by deploying its resources in another contract. Merely because HCC was awarded another contract by a subsidiary of NHAI around the scheduled time for completion of the contract does not establish that HCC has been deprived of earning profit at the rate of 10% by deploying its resources in another contract. A plain reading of the decision in Bharat Coking Coal Ltd. v. L.K. Ahuja (supra) indicates that it is necessary to establish that the contractor was deprived of earning profit from another contract. In other words, the contractor must establish that he could have deployed its resources for executing another contract and earned profit but was deprived of availing that opportunity on account of being held up in executing the contract in question. The fact that HCC was awarded another contract, which it accepted, despite its resources being deployed for executing the present Agreement, does not establish its case for compensation for loss of opportunity.

66. There is merit in the contention that the award of opportunity cost

- the additional profit that HCC would have earned from its resources if the execution of the contract was not delayed - is on unsubstantiated assumptions.

Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 28 of 29 By:DUSHYANT RAWAL

67. In view of the above, the impugned award to the extent that it awards ₹28,46,09,611/- and ₹49,73,726/- as loss of earning capacity on account of prolongation of the work from 15.11.2007 to 23.11.2010 and from 24.11.2010 to 02.05.2011 respectively, is set aside.

68. The petition is allowed to the aforesaid extent.

VIBHU BAKHRU, J JANUARY 12, 2022 RK/v Signature Not Verified Digitally Signed O.M.P. (COMM) 153/2020 Page 29 of 29 By:DUSHYANT RAWAL

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