Failure To Issue Notice For Additional Payment Does Not Preclude The Contractor From Later Claiming It In Arbitration: Delhi High Court

The Single Bench of Justice Bakhru also observed that such a stipulation in the contract is not a mandatory provision but only directory in nature and must be examined with reference to the other clauses and the contemporary records.

The Court further held that ground of patent illegality as provided under S. 34(2-A) would not be available when the Respondent is a company incorporated outside India as the arbitration would be an International Commercial Arbitration.

Facts

The parties entered into an agreement for execution of the work related to "four laning of Hyderabad Bangalore section from KM 293.400 to KM 336.000 of NH-7, in the State of Andhra Pradesh." There was a delay in the execution of the contract, consequently, a dispute arose between the parties, and the same was referred to arbitration.

The Arbitral Tribunal allowed the claims of the Respondent.

Contention Of The Petitioner

The Petitioner challenged the award on the following grounds:

• The award is patently illegal as the arbitrator gravely erred in allowing the claims of the Respondent.
• The tribunal erred in allowing the claim of the Respondent in respect of the excess royalty deducted from Interim payment certificates in view of the fact that the Respondent had not issued any notice as required under the contract.

Analysis By The Court

At the outset, the Court held that since the Respondent is a company incorporated in Taiwan, the arbitration between the parties was an International Commercial Arbitration, therefore, the ground of patent illegality is not available to challenge the arbitral award.

The Court rejected the argument canvassed on behalf of the Petitioner that since the Respondent failed to issue notice intimidating the Petitioner of its intention to claim additional payments, the Respondent was now precluded from raising those claims before the arbitrator and the arbitrator erred in allowing the claims ignoring the mandate of the contractual provision.

The Court relied on its judgment in NHAI v. OSE-GIL, 2014 SCC OnLine Del 7051, to hold that a notice clause cannot be read in isolation with other clauses of the contract and on a combined reading of the clause along with other contemporaneous evidences, it is apparent that the same is only directory. Failure of the contractor to comply with the same does not result in the extinguishment of his claims.

The Court also clarified that the scope of interfering with an arbitral award made in an international arbitration is very narrow. Even an erroneous finding of the tribunal based on the appreciation of facts does not fall within the rubric of public policy to merit interference of the Court.

Accordingly, the Court dismissed the petition.

Case Title: National Highways Authority of India v. Continental Engineering Corporation (CEC), O.M.P. (COMM.) 422/2019

Citation: 2022 LiveLaw (Del) 331

Date: 13.04.2022

Counsel for the Petitioner: Mrs. Asha Gopalan Nair, Ms. Nivedita Nair & Mr. Arun Gopalan Nair.

Counsel for the Respondent: Dr. Amit George & Mr. Kapil Kher

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