OMP 23/2007 Page No.1 of 29 THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 07.08.2009 + OMP 23/2007 NATIONAL HIGHWAYS AUTHORITY OF INDIA … Petitioner - versus – M/S ITD CEMENTATION INDIA LTD ... Respondent/ Claimant (Formerly M/s Skanska Cementation India Ltd) Advocates who appeared in this case: For the Petitioner : Mr Chetan Sharma, Sr Advocate with Mr Vikas Goel and Mr R. N. Sharma For the Respondent : Mr George Thomas with Mr G. K. Jose and K. J. Joseph CORAM:- HON'BLE MR JUSTICE BADAR DURREZ AHMED 1. Whether Reporters of local papers may be allowed to see the judgment? YES 2. To be referred to the Reporter or not? YES 3. Whether the judgment should be reported in Digest? YES BADAR DURREZ AHMED, J 1. Through this petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‗said Act‘), the petitioner is seeking the setting aside of the Award dated 11.10.2006 made by the Arbitral Tribunal comprising of Sh. K. K. Madan OMP 23/2007 Page No.2 of 29 (Presiding Arbitrator), Lt. Gen. A. K. Puri (retired) and Justice A. B. Rohtagi (Retired) in the matter of arbitration for the work of widening of four lane and rehabilitation of existing two lane carriageway of NH- 4, Pune-Satara stretch from Satara (Km 725) to Wathar (Km 760), Package-I. The respondent herein had preferred six claims. The petitioner herein is aggrieved by the decision of the Arbitral Tribunal in respect of the claim Nos. 1-5. 2. As indicated in the impugned Award a contract bearing agreement No. NHAI/13011/17/97-P1/182 dated 10.05.2001 had been entered into between the petitioner and the respondent for the execution of the work of widening the existing two lane highway to four lanes as well as rehabilitation of the existing two lane carriageway of National Highway-4 in the Pune-Satara stretch. The contract was in respect of the portion of the road between Satara (Km 725) and Wathar (Km 760) which, in other words, implied a stretch of 35 Km. The contract value was Rs 95,97,02,707/-. It may be pointed out that initially the contract was between the National Highway Authority of India (employer) (hereinafter referred to as the ‗NHAI‘) and M/s Skanska Cementation India Limited (contractor), whose name was subsequently changed to the present name — ITD Cementation India Limited (hereinafter referred to as ‗ITD Cementation‘). OMP 23/2007 Page No.3 of 29 3. The scope of the works involved the widening of the existing two lane stretch of 35 km between Pune-Satara, constructing new bridges and flyovers, widening and repairing existing bridges, constructing toll plaza, junctions and intersections including service roads and all road appurtenances and miscellaneous works. The date of commencement of the work was agreed to be 01.07.2001 and the date of completion, as per the contract, was 31.12.2003, which meant a period of 30 months for completing the work. The work was actually completed on 30.03.2004, that is, in 33 months. Disputes had arisen between the parties and, therefore, the respondent/ claimant invoked arbitration by its letter dated 29.06.2004 and simultaneously nominated Justice A. B. Rohtagi (retired) as an arbitrator. In response to the said invocation of the arbitration clause, the petitioner nominated Mr A. K. Puri as an arbitrator and the two arbitrators appointed Mr K. K. Madan as the Presiding Arbitrator. The following claims were made by the respondent / claimant:- (1) Claim No.1: Amounts payable by NHAI for varied work done by claimant (ITD Cementation) and payment due under price adjustment on the basis of rebate offered in the tender. The modified claim under claim No.1 was of Rs 9,14,71,312/-. As against this, the Arbitral Tribunal awarded an amount of Rs 2,34,23,656/-. OMP 23/2007 Page No.4 of 29 (2) Claim No. 2: Payment due on account of redesigning of pavement layers. This claim was split into four parts being claim Nos. 2(a), (b), (c) and (d). Claim No. 2(a) related to the effect of deletion of CTSG (cement treated sub-grade). The amount awarded by the Arbitral Tribunal was a sum of Rs 41,57,025/- in respect of the claim 2(a) as against a modified claim of Rs 1,05,49,494/-. Claim No. 2(b) was in respect of the effect of deletion of CTUSB (cement treated upper sub-base). The Arbitral Tribunal awarded an amount of Rs 32,73,618/- under this head as against the modified claim of Rs 1,27,49,618/-. Claim No. 2(c), which pertained to under utilization of key plants and equipments and quarry infrastructure was withdrawn by the NHAI by their letter dated 29.03.2006. Claim 2(d) pertained to additional cost of borrow material. The Arbitral Tribunal awarded an amount of Rs 51,41,202/- to the claimant (ITD