Claim Of Damages, Supplementary Agreement Executed Under Duress Can’t Come In The Way : Delhi High Court

The bench of Justice Yogesh Khanna held that a party would be acting under economic duress or coercion if it has to execute a supplementary agreement foregoing all its claims against the employer as a pre-condition for the issuance of PCC, ergo, it would not be a bar to contractor later claiming damages for the losses suffered by it.

The Court held that when the employer/NHAI is responsible for the delay in the completion of the project work, it cannot be reasonably expected from the contractor to execute an agreement whereby it relinquish its right to claim damages but for the coercion put by the employer.

Facts

On December 11, 2006, the petitioner invited bids for the design, engineering, finance, construction, operation, and maintenance of the Trichy - Karur Section of National Highway - 67 (NH - 67) in Tamil Nadu. This project, part of NHDP Phase IIIA, aimed to strengthen and widen the road to four lanes for better traffic flow. The project was operated under a build, operate, and transfer (BOT) concession model.

On March 5, 2007, Reliance Energy Ltd. emerged as the successful bidder, receiving a letter of acceptance (LOA) from the petitioner. At the request of Reliance Energy Ltd., the petitioner agreed to enter into a concession agreement with the respondent on July 19, 2007. The parties also entered a tripartite State Support Agreement with the Tamil Nadu government.

The concession agreement outlined a construction period of thirty months. NHAI declared January 15, 2008, as the appointed date, leading to a concession period lasting until January 14, 2038. As per the agreement, the scheduled completion date was July 14, 2010.

On November 14, 2013, a supplementary agreement was executed to issue a partial Provisional Completion Certificate (PCC) for a specific stretch. Both parties mutually waived any claims related to project delays and extensions. Consequently, the commercial operation date was set for February 24, 2014. However, thereafter, the respondent had issued letters to the petitioner claiming damages for the delay in the execution of the project work especially the delay in handing over of the project sites.. On December 17, 2018, the respondent-initiated arbitration by writing a letter and nominating an arbitrator.

On October 1, 2022, the arbitrators reached a decision, awarding the respondent a total of Rs.10,56,54,93,214/-. Aggrieved thereby, the petitioner challenged the order under Section 34 of the A&C Act and also moved an application for stay on the award. The respondent also filed application for the enforcement/execution of the award.

Contentions of the Petitioner

The petitioner sought a stay on the impugned award on the following grounds:

• The petitioner argued that the arbitral award lacked evidence, relying on conjectures and assumptions, which went against established jurisprudence and fundamental public policy.
• The Arbitrators had failed to consider the specific terms of the Concession Agreement and the supplementary agreement. The respondent had relinquished all claims until the execution of the supplementary agreement. The Arbitrators also did not acknowledge that the supplementary agreement was voluntarily executed without coercion or economic duress, and no evidence of such duress was presented by the respondent.
• The claims put forth by the respondent were barred by limitation and should not have been entertained.
• There was no coercion involved when the respondent entered into the supplementary agreement. Moreover, subsequent correspondence between the parties never indicated any alleged coercion. The petitioner pointed out that the first challenge to the validity of the supplementary agreement came on August 19, 2016, and the coercion claim was first made on October 20, 2016.
• The agreement was reached due to mutual delays in the project, and both parties agreed not to make claims against each other.
• The petitioner argued that if there was indeed coercion, the supplementary agreement should have been challenged immediately or upon the grant of the Statement of Determination (SOD) on February 24, 2014. The petitioner contended that the limitation period for challenging the supplementary agreement was until February 2017, which the respondent failed to adhere to. The petitioner cited the case of National Insurance Company Limited vs. Boghara Polyfab Private Limited (2009) 1 SCC 267 as precedent.
• The respondent never sought a declaration that the supplementary agreement of November 14, 2013, was void. The agreement was made to ensure the respondent completed the project, allowing the issuance of the SOD. Once the respondent acted under the supplementary agreement, they could not later claim coercion.
• The three-year limitation period for claims ended from the date of the completion certificate, i.e., February 24, 2014. The invocation of arbitration did not extend the limitation period for such claims.

Analysis by the Court

The Court observed that the expert report had concluded that the Petitioner had caused a substantial delay of 1668 days in the execution of the agreement. The Court held that the arbitral tribunal correctly concluded that the respondent executed the supplementary agreement giving up on all its claims only under duress as otherwise it would not have been issued a PCC.

The Court observed that NHAI had formulated a policy/circular dated 24.01.2013 wherein it had provided that issuance of PCC would be conditional on contractor entering into a supplementary agreement agreeing to forego its claims against NHAI/Petitioner. Further, the Court noted that the respondent witness during his cross-examination accepted that the issuance of PCC was conditional upon the execution of the supplementary agreement.

The Court held that a supplementary agreement executed by a contractor whereby it agrees to forego of its claims cannot preclude him from claiming damages against the employer if the execution of such agreement was a pre-condition to the issuance of PCC necessary for collection of toll taxes in BOT contracts.

The Court held that a party would be acting under economic duress or coercion if it has to execute a supplementary agreement foregoing all its claims against the employer as a pre-condition for the issuance of PCC, ergo, it would not be a bar to contractor later claiming damages for the losses suffered by it.

The Court held that when the employer/NHAI is responsible for the delay in the completion of the project work, it cannot be reasonably expected from the contractor to execute an agreement whereby it relinquish its right to claim damages but for the coercion put by the employer.

The Court also rejected the argument regarding the claims being time barred. The Court observed that the tribunal rightly concluded that since the petitioner did not issue any letter in response to the respondent’s letter claiming damages, the cause of action did not arise as there was no denial from the petitioner to those claims and the amount due, therefore, could be finally assessed only after completion of the construction work and till the expiry of extended period.

Accordingly, the Court concluded that the petitioner has failed to point out any glaring error which goes to the root of the award, ergo, it has failed to make out a case for the stay on the award. Regarding, the execution petition filed by the respondent, the Court directed the petitioner to pay 50% of the awarded amount within 4 weeks and the remaining amount within 4 weeks thereafter.

Case Title: NHAI v. M/S. T.K. TOLL PRIVATE LIMITED

Citation: 2023 LiveLaw (Del) 679

DATE: 09.08.2023

COUNSEL FOR THE PETITIONER: Mr.Narender Hooda, Sr.Advocate with Mr.Subash Bhat, Mr.Abhishek Sharma, Ms.Rashi Chaudhary and Mr.Shaurya Lambha, Advocates.

COUNSEL FOR THE RESPONDENT: Mr.Parag Tripathi and Mr.Jayant Mehta, Sr. Advocate with Mr.Ankur Kashyap, Mr.Hasan Murtaza, Ms.Bushra Waseem, Mr.Sameer Sharma and Ms.Gloria, Advocates.

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