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TMI Blog2015 (2) TMI 1303X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as unreasonable, arbitrary or impossible - The claim awarded by the arbitral tribunal in this behalf is, thus, not open to challenge under Section 34. Compensation/ damages on account of subsequent legislation - Held that:- Clause 3.7.14 is not a clause about subsequent legislation at all. The arbitrators are aware of this. But they say, clause 3.7.14 “though explicitly not a clause of subsequent legislation, it implies that the claimant is entitled for compensation on account of withdrawal of the concession in terms of income tax which was available to him on the date of submission of the bid”. Nothing can be further from the true interpretation of the clause. Reimbursement of royalty charges - Held that:- This claim could possibly be justified on account of the increased cost incurred by the contractor during the extended period as a result of the delay ensuring from the employer's breaches. But then we do not have before us any analysis or working of extra costs incurred during the extended period in this behalf. It cannot be ascertained from the material available on record if any royalty had to be paid on minerals or materials particularly during the extended period, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the arbitrators is within the discretion of the arbitral tribunal and no fault can be found either with the date (the date of commencement of arbitration) with reference to which such interest is calculated in the award or the manner of calculating such interest, namely, simple interest method as opposed to annual compounding method - There is, thus, no merit in Atlanta's challenge to the impugned award. On the question, whether Atlanta was in beach of the provision in the contract concerning repairs and maintenance, the arbitrators considered the records placed before them, and came to a conclusion that from the correspondence on record, and having regard to the proof tendered by Atlanta for maintaining the road in pothole free condition including the certified copies of deployment of manpower and machinery, Atlanta did what was reasonably expected of it and the State had failed to prove that Atlanta was negligent or careless in road maintenance. These are matters of fact, and the conclusion of the arbitrators is a possible view on the basis of the material available before the arbitrators. The conclusion is supported by evidence. Sufficiency of the evidence and the merits of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her with the formal agreement and work order ( hereinafter referred to as the BOT contract ). Under the BOT contract, Atlanta was to execute and complete the project in accordance with the terms, and within the stipulated period, provided therein. In consideration of such execution and completion, the State agreed to allow Atlanta to collect and retain toll from motor vehicles using the project facility as per specified rates during a certain period, known as the concession period . 4 There was a delay in completion of the project, which Atlanta attributed to breaches of the BOT contract on the part of the State. On the other hand, it was the case of the State that this delay was caused due to defaults/ breaches on the part of Atlanta. Atlanta claimed to be entitled to extension of the concession period under the terms of the BOT contract to recoup its damages, whilst the State had counter-claims against Atlanta. These disputes were referred to an arbitration panel of three arbitrators. This reference was termed as Reference No.1. 5 During the existing concession period under the BOT contract, the collection of toll was suspended at the instance of the State for two particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on ₹ 13,77,58,200/- from 17.11.2010. This award is challenged by the State in Miscellaneous Application No.230 of 2012. 9 Miscellaneous Application Nos. 229 of 2012 and 230 of 2012 were filed before the Court of Principal District Judge, Thane. By an order passed by a learned Single Judge, the Applications were transferred to this Court, to be heard with Arbitration Petition No.1158 of 2012 filed by Atlanta. The Miscellaneous Applications have been renumbered as Arbitration Petition (L) Nos.1541 of 2014 and 1542 of 2014. That is how all these matters are heard together by this Court and are being disposed of by this common order. 10 We will first take up the State's challenge to the impugned award, since that is the main or substantive challenge to the whole of the award in Reference No.1. The award of ₹ 58,59,31,595/- granted in favour of Atlanta is under various heads set out below. Sr.No. The description of claims Amount awarded (A) Extra overheads and loss of expected profit Rs.8,80,00,000/- (B) Compensation on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( GCC ), which required the State hand over the possession of the land required for the construction work progressively, (b) nonremoval of encroachments and non-rehabilitation of the encroachers, (c) nonresolution of disputes about the ownership of the land between the Forest Department and private landowners, and (d) failure to communicate the revised concession period even after the signing of the Supplemental Agreement. The arbitral tribunal considered the rival pleadings in this behalf and the documentary evidence on record, and in particular, Atlanta's letters dated 22.8.2000, 28.8.2000 (Exh.C.5 