Cementation) on account of additional cost incurred towards additional borrow material against the modified claim of Rs 1,48,79,786/-. (3) Claim No.3: Payments due on account of change in the thickness of DBM (Dense Bitumen Macadem) layer of 100 mm for new carriageway (NCW) from one layer into two layers of 65 mm each and due to reduction of thickness of DBM for existing carriageway (ECW) from 100 mm to 80 mm. This claim OMP 23/2007 Page No.5 of 29 comprises of two parts. The first part pertains to the new carriageway (NCW) and the second part pertains to the existing carriageway (ECW). Insofar as the claim pertaining to NCW was concerned, the Arbitral Tribunal awarded an amount of Rs 91,11,070/- as against the original claim of Rs 2,34,69,654/-. The second part of the claim pertaining to ECW was rejected by the Arbitral Tribunal. (4) Claim No. 4: Reimbursement of increase in royalty charges. The Arbitral Tribunal awarded an amount of Rs 68,66,175/- on account of increase in royalty charges consequent upon the notification dated 28.10.2002 issued by the Government of Maharashtra. (5) Claim No. 5: Interest. The Arbitral Tribunal awarded interest at the rate of 12% per annum compounded monthly in respect of the pre-reference period, pendente lite interest as well as future interest on the amount awarded under claims 1-4. (6) Claim No. 6: Costs of arbitration, which the claimant (ITD Cementation) claimed at Rs 10 lacs. This claim was rejected and the Arbitral Tribunal directed that the cost of arbitration be shared equally. The summary of the Award in respect of claim Nos. 1-4 and 6 as given in the impugned Award itself is set out herein below:- OMP 23/2007 Page No.6 of 29 Summary of the Award for Claim Nos. 1 to 4 & 6 Claim No: Brief description Amount Claimed (Rs) Amount Awarded (Rs) 1. a) Varied work Quantities 6,74,02,347 1,07,90,139 b) Additional Structures 1,26,33,517 1,26,33,517 c) Price Adjustment 1,14,35,448 Nil Total 9,14,71,312 2,34,23,656 2. a) Loss of overhead and profits due to deletion of cement stabilized upper sub grade 1,05,49,494 41,57,025 b) Loss of overhead and profit due to deletion of cement treated upper sub base 1,27,49,618 32,73,618 c) Under utilization of Key Plants and Equipments and Quarry structures 1,15,24,775 (withdrawn subsequently) Nil d) Additional cost of borrow material 1,48,79,786 51,41,202 Total 3,81,78,898 1,25,71,845 3. a) Change in thickness of DBM layer, 100 mm to two layers of 65 mm each in NCW 2,34,69,654 91,11,070 b) Change in thickness of DBM layer 100 mm to 80 mm on ECW 30,25,260 Nil Total 2,64,94,914 91,11,070 4. Reimbursement of increase in royalty charges 68,66,175 68,66,175 6. Cost of Arbitration 10,00,000 Nil Grand Total of Claims 1 to 4 and 6 16,40,11,299 5,19,72,746 4. I shall take up the objections to the Award claim-wise. OMP 23/2007 Page No.7 of 29 Claim No. 1: Amounts payable by NHAI for varied work done by claimant (ITD Cementation) and payment due under price adjustment on the basis of rebate offered in the tender. 5. In the summary of bill of quantities, which is Annexure P-2 to the impugned Award, as against the total bid amount of Rs 115,07,22,670/-, the respondent (ITD Cementation) had offered a rebate of 16.6% on all items and, therefore, the final bid amount, after rebate, was indicated as Rs 95,97,02,707/-. The issue that arises under claim No. 1 is whether the rebate of 16.6% would be applicable only to the bill of quantities (BOQ) or it would also extend to any variations and/ or additional work. According to the claimant (ITD Cementation), it gave a rebate of 16.6% on the BOQ items only and the rebate did not extend to variations. Furthermore, the rebate definitely did not extend to additional structures. Since the petitioner (NHAI) had made payment to the respondent (ITD Cementation) on the basis of 16.6% rebate not only on the BOQ items but also on variations and additional structures, the respondent (ITD Cementation) was seeking a refund of such rebate on the variations and additional structures. 