National Highways Authority of India Through: The Project Director, Nhai vs.reengus Sikar Expressway Ltd - Court Judgment

$~31 * IN THE HIGH COURT OF DELHI AT NEW DELHI + O.M.P. (COMM) 463/2018 & I.A. No.15416/2018 Date of Decision :

11. h April, 2019 NATIONAL HIGHWAYS AUTHORUTY OF INDIA THROUGH: THE PROJECT DIRECTOR, NHAI ........ Petitioner

Through: Mr.S.Ravi Shankar, Ms.Yamunah Nachiar, Ms.Bhanu Kapoor, Advs. versus REENGUS SIKAR EXPRESSWAY LTD ..... Respondent Through: Mr.Dhruv Mehta, Sr. Adv. with Mr.Prashant Pakhiddey, Ms.Lakshmi Dwivedi, Mr.Anubhav Ray, Advs. CORAM: HON'BLE MR. JUSTICE NAVIN CHAWLA NAVIN CHAWLA, J.

(Oral) 1. This petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred as to the ‘Act’) has been filed by the petitioner challenging the Arbitral Award dated 05.07.2018 passed by the Arbitral Tribunal adjudicating the disputes that have arisen between the parties in relation to the work of Four Laning of Reengus Sikar section from Km 298.075 near Madhopur Junction to Km 341.047 of NH-11 in O.M.P. (Comm.) No.463/2018 Page 1 the State of Rajasthan awarded by the petitioner to the respondent under the Concession Agreement dated 26.04.2011.

2. Some of the undisputed features of the contract as also the dates relevant thereto given by the Arbitral Tribunal itself are reproduced hereinunder: i. Authority ii Concessionaire (SPV) NHAI RSEL iii Estimated Cost, as per RFP Rs.333.51 Cr. iv Total Project Cost as per C.A. (cl.48.1) Rs.227.51 Cr. v Date of signing of Concession 26.04.2011 Agreement vi Schedule 4 Lanning date from Appointed Date (cl.5.1 of Schedule G) 910 days vii Concession Period including 17 years construction period to be reckoned from Appointed Date (cl.3.1.1) viii Project Highway length ix Appointed Date to be declared/notified by the Authority within 180 days from date of signing of Agreement (cl.4.1.2 & Article

24) 43.887 km 25.10.2011 x xi Appointed Date declared/notified by Authority 05.03.2012 (delay of 132 days) Schedule Project Completion Date (SPCD) 31.08.2014 xii Effective Date of Certificate, i.e. COD Provisional originally 14.12.2013 O.M.P. (Comm.) No.463/2018 Page 2 recommended by IE to the Authority on 05.02.2014 for completion of 91.07% length of Project Highway, i.e. 39.532 km. and re-confirmed on 02.05.2104 (c/.14.3 & 15.1) xiii Effective of Date Provisional Certificate, i.e. COD as issued by the Independent Engineer on 25.09.2014 by deferring the date of COD in original recommendation. 22.09.2014 xiv Amount of each (Semi-Annual)Annuity Rs.18,77,22,277/- (Cl.27.1.1. & Schedule M) xv Max Amount of Bonus-equivalent to one Annuity payable Rs.18,77,22,277/- for six months (cl.8.1.) 3. The first challenge of the petitioner is to the grant of Claim no.6 in favour of the respondent. Under Claim no.6, the respondent had claimed payment of Annuity for 260 days from 14.12.2013, which is the Commercial Operation Date (COD) to 31.08.2014, which was the Scheduled Project Completion Date (SPCD).

4. Counsel for the petitioner submits that there is no challenge made in the present petition with respect to COD being 14.12.2013. The only limited challenge to the grant of Claim no.6 is that in terms of Clause 27.2.1 of the Concession O.M.P. (Comm.) No.463/2018 Page 3 Agreement, the respondent, even though it achieved the COD prior to SPCD, was not entitled to the grant of any additional Annuity due to such event. The only benefit that the respondent was entitled to out of such event was in form of Bonus under Clause 28.1 of the Agreement, which the respondent has been separately granted under the Impugned Award as Claim no.1 on which no challenge has been made by the petitioner.