and C.6), 25.9.2000 (Ex.C.9), 25.9.2000 (Ex.C.10), the State's letter dated 27.9.2000 (Ex.1-in State's compilation-RD-1), 27.9.2000 (Exh.C-11), Atlanta's Letters dated 5.10.2000 (Ex.C-12), 11.12.2000 (Ex.C-19), Minutes of Meeting dated 2.1.2001 (Ex.C-20), Atlanta's Letters dated 31.1.2001 (Ex.C-21), 10.2.2001 (Ex.C.22), the State's letter dated 1.6.2001 (Ex.C.23), Atlanta's Letters dated 12.11.2002 and 14.10.2003 (Ex.C-24 and C-25), 16.8.2002 (Ex.C-26), State's letter dated 20.12.2002 (Ex.C.27), Atlanta's reply dated 20.12.2002 (Ex.C.28), and Superin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the parties (Ex.C-55 to C-87) and the proforma of time limit extension (Ex.C-88). On the basis of this material, it was held by the learned arbitrators that the facts and evidence on record established that the issues regarding delay and responsibility for the delay had stood resolved inasmuch as the State had granted extension of time to Atlanta for execution of construction work till 25.12.2007 for reasons not attributable to Atlanta. In the premises, the arbitral tribunal held that Atlanta could not be blamed for non-completion of the construction work till 25.12.2007 and that the State committed breaches of the terms and conditions of the BOT contract read with the Supplemental Agreement and caused the delay. 14. These conclusions involve interpretation of the contract and appreciation of documentary evidence led by the parties. The whole exercise was very much within the jurisdiction of the arbitral tribunal. The interpretation of the contract by the arbitrators cannot be termed as either impossible or perverse. The conclusions are supported by evidence. Neither is any inadmissible material relied upon by the arbitrators nor is any material document disregarded. No fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.03.2005 The arbitrators also considered the circumstances in which Atlanta had continued to execute the additional work without entering into any supplemental agreement; and the fact that Atlanta was put to notice by the State that this entire work would be illegal in the absence of any supplemental agreement. According to the arbitrators, it was these aspects coupled with the State's assurance that signing of the Supplemental Agreement would not amount to giving up its claims and disputes, which were yet to be finalized, which prompted Atlanta to sign the Supplemental Agreement. In the premises, the arbitrators held that Atlanta's claims were not adversely affected by the terms of the Supplemental Agreement and were required to be adjudicated on merits. 17 Even this part of the award takes a possible view on the contract between the parties and is supported by evidence on record. As in our case, so in the case of T.P.George Vs State of Kerala (AIR 2001 Supreme Court 816) a claim for extra costs incurred was made on the footing of a delay caused without any fault on the part of the contractor. The claim was resisted by the employer on the same ground, as in our case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction cost in Atlanta's bid. It was the case of Atlanta, that due to reduced productivity, Atlanta incurred loss of overheads and profits, which, considering the cost of work accomplished during the stipulated period, work out ( at the rate of 25 % ) to ₹ 453 lacs. The calculation goes like this : (A) The total cost of the profit was ₹ 2591 lacs; at 25 %, the overheads work out to ₹ 648 lacs; these overheads were to be earned over 24 months at the rate of ₹ 26.99 lacs per month; but the cost of work done during this period of 24 months was only ₹ 780 crores, thus giving overheads ( at 25 %) of only ₹ 195 loacs; thus, Atlanta was entitled to recover the difference between ₹ 648 lacs and ₹ 195 lacs, which was its net loss during the originally stipulated period of construction. (B) The varied scope of work together with the balance of the original scope of work was to be completed during the revised period of 4 years 9 months and 25 days under the Supplemental Agreement. But the delays by the State and other causes not attributable to Atlanta did not permit such completion, resulting in reduced productivity even during the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng overheads as a percentage of the total value of works carried out combined percentage during the relevant years ranging from 22-25 % to 42-43%; (c) The oral evidence of CW-1 in this behalf, which, according to the arbitrators, withstood the test of cross-examination; (d) The tender documents and bid submitted by Atlanta, which calculated overheads, etc.; and (e) The trade practices in relation to calculation of overheads, etc. including the norms used by National Highway Authority of India, providing for overheads at the rate of 20 % for road works and 35 % for bridges and structural works. The arbitrators also considered the law in this behalf including the judgment of the Supreme Court in the case of Mc Decmott International Inc. Vs. Burn Standard Co.Ltd(2006) 11 SCC 181). Based on all this material, the arbitrators considered the rate of 20 % of project cost as reasonable compensation for loss on account of overheads and profit. The arbitrators held that the percentage of overheads and profit stood substantially proved through oral and documentary evidence; that grant of extension of the construction period without extending the concession period did not properl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave employed the machinery elsewhere