Mere Grant Of Extension Of Time To Contractor Does Not Necessarily Mean That NHAI Was Responsible For The Delays: Delhi High Court

The division bench of Justices Vibhu Bakhru and Amit Mahajan held that when the agreement between the parties provides for compensation and extension of concession period in favour of the contractor only in the eventuality of a material breach by NHAI, the arbitrator cannot award damages or grant extension of concession period, without first determining the issue of breach of material breach of the agreement by NHAI, simply for the reason that the IE has recommended EoT in favour of the Contractor.

The Court held that recommendation by IE for EoT could be for a variety of reasons such as justifiable delays beyond the control of the contractor, force majeure events, etc., and does not always mean that NHAI has been in breach of its obligation or the reasons for delays were attributable to it.

Facts

The parties entered into a Concession Agreement dated 16.11.2009 on BOT basis. The project work under the agreement was to be completed within a period of nine hundred and ten days. Admittedly, the completion of the project got delayed substantially. Accordingly, the Respondent (Contractor) had applied to EoT on various occasions and requested for the issuance of Provisional Completion Certificate (PCC).

On 13.10.2014, respondent furnished an undertaking not to raise any cost claims with regard to resources (manpower and machinery) which had remained idle during the construction period. On 05.11.2014, the parties entered into a Supplementary whereby respondent agreed not to raise any claim in respect of idling of resources (manpower and machinery), increase in costs of material, delay in construction of the highway etc. It further agreed not to seek any extension of the concession period. However, it retained the right to seek extension of the concession period on account of any valid factors arising after the actual construction of the highway project in terms of the CA.

Thereafter, on 27.11.2014, the IE issued the PCC and the respondent commenced toll collection with effect from 28.11.2014 (PCOD). The IE recommended an interim EoT for construction upto 27.11.2014 (that is, extension of time for a period of 518 days). The IE subsequently also reiterated its recommendation for EoT by its letter dated 23.09.2015.

On 19.06.2017, the respondent sought compensation under Clauses 35.2 and 35.3 of the CA on account of delay of 518 (five hundred and eighteen) days without quantifying the same. In addition, IRB also sought extension of concession period by 518 days to compensate the delay which it claimed was attributable to “NHAI / Railway Authority / Irrigation Authority”. Thereafter, the respondent invoked the dispute resolution clause and sought conciliation of the disputes. Subsequently, the respondent issued a notice of arbitration and the dispute was referred to an arbitral tribunal consisting of three members. The arbitrator allowed the claims filed by the respondent. Aggrieved thereby, NHAI challenged the award under Section 34 of the Act. However, the Ld. Single judge dismissed the challenge petition. Accordingly, NHAI filed the appeal under Section 37 of the Act.

Impugned Award

The arbitral tribunal, by way of a 2:1 majority, allowed the claims of the respondent. It held that the IE was the final authority qua the issue of EoT and that it had recommended the EoT after being satisfied that the reasons for delay were not attributable to the respondent, ergo, it was entitled to get compensation for the delay and also seek extension of operation period. The tribunal held that the delays were attributable to NHAI and it was in material breach of the CA.

The tribunal also held that the Supplementary Agreement was an outcome of economic duress and coercion, therefore, it would not preclude the Respondent from claiming damages. It held that the Respondent entered into the supplementary agreement as it was made a pre-condition to the issue of PCC. It held that the execution of Supplementary Agreement would not act as waiver of the rights by the respondent as there was no consideration for it to waive its right under the Supplementary Agreement as the delay was purely attributable to NHAI.

The Arbitral Tribunal also rejected NHAI’s contention that there was delay on the part of the respondent in raising the claims including the claim that the Supplementary Agreement was executed by it under duress. It held that the respondent did not immediately raise the issue of coercion for the reason that there was threat of termination of the CA. In the alternative, the Arbitral Tribunal also held that even if the Supplementary Agreement was held to be valid, it did not preclude respondent from making its claims. The Arbitral Tribunal reasoned that Clause (b) of the Supplementary Agreement whereby respondent had agreed not to raise any claims in the CA and not to seek any further extension of the concession period, was only applicable for factor arising during the period after issuance of the PCC/PCOD till full completion of the works. Further, it did not provide for any waiver of compensation on account of NHAI’s default under Clauses 35.2 and 35.3 of the CA. The Arbitral Tribunal held that the IE’s determination of 518 (five hundred and eighteen) days of delay being attributable to NHAI constituted a valid factor entitling respondent to claim compensation and extension of the concession period.

