2011 (7) TMI 1136 - SC - Indian Laws

Whether it was mandatory/necessary in view of the agreement/contract or on the basis of pre-bid understanding that the State had to issue the notification barring the vehicles through the markets of Bharatpur city? Whether the rate of interest could be reduced from 18% to 10% by the courts below? Whether the private appellant had a right to collect the toll fee on the patch between Bharatpur Deeg? What amount could have been recovered by the private appellant for Bharatpur-Deeg part of the road from the vehicles using the road? What could be the effect on the contract as a whole for non-executing the work of the second phase?

Issues Involved:
1. Whether it was mandatory for the State to issue a notification barring vehicles through Bharatpur city.
2. Whether the rate of interest could be reduced from 18% to 10% by the courts below.
3. Whether the private appellant had a right to collect toll fees on the Bharatpur-Deeg patch.

Detailed Analysis:

1. Mandatory Notification for Barring Vehicles:
The appellant argued that it was implied in the agreement that the State would issue a notification barring vehicles through Bharatpur city. The Tribunal found that the State delayed issuing the notification, impacting toll collection. However, the District Judge and High Court held that there was no clause in the agreement mandating such a notification. The Supreme Court noted that the State did not raise this issue during arbitration, thus it was not permissible for the lower courts to consider it. The Court emphasized that an arbitral tribunal cannot travel beyond the terms of reference, and in this case, the issue of the notification delay was within the scope of arbitration.

2. Rate of Interest Reduction:
The appellant contended that reducing the interest rate from 18% to 10% was against the contract terms. The Supreme Court upheld the lower courts' decision, referencing Section 3 of the Interest Act, 1978, which allows courts to award interest at prevailing banking rates. The Court cited precedents indicating that post-award interest is procedural and can be adjusted based on economic realities. The High Court's reliance on Krishna Bhagya Jala Nigam Ltd., which reduced interest rates due to economic changes, was deemed appropriate.

3. Toll Collection on Bharatpur-Deeg Patch:
The State argued that the appellant was not entitled to collect tolls on the Bharatpur-Deeg patch. The Supreme Court affirmed the High Court's finding that the Bharatpur-Deeg section was an integral part of the project. The bid documents and pre-bid clarifications indicated that tolls could be collected from this section. Clause 5 of the Concession Agreement supported this, stating that tolls could be levied on all users of the project facilities. The Court rejected the State's argument that this section was not newly constructed and thus exempt from tolls.

Entitlement and Compensation:
The Court noted that toll fees are compensatory, meant to reimburse the State for construction costs. The appellant had not executed the second phase of the project, worth Rs. 354.75 lacs. The appellant's claim for damages based on non-execution of this phase was unfounded. The Tribunal's award for delay in issuing the notification was justified only up to the notification date. The Court directed the arbitration tribunal to reassess the compensation considering the non-execution of the second phase.

Conclusion:
The Supreme Court disposed of the appeals, directing the arbitration tribunal to reconsider the compensation for the Bharatpur-Deeg patch and the impact of the non-executed second phase. The appellant was entitled to Rs. 26.34 lacs for the delay in notification issuance, with 10% interest if not already paid. The Court emphasized the importance of adhering to the terms of reference in arbitration and the compensatory nature of toll fees.

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