and what is the measure of damages. There are two findings in the award in this behalf. One, Atlanta's request for shifting of the idling machinery and equipments to some other site being turned down by the State; And two, the recommendation of the Superintending Engineer in respect of this claim. Both the findings are clearly unsustainable. In the first place, the claim is for the entire length of the extended period, whilst the request for shifting and its rejection pertains to and accounts for only the initial period around the end of 2000 and the beginning of 2001 based on a solitary document of 3.1.2001 (Ex.C-20). It is not possible to accept that because at that time, i.e. around 3.1.2001, a request for shifting of machinery made by Atlanta was rejected, the case of Atlanta that throughout the extended period, i.e. between 2002 to 2007, Atlanta could not have deployed its machinery to other sites, is proved. In fact, Ex.C-20, which is minutes of meeting of 3.1.2001, shows that this request at that time was rejected because in all likelihood, entrepreneur will be able to commence work in full swing by February 2001. If a request to pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in support, cannot by itself sustain the quantum of damages awarded. 20.2 The arbitrators' conclusion and award on this score, thus, cannot be accepted as a possible conclusion in the face of the material on record. 21 (C) Reimbursement of escalation in prices of HSD, cement and steel, etc. except Bitumen. 21.1 According to Atlanta, the parties has assumed 10 % escalation per year in the cost of material and manpower excluding the escalation on account of Bitumen. Atlanta had contemplated execution of 50 % works in the first year and balance 50 % in the second year. Considering this, on a weighted average basis, 2.5 % escalation in the first year and 7.5 % escalation in the second year totalling 10 % was provided for, as reflected in Form 6 of the Agreement. On the same basis, Atlanta claimed escalation for the subsequent years during which the contract got extended. Atlanta made a claim of ₹ 1645 lacs on this account. The State opposed this claim. According to the State, in the BOT Contract, there was no provision to reimburse escalation in the prices of HSD, Cement and Steel. Only escalation payable was for bitumen. The State also contended that even in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such escalation, whilst the supplemental agreement between the parties specifically provided that no extra rates would be allowed. This is how the Supreme Court dealt with that contention: 31. The learned Single Judge of the High Court who was a party to the earlier orders passed in writ petition very graciously directed the Lt. Governor to consider the matter afresh when it was brought to its notice that the earlier order dated 7.9.2001 stood rescinded by an order dated 23.4.2002. 32. The order directing allotment of land was not a judicial or a quasi-judicial order. It was an executive order. If an executive order had been passed in ignorance of various judicial orders passed by the High Court, the same could be reviewed. In view of the fact that the development plans have the force of a statute and the purpose for which the area was earmarked by the Development Authority therein we do not see any reason as to why the mistake committed by the Lt. Governor could not be rectified. Then in Associated Construction Vs. Pavanhans Helicopters Pvt. Ltd. (2008) 16 Supreme Court Cases 128) the Supreme Court followed the decisions in P.M.Paul and K.N.Sathyapalan (supra) and held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take into account all taxes payable unto 30 days prior to the last date of the receipt of the bids and Atlanta's bid having been submitted on 12.4.1999, Atlanta is entitled to claim additional taxes levied subsequent to 12.3.1999. Atlanta could have taken only taxes upto 12.3.1999 into account; that included the concession available under Section 80-1A(4A) read with Section 12- CA of the Income TAX Act; this concession was withdrawn by a subsequent legislation; hence, the liability which arose as a result of the subsequent legislation was payable to Atlanta. 22.3 There is an inherent flaw in this submission. What the contract provides is that tax concessions concerning the project declared by the Government of India or Government of Maharashtra upto 30 days prior to the receipt of the bid shall alone be available to the contractor and not other concessions. That does not mean that the contract provides for continuation of a particular tax concession for all times during the contract and compensation to the contractor for the loss occasioned to him on account of withdrawal of such concession at any time during the contract due to change of law. The particular clause of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, initially a claim of ₹ 196.18 Lacs was recommended by the Superintending Engineer to the higher authorities, but the same was not accepted by the latter. 23.2 Even this claim was allowed by the arbitrators only on the grounds of (a) clause 3.7.14 permitting compensation on account of change in the law subsequent to 30 days prior to the last date of submission of the bid and (b) State's acceptance of the claim contained in the Superintending Engineer's letter of recommendation to the higher authorities. As discussed above, both these grounds are devoid of any merit and are not available to Atlanta. Reading of clause 3.7.14 as a stipulation requiring compensation to be made to Atlanta on account of a subsequent change in law, is neither reasonable nor possible, as discussed above. So also, the recommendation of the Superintending Engineer cannot be termed as an acceptance or admission of liability on the part of the State as explained above. 