Grounds of Appeal

NHAI challenged the award on the following grounds:

• The tribunal erred to not appreciate that, in terms of Clause 35, the respondent could claim compensation/Extension of Concession Period only when NHAI was in material breach of the CA and the delays were solely attributable to it.
• The arbitral tribunal erred in not appreciating that the IE in none of its report attributed the cause of delay to NHAI.
• The arbitral tribunal also failed to appreciate that the reasons/events of delay given by the IE in its recommendation report are in fact attributable to the respondent as it was liable for getting all the approvals/permissions required for the project work.
• The award suffers from patent illegality as the tribunal has imposed liability upon NHAI without first determining if the NHAI was at all in breach of the terms of CA. Further, the tribunal has gone beyond the pleading of the respondent and awarded damages.
• The tribunal also erred in holding that the Supplementary Agreement was executed under coercion. There was no evidence to back the claim of the respondent qua economic coercion/duress in the execution of the supplementary agreement.
• That the tribunal failed to appreciate that the contention of the respondent regarding coercion in the execution of supplementary agreement was an afterthought as it was belatedly raised after a lapse of almost 4 years and without any explanation.
• The conclusion of the Arbitral Tribunal, in the alternative, that the Supplementary Agreement did not constitute a waiver of the claims under Clause 35.2 and Clause 35.3 of the CA was ex facie untenable as this was contrary to respondent’s pleadings and no such case had been set up by the respondent.

Analysis by the Court

The Court first decided the issue of EoT. The Court observed that admittedly the IE had recommended a 518 days EoT, however, the IE did not hold that the delay was attributable to NHAI or state that NHAI is in material default of the CA.

The Court observed that in terms of Clause 35, the respondent could claim compensation/Extension of Concession Period only when NHAI was in material breach of the CA and the delays were solely attributable to it. It held that that it was essential for the tribunal to first determine if the NHAI was in material default of the CA before awarding damages to the respondent. Further, it held that the tribunal has not returned any finding on the issue of whether the reasons listed by the IE constituted a material breach of the CA.

The Court held that mere recommendation by Independent Engineer (IE) for Extension of Time (EOT) to the contractor does not necessarily mean the NHAI was responsible for the delays in the completion of the project work. It held as under:

“72. We are of the view that the Arbitral Tribunal had committed a fundamental error in essentially not addressing the real dispute – whether NHAI was in material default of the CA. Thus, the issue no.3 as framed by the Arbitral Tribunal, essentially remained unadjudicated.”

On the issue of Supplementary Agreement, the Court held that the tribunal also erred in holding that the Supplementary Agreement was executed under coercion. There was no evidence to back the claim of the respondent qua economic coercion/duress in the execution of the supplementary agreement.

The Court held that there was no averment in the Statement of Claims to the effect that respondent had entered into the Supplementary agreement under threat of termination of CA or that it did not raise any protest because the threat of termination of the CA had continued even after the Supplementary Agreement was executed. The Arbitral Tribunal’s conclusion in this regard is contrary to the respondent case that it was coerced into entering into the Supplementary Agreement because the PCC was being withheld; without the same it could not commence collection of toll; and it was already under pressure from its banks to commence repayment of loans. It held that conclusion of the Arbitral Tribunal is ex facie vitiated by patent illegality.

Accordingly, the Court allowed the appeal and set aside the award.

Case Title: NHAI v. IRB Pathankot Amritsar Toll Road Ltd

Citation: 2023 LiveLaw (Del) 604

Counsel for the Appellant: Mr. A. K. Verma, Sr. Adv. with Mr. Nikhil Mehta, Mr. Vinod Mehta & Mr. Varun Sharma, Advs.

Counsel for the Respondent: Mukul Rohatgi, Mr. Saurabh Kirpal, Sr. Adv. with Dr. Rajeshwar Singh, Mr. Saket Sikri, Mr. Apoorv Agarwal, Mr. Sarthak Sachdev, Ms. T.R. Daulat, Mr. Mohnish Patkar, Mr. Hemant Sharma & Ms. Shabhavi Singh, Advs.

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