O.M.P. (COMM)/576/2016 of PAWAN HANS HELICOPTERS LTD Vs M/S IDEB PROJECTS PVT.LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI

%Judgment delivered on: 20.03.2017

+O.M.P. (COMM) 576/2016 and IA No. 15795/2016PAWAN HANS HELICOPTERS LIMITED

..... Petitioner

versus

IDEB PROJECTS PRIVATE LIMITED

..... Respondent

Advocates who appeared in this case:For the Petitioner:Mr Puneet Taneja and Ms Shaheen.For the Respondent:Mr Neeraj Sharma with Mr SeshagiriVadnani, Mr. Adhish Rajvanshi & Mr.Ravinder Parsad.

CORAM:HON'BLE MR. JUSTICE VIBHU BAKHRU

VIBHU BAKHRU, J

JUDGMENT

1.Pawan Hans Helicopters Limited (hereafter ‘PHHL’) has filed thepresent petition under Section 34 of the Arbitration and Conciliation Act,1996 (hereafter ‘the Act’) impugning an arbitral award dated 06.09.2016(hereafter ‘the impugned award’) rendered by the Sole Arbitrator, JusticeP.K. Bahri (Retd.).

2.The impugned award was made and published in respect of thedisputes raised by the respondent, IDEB Projects Private Limited (hereafter'IDEB') in connection with the Contract dated 01.09.2004 entered intobetween the parties for construction of PHHL’s office complex building atNoida. The impugned award was rendered in the context of the second

round of disputes between the parties. The arbitral proceedings in the firstround commenced with IDEB invoking the arbitration clause by its letterdated 07.10.2008; pursuant to which sole arbitrator was appointed whoentered upon reference on 15.11.2008. The said arbitration proceedingsculminated in the arbitral award dated 03.02.2016. During the pendency ofthe aforementioned arbitral proceedings, IDEB sent another notice dated17.12.2012. There is some controversy regarding the date of the saidnotice; PHHL’s counsel claims that the said notice was issued on17.09.2012. However, the said controversy is not of any materialsignificance. It is sufficient to note that IDEB had sought reference ofcertain additional disputes that had arisen subsequent to the disputesreferred to arbitration pursuant to IDEB's earlier notice dated 07.10.2008.

3.PHHL, Government of India enterprise, is primarily engaged inproviding helicopter support services to the oil sector for offshoreexploration operations; air transport services in remote and hilly areas; andcharter services for promotion of tourism. In the month of March 2004,PHHL invited bids for construction of its office complex building at Plotno. C-14, Sector 1, Noida, Uttar Pradesh (hereafter ‘the office building’).IDEB’sbidbeingthelowestwasacceptedandthesamewascommunicated by PHHL by its letter dated 05.08.2004. Subsequently, thepartiesenteredintoaContractdated01.09.2004(hereafter‘theAgreement’). In terms of the Agreement, the construction was to becompleted by 10.09.2006. The Agreement was an 'item rate variable price'contract.

4.According to PHHL, the execution of the Agreement was delayedand the delays were solely attributable to IDEB. This led PHHL to extend

the completion date of the Agreement on seven occasions, upto31.10.2009. It is PHHL’s case that due to delays on IDEB’s part, PHHLsuffered severe financial hardships. As result, disputes arose between theparties.

5.In view of the disputes, IDEB invoked the arbitration clause by itsletter dated 07.10.2008 and the sole arbitrator was appointed on 02.11.2008to adjudicate the disputes who entered reference on 15.11.2008. Theseproceedings culminated in the arbitral award dated 03.02.2016.

6.In or around April 2010, PHHL took possession of the officebuilding in an unfinished state. Thereafter, PHHL called upon IDEB torectify certain defects in the construction of the office building on variousoccasions. However, PHHL claims that IDEB abandoned the works in June2010 without fulfilling its obligations and, therefore, PHHL had to appointanother agency to complete the pending works.

7.Further, the Chairman cum Managing Director of PHHL failed toappointthearbitratorpursuanttothenoticedated17.12.2012.Consequently, IDEB filed an application under Section 11 of the Actbefore this Court and Justice P.K. Bahri (Retd.), Former Judge of thisCourt was appointed as Sole Arbitrator to adjudicate the disputesbetween the parties.