23.3 This claim could possibly be justified on account of the increased cost incurred by the contractor during the extended period as a result of the delay ensuring from the employer's breaches. But then we do not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute; and that the rate applied was the tendered rate. The arbitrators noted that the contractual provisions, clause 3.6.6 of GCC read with Form 6, implied that any extra work carried out by Atlanta was to attract 22% charges over the rate; and that accordingly the Superintending Engineer had prepared his estimate in the recommendation made by him. In the premises, the arbitrators accepted the claim. The arbitrators rejected the State's contention that the work involved only shifting (loading, unloading and transportation) and not excavation and therefore, payable only at the rate of ₹ 51.70 / cum (which was exclusive of excavation). 24.3 This view of the arbitrators is clearly a possible view. It is based on a reasonable and possible interpretation of contract, is supported by material on record and there is no legal infirmity in either the admissibility of the claim or its assessment in value. No infirmity can be found with this part of the award. 25 (G) Difference in the rates and cost as claimed and allowed on account of additional work ordered. 25.1 This claim concerned working out of rates for additional works. According to clause 3.6.6 of GCC, additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted that as per actual work done by Atlanta, the claim on account of anti crash barrier for ₹ 162.50 lacs was justified. Even for additional work after opening of the road, the claim of ₹ 27.86 lacs was accepted by the State in the arbitration. On the other hand, no comments were offered on the variation of the rate of Bitumen for which an escalation payment of ₹ 244.50 lacs was recorded in the measurement book. The main dispute was relating to the claim of 22% additional mark-up over and above DSR rates. The arbitrators' conclusion in this behalf is based on a possible interpretation of the contract, and not liable to be interfered with under the accepted parameters of challenge under Section 34. Even as regards the escalation in cost of maintenance and renewal, the arbitrators' conclusion is based on a possible interpretation of the contract. The arbitrators considered the provisions of Form 3 of the original contract agreement and standard practice followed in comparable matters to consider such escalation in cash flow. Barring the reliance on the recommendation of the Superintending Engineer as in the case of other claims, the reasons discussed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project but before the concession period available to the contractor expires. In that event, the contractor is eligible to recover compensation for the unrecovered amount as per the details furnished by him in the accepted cash flow statement. Once it is clear that damages or compensation ordered to be paid to Atlanta under the award is neither in the nature of original cost of construction nor an extra amount payable as a result of any variation ordered by the Engineer, which results into an adjustment of the concession period, there is no question of applying clause 3.9 for the recovery of that amount. It is not an unrecovered amount as understood by clause 3.9. There is, thus, no merit in the contention of Atlanta that the awarded sum can be recovered only in accordance with the cash flow statement furnished by it. 30. Award of interest on the principal amount awarded by the arbitrators is within the discretion of the arbitral tribunal and no fault can be found either with the date (the date of commencement of arbitration) with reference to which such interest is calculated in the award or the manner of calculating such interest, namely, simple interest method as opposed to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epairs and maintenance, the arbitrators considered the records placed before them, and came to a conclusion that from the correspondence on record, and having regard to the proof tendered by Atlanta for maintaining the road in pothole free condition including the certified copies of deployment of manpower and machinery, Atlanta did what was reasonably expected of it and the State had failed to prove that Atlanta was negligent or careless in road maintenance. These are matters of fact, and the conclusion of the arbitrators is a possible view on the basis of the material available before the arbitrators. The conclusion is supported by evidence. Sufficiency of the evidence and the merits of its assessment by the arbitrators are not matters for this Court to examine, and no interference is called for. 37. There is, thus, no merit in the challenge to the award laid in Misc. Petition No. 230 of 2012. 38 Accordingly, Arbitration Petition (L) No.1542 of 2014 (Miscellaneous Application No.229 of 2012) is partly allowed by setting aside the award in respect of the claims mentioned at Item Nos. (B), (D) and (E) in paragraph 10 above in the sum of ₹ 4,94,27,000/-, ₹ 8,38,61,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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