IN THE HIGH COURT OF DELHI OMP No. 66/2004 & OMP No. 80/2004 Reserved on : 23rd December, 2009 Date of decision: 30th April, 2010 GAIL (India)Ltd. ....Petitioner through: Mr. Jagjit Singh, Adv. VERSUS Paramount Ltd. ....Respondent through: Ms. Meenakshi Arora, Adv. CORAM: HON'BLE MS. JUSTICE GITA MITTAL 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 the Digest? Yes GITA MITTAL, J 1. GAIL (India) Ltd. (referred to as the petitioner/GAIL hereafter) entered into two contracts with the Paramount Limited ('Contractor'/respondent hereafter), one in respect of a Waste Water Treatment Plant at UPCC, Pata, and the second with regard to the Condensate Polishing Unit (Part-B) for a Gas Cracker Unit for U.P. Petrochemical Complex of M/s GAIL at Pata, Uttar Pradesh. 2. Identical disputes arose in respect of completion of the two contracts resulting in initiation of the arbitration in both matters. The disputes in both contracts were referred to the arbitration of Shri T.S. Vijayaraghavan as sole arbitrator. Separate proceedings were held by the learned arbitrator which OMP No. 66/2004 & OMP No. 88/2004 page 1 of 145 culminated in the making and pronouncement of two awards both dated 20th November, 2003 in favour of the contractor. GAIL has assailed the said awards by way of the separate objections under Section 34 of the Arbitration & Conciliation Act, 1996 which have been registered as OMP No. 66/2004 and OMP 80/2004. The awards are similar and identical questions of law and fact have been raised for consideration in both these matters. For this reason, these two petitions are hereby taken up together for consideration. OMP No. 66/2004 3. For the purposes of convenience, OMP No. 66/2004 is taken up first. 4. Factual Matrix 4.1 GAIL invited bids on 27th June, 1994 for setting up of a Waste Water Treatment Plant ('WWTP' hereafter for brevity) on turn key basis for its U.P. Petro Chemical Complex at Pata ('UPPC' hereafter for brevity). As per the bid document, the brief description of work was as follows :- “Turnkey execution of Waste Water Treatment Plant (WWTP) including process design, basic, engg., detail engg., procurement, supply, fabrication, erection with all civil, electrical, instrumentation works, testing, commissioning & guaranteeing the performance of the WWTP meeting the guidelines as specified in bid document. The process design & basic engg. should preferably be based on latest proven technology systems and practices.” OMP No. 66/2004 & OMP No. 88/2004 page 2 of 145 4.2 On 10th September, 1994, Paramount Limited (hereafter referred to as the 'contractor') submitted its tender for the same. GAIL accepted the contractor's tender on 14th July, 1995, vide a fax of intent. Clause 1.1 reiterated testing and commissioning of the plant as part of the scope of work. As per the said communication, the scope of work was further specified in clause 4 as comprising :- “The contractor's scope of work shall comprise process design basic Engg. And detail Engg. Based on the Indicative flow diagram (Drg. No. 3346-00-17-41-3-001 Rev. (B), where the essential requirements and proposed requirements for the effluent treatment Plant have been marked, manufactured, supply, erection, painting, testing commissioning & guaranteeing the entire effluent treatment plant complete on turnkey basis to meet the treated effluent quality as specified in the design basis, as mentioned in Indicative flow diagram, technical specifications, data sheets, drawings etc. else where given in the bid document.” (Emphasis supplied) 4.3 In clause 6.0, GAIL had given details of the sources of waste water generation in the complex which included the effluents from several other units including inter alia :- “a) L.L.D.P.E. b) H.D.P.E. c) Gas Cracker Unit d) Gas Sweetening unit e) Flare Area f) Hydro carbon storage tanks area” OMP No. 66/2004 & OMP No. 88/2004 page 3 of 145 Subsequent to the fax of intent dated 14th July, 1995, a formal letter of acceptance dated 27th September, 1995 was also issued by GAIL, again referring to all the above components of the contract including design, erection, testing and commissioning of the waste water treatment plant for UPPC at Pata. The lump sum contract value for the works under the contract was stated as Rs.12,39,39,690/-. 4.4 So far as the time schedule was concerned, in clause 3.0 of this communication, it was mentioned as follows :- “The Time Schedule for completion of works covered under this contract shall be 18 (eighteen) months reckoned from the date of issue of the Fax of Intent i.e. 14.7.1995 and is inclusive of mobilisation period.” Thus, work was to be completed within 18 months from the date of fax of intent (FOI) i.e. from 14th July, 1995 to 13th January, 1997. 4.5 The relevant extract of the General Conditions of the Contract ('GCC' hereafter for brevity) which also governed the contract relied on by the parties and necessary for the present adjudication are briefly summarised as follows :- “ Section-1 GENERAL CONDITIONS OF CONTRACT 1. DEFINITION OF TERMS : 1) The OWNER/COMPANY/GAIL means GAS AUTHORITY OF INDIA LIMITED. A Government of India Undertaking having its Registered office at Hotel Samrat, Chanakyapuri, New Delhi and includes its successors and assigns. 2) The CONTRACTOR means the person or the OMP No. 66/2004 & OMP No. 88/2004 page 4 of 145 persons, firm or Company or Corporation whose tender has been accepted by the OWNER and includes the CONTRACTOR's legal Representatives his successors and permitted assigns. xxx 4) The WORK shall mean and include all items and things to be supplied/done and services and activities to be performed by the CONTRACTOR in pursuance to and in accordance with the CONTRACT or part thereof as the case may be and shall include all extra additional, altered or substituted works as required for purpose of the CONTRACT. xxx 8) EIL means Engineers India Limited, who are the Consulting Engineers to the OWNER for this project and having registered office at El House, 1- Bhikaji Cama Place, R.K. Puram, New Delhi. xxx 25.0 TIME OF PERFORMANCE xxx 25.2 TIME SCHEDULE OF CONSTRUCTION : 25.2.1 The General Time Schedule of construction is given in the TENDER DOCUMENT CONTRACTOR should prepare a detailed monthly or weekly construction programme jointly with the ENGINEER IN-CHARGE within one month of receipt of LETTER OF INTENT or ACCEPTANCE OF TENDER. The WORK shall be executed strictly as per the Time Schedule given in the CONTRACT DOCUMENT. The period of construction given includes the time required for mobilisation testing rectifications, if any, retesting and completion in all respects in accordance with CONTRACT DOCUMENT to the entire satisfaction of the ENGINEER-IN-CHARGE. xxx 26.0 FORCE MAJEURE 26.1 CONDITIONS FOR FORCE MAJEURES OMP No. 66/2004 & OMP No. 88/2004 page 5 of 145 In the event of either party being rendered unable by Force Majeure to perform any obligations required to be performed by them under the CONTRACT the relative obligation of the party affected by such Force Majeure shall upon notification to the other party be suspended for the period during which Force Majeure event lasts. The cost and loss sustained by the either party shall be borne by respective parties. The term “Force Majeure” as employed herein shall mean acts of God, earthquake, war (declared or undeclared), revolts, riots, fires, floods, rebellions, explosions, hurricane, sabotage civil commotions and acts and regulations of respective Government of the two parties, namely the OWNER and the CONTRACTOR. Upon the occurrence of such cause(s) and upon its termination, the party alleging that it has been rendered unable as aforesaid thereby, shall notify the other party in writing immediately but not later than 72 (Seventy-two) hours of the alleged beginning and ending thereof, giving full particulars and satisfactory evidence in support of its claim. Time for performance of the negative obligations suspended by the Force Majeure shall be extended by the period cause lasts. If deliveries of bought out and of works to be executed by the CONCTRACTOR are suspended by Force Majeure conditions lasting for more than 2 (two) months the OWNER shall have the option to terminate the CONTRCT. 27.0 COMPENSATION FOR DELAY (LIQUIDATED DAMAGES): 27.1 Time is the essence of the CONTRACT. In case the CONTRACTOR fails to complete the WORK within the stipulated period, then, unless such failure is due to Force Majeure as defined in Clause 26 here above or due to OWNER's defaults, the CONTRACTOR shall pay to the OWNER, by way of compensation for delay and not as penalty, a sum @ ½% (Half Percent) of the VALUE OF CONTRACT for delay per week on pro-rata for part thereof subject to a maximum of 10% (Ten percent) of the VALUE OF CONTRACT. The OMP No. 66/2004 & OMP No. 88/2004 page 6 of 145 parties agree that this is a genuine pre-estimate of the loss/damage which will be suffered on account of delay/breach on the part of the CONTRACTOR and the said amount will be payable on demand without there being any proof of the actual loss or damages caused by such delay/breach. The decision of the ENGINEER-IN-CHARGE in regard to applicability of Compensation for Delay shall be final and binding on the CONTRACTOR. 27.2 All sums payable by way of compensation under any of the conditions shall be considered as reasonable compensation without reference to the actual loss or damage which shall have been sustained. 28.0 RIGHTS OF THE OWNER TO FORFEIT SECURITY DEPOSIT : Whenever any claim against the CONTRACTOR for the payment of a sum of money arises out of under the CONTRACT, the OWNER shall be entitled to recover such sum by appropriation in part or whole the Security Deposit of the CONTRACTOR. In the event of the security being defficient or if no security has been taken from the CONTRACTOR, then the balance or the total sum recoverable, as the case may be shall be deducted from any sum then due or which at any time thereafter may become due to the CONTRACTOR. The CONTRACTOR shall pay to the OWNER on demand any balance remaining due. xxx 44.0 LIENS: xxx 44.3 The final payment shall not become due until the CONTRACTOR delivers to the ENGINEER-IN- CHARGE complete release or waiver of all liens arising or which may arise out of his agreement or receipt in full or certification by the CONTRACTOR in a form approved by ENGINEER-IN-CHARGE that all invoices for labour, materials, services have been paid in lien thereof and if required by the ENGINEER-IN-CHARGE in any case an affidavit that so far as the CONTRACTOR has knowledge or information the releases and receipts include all the labour and material for which a lien could be filled. OMP No. 66/2004 & OMP No. 88/2004 page 7 of 145 xxx 53.0 COMPLETION OF CONTRACT : Unless otherwise terminated under the provisions of any other relevant clause, this CONTRACT shall be deemed to have been completed at the expiration of the PERIOD OF LIABILITY as provided for under the CONTRACT. xxx 76.0 ACTION AND COMPENSATION IN CASE OF BAD WORK If it shall appear to the ENGINEER-IN-CHARGE that any work has been executed with unsound, imperfect or unskilled workmanship, or with materials of any inferior description, or that any materials or articles provided by the CONTRACTOR for the execution of the WORK are unsound, or of a quality inferior to that contracted for, or otherwise not in accordance with the CONTRACT, the CONTRACTOR shall on demand in writing from the ENGINEER-IN-CHARGE or his authorised representative specifying the WORK, materials or articles complained of notwithstanding that the same may have been inadvertently passed, certified and paid for, forthwith rectify or remove and reconstruct the WORK so specified and provide other proper and suitable materials or articles at his own cost and in the event of failure to do so within the period specified by the ENGINEER-IN- CHARGE in his demand aforesaid, the CONTRACTOR shall be liable to pay compensation at the rate of 1% (one percent) of the estimated cost of the whole WORK, while his failure to do so shall continue and in the case of any such failure the ENGINEER-IN-CHARGE may on expiry of notice period rectify or remove and re-execute the WORK or remove and replace with others, the materials or articles complained of to as the case may be at the risk and expense in all respects of the CONTRACTOR. The decision of the ENGINEER-IN-CHARGE as to any question arising under this clause shall be final and conclusive. xxx OMP No. 66/2004 & OMP No. 88/2004 page 8 of 145 107.0 ARBITRATION” 107.1 All disputes of difference whatsoever which shall at any time arise between the parties hereto touching or concerning the WORKS or the execution effect thereof or to the rights or liabilities or the construction meaning operation or effect thereof or to the rights or liabilities of the parties or arising out or in relation thereto whether during or after completion of the CONTRACT or whether before or after determination, foreclosure or breach of the CONTRACT (other than those in respect of which the decision of any person is by the CONTRACT expressed to be final and binding) shall after written notice by either party to the CONTRACT to the other of them and to the Appointing Authority hereinafter mentioned be referred for adjudication to a sole arbitrator to be appointed as herein after provided. 107.2 For the purposes of appointing the sole Arbitrator referred to above, the Appointing Authority will send within thirty days of receipt of the notice, to the CONTRACTOR a panel of three name persons who shall all the presently unconnected with the organisation for which the WORK is executed. The CONTRACTOR shall on receipt of the names as aforesaid, select any one of the persons named to be appointed as a sole Arbitrator and communicate his name to the Appointing Authority within thirty days of receipt of names. The Appointing Authority shall thereupon without any delay appoint the said person as the sole Arbitrator. If the CONTRACTOR fails to communicate such selection as provided above within the period specified, the Appointing Authority shall make the selection and appoint the selected person as the Sole Arbitrator. xxx xxx The venue of arbitration shall be New Delhi. The fees, if any, of the Arbitrator shall, if required to be paid before the award is made and published, be paid half AND half by each of the parties. The costs of the reference and of the award including the fees, if any, of the Arbitrator shall be in the OMP No. 66/2004 & OMP No. 88/2004 page 9 of 145 discretion of the Arbitrator who may direct to and by whom and in what manner, such costs or any part thereof shall be paid and may fix or settle the amount of costs to be so paid. The award of the Arbitrator shall be final and binding on both the parties. Subject to aforesaid the provisions of the Arbitration Act, 1940 or any statutory modification or re-enactment thereof and the rules made thereunder, and for the time being in force, shall apply to the arbitration proceeding under this clause.” 4.6 My attention has also been drawn to the agreed variation between the parties relating to the release of the last 10% of payment to the contractor as enclosed with the letter dated 27th September, 1995 which reads as follows :- “RELEASE OF LAST 10% PAYMENT In case GAIL/EIL are not in a position to release commissioning front after completion of precommissioning activities/Mech. Completion, final 10% of the contract value shall be released in the following manner : a) 5% of the contract value shall be released to contractor upon: i) Issue of Mech. Completion certificate and : ii) Extension/submission of performance BG of 10% of contract value to be kept valid till 21 months from the date of Mech. Completion certificate. b) Balance 5% of contract value shall be released after 18 months of issue of Mech. Completion certificate or after the commissioning and acceptance of the system, whichever is earlier. The owner shall give 15 days notice to the contractor during the period of 18 months where upon the contractor shall be obliged to depute his commissioning.” 4.7 So far as delay in completion of the work resulting on account of reasons attributable to GAIL are concerned, the OMP No. 66/2004 & OMP No. 88/2004 page 10 of 145 contract between the parties provided the following compensation:- “A.28.0 COMPENSATION FOR EXTENDED STAY The clause no. 87(vi) of GCC is modified to the following extent :- In case the time of completion of work is delayed beyond the time schedule indicated in the tender document plus a grace period equivalent to 1/5th of the time schedule of 2 months whichever is more, due to reasons solely attributable to owner, the contractor shall be paid extended stay compensation in order to maintain necessary organisational set up and construction tools, tackles, eqpts. etc. at site of work. The bidder shall mention the rate for such extended stay compensation per month in the 'UPRICE PART' which will be considered for evaluation for 1/5th of the time schedule or 3(three) months whichever is less. In case bidder does not indicate the rate for extended stay compensation in UPRICE PART, it will be presumed that no extended stay compensation is required to be paid to the contractor. In case the completion of work is delayed beyond a period of 3 months after the grace period, then both the owner and the Contractor shall mutually decide the future course of action including payment of further extended stay compensation.” 4.8 According to the contractor, it mobilised its resources for commencement of the work but was prevented in the completion till 15th September, 1997. The reasons for the delay which occurred have also been detailed on record by the arbitrator as follows :- (a) The entire plant site was flooded with water because the plant site was located at the lowest place of the entire project (UPPC). The roads were inundated and site was rendered unaccessible. GAIL had failed to provide any form of flood protection or drainage measure. As per GCC 1.31 mobilisation OMP No. 66/2004 & OMP No. 88/2004 page 11 of 145 was defined as simultaneous action at all locations. Piece meal handing over of the site was therefore not to be acceptable. GAIL was required to provide a site in workable condition. Even though fax of intent was issued on 14th July, 1995, but the site being located at the lowest level and completely flooded, workable site was not made available till 15th September, 1995. Again in July, 1996 there was heavy monsoon hampering transportation of man power and material. (b) Between November to December, 1995 there was an unforeseen law and order problem which occurred at the site. The resident construction manager of the company was beaten up by miscreants and there was resultant demoralisation of the work force, it took five weeks to disentangle and resume work. (c) Drawings of the DG sizing (set) were submitted on 21st December, 1995 and were finally approved by GAIL only in February, 1997. This set was inspected, dispatched and received at the site only on 19th August, 1997. (d) Between April to June, 1996, on account of elections to the U.P. State Assembly, all vehicles of the respondent company were requisitioned and impounded by the state authorities for electioneering. The site was located at a distance of 15 kms from the residential area rendering commutation without the (vehicles) impossible. (e) Details of the slop oil tanks were provided to GAIL on 16th April, 1996 for obtaining the approval from the Chief Controller of Explosives at Nagpur. These were approved only by 21st April, 1997. (f) In February, 1997, work at site suffered on account of non- availability of the cement which was to be supplied by GAIL as per the contract. 4.9 The contractor relies on a mechanical completion certificate dated 20th August, 1997 issued by the Engineers India Limited (referred to as 'EIL' hereafter) certifying that “all work have been mechanically completed in the above plant as per specification, drawings and instruction of engineer in charge.” The certificate was issued without prejudice to the contractor's OMP No. 66/2004 & OMP No. 88/2004 page 12 of 145 liability and GAIL's rights as per the provisions of the contract. 4.10 After the mechanical completion, pre-commissioning activities were commenced. Final commissioning of the plant could take place only after the oily water effluent and the sanitary waste was made available by GAIL which was to be treated in the plant. 4.11 Extension of time In the above circumstances, the contractor made the following requests for extension of time which were considered and granted :- Request by the Contractor Approval (i) On 9 th January 2007 On 14th January, 2007 the contractor sought extension of time. (ii) On 31st March, 1997 a request for extension of time from 9th March to 31st March, 1997 By a communication dated 14th January, 1997 EIL had recommended extension of time for completion of the contract up to 28th February, 1997. (iii) 23rd April to 31st May, 1997 GAIL wrote a letter dated 8th May, 1997 granting provisional extension of time up to 31st May, 1997 without prejudice to contractual provisions and right to impose liquidated damages. (iv) On 23rd June, 1997 the contractor revised the date to 30th June and shifted it to 30th July, 1997. (v) 6th September, 1997 till 31st October, 1997 GAIL agreed to provisionally extend the time without prejudice to its rights. OMP No. 66/2004 & OMP No. 88/2004 page 13 of 145 4.12 The contractor wrote a detailed communication to GAIL dated 30th September, 1997 informing it about the reasons for the delays which had occurred and seeking regularisation of the delays and extension of time till the extended period. Apart from the aforenoticed details, it was pointed out, that the contractor was waiting for the necessary sanitary waste which was to be provided by GAIL so that the biomass could be developed in the aeration tank to achieve the required results for treatment to complete the testing and commissioning. It was urged that the delay at the worst was for a period of 32 weeks in the circumstances noted hereinabove. Again on 7th October, 1997, the contractor wrote to GAIL requesting for the supply of service water to complete the commissioning. 4.13 The contract envisaged the Guarantee Test Run ('GTR' hereafter) within eighteen months from the date of the award of the work. Admittedly mechanical completion of the plant stood completed on 20th August, 1997. Commissioning of the plant by way of individual systems commenced on 7th July, 1997 and stood completed by 24th of October, 1997. Despite repeated requests including the one made on 30th September, 1997 since the mechanical completion, GAIL was unable to provide the sanitary waste that is the service water for testing and commissioning of the plant. As late as on 21st of January, 1998 the contractor was therefore compelled to seek extension of time for testing and OMP No. 66/2004 & OMP No. 88/2004 page 14 of 145 commissioning of the plant till such time as the sanitary waste was made available. A reminder in this behalf on 6th February, 1998 and telegram dated 7th of March, 1998 were of no avail. 4.14 In this background, by a communication of 7th March, 1998, the contractor confirmed completion of the individual commissioning of the plant; and further requested GAIL to take over the plant; relieve its staff and issue a mechanical completion certificate with effect from 20th August, 1997. 4.15 In a meeting held on 31st March, 1998, GAIL confirmed the date of completion of the various systems and pump operations and informed the contractor that the necessary oily water effluents and sanitary waste were not available for the GTR/commissioning. GAIL required the contractor to provide the GTR/commissioning on fifteen days