8.IDEB filed its statement of claims raising the following claims:Claim - ₹18,05,302/- as the balance amount due under the 43[rd]RunningAccount (RA) Bill; Claim - ₹57,20,903/- being the amount of Bank Guarantee - furnished towards security deposit - encashed by PHHL;Claim - ₹52,91,637/- as amount due under the final bill; Claim -

₹93,48,538/- as interest on the aforesaid amounts till 30.06.2015; Claim - ₹20,00,000/- as legal costs; Claim - pendente lite interest at the rate of18% p.a. from 01.07.2015 till the date of the award computed at₹1,95,268/- per month; and Claim - future interest at the rate of 18% p.a. from the date of award till date of payment.

9.After the statement of claims and statement of defence had beenfiled, IDEB filed an application for amendment of its statement of claimsfor raising additional claims. PHHL also filed an application foramendment of statement of defence to raise counter claims to seek awardof liquidated damages. The Arbitrator considered the aforesaid applicationsand rejected the same as being barred by limitation.

10.Thereafter, the Arbitrator proceeded to consider the disputes andpublished the impugned award. Insofar as Claim is concerned, theArbitrator allowed the claim to the extent of ₹12,37,483.98 as the said amount was admitted by PHHL as payable. The Arbitrator also awardedClaim for ₹57,20,903/- in favour of IDEB being the Bank Guarantee (against security deposit) invoked and encashed by PHHL. The Arbitratorobserved that the said Bank Guarantee was furnished for securing PHHLfor any defect liability during the defect liability period. The works werecompleted on 17.03.2011 and, therefore, the defect liability period hadcome to an end on 16.03.2012. The Arbitrator held that since no evidenceof defect in the works executed by IDEB was established, PHHL ought tohave released the said amount and withholding of the same was wrongful.

11.The Arbitrator rejected the other claims raised on account of extraitems and held that IDEB was entitled to ₹4,12,070/- on account of final bill. Thus, in aggregate, the Arbitrator awarded sum of ₹73,70,456/- in

favour of IDEB. In addition, the Arbitrator also awarded interest at the rateof 10% p.a. on the aforesaid amount with effect from 01.04.2012 till thedate of the award and future interest at the rate of 12% p.a. on the awardedsum. However, he also held that future interest would be payable only ifthe awarded amounts were not discharged within period of three monthsfrom the date of the award.

Submissions

12.Mr Puneet Taneja, learned counsel appearing for PHHL assailed theaward on two aspects. First, he submitted that the decision of the Arbitratorto reject PHHL's application for raising counter claims as being barred bylimitation was contrary to law. He stated that PHHL was entitled to levyliquidated damages and had raised counter claims to the aforesaid effect inthe arbitration proceedings initiated pursuant to IDEB's invocation of thearbitration clause on 07.10.2008 (the first round).

13.He submitted that the Agreement had been extended seven timesfrom 16.01.2007 upto 31.10.2009 and although the first four extensions fellwithin the scope of disputes referred to arbitration in the first round, theother three extensions - that is, from 24.04.2009 to 31.10.2009 - were notconsidered by the initially constituted arbitral tribunal in the awardrendered on 03.02.2016. He contended that the dispute regarding levy ofliquidated damages, thus, for the period of 24.04.2009 to 31.10.2009 couldbe raised as counter claim and the period of limitation for raising the saiddisputes could only be reckoned from the date of filing of the statement ofclaims. He submitted that since PHHL's application for raising the counterclaims was made within period of three years from the date of the filingof the statement of claims, the same was within the period of limitation. He

relied on the decision of the Supreme Court inState of Goa v. PraveenEnterprises: (2012) 12 SCC 581 and on the strength of the said decisionsubmitted that the time period for making the counter claims where nonotice of disputes was served, would be reckoned from the date of thefiling of the statement of claims.

14.Secondly, Mr Taneja contended that the award of interest on thesecurity deposit ran contrary to the express terms of the Agreement andwas, therefore, unsustainable. He relied on the decisions of the SupremeCourt in Shree Kamatchi Amman Constructions v. Divisional RailwayManager (Works), Palghat and Others: (2010) 8 SCC 767 andUnion ofIndia v. Ambica Construction: (2016) 6 SCC 36. He also drew theattention of this Court to recent decision inBharat Heavy ElectricalsLimited v. Garg Builders: OMP (COMM) 28/2017, decided on10.03.2017 in support of his contentions.

