National Highways Authority of India v. Prakash-Atlanta (Joint Venture)

ORDER °

04.10.2010

¶1These two appeals have been preferred under Section 37 of the Arbitrationand ConciliationAct, 1996 to Impugnthe interimorderpassed by the arbitraltribunal on 16.06.2008. The first appeal has been preferredby i^HAI against the contractor, Prakash -Atlanta(JV), whereby the NHAI impugns the entire order. The second appeal has been preferred by the Contractor,PrakashAtlantaJV againstNHAI challengingthe impugnedorder partially insofar as the arbitral tribunal has not directed payment of the Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. >• c amount of Rs.28,84,43,061/- to the contractor, but has directed that the said amount be kept in a fixed deposit by the NHAI. For the sake of clarity, the NHAI is referred to as the appellant and the Contractor Prakash-Atlanta(JV) is referred to as the respondent.

¶2The appellant awarded the contract for construction of segment of Lucknow Bypass connecting NH-25 and NH-28 via NH-56 passing through Lucknow City in the State of Uttar Pradesh (Contract Package No.EW-15/UP) to the respondent. The contractual work was not completed within the contractual period of 30 months. The respondent/contractor terminated the contract on 14.03.2008 alleging various breaches by the appellant NHAI. C Thereafter,the contract was also terminated by the appellant NHAI vide notice dated 24.03.2008. Various bank guarantees given by the respondent contractor amounting to Rs.28,84,43,061/- towards performance guarantee and towards security for advances given to the contractor were also invoked by the NHAI.

¶3The respondent filed a petition under section 9 of the Act before this ^ Court being OMP No.181/2008 to restrain the encashment of the said bank guarantees. However, before the matter was taken up by the court for consideration, it appears that the bank guarantees had already been encashed and moniesthereunder received by appellant NHAI.

¶4On 30.04.2008, the Court took up OMR No.181/2008. The statement ihe appellant herein that all bank guarantees have been encashed was 9^ recorded by the court in its order. The Court took note of the fact that the arbitration agreement between the parties had been invoked and that the respondent contractor had sought recovery of the amount recovered by NHAI nder the said bank guarantees on the ground that the invocation of the bank guarantees was illegal. The Court disposed of petition under section 9 of the Act with a direction that the appellant NHAI shall keep the funds available with them till further orders are passed by the arbitral tribunal, which was expected to be constituted shortly. The Court permitted the oartiesto file an applicationbeforethe arbitraltribunal in this respect. " So far as the equipments and machineries etc. of the espondent/contractorare concerned, the same were sought to be taken possessionof by the NHAI by invoking clause 61.1 of the agreement,which reads as under: •'61.1 All materials on the Site, Plant, Equipment, Temporary Worl<s and Works are deemed to be the property of the Employer if the contract is terminated because of a contractor's default". p. In this background,the respondent/contractorfiled an application tieforethe arbitral tribunal under section 17 of the Act to seel< two reliefs, namely, (i) for refund of the encashedbank guaranteeamount realized by appellant NHAI amountingto Rs.28,84,43,061/-;and (ii) for release of liatenals,plant, materialsand equipments,temporary works etc. lying at ohe site, seized by the appellantNHAI. W-y

¶7By the impugnedorder, the arbitral tribunal has firstly directedthe MHAI to place an amountof Rs.28,84,43,061/-in a fixed depositaccountwith the State Bank of India for such durationas it may considermost beneficial, to be renewedfrom time to time until final ordersare passed by the arbitral tribunal. It was directed that this direction be complied with before

21.06.2008. On the second aspect,the tribunal has directedthe appellant MHAI to retum all the equipments, materials etc. to the respondent -.ontractorwithin 15 days afterpreparationofjointinventory. As aforesaid,the appellant/NHAIis aggrievedby both the directions issued by the arbitral tribunal, whereas the grievance of the respondent/contractoris that the amounts which have been directedto be placed in a fixed deposit should, instead, have been released to the respondent/contractor.

¶9The submission of Mr. Sandeep Sethi, learned senior counsel appearing for the petitioneris that the impugned order is illegal and not justified. He submitsthatthe arbitraltribunalhas not given any basis for the direction issued to the appellant NHAI to keep the aforesaid amount in a *ixed depositwith the State Bank of India. The arbitraltribunal has neither consideredthe primafacie case nor given any reasonsas to why the monies lying with the NHAI amounting to Rs.28,84,43,061/-were required to be placed in aseparateaccountwith the State Bank of India. He submitsthat the NHAI is astatutorycorporationcarryingout the task of laying national fiiqhways throughout the country. The corporation has been set up by the Union of India. It is not the arbitral tribunal has expressed any doubt with 'egard to the liquidity position of the appellant/NHAI. 10, Mr. Sethi further submits that since one of the substantive claims of *^^>6 respondentbefore the arbitral tribunal is to seek refund of the money received under the said guarantees,witlioutadjudicationof the issue as to whetherthe encashmentof the bank guaranteeswere legal and justified,the -Mitraltribunalcould not have directedthe appellantto place the aforesaid amountsin a fixed depositwith StateBank of India. So far as the secondissue is concerned,Mr. Sethi has placedstrong •-^.anceon the decisionof the SupremeCourt in the caseof K.P.MBuUCers fvt. IM. V. NHAI&Anr.in CivilAppeal Nos.3300-3301of 2008 decidedon

25.02.2010. He submitsthat merelybecausethe respondent/contractorhad -suedthe notice of terminationpriorto that issued by appellantNHAI the nsht Ofthe NHA, underclause61.1 ofthe agreementcannotbe denied,as it ,,hecaseofthe NHAI thatit is respondent/contractorwho is in default. " in response, Mr. Sandeep sharma, learned counsel for the ^espondent submits that the order directing the deposit the R.nRRzid^nc-,, . amount of passedf II ' • has been .,«rr,,eund ofthe said amountto the respondent/contractor.

¶13Mr. Sharmasubmitsthatthe respondent/contractorhad been able to establisha very strong prima facie case before the arbitral tribunal, which led to the passing of the said order. Mr. Sharma submits that though the contractwas awarded on 27.07.2001and the works had to be completed Within a period of 30 months, the works under the contractcontinuedand the respondentterminatedthe contract on 14.03.2008. He submits that though the value of the work awardedto the respondent/contractorwas to the tune of Rs.l58 crores, even after paymentof Rs.l70 crores, the works could not be completedas there had been large scale variationIn quantities nrespectof 95% of the items in the BOQ. He submitsthat even according fo the NHAI'S own Consultant,the cost of the work had gone up to Rs.220 crores. Id Mr. Sharmasubmitsthatafterconsideringtheseaspects,the arbitral tribunal had directed that the NHAI should preserve the amount realized from the respondent/contractorin afixed deposit with the State Bank of ...dia,so that the respondentis able to recoverthe said amount,along with nterest, if eventuallythe claim of the respondentis allowedby the arbitral riKi in1 tribunal.

¶15so far as the secondaspectis concerned,Mr. Sharma submitsthat the order made by the arbitral tribunal directing the return of the ..u,pmentsand materialsetc. does not survive in view of the subsequent >rder passed by the arbitraltribunal on 28.12.2009. He submitsthat the arbitral tribunal has in fact appointed a valuer to assess the value of the equipment etc. so that the same could be disposed of by the appellant/NHAI. He submits that the arbitral tribunal is right in its conclusion that the contract which had been terminated by the respondent/contractor on M03.2008 could possibly not have been once again terminated by the appellantNHAI vide notice dated 24.03.2008. He submitsthat clause 61.1 could be invoked only when the contractis terminatedby NHAI becauseof the contractorsdefault. As that eventuallydid not arise, clause 61.1 could ^ not be resortedto by the appellant/NHAI. ^ Having heard learnedcounselsfor the parties, with due respectto ^ arbitral tribunal, Iam of the view that the interim order cannot be sustainedand deservesto be setaside in its entirety. 1-'. Aperusal of the impugned order shows that the same has been -nounal has only recordedthat it has heard the counselsfor the partiesat •o-e length. Even accordingto the arbitraltribunal,it has not gone into -ttersOf disputeand differenceswhich are the subjectmatterof reference ^e^ore,t, by observingthatit may prejudicethe caseofthe partiesbeforeit case in 11'^^ ^ our of the respondent,as contendedby the respondent In any - . med by the respondent. c >

¶18Even if it were to be assumed that the respondent/contractor had, in fact, made out a strong prima facie case before the arbitral tribunal, that by ;tself could not have been a valid ground to require the appellant/NHAI to keep the amount of Rs.28,84,43,061/- in a fixed deposit with State Bank of ndia. The order of this court in OMP No.181/2008 was already in force. The said order required the NHAI/appellant to keep the funds available. The said order obviously did not mean that the appellant was required to keep the amount in a fixed deposit. It only meant that if and when the arbitral tribunal makes an executable award to pay the amount to the r^.r;pondent/contractor,the respondent/contractorshould be able to recover the same.

¶19The order requiringthe deposit of the aforesaidamount in a fixed deposit could possibly have been made by the arbitral tribunal, only after recordingsatisfactionto the effectthatthe amount,if not so preserved,may taken away and that the respondent/contractormay not be able to coverthe amountand executethe awardthatmay eventuallybe passedin its favourby the arbitraltribunalfor the saidamount. From the impugned order, it appears that the arbitral tribunal has not even addresseditselfto that issue. The credibilityand solvencyof the appeiiant/NHAI has not been doubted. It is a statutory corporation -nst,tutedby the CentralGovernment. This being the position,there was - ,ust,f,cat,onto requirethe said amountof Rs.28,84,43,061/-being placed re; it":-- V in a fixed deposit with State Banl< of India. The amount in question is not a small amount, and there was no justification in disabling the appellant from using the said amount to carry out its operations. Eventually, if arbitral tribunal finds in favour of the respondent/contractor, it can certainly make an award for refund of the said amount along with interest at an appropriate rate. The reasoninggiven by the tribunalthat the amount recoveredby the appellant by encashment may merge with other monies if not retained in a fixed deposit and would loose its identity, with due respect, does not at all apoeal to me. The monies having come into the coffers of the appellant NHAI have already merged with the monies lying in its account. The colour of the monies held by the appellantNHAI is the same, whetherit is the one received by encashment of the bank guarantees furnished by the respondent,or in any otherway. There is no rationalein keepingthose very monies, which have been receivedon encashmentof the bank guaranteesof respondent,separatelyto meetthe possibleclaim of the respondent. .-•1 So far as the second aspect is concerned,there again Ifind that the impugnedaward is fallaciousand cannot be sustained. Merely becausethe notice of termination was first issued by the respondent/contractoron 14,03.2008,followed by the terminationnotice issued by the appellant/NHAI on 24.03.2008, in my view, that would not take away the right of the appellant/NHAIto invoke clause 61.1 of the agreementbetweenthe parties. Clause 61.1 can be invoked when : (i) the contractis terminated,and (ii) accordingto the NHAI, the contractoris in default.

¶22The contractor, who may be in default cannot, by merely sending a notice of termination before it being sent by the NHAI, avoid the consequences which flow from clause 61.1 of the contract between the parties, if the interpretation adopted by the arbitral tribunal were to be accepted, it would lead to an absurd situation. Even in cases where the contractor is, in fact, in default he would be able to avoid the consequences provided for in clause 61.1 by sending a notice of termination of the contract before such a notice is issued by the NHAI. .'3 The submission of Mr. Sharma that the impugned order insofar as it • rects that the return of the equipment, materials etc. does not survive on accountof the passing of the order dated 28.12.2009does not appearto be correct. The order dated 28.12.2009itselfrecordsthat by the time the said ordercame to be passed,the impugnedorder had been stayed by this court in thesevery proceedings.The orderdated 28.12.2009,therefore,proceeded on that basis. However, if the impugnedorder insofaras the second aspect MOt appropriatelydealt with, and the order in respectthereofis sustained, rhe rights of the respondentto seek return of the equipment, plant etc. would certainly revive. Since Ihave found merit in the appeal preferred by the appellant NHAI, the consequenceis thatthe appealfiled by the respondentcontractor ,^nstfail. The grievanceof the respondentis thatthe arbitraltribunalshould have releasedthe amountof Rs. 28,84,43,061/-to the respondentis wholly unfounded. Unless the arbitral tribunal has adjudicated the disputes between the parties finally, the said relief possibly could not have been granted by way of an interim order. For the aforesaidreasons,Iallow this appeal preferredby the appellantNHA, and set aside the impugned order nassed by the arbitraltribunaldated 16.06.2008. The appeal preferredby ^he respondentcontractoris dismissed being devoid of any merit Any observationmade hereinshaM not come in the way of the arbitraltribunalin passingthe final award. The appellantshall be entitledto costsquantified at Rs.30,000/- t OCTOBER04, 2010 VIPIN SANGHt, I sr

f' 7-8 IN THE HIGH COURT OF DELHI AT NEW DELHI + ARB.A. 9/2008 NATIONAL HIGHWAYS AUTHORITYOF INDIA Appellant Through: Mr. Sandeep Sethi, Sr. Adv. with Ms. Padma Phya, Advocate versus PRAKASH-ATLANTA(JOINTVENTURE) Respondent Through: Mr. Sandeep Sharma, Advocate + ARB.A. 18/2008 M/S PRAKASH ATLANTA JV Appellant Through: Mr. Sandeep Sharma, Advocate versus NATIONALHIGHWAYSAUTHORITYOF INDIA Respondent Through: Mr. Sandeep Sethi, Sr. Adv. with Ms. Padma Priya, Advocate CORAM: HON'BLE MR. JUSTICEVIPIN SANGHI