M/S Prakash Atlanta Jv v. National Highways Authority of India

ORDER %

04.10.2010

¶1These two appeals have been preferred under Section 37 of the ArbitrationandConciliationAct,1996toimpugntheinterimorderpassedby ^hearbitraltribunalon16.06.2008.Thefirstappealhasbeenpreferredby yNHAI againstthecontractor, Prakash -Atlanta(JV),whereby theNHAI impugnstheentireorder. Thesecondappealhasbeenpreferredbythe Contractor,PrakashAtlantaJVagainstNHAI challengingtheimpugnedorder partiallyinsofarasthearbitraltribunalhasnotdirectedpaymentofthe " 'r~"Tn"r 'f': . 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. amountofRs.28,84,43,061/-tothecontractor,but hasdirectedthatthesaid amountbe kept in a fixeddepositbytheNHAl. Forthesakeof clarity,the NHAI isreferredto astheappellantandtheContractorPrakash-Atlanta(JV) is referredtoastherespondent.

¶2Theappellant awardedthecontractforconstructionofsegmentof Lucknow Bypass connectingNH-25 andNH-28 via NH-56 passingthrough LucknowCity intheStateofUttar Pradesh(ContractPackageNo.EW-15/UP) totherespondent.The contractual work was not completedwithin the -r-contractualperiodof30months. Therespondent/contractorterminatedthe ^contracton14.03.2008allegingvariousbreachesbytheappellantNHAI. Thereafter, thecontractwas alsoterminatedby theappellantNHAI vide noticedated24.03.2008. Various bankguaranteesgivenbytherespondent contractoramountingtoRs.28,84,43,061/- towardsperformanceguarantee andtowardssecurityforadvancesgiventothecontractorwerealsoinvoked bytheNHAI.

¶3Therespondentfiledapetitionundersection9oftheAct beforethis Court beingOMP No.181/2008 torestraintheencashmentofthesaidbank guarantees. However, beforethematter was takenup bythecourtfor ^nsideration,itappearsthatthebankguaranteeshad alreadybeen encashedand moniesthereunderreceived byappellantNHAI.

¶4On 30.04.2008, theCourttook upOMP No.181/2008. Thestatement I,'Itheappellanthereinthatallbankguaranteeshavebeenencashedwas riTTTrnnrnr 'n '"~:nrr p ecordedbythecourtinitsorder. TheCourttooknoteofthefactthatthe arbitrationagreementbetweenthepartieshadbeeninvokedandthatthe respondentcontractorhadsoughtrecoveryofthean:iountrecoveredbyNHAI underthesaidbankguaranteesonthegroundthat theinvocationofthe bankguaranteeswasillegal.The.Courtdisposedofpetitionundersection9 of theAct with adirectionthat theappellantNHAI shallkeep thefunds available with themtillfurtherorders arepassedbythearbitral tribunal, which was expectedto beconstitutedshortly. The Court permittedthe parties tofileanapplicationbefore thearbitraltribunalinthis respect. > 5. So far as the equipments and machineries etc. of the vr€spondent/contractor are concerned, thesamewere sought to be taken possession of by theNHAI byinvokingclause 61.1 of theagreement,which ceadsasunder: 1 i "61.1 All materials on theSite, Plant, Equipment, Temporary Works andWorks are.deemedtobethepropertyofthe Employer ifthecontract is terminatedbecause of a con trac tor 'sdefault" . , Inthisbackground,therespondent/contractorfiledanapplication beforethearbitraltribunalundersection17 oftheAct to seektwo reliefs, Jnamely,(i)forrefundof theencashedbankguaranteeamountrealizedby theappellantNHAI amounting to Rs.28,84,43,061/-; and(ii)forreleaseof materials, plant,materials andequipments,temporaryworks etc.lyingat thesite,seizedbytheappellantNHAI. D ,7. Bytheimpugnedorder,thearbitraltribunalhasfirstlydirectedthe ^ :NHAItoplaceanamountofRs.28,84,43,061/-in afixeddepositaccountwith .theStateBank of India for such durationas it mayconsidermost beneficial, to berenewedfromtimetotimeuntil finalordersarepassedbythearbitral tribunal. It wasdirected thatthis direction becomplied with before

21.06.2008. Onthe second aSpect, the tribunal has directed the appellant IMHAI to return alltheequipments, materials etc. to therespondent contractorwithin 15daysafterpreparationof jointinventory. 8, Asaforesaid,theappellant/NHAI isaggrievedby boththedirections ';,/fssued by the arbitral tribunal, whereas the grievance of the Respondent/contractoristhattheamountswhich havebeendirectedtobe placed in afixeddeposit should, instead,have been releasedtothe respondent/contractor.

¶9The submission of Mr. Sandeep Sethi, learnedsenior counsel appearingforthepetitioneristhattheimpugnedorderis illegalandnot justified.Hesubmitsthatthearbitraltribunalhasnotgivenanybasisforthe directionissuedtotheappellantNHAI tokeeptheaforesaidamountin a fixeddepositwith theStateBankofIndia. Thearbitraltribunalhasneither \consideredtheprimafaciecasenorgivenanyreasonsasto whythemonies •'lyingwith theNHAI amountingtoRs.28,84,43,061/- were required to be placedin aseparateaccountwith theStateBankofIndia. He submitsthat theNHAI is a statutorycorporationcarryingout the task oflayingnational Ji.,.v,.. .1 ^-4 highwaysthroughoutthecountry.Thecorporationhasbeensetupbythe unionofIndia.Itisnotthearbitraltribunalhasexpressedanydoubtwith regardtotheliquiditypositionoftheappeilant/NHAi.

¶10Mr. Sethifurthersubmitsthatsinceoneofthesubstantiveclaimsof therespondentbeforethearbitraltribunalIstoseekrefundofthemoney receivedunderthesaidguarantees,withoutadjudicationoftheissueasto whethertheencashmentofthebankguaranteeswerelegalandjustified,the arbitraltribunalcouldnothavedirectedtheappellanttoplacetheaforesaid amountsin a fixeddepositwithStateBank of India. Vll . So far asthesecondIssue isconcerned,Mr. Sethihasplacedstrong %-iiance onthedecision oftheSupremeCourt inthecaseof K.P.MBuilders •pvt,Ltd.V. NHAI &Anr. inCivilAppeal Nos.3300-3301of2008decidedon

25.02.2010. Hesubmitsthatmerely becausetherespondent/contractorhad .issuedthenoticeofterminationpriortothatissuedbyappellantNHAI, the rightoftheNHAI underclause61.1oftheagreementcannotbedenied,asit iS'thecaseoftheNHAIthatIt isrespondent/contractorwho Is indefault.

¶12In response, Mr. Sandeep Sharma, learned counsel for the respondentsubmitsthatthe.orderdirectingthedeposittheamountof |^R5.28,84,43,061/-ina fixeddepositwiththeStateBankofIndiahasbeen < passedfollowingthe order dated30.04.2008passedbythisCourtinOMP 1Mo,.181/2008. He submitsthat,in fact,thearbitraltribunalshould have oinectedtherefundof the said amount to therespondent/contractor. [i V • .

¶13Mr. Sharmasubmitsthat therespondent/contractorhad been able to establishaverystrongprimafaciecasebeforethearbitraltribunal,which ledtothepassingofthesaidorder. Mr. Sharmasubmitsthatthoughthe contract was awarded on 27.07.2001 and the works had to be completed within aperiodof30months, theworks underthecontractcontinuedand therespondentterminatedthecontracton14.03.2008. He submitsthat thoughthevalueof theworkawardedto therespondent/contractorwasto thetuneofRs.l58crores, even afterpaymentofRs.l70crores,theworks bouldnotbecompletedas therehadbeenlargescalevariationinquantities inrespect of95%of the itemsintheBOQ. Hesubmits that evenaccording \7^"- ib'theNHAI's ownConsultant,the cost of thework hadgoneuptoR5.220 o res . 14: Mr. Sharmasubmitsthat afterconsideringtheseaspects,thearbitral tribunalhad directedthattheNHAI shouldpreserve the amountrealized fromtherespondent/contractorinafixeddepositwith the StateBank of [ndia,sothat therespondentisabletorecoverthesaidamount,alongwith interest,ifeventually theclairriof the respondent isallowedby thearbitral tribunal. is. So far as the secondaspectis concerned,Mr. Sharma submitsthat theorder made by thearbitral tribunal directing thereturn of the equipmentsandmaterials etc.doesnotsurviveinviewofthesubsequent •» orderpassedbythearbitraltribunalon28.12.2009. He submitsthatthe arbitraltribunalhasinfactappointedavaluertoassessthevalueo ..uipmentetc.sothatthesa.ecouldbedisposedofbytheappellant/.HAl, He submitsthatthearbitraltribunalisrightinitsconclusionthatthe contractwhich had beenterminatedby therespondent/contractoron 14,03.2008couldpossiblynothavebeenonceagainterminatedbythe appellantNHAIvidenoticedated24.03.2008. Hesubmitsthatclause61.1 couldbe invokedonlywhenthecontractisterminatedbyNHAI becauseof •the contractorsdefault. Asthateventuallydidnotarise,clause61.1could .not beresortedto bytheappellant/NHAl. \Id. Having heardlearnedcounselsfortheparties,with duerespectto arbitraltribunal,I amoftheviewthat theinterimordercannotbe a sustainedanddeservestobesetasidein itsentirety.

¶17Aperusalof theimpugnedordershowsthat the samehasbeen ;passedinitssecondhearingheldbythearbitraltribunal. The arbitral tribunalhas onlyrecordedthatithasheardthecounselsforthepartiesat somelength. Evenaccordingtothearbitraltribunal,it has not gone into matters ofdisputeanddifferenceswhicharethesubjectmatterofreference •before it,byobservingthatitmay prejudicethecaseofthepartiesbeforeit. ^•The tribunal has not even indicatedthatit had found a strong prima facie y^aseinfavo.uroftherespondent,ascontendedbytherespondent. Inany 'event,noreasonshavebeenindicatedfortheso-calledprimafacieview,as Claimedbytherespondent. ,8 Evenifitweretobeassumedthattherespondent/contractorhad,,n ^actmadeouta strongprimafaciecasebeforethearbitraltribunal,thatby ..selfcouldnothavebeena validgroundtorepuiretheappeilant/MHAIto theamountofRs.28,84,43,061/- inafixeddepositwithStateBankof India.TheorderofthiscourtinOMPNo.181/2008wasalreadyinforce.The saidorderrequiredtheNHAI/appellanttokeepthefundsavailable.Thesaid orderobviouslydidnotmean thattheappellantwas requiredtokeepthe amountinafixeddeposit. Itonlymeant thatifandwhen thearbitral .tribunal makes an executable award to pay theamount tothe r-spondent/contractor,therespondent/contractorshouldbeabletorecover v ' iche .same .

¶19Theorderrequiringthedepositoftheaforesaidamountinafixed depositcouldpossiblyhavebeenmade bythearbitraltribunal,onlyafter recordingsatisfactiontotheeffectthattheamount,ifnotsopreserved,may betakenawayandthat therespondent/contractormay notbeableto recovertheamountandexecutetheawardthatmay eventuallybepassedin itsfavourbythearbitraltribunalforthesaidamount.

¶20Fromtheimpugnedorder,itappearsthatthearbitraltribunalhas fcnotevenaddresseditselftothatissue. Thecredibilityandsolvencyofthe /•appellant/NHAI has not been doubted. It is a statutory corporation / > ' y. f Constituted bytheCentral Government. This beingtheposition,therewas nojustificationtorequirethesaid,amountofRs.28,84,43,061/- beingplaced in a fixeddepositwithStateBank of India. The annount inquestionis not a smallamount,andtherewas nojustificationindisablingtheappellantfrom usingthe said amount to carry out its operations.Eventually, if arbitral tribunalfinds infavouroftherespondent/contractor,itcancertainlymakean awardforrefundofthesaidamountalongwith interestatanappropriate rate.Thereasoninggiven bythetribunalthattheamountrecoveredbythe appellantbyencashmentmay merge with othermonies ifnotretainedin a fixeddepositand would loose itsidentity,with duerespect,doesnotatall appealtome. The monies havingcomeintothecoffersoftheappellant i\!HAIhavealreadymerged with themonies lyinginitsaccount. Thecolour of themonies heldbytheappellantNHAI isthesame,whetherit istheone ^-ceived by encashment of thebank guarantees furnished by the respondent,orinanyotherway. Thereis norationaleinkeepingthosevery monies, which havebeenreceivedonencashmentofthebankguaranteesof theirespondent,separatelytomeetthepossibleclaim oftherespondent.

21., Sofarasthesecondaspectisconcerned,thereagainI findthatthe impugnedawardisfallaciousandcannotbesustained. Merely becausethe notice of terminationwas firstissuedby therespondent/contractoron

14.03.2008,followed bytheterminationnoticeissuedbytheappellant/NHAI '"^n.24.03.2008,inmy view,thatwould nottakeawaytherightofthe appellant/NHAIto invoke clause 61.1 oftheagreementbetweenthe parties. Clause 61.1 can be invoked when :(i) thecontractisterminated,and(ii) accordingtotheNHAI,thecontractoris indefault. ,

¶22Thecontractor,whomaybeindefaultcannot,bymerelysendinga ..oticeof terminationbefore itbeing sentby theNHAi, avoid the consequenceswhich flowfromclause61.1ofthecontractbetweenthe parties. Iftheinterpretationadoptedbythearbitraltribunalweretobe accepted,itwould leadtoanabsurdsituation.Even incaseswherethe contractoris,infact,indefaulthewouldbeabletoavoidtheconsequences providedforinclause61.1bysendinganoticeofterminationofthecontract before such a notice is issued by theNHAI. . ThesubmissionofMr; Sharmathattheimpugnedorderinsofarasit ^xfirectsthatthereturnoftheequipment,materialsetc.doesnotsurviveon |^;€ountofthepassingoftheorderdated28.12.2009doesnotappeartobe correct.Theorderdated28.12.2009itselfrecordsthatbythetimethesaid ordercametobepassed,theimpugnedorderhadbeenstayedbythiscourt intheseveryproceedings.Theorderdated28.12.2009,therefore,proceeded dnthatbasis. However, if the impugned order insofar asthesecondaspect S 'notappropriatelydealtwith,andtheorderinrespect thereofissustained, therightsoftherespondentto seekreturnof theequipment,plantetc. wouldcertainlyrevive. J | |il4. SinceIhavefoundmerit intheappealpreferredbytheappellant T^MHAI,theconsequenceisthattheappealfiledbytherespondentcontractor mustfail. Thegrievanceoftherespondentisthatthearbitraltribunalshould Kave releasedtheamountof Rs.28,84,43,061/-totherespondentiswholly 1^' - t i XT-. [ -1 unfounded. Unless thearbitral tribunalhas adjudicated thedisputes betweenthepartiesfinally,thesaidreliefpossiblycouldnothavebeen . gran/c^d by way of aninterimorder. Fortheaforesaidreasons,1 allowthis appealpreferredbytheappellantNHAI andsetasidetheimpugnedorder -passedbythearbitraltribunaldated16.06.2008. Theappealpreferredby therespondentcontractorisdismissed being devoid ofanymerit. Any observationmade hereinshallnotcomeinthewayofthearbitraltribunalin passingthefinalaward. The.appellantshall beentitledto costsquantified atRs.3Q,000/-. . OCTOBER04,2010 sr-VIPIN SANGHI,J in i :'t:•r.,-;::

7-8 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ARB.A. 9 /2008 NATIONAL HIGHWAYS AUTHORITY OF INDIA Appellant Through: Mr. SandeepSethi,Sr. Adv.with Ms. PadmaPriya,Advocate ve rsus PRAKASH-ATLANTA (JOINT VENTURE) Respondent Through: Mr. SandeepSharma,Advocate + ARB.A. 18 /2008 M/SPRAKASHATLANTA JV Appellant ^ Through: Mr. SandeepSharma,Advocate ve rsus NATIONALHIGHWAYSAUTHORITYOFINDIA Respondent Through: Mr. SandeepSethi,Sr. Adv.with Ms. PadmaPriya,Advocate CORAM: HON BLE MR.JUSTICEVIPIN SANGHI