5. On the other hand, the learned senior counsel for the respondent submits that the Arbitral Tribunal has awarded Claim no.6 by interpreting Clause 27.1.1, 27.2.1 and 27.2.2 of the Agreement. Such interpretation being plausible in nature, it would not be open for this Court to interfere with the same. He further submits that even if this Court finds any ambiguity in the Concession Agreement, though in the submission of the respondent there is none, the Agreement has to be interpreted against the petitioner.

6. Before I consider the submissions made by the counsels for the parties, it would be advisable for me to first reproduce Article 27.1 and 27.2 of the Agreement as under:-

"27.1 Annuity 27.1.1 Subject to the provisions of this Agreement, the Concessionaire upon achieving COD for the Project Highway and in consideration of the Concessionaire accepting the Concession and undertaking to perform and discharge its obligations in accordance with the terms, conditions and covenants set forth in this Agreement, O.M.P. (Comm.) No.463/2018 Page 4 to to pay Authority agrees and undertakes the Concessionaire, for each Annuity Payment Period, on each Annuity Payment Date as set forth in Schedule M - Annuity Payment Schedule, the sum of Rs. Eighteen Crore and Seventy Seven Lakhs Twenty Two Thousand Two Hundred and Seventy Seven (the "Annuity'') as set forth in its Bid. 27.1.2 In case, the Concessionaire achieves COD pursuant to provisions of the Clause 14.3.2 of this Agreement then it would be entitled for 90% of the Annuity payment till the Completion Certificate is issued as per the provisions of the Clause 14.2 of this Agreement. 27.2 Payment of Annuity to Subject the provisions of 27.2.1 this Article 27 and Article 28 and any other applicable provisions of this Agreement, Authority shall make payment of Annuity to the Concessionaire on each Annuity Payment Date. For avoidance of doubt the number of such Annuities shall not exceed 29 over the Concession Period and will commence from COD. 27.2.2 The first Annuity Payment Date shall be the date: (a) Six months after COD, in case COD is achieved on Scheduled four lane date (b) Six months after Scheduled four lane date, In case COD is achieved before Scheduled lour lane date. (c) of the next Annuity Payment as per Schedule M, in case COD is achieved after Scheduled four lane date. For avoidance of O.M.P. (Comm.) No.463/2018 Page 5 doubt it is agreed that the first Annuity Payment shall be the product of Average daily Annuity and the number of days between the COD and the first Annuity Payment date. Each Annuity payment period shall be deemed to be a period of 6 (six) calendar months from the preceding Annuity Payment date subject to provision of Clause 27.2.2(c). 27.2.3 Notwithstanding anything contrary contained to anywhere in this Agreement, Authority's obligation to pay Annuity shall arise subject to and only upon occurrence of COD.” 7. The Arbitral Tribunal, has interpreted Clause 27.2.2 and 27.2.3 by holding as under: “25. xxxxxxx iii. xxxxxxx b. A conjoint reading of Clause 27.2.2(c) & Clause 27.2.3 shows that the 'Authority's obligation to pay Annuity shall arise subject to and only upon occurrence of COD' and 'For avoidance of doubt it is agreed that the first Annuity Payment shall be the product of Average daily Annuity and the number of days between the COD and the first Annuity Payment date.' Thus, the Claimant is also entitled for payment of annuity for the period of 260 days i.e. from 14.12.2013 (COD) to 31.08.2014 (SPCD). The annuity for the period from 14.12.2013 (COD) to 31.08.2014 (SPCD) is to be treated as part of the 1st annuity and not as not 'additional' annuity. Therefore, there would be no case of any additional annuity over and above 29. O.M.P. (Comm.) No.463/2018 Page 6 Under the circumstances the Respondent's defence that 'Since the contract does not have any provision for additional annuity, claim 6 of the claimant must be rejected’ cannot be accepted.” 8. I cannot agree with the above interpretation of the Arbitral Tribunal. Infact, Clause 27.2 of the Concession Agreement required no interpretation as it is explicit. Clause 27.2.2 clearly states that if COD and the SPCD coincide the first Annuity Payment Date shall be six months after the COD; if the COD is achieved before SPCD, the first Annuity Payment Date shall be six months after SPCD; however, if the COD is achieved after SPCD, the first Annuity Payment Date shall be the next annuity payment date as per schedule ‘M’.

9. Schedule ‘M’ of the Concession Agreement gives the Annuity Payment Date and the Annuity Amount.

10. As under Clause 27.2.1 (c), incase COD is achieved after SPCD, the first Annuity Payment Date has been prescribed to be the next Annuity Payment Date as per Schedule ‘M’, a further clarification was required as to how the amount of Annuity has to be calculated. It is only for clarifying this aspect that clause 27.2.2 (c) stipulates as under: “(c) …………. For avoidance of doubt it is agreed that the first Annuity Payment shall be the product of Average daily Annuity and the number of days between the COD and the first Annuity Payment date.” O.M.P. (Comm.) No.463/2018 Page 7 11. This addition has no co-relation with Clause 27.2.2 (b) of the Concession Agreement. Incase, the COD is achieved before the SPCD, Clause 27.2.2 (b) clearly and only states that the first Annuity Payment Date shall be six months after the Scheduled Four Lane date, that is SPCD, and nothing further. The only benefit to the respondent if COD is achieved before SPCD is in form of a Bonus under Clause 28.1.1 of the Concession Agreement.

12. Though, it is true that where the Arbitral Tribunal interprets a term of an Agreement, the Courts are not to interfere in such interpretation only because they would prefer another interpretation to the contractual terms, in the present case, the interpretation put forward by the Arbitral Tribunal for Clause 27.2.2 of the Agreement is, in my opinion, completely perverse and against a plain reading of the contractual terms and therefore, cannot be sustained. In the name of interpretation, the Arbitral Tribunal has re-written the contract between the parties, which is certainly not permissible: Rajasthan State Mines and Minerals Ltd. v. i) Eastern Engineering Enterprises and Anr. (1999) 9 SCC283 ii) Nabha Power Limited (NPL) v. Punjab State Power Corporation Limited (PSPCL) and Anr. (2018) 11 SCC508 O.M.P. (Comm.) No.463/2018 Page 8 13. I therefore, set aside the award of Claim no.6 which had been granted in favour of the respondent.

14. Claim no.7 of the respondent was towards interest on the amount that would be awarded on Claim no.6. As I have held that the respondent is not entitled to any amount under Claim no.6, consequentially the award of Claim no.7 in favour of the respondent is also set aside.

15. The next challenge of the petitioner is to Claim no.12 of the respondent. Claim no.12 of the respondent was towards damages payable to the Concessionaire/claimant for delay in handing over the Right of Way (ROW).

16. Counsel for the petitioner submits that the Arbitral Tribunal has failed to appreciate that in a meeting dated 02.03.2012, the respondent had agreed to start the construction activity without waiting for the petitioner to fully comply with the Conditions Precedent as provided under Clause 4.1.2 of the Concession Agreement. Therefore, the respondent was estopped from claiming any damages on account of alleged failure of the petitioner to meet the Conditions Precedent within the time stipulated under Clause 4.1.2.

17. Counsel for the petitioner further submits that, in any case, the only loss alleged to have been suffered by the respondent as claimed in the Statement of Claim was loss of full amount of Annuity, which had been paid at only 90% of the full O.M.P. (Comm.) No.463/2018 Page 9 Annuity amount. As full amount of Annuity has thereafter been paid to the respondent, the loss, if any, suffered by the respondent had been fully satisfied. In the absence of any loss or damage, the respondent was not even entitled to claim liquidated damages as prescribed in clause 4.2 and/or 10.3.4, leave alone actual damages as awarded under Claim 12 of the Arbitral Tribunal.

18. On the other hand, learned senior counsel for the respondent submits that the Arbitral Tribunal has rightly held that the Minutes of Meeting dated 02.03.2012 do not in any manner amount to a waiver of the right of the respondent to claim damages due to petitioner’s failure to meet the Conditions Precedent as provided in Clause 4.1.2 of the Concession Agreement. He further submits that Claim no.12 of the petitioner has been awarded by applying Clause 10.3.4 of the Concession Agreement which provides for liquidated damages incase of failure of the petitioner to grant ROW to the concessionaire within 90 days from the Appointed Date. He further submits that as far as the actual loss is concerned, though it may be true that with the petitioner paying 100% of the annuity amount, the loss as alleged in the Statement of Claim may no longer survive, at the same time the Arbitral Tribunal has found such loss to have been actually suffered by the respondent while granting Claim no.15 in favour of the respondent. He submits that as actual damages were proved by O.M.P. (Comm.) No.463/2018 Page 10 the respondent in form of Claim no.15, the award of Claim no.12 in favour of the respondent cannot be challenged by the petitioner. He further submits that there is no challenge made by the petitioner to the fact that the damages as awarded under Claim no.12 are strictly in accordance with Article 10.3.4 of the Concession Agreement, which is the clause providing for Liquidated Damages.

19. I have considered the submissions made by the counsels for the parties. I would first reproduce the relevant extract from the Minutes of Meeting dated 02.03.2012 that has been relied upon by the petitioner in support of its challenge as under: “…..Further, the Project Director informed that existing ROW of 45m is enough for execution of 4-lanning and action already taken for acquisition of remaining land of 15m width. Further in case of Palsana Bypass 60m land is being acquired. Consequent upon publication of notification u/s 3(D) of NH Act, the land for Palsana Bypass has vested to Central Government. As such, the concessionaire is in a position to commence the work in Palsana Bypass immediately and meantime the 2nd stage clearance of protected forest could be obtained. Accordingly, on insistence of NHAI, the concessionaire agreed to commence the work on existing available stretches. However the concessionaire requested to expedite the necessary action for 2nd stage forest clearance. In view of the above status, the concessionaire and Authority agreed for Appointed Date of the project as 05.03.2012 subjected to approval of Competent Authority O.M.P. (Comm.) No.463/2018 Page 11 and Joint Memorandum as per Concession Agreement shall be prepared, accordingly.” 20. A reading of the above extract from the Minutes of Meeting would show that it was only at the insistence of the petitioner that the respondent agreed to commence the work on the existing available stretches of land and for the Appointed Date to be declared as 05.03.2012. A reading of the Minutes of Meeting do not suggest that the consequence and failure of the petitioner to meet the Conditions Precedent as prescribed in Clause 4.1.2 and/ or liquidated damages as prescribed in Clause 4.2 was ever in contemplation of the parties while taking the decision as recorded in the Minutes of Meeting dated 02.03.2012.

21. In M/s Sonell Clocks and Gifts Ltd. vs. The New India Assurance Co. Ltd., (2018) 9 SCC734 the Supreme Court has held as under:-

"“13. It is a well established position that waiver is an intentional relinquishment of a right. It must involve conscious abandonment of an existing legal right, advantage, benefit, claim or privilege, which except for such a waiver, a party could have enjoyed. It is an agreement not to assert a right. To invoke the principle of waiver, the person who is said to have waived must be fully informed as to his rights and with full knowledge about the same, he intentionally abandons them. There must be a specific plea of waiver, much less of abandonment of a right by the opposite party.” O.M.P. (Comm.) No.463/2018 Page 12 22. The Arbitral Tribunal has also considered the said Minutes of Meeting and held as under: “18. The Tribunal has gone through the pleadings of the parties and finds that : “i. xxxxxxx ii Contrary to the argument of the Respondent, there is no provision in the C.A. for waiver of the conditions precedent for deciding the appointed date, nor can the minutes of the meeting held on 02.03.2012 be construed as a waiver of the conditions the concessionaire/claimant signed the minutes and agreed (as 05.03.2012) on the insistence of the Respondent even as the land/RoW as required to be made available up to the appointed date was not available.” the appointed date decided precedent as to 23. I do not find any reason to disagree with the said finding of the Arbitral Tribunal.

24. However, at the same time, the only pleading of the respondent to justify Claim no.12 as in its Statement of Claim is in paragraph 12.0 (v), which is reproduced hereinbelow:

12. 0 Claim No.12: Concessionaire/Claimant for delay in handing over ROW Rs.2,77,38,359.00 Damages payable to xxxxxxx (v) Due to delay in handing over of encumbrance free Land/RoW the Concessionaire/Claimant was paid only 90% of full Authority/Respondent, the by O.M.P. (Comm.) No.463/2018 Page 13 in substantial to loss of revenue Annuity from the date of issue of Provisional Certificate, resulting the Concessionaire/Claimant by withholding 10% Annuity for the reasons, attributable to the Authority/Respondent. The with-held amount of 2nd and 3rd Annuity has since been paid to the Concessionaire/Claimant, as confirmed by the Authority/Respondent vide letter No.- 564 dt. 22.08.2016 (Exhibit C - 66).

25. It is not disputed by the respondent that the petitioner thereafter has paid 100% of the annuity amount for the second and the third annuity as well. Therefore, the loss which the petitioner alleged in support of Claim no.12 no longer survives.

26. In the absence of any loss, the question of award of liquidated damages in favour of the respondent could not have arisen.

27. In Kailash Nath Associates vs. DDA & Anr., (2015) 4 SCC136 the Supreme Court has clarified the interplay of Section 73 and 74 of the Indian Contract Act, 1872 (the Contract Act) as under: “33. Section 74 occurs in Chapter 6 of the Contract Act, 1872 which reads “Of the consequences of breach of contract”. It is in fact sandwiched between Sections 73 and 75 which deal with compensation for loss or damage caused by breach of contract and compensation for damage which a party may sustain through non-fulfilment of a contract after such party rightfully rescinds such contract. It is important to note that like Sections 73 and 75, compensation is payable for breach of contract under O.M.P. (Comm.) No.463/2018 Page 14 Section 74 only where damage or loss is caused by such breach. xxxxxx 43. On a conspectus of the above authorities, the law on compensation for breach of contract under Section 74 can be stated to be as follows: xxxxx 43.3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the section. xxxxx 43.6. The expression “whether or not actual damage or loss is proved to have been caused thereby” means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded.” 28. In view of the above, though grant of claim no.6 for the reasons stated in the Impugned Award could not have been sustained, however, I find that the learned senior counsel for the respondent has rightly contended that while granting claim no.15, the Arbitral Tribunal has indeed agreed that due to faults of the petitioner in granting ROW within the stipulated time, the respondent actually suffered loss in form of idle manpower and machinery. O.M.P. (Comm.) No.463/2018 Page 15 29. Under claim no.15, the Arbitral Tribunal after holding that the petitioner was indeed in breach of the contract in handing over complete ROW to the respondent within the time stipulated and that the respondent had suffered losses in form of idle manpower and machinery due to prolongation of the work, has awarded damages in favour of the respondent to the tune of Rs.3,24,22,683/-.

30. As far as the award of damages under claim no.15 is concerned, in the presence of Clause 10.3.4 which prescribes the liquidated damages due to default of the petitioner in the grant of ROW within the time prescribed, damages in excess thereof could not have been granted in favour of the respondent.

31. Section 74 of the Indian Contract Act is clear on this aspect and is reproduced hereinbelow: “74. Compensation for breach of contract where penalty stipulated for.— When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for. Explanation.—A stipulation for increased interest from the date of default may be a stipulation by way of penalty.” O.M.P. (Comm.) No.463/2018 Page 16 32. In Kailash Nath Associates (supra), the Supreme Court stated the law on compensation under Section 74 of the Contract Act as under: “43. On a conspectus of the above authorities, the law on compensation for breach of contract under Section 74 can be stated to be as follows:” 43.1. Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the court cannot grant reasonable compensation.” 33. In Mahanagar Telephone Nigam Ltd. vs. TATA Communications Ltd. (Judgment dated 27.02.2019 passed in Civil Appeal No.1766/2019), the Supreme Court has reiterated that the maximum damages that would be payable would be those prescribed as liquidated damages under the Contract Act.

34. Therefore, while it is held that the Arbitral Tribunal has erred in granting Claim no.15 separately in favour of the respondent, at the same time, grant of such claim would be relevant consideration for upholding grant of Claim no.12 in the O.M.P. (Comm.) No.463/2018 Page 17 Impugned Award. To clarify, it is held that as the respondent was able to prove actual loss suffered due to breach of contract by the petitioner, Claim no.12 awarded in favour of the respondent is upheld. At the same time, once the respondent has been awarded full amount of liquidated damages under Clause 10.3.4 in Claim No.12, respondent cannot claim further damages for the actual loss suffered by it and therefore, award of Claim no.15 in favour of the respondent is set aside.

35. The next challenge of the petitioner is to Claim no.21, which is of grant of interest on the amount awarded under Claim no.12.

36. The only challenge of the petitioner is that as the respondent was not entitled to claim no.12 consequently it should not be held entitled to any interest under claim no.21 as well.

37. As the challenge of the petitioner to Claim 12 has been rejected, consequentially challenge to the Claim no.21 is also rejected.

38. The next challenge of the petitioner is to grant of Claim no.14 which is a claim of escalation in TPC cost due to delay in handing over of land and Claim no.16 which is for additional overhead charges.

39. Counsel for the petitioner submits that these claims were based on the delay of the petitioner in declaring the Appointed O.M.P. (Comm.) No.463/2018 Page 18 Date under Clause 4.1.2 of the Concession Agreement. The Arbitral Tribunal has held that the Appointed Date should have been fixed latest by 13.11.2011 while it was actually declared on 05.03.2012. Counsel for the petitioner submits that for the said delay, the Arbitral Tribunal could have granted damages only to the extent of those provided in Clause 4.2 of the Concession Agreement as liquidated damages and not beyond that. He further submits that if calculated on the basis of Clause 4.2 of the Concession Agreement, the respondent would have been entitled to only a sum of Rs.1,16,76,000/- for Claim no.14 and 16 collectively.

40. Learned senior counsel for the respondent does not dispute the above contention. He submits that the respondent would have no objection if under Claim no.14 and 16 a consolidated amount as noted above is granted in favour of the respondent.

41. In view of the above submissions, award of claim no.14 and 16 is modified holding that the respondent would be entitled to only a consolidated sum of Rs.1,16,76,000/- under Claim no.14 and Claim no.16. Award of amount in excess of Rs.1,16,76,000/- under Claim No.14 and 16 is set aside.

42. The last challenge of the petitioner is to award of Claim no.19, which is the award of interest on the amount awarded under Claim no.14 in favour of the respondent. As the award of Claim no.14 and 16 have been confined only to a sum of O.M.P. (Comm.) No.463/2018 Page 19 Rs.1,16,76,000/- on the basis of the submissions made by the petitioner itself, the interest under Claim no.19 would also stand modified and the respondent would be entitled to interest at the rate awarded by the Arbitral Tribunal, however, on the awarded amount of Rs.1,16,76,000/-.

43. No other submission is made by the counsels for the parties.

44. The petitioner, pursuant to the interim order dated 22.11.2018 passed in the present petition has deposited certain amounts with the Registry of this Court. The parties shall jointly approach the Registrar General of this Court with the computation of the amounts that would have to be released to either party in terms of the Arbitral Award as modified by the present judgment.

45. The petition partially succeeds in the above terms, with no order as to costs. NAVIN CHAWLA, J APRIL11 2019 RN O.M.P. (Comm.) No.463/2018 Page 20