15.Mr Neeraj Sharma, the learned counsel appearing on behalf of IDEBcountered the submissions made by Mr Taneja. He submitted that thecounter claim of liquidated damages related to the period from 31.01.2009to 31.10.2009 being the three extensions granted from 31.01.2009 to31.10.2009. He pointed out that the said disputes were not the subjectmatter of reference in the initial round and the same was conclusively heldby the arbitral tribunal constituted to consider the first reference. Hesubmitted that the impugned award was rendered pursuant to IDEBinvoking the arbitration clause on 17.12.2012 and the liquidated damagesnow sought to be claimed by PHHL were even beyond the period of threeyears from the invocation of the arbitration clause.

16.He also referredto the decision of the Supreme Court inVoltasLimited v. Rolta India Limited: (2014) 4 SCC 516 and drew the attentionof this Court to paragraph 25 of the said decision wherein, the SupremeCourt had considered the ratio of its earlier decision in PraveenEnterprises (supra).

17.Insofar as the issue regarding award of interest on security deposit isconcerned, Mr Sharma contended that clause 41.3 of General Conditions ofContract (hereafter ‘GCC’) relied upon by PHHL did not prohibit intereston the amount recovered by PHHL by wrongfully encashing the BankGuarantee as the same was only applicable to the sum deposited as securitydeposit. He further submitted that plain reading of the said clause clearlyindicated that the security deposit was only for the defect liability period.That period having expired, the Arbitrator was not precluded fromawarding interest for the period thereafter. He submitted that securitydeposit ceased to bear the character of security deposit after the defectliability period was over.

Reasoning and Conclusion

18.The date of commencement of the Agreement was 10.09.2004 andthe works were to be completed by 10.09.2006. PHHL granted extensionof time for completion of the works on seven occasions as indicated in thetable below:-

19.Admittedly, PHHL's counter claim for liquidated damages onaccount of extension of the Agreement for the first four extensions - that is,till 31.01.2009 was the subject matter of arbitral proceedings whichculminated in the arbitral award dated 03.02.2016 rendered by the arbitraltribunal constituted by Justice R.C. Lahoti (Retd.). The said arbitraltribunal concluded that PHHL was instrumental in contributing to the delayin performance of the works. The arbitral tribunal held that PHHL shouldmainly bear the responsibility for such breach in performance of theobligations and, accordingly, disallowed PHHL's claim for liquidateddamages. The arbitral award dated 03.02.2016 was assailed by PHHL in apetition filed under Section 34 of the Act which was disposed of by thisCourt on 09.01.2017 without interfering with the conclusion of the arbitraltribunal that PHHL was not entitled to liquidated damages and should bearthe responsibility for such breach in performance of obligations.

20.Concededly, PHHL's claim for liquidated damages in respect of thelast three extensions granted till 31.10.2009 were not the subject matter ofthe said reference. PHHL sought to raise the claim by way of anapplication to amend the statement of defence filed before the Arbitrator

(Justice P.K. Bahri (Retd.)). As mentioned above, IDEB also sought toraise additional claims by way of amendment to the statement of claims byseeking to raise claims for (a) compensation for loss incurred for the periodOctober 2008 to May 2010; and (b) for amendment of the final bill for theaforesaid period, apparently, on account of escalation in prices of materialsand other inputs. PHHL resisted the aforesaid claim on the ground that thesaid claims were time barred.PHHL claimed that cause of action formaking the said claim arose during October 2008 to May 2010 and,therefore, IDEB could not be permitted to raise the same for the first timein 2016. Admittedly, by virtue of Section 43 of the Act, the Limitation Act,1963 is applicable to arbitrations as it applies to proceedings in Court. Asheld by the Supreme Court inPanchu Gopal Bose v. Board of Trusteesfor Port of Calcutta: (1993) 4 SCC 338, the period of limitation forcommencement of arbitration runs from the date on which cause of actionwould have accrued as if there was no arbitration agreement. TheArbitrator after noticing various decisions rightly applied the test as towhether civil suit for the claims sought to be raised would be barred bytime. And, concluded that since the claims sought to be raised were beyondthe period of three years from the date of cause of action, the same werebarred by limitation.

21.Thus, the aforesaid objections were sustained by the Arbitrator andIDEB's application for amendment of the statement of claims was rejected.

22.PHHL's application for raising the counter claim was on no betterfooting. