Liquidated Damages Can't Be Imposed When The Engineer-In-Charge Holds That The Cause Of Delay Is Explained: Delhi High Court

The Single Bench of Justice Vibhu Bakhru held that when the Engineer-in-Charge was entrusted with the task of examining the causes of delay, and it had analysed and accepted the justification provided by the contractor and recommended several extensions without the imposition of LD, it was not open for the employer to levy LD when the delay was not attributable to the contractor and so was determined by the Engineer-in-Charge.

The Court further held that it is for the arbitrator to decide on the evidentiary value of any document presented to support the case of either of the party.

Facts

GAIL (Petitioner) and Triveni Engineering (Respondent) entered into an agreement dated 28.05.2012 for work relating to "Dematerialised (DM) Water Plant and Condensate Polishing Unit (CPU) for GAIL Petrochemical Complex – II at Pata, Uttar Pradesh". GAIL appointed Engineers India Ltd. (EIL) as the 'Engineer-in-Charge' under the agreement.

The project was to be completed within a period of 18 months, however, there was a delay in the completion of the work. The respondent sought various extensions of time which were accordingly granted by the petitioner; however, it withheld an amount of Rs. 2,75,00,000/- (Rupees Two Crores, seventy-five thousand only) as the LD for the delay caused in the execution of the project work according to the Price Reduction Schedule (PRS). There was also a controversy regarding the installation of the Cathodic Protection System (CPS), extra works performed under the Agreement and bank charges. Accordingly, the Court appointed the arbitrator.

The arbitrator allowed the claims of the respondent and rejected the petitioner's counter-claims. Aggrieved by the award, the petitioner challenged the award under Section 34 of the A&C Act.

Grounds For Challenge

The petitioner contended that the arbitrator erred in allowing the claim of the respondent for the return of PRS withheld as LD for the delay caused by the respondent and the only ground on which this claim was allowed is the recommendation of EIL. It argued that the recommendations of EIL were not binding on it, therefore, its recommendation that respondent be given extension without levy of LD would not be of any consequence.

The petitioner submitted that Clause 27 of the GCC specifically provided that the decision of EIL regarding the extension of time would only be binding on the contractor and not on employer. Moreover, in terms of Clause 47 extension of time shall not be deemed to be a waiver of any right.

The petitioner relied on Thermospares India v. B.H.E.L, (2006) SCC OnLine Del 665 to submit that although EIL had concluded that the respondent is not responsible for the delay, however, it did not conclude that the delay was attributable to the petitioner either, therefore, the arbitrator could only award refund of PRS when the delay was attributable to the petitioner.

It further assailed the award on the ground that the arbitrator erred in reducing the value of CPS and directing the refund to the respondent when it has rightly held that CPS to be within the scope of original work.

It also submitted that the arbitrator could not award bank charges as the Bank Guarantees were retained on account of disputes between the parties. Moreover, the interest rate awarded at 15% is excessive.

Analysis By The Court

The Court held that Clause 27 provided that the petitioner could impose PRS if the respondent failed to complete the work within the stipulated time. However, the PRS could only be levied when the delay was attributable to the respondent.

The Court upheld the reasoning of the tribunal that the primary responsibility of determining the applicability of PRS was of EIL and it had by recommended extension without the levy of PRS.

The Court held that in terms of Clause 27, EIL was entrusted with the task of examining the causes of delay, and it had analysed and accepted the justification provided by the respondent and recommended several extensions without the imposition of PRS, therefore, it was not open for the petitioner to levy PRS when the delay was not attributable to the respondent and so was determined by EIL.

The Court rejected the argument of the petitioner that the arbitrator could not award the return of PRS as the delay was not attributable to the petitioner either.

The Court held that the decision of Thermospares (supra) was made in the context where the contractor was claiming overrun charges for the extended period and the court held that compensation for an extended period could only be provided when the delay was attributable to the employer. However, in the present case, the respondent had not claimed any compensation but merely resisted the claim of the petitioner for levy of PRS, therefore, the decision does not support the claim of the petitioner.

The Court further rejected the argument that the finding of the arbitrator is in contravention of Clause 47 which stipulated that the extension of time would not amount to a waiver of any provision of the contract.

The Court observed that the finding of the arbitrator was not premised on the assumption that extension of the contract would amount to a waiver of any provision rather it was based on the fact that EIL had the duty of analysing the cause of delay and taking a decision as to the imposition of PRS and it had recommended the extension without the levy of PRS, therefore, the petitioner could not impose PRS.

The Court held that the finding of the arbitrator qua the valuation of CPS was based on the evidentiary value of the documents produced by the petitioner and it is purely within the domain of the arbitrator to decide on the evidentiary value of a document before it, therefore, no fault could be found in the reasoning of the arbitrator.

The Court observed that the tribunal was correct in awarding bank charges as the respondent was made to keep the bank guarantees alive beyond the defect liability period.

The Court further held that the award of 15% interest cannot by any stretch stated to be excessive or manifestly erroneous.

Accordingly, the Court dismissed the petition.

Case Title: GAIL (India) Ltd. V. Triveni Engineering & Industries LTD.

Citation: 2022 LiveLaw (Del) 443

Date: 12.05.2022

Counsel for the Petitioner: Mr Puneet Taneja, Advocate with Ms Laxmi Kumari, Mr Manmohan Singh Narula, Advocates

Counsel for the Respondent: Mr Anunaya Mehta, Mr Vinayak Thakur, Advocates

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