6. It is the case of the petitioner (NHAI) that the rebate of 16.6% offered by the respondent (ITD Cementation) applied to all work including variations and additional structures. According to the petitioner the whole contract was an item rate contract and, therefore, the rate of the rebate could not have a separate existence. OMP 23/2007 Page No.8 of 29 7. The Arbitral Tribunal, while considering the issue of variations, interpreted clauses 51.1, 51.2, 52.1 and 52.2 of the General Conditions being part of the Conditions of Contract for Works of Civil Engineering Construction issued by the Federation Internationale Des Ingenieurs- Counseils (FIDIC). The said provisions read as under:- Alterations, Additions and Omissions Variations 51.1 The engineer shall make any variation of the form, quality or quantity of the works or any part thereof that may, in his opinion, be necessary and for that purpose, or if for any other reason it shall, in his opinion, be appropriate, he shall have the authority to instruct the contractor to do and the contractor shall do any of the following: (a) increase or decrease the quantity of any work included in the contract, (b) omit any such work (but not if the omitted work is to be carried out by the employer or by another contractor), (c) change the character or quality or kind of any such work, (d) change the levels, lines, position and dimensions of any part of the works, (e) execute additional work of any kind necessary for the completion of the works, or (f) change any specified sequence or timing of construction of any part of the works. No such variation shall in any way vitiate or invalidate the contract, but the effect, if any, of all such variations shall be valued in accordance with Clause 52. Provided that where the issue of an instruction to vary the works is necessitated by some default of or OMP 23/2007 Page No.9 of 29 breach of contract by the contractor or for which he is responsible, any additional cost attributable to such default shall be borne by the contractor. Instructions for variations 51.2 The contractor shall not make any such variation without an instruction of the engineer. Provided that no instruction shall be required for increase or decrease in the quantity of any work where such increase or decrease is not the result of an instruction given under this Clause, but is the result of the quantities exceeding or being less than those stated in the Bill of Quantities. Valuation of variations 52.1 All variations referred to in Clause 51 and any additions to the contract price which are required to be determined in accordance with Clause 52 (for the purposes of this Clause referred to as ―varied work‖), shall be valued at the rates and prices set out in the contract if, in the opinion of the engineer, the same shall be applicable. ―If the contract does not contain any rates or prices applicable to the varied work, the rates and prices in the contract shall be used as the basis for valuation so far as may be reasonable, failing which, after due consultation by the engineer with the employer and the contractor, suitable rates or prices shall be agreed upon between the engineer and the contractor.‖ In the event of disagreement the engineer shall fix such rates or prices as are, in his opinion, appropriate and shall notify the contractor accordingly, with a copy to the employer. Until such time as rates or prices are agreed or fixed, the engineer shall determine provisional rates or prices to enable on-account payments to be included in certificates issued in accordance with Clause 60. Power of engineer to fix rates 52.2 Provided that if the nature or amount of any varied work relative to the nature or amount of the whole of the works or to any part thereof, is such that, in the opinion of the engineer, the rate or price contained in the contract for any item of the works is, by reason of such varied OMP 23/2007 Page No.10 of 29 work, rendered inappropriate or inapplicable, then, after due consultation by the engineer with the employer and the contractor, a suitable rate or price shall be agreed upon between the engineer and the contractor. In the event of disagreement the engineer shall fix such other rate or price as is, in his opinion, appropriate and shall notify the contractor accordingly, with a copy to the employer. Until such time as rates or prices are agreed or fixed, the engineer shall determine provisional rates or prices to enable on-account payments to be included in certificates issued in accordance with Clause 60. Provided also that no varied work instructed to be done by the engineer pursuant to Clause 51 shall be valued under sub-clause 52.1 or under this sub-Clause unless, within 14 days of the date of such instruction and, other than in the case of omitted work, before the commencement of the varied work, notice shall have been given either: (a) by the contractor to the engineer of his intention to claim extra payment or a varied rate or price, or (b) by the engineer to the contractor of his intention to vary a rate or price. According to the Arbitral Tribunal the basic difference between the points of view of the parties appears to arise from different interpretation and meaning of the term rebate given by the respondent (ITD Cementation) in