Delay In The Handing Over The Work Front Affecting Completion Is A Material Breach : Delhi High Court

The bench of Justice Manoj Kumar Ohri upheld an arbitral award wherein the arbitrator held NHAI to be in material breach of the contract for its failure to provide the Right of Way or the work front to the contractor which resulted in the delay in issuance of provisional completion certificate and delayed commercial date of operation.

The Court reiterated that scope of interference under section 34 of the Act is limited. The arbitral tribunal is the final adjudicating authority in respect of the disputes between the parties, as well as the interpretation of the agreement between them. No interference with the arbitral award would be warranted unless the Court finds that the view is patently illegal or perverse. The Court is not meant to act as court of first appeal, and cannot supplant its view over that of the arbitral tribunal.

Facts

The parties entered into an agreement dated 30.01.2006 and a supplementary agreement dated 06.03.2014 by which the petitioner (NHAI) awarded to the respondent, certain construction and maintenance work related to a national highway in the State of Tamil Nadu on build, operate and transfer (BOT) basis.

In terms of the agreement, the commercial date of operation (COD) was 29.01.2009, however, on account of delay in the handing over the right of way (ROW), the project work could only be completed on 28.09.2009.

The Contractor invoked arbitration and sought damages on several counts including additional expenses due to extended stay on the project site and loss of revenue due to delay in COD. The arbitrator vide the impugned award dated 07.07.2016 partially allowed the claims of the contractor and held the NHAI to be in material breach of the contract for delay in the handing over of the work front/ROW.

Aggrieved by the award, the petitioner challenged it under Section 34 of the A&C Act.

Grounds of Challenge

The petitioner challenged the award on the following grounds:

• The arbitrator erred in holding the delay in the handing over of the ROW as a material breach of the contract and awarding damages under Section 55 and 73 of the Indian Contract Act. The tribunal erred to appreciate that the compensation for the delay in the handing over of ROW is covered by Clause 13.5 of the agreement which provides for a pre-determined amount of compensation payable to the contractor, therefore, it could not have been treated as a material breach of contract covered under a different clause of the agreement. It was a minor default for which the remedy was already provided in the agreement.

Analysis by the Court

The Court observed that the petitioner had not disputed the fact regarding the delay in the handing over of the ROW/working front but has merely challenged the contractual interpretation adopted by the tribunal for awarding compensation for such delay.

The Court observed that Clause 13.5 provides for a pre-determined compensation for the delay handing over of the ROW, however, the proviso to the clause clearly provides that the clause would not apply if the delay affects the issuance of Provisional or Final completion certificates or delays COD.

The Court held that delay in the handing over of the Right of Way is a material breach of contract if it affects the issuance of Completion Certificate or delays the Commercial Date of Operation (COD).

The Court held that the interpretation given by the arbitral tribunal to Clause 13.5 is the correct view of the said clause, therefore, does not call for any interference.

The Court reiterated that scope of interference under section 34 of the Act is limited. The arbitral tribunal is the final adjudicating authority in respect of the disputes between the parties, as well as the interpretation of the agreement between them. No interference with the arbitral award would be warranted unless the Court finds that the view is patently illegal or perverse. The Court is not meant to act as court of first appeal, and cannot supplant its view over that of the arbitral tribunal.

Case Title: NHAI v. D.S. Toll Roads Pvt Ltd

Citation: 2023 LiveLaw (Del) 902

Date: 19.09.2023

Counsel for the Petitioner: Mr.S.Nanda Kumar, Ms.Deepika Nanda Kumar and Mr.Anand Murthi Rao, Advocates

Counsel for the Respondent: Mr. Jayant Mehta, Sr. Adv. with Mr.Ankur Kashyap, Mr.Hasan Murtaza, Ms.Bushra Waseem and Mr.Aman Bajaj, Advocates.

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