2023 (8) TMI 1551 - HC - Indian Laws

Assailing the Arbitral Award - section 34 of the A C Act - Validity of claims for escalation cost and prolongation of contract - HELD THAT - The petitioner s contention that Contractor never claimed that the endorsement was given under duress, is fallacious as the Contractor in its rejoinder before the AT, clearly outlined the circumstances under which the said endorsement was given. This Court also finds strength in the submission of the learned counsel for Contractor that, only when the petitioner tried to take the benefit of the endorsement in its statement of defence, did the Contractor give explanation in its rejoinder. Whether such an endorsement can be enforced against the claimant to deny its legitimate claims, especially when the impugned Award holds the petitioner guilty of delay, would not require much deliberation. Issuance of NOC or other similar no claim certificate by a party, in favour of another contracting party, by itself does not disentitle the party having a claim from explaining the circumstances in which NOC is issued. Reverse of the same is equally true. There is no absolute rule which outrightly negates the evidentiary value of NOC s or no claim certificate. In the present case, the AT has opined that the NOC issued by the Contractor was involuntary and hence, cannot be enforced against the Contractor to deny a claim, to which it was otherwise entitled. AT has given a finding of fact in this regard, after examining the circumstances under which NOC was issued by the Contractor. There is nothing patently illegal about such finding. Thus, there is no reason for this court to interfere with this finding. Petitioner s second contention that the AT erred in awarding claim on account of prolongation of Contract, as there was no clause in the Contract providing for the same, is also meritless. It is pertinent to note that the Contractor had claimed damages towards the escalation cost, on account of breach of Contract by the petitioner. Admittedly, the Project was completed to the satisfaction of the petitioner, and the delay in execution was attributable to the petitioner. Clause 10C of the Contract provided for increase in cost of materials and labour during the period of extension. The claim was sub-divided into two sub heads i.e., claim on account of increase in wages for labour on prevailing wages as per Clause 10C and claim on account of increase in prices of material. The AT observed that the petitioner had granted extension of time considering the hindrances, and without levy of any compensation, which showed that the delay was attributed to the petitioner. The AT found the same violative of Section 73 of the Contract Act, which entitles a party to claim compensation for breach of the contract committed by the other contracting party. Even if contract does not provide for price escalation, it would not preclude a party to claim escalation in price, as a measure of damages suffered by it, if the other contracting party is guilty of causing delays in completion of contractual works. The AT, while considering the contentions raised by the petitioner, came to the conclusion that the endorsement given by Contractor, while seeking extension of time, would not come in its way in seeking escalation cost, especially when the delay was attributable to the petitioner. In the considered opinion of this Court, the view taken by the AT was both possible and plausible, and needs no interference in light of the narrow scope of Section 34 of the A C Act. The objections fail and the petition along with pending application is dismissed with no order to costs.

Summary

Issues Involved:

1. Attribution of delay in project completion.
2. Validity of claims for escalation cost and prolongation of contract.
3. Applicability of "no claim" certificates.
4. Scope of judicial intervention under Section 34 of the Arbitration and Conciliation Act, 1996.

Detailed Analysis:

1. Attribution of Delay in Project Completion:

The primary issue was whether the delay in completing the project was attributable to the petitioner or the contractor. The Arbitral Tribunal (AT) found that the delay of 1041 days was primarily due to the petitioner, citing various hindrances such as pile design changes, methodology alterations, and external factors like NGT orders and monsoon conditions. The AT concluded that the petitioner was responsible for these delays, as the site was not handed over hindrance-free as required by the contract. The petitioner admitted to a justified delay of 1047 days, which further supported the AT's findings.

2. Validity of Claims for Escalation Cost and Prolongation of Contract:

The petitioner challenged the AT's decision to award claims for escalation costs and prolongation of the contract, arguing that there was no contractual provision for such claims. However, the AT held that the contractor was entitled to compensation due to the petitioner's breach of contract, which caused the delays. The AT relied on Clause 10C of the contract, which allowed for increased costs of materials and labor during the extension period. The AT's decision was supported by precedents, including P.M. Paul v. Union of India, which recognized the contractor's right to claim escalation costs due to delays caused by the other party.

3. Applicability of "No Claim" Certificates:

The petitioner argued that the contractor's endorsement, stating no claim for losses due to delays, should preclude any claims for compensation. However, the AT found that this endorsement was given under duress, as the contractor's payments and security were withheld. The court cited R.L. Kalathia & Co. vs. State of Gujarat, which held that a "no claim" certificate does not bar genuine claims if issued under coercive circumstances. The AT's finding that the endorsement was involuntary was upheld, as it was a factual determination with no patent illegality.

4. Scope of Judicial Intervention under Section 34 of the Arbitration and Conciliation Act, 1996:

The scope of judicial intervention under Section 34 is limited to instances of patent illegality or contravention of public policy. The court reiterated that it does not sit in appeal over arbitral awards and can only interfere on narrow grounds. The AT's findings were deemed reasonable and based on evidence, and the court found no grounds for interference. The petitioner's objections were dismissed, reinforcing the limited scope of Section 34 and the autonomy of arbitral awards.

In conclusion, the court upheld the AT's award, finding no merit in the petitioner's challenges. The AT's findings on delay attribution, escalation costs, and the involuntary nature of the "no claim" certificate were supported by legal precedents and contractual provisions. The petition was dismissed, emphasizing the narrow grounds for challenging arbitral awards under Section 34.