the tender and the BOQ rates. The basis of the respondent‘s stand is that the rebate and unit rates are two distinctly separate and independent terms as defined in the contract documents. The unit rates and prices for the items are to be used for arriving at the OMP 23/2007 Page No.11 of 29 bid price while the discount/ rebate is to be used to arrive at a contract price. Thus, as per the respondent, the rebate offered did not amount to change in the quoted unit rate and price but was a discount offered in the BOQ items and was applicable for BOQ quantities of various items and not for items executed under Clause 51 of the General Conditions of Contract for which the relevant contract provisions would apply. On the other hand, it was the contention of the petitioner that the rebate was a reduction in the unit rates of each BOQ item and the rate was the net rate after reducing the unit rate by the percentage of rebate offered. As per the petitioner, the rebate applied to all BOQ quantities as well as deviated quantities. As per the Arbitral Tribunal, there are two kinds of variations. The first is the automatic increase or decrease in the quantity of any work included in the work as indicated in Clause 51.1 (a). Similar is the position, with the variation indicated in Clause 51.1(c), (d) and (e). Referring to Clause 51.2 the Arbitral Tribunal observed that all variations which are to be made by the Contractor under Clause 51.1 are to be made only upon instructions of the engineer. The proviso to Clause 51.2 indicates that no instruction would be required for increase or decrease in the quantity of any work where such increase or decrease is not the result of an instruction given under the said clause, but is the result of the quantities exceeding or being less than those stated in the bill of quantities. On the basis of this, the Arbitral Tribunal was of the view that there were two kinds of OMP 23/2007 Page No.12 of 29 variations. One, which was on the basis of instructions and, therefore, could be regarded as instructed variations and, two, variations for which no instruction was necessary and was merely the result of the quantities exceeding or being less than those stated in the bill of quantities. The latter kind of variation was regarded by the Arbitral Tribunal as automatic. 8. The Arbitral Tribunal took the view that the automatic changes in quantities which resulted from any inaccuracy in the bills of quantities did not constitute a variation inasmuch as the employer had at the very beginning in the preamble to the BOQ in Clause 2 made it clear that ―the quantities given in the BOQ are estimated and provisional and are given to provide a common basis for bidding‖. Further reference was made to the clause to indicate that the basis of payment will be the actual quantities of work ordered and carried out, as measured by the contractor and verified by the engineer and valued at the rates and prices bid in the priced BOQ, where applicable, and otherwise at such rates and prices that the engineer may fix in terms of the contract. 9. In view of the line of reasoning adopted by the Arbitral Tribunal, it came to the conclusion that it is only the increased quantities ordered by the engineer in writing which constituted varied work and such variation must be paid at the rates and prices set in the OMP 23/2007 Page No.13 of 29 contract without deduction of rebate. The automatic increase or decrease as a result of inaccuracy in the BOQ cannot be considered as varied work and in respect of such changes, the rebate of 16.6% would apply. Thus, the Arbitral Tribunal drew a clear distinction between instructed variations, which, according to it, constituted varied work and automatic changes which did not constitute varied work. The Arbitral Tribunal came to the conclusion that it is only for the varied work that the BOQ rates without rebate would apply ―because the contractor did not promise rebate on varied works as defined above‖. Consequently, as against the claim of Rs 6,74,02,347/- under the head of variations, the Arbitral Tribunal awarded an amount of Rs 1,07,90,139/-. 10. Considering the arguments advanced by the counsel for the parties on both sides which were reiterations of their stands before the Arbitral Tribunal, I am of the view that the Arbitral Tribunal has come to the aforesaid conclusion on the basis of a particular interpretation of the relevant clauses of the contract. It is well settled that the interpretation of a contract is within the domain of the arbitrator. Even if the Court does not agree with the interpretation given by the Arbitral Tribunal, the Award cannot be set aside if the interpretation employed by the Arbitral Tribunal is a plausible one and is not absurd [see: (i) McDermott International Inc. v. Burn Standar Co. Ltd: 2006(2) OMP 23/2007 Page No.14 of 29 Arb.L.R. 498 (SC); (ii) Pure Helium India (P) Ltd v. ONGC: 2003(8) SC 593; (iii) Himachal Pradesh State Electricity Board v. R. J. Shah & Co.:JT 1999(3) SC 151; (iv) Union of India v. Suchita Steels: 2005(4) RAJ 378 (Delhi); and (v) Sudershan Trading Co. v. Govt. of Kerala: AIR 1989 SC 890]. It is also a well settled principle that the Court while examining a petition under Section 34 of the said Act does not sit as a Court of appeal over the findings of fact or law of the Arbitral Tribunal. The Court is not required and, in fact, does not reappraise the evidence. The interpretation of a contract or the terms thereof is also within the jurisdiction of the Arbitral Tribunal [see: State of UP v. Allied Constructions: 2003(7) SCC 396]. Of course, if the interpretation or construction given to a particular clause of a contract by the Arbitral Tribunal is absolutely implausible or absurd, the same can be interfered with by the Court under Section 34 of the said Act. Furthermore, if a particular clause of the contract admits of only one interpretation and if the Arbitral Tribunal chooses to ignore the only plausible interpretation and comes up with an interpretation which does not appear plausible, the Court is not obliged to accept that interpretation [see: Wee Aar Constructive Builders v. DDA & Ors: 2001(2) Arb. L. R. 71 (Delhi)]. Also, the arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks is just and reasonable. The Arbitral Tribunal is selected by the parties to decide their disputes according to law and if it does not, its Award OMP 23/2007 Page No.15 of 29 can be set right by the Court [see: Continental Construction Co. Ltd. v. State of M.P: AIR 1988 SC 1166]. It is clear that an arbitrator being a creature of the agreement between the parties, has to operate within the four concerns of the agreement and if he ignores the specific terms of the contract, it would be a question of jurisdictional error on the face of the Award and the same could be corrected by the Court [see: Food Corporation of India v. Chandu Construction and Another: (2007) 4 SCC 697]. 11. These principles, which have been culled out from the decisions cited by the counsel for the parties on both sides, are clear. The sum and substance is that the Arbitral Tribunal cannot ignore terms of the contract or go contrary to the same. But, where the Arbitral Tribunal arrives at one of the plausible interpretations of the terms of a contract, the Court does not interfere under Section 34 of the said Act. The Court also does not interfere with findings of fact unless and until there is perversity writ large in the impugned Award. 12. In the present case the Arbitral Tribunal has examined clauses 51.1, 51.2, 52.1 and 52.2 and has, upon such examination, gleaned a distinction between an instructed variation and an increase or decrease in the quantity of any work which is not a result of an instruction given by the engineer but is the result of the quantities exceeding or being less than those stated in the bill of quantities. OMP 23/2007 Page No.16 of 29 Clause 51.1 indicates that any variation in the work, as indicated therein, will not, in any way, vitiate or invalidate the contract but the effect, if any, of all such variations are to be valued in accordance with Clause 52. Clause 52.1 deals with valuation of variations. It specifically provides that all variations referred to in Clause 51 shall be valued at the rates and prices set out in the contract if, in the opinion of the engineer, the same shall be applicable. According to the Arbitral Tribunal, the expression ―rates and prices set out in the contract‖ referred to the unit prices mentioned in the BOQ prior to the application of rebate of 16.6%. Interpreting the clauses in such manner, the Arbitral Tribunal came to the conclusion that the respondent (ITD Cementation ) was entitled to a refund of the rebate only in respect of instructed variations which fell within the expression ―varied work‖ as appearing in Clause 52.1 of the GCC. The Arbitral Tribunal, therefore, rejected the respondent‘s claim of refund of rebate in respect of the increase in the quantity of work which was not consequent upon any instruction issued by the engineer, but was the result of quantities exceeding those stated in the bill of quantities. According to the Arbitral Tribunal, such increase was to be expected as was apparent from the preamble of the bid document and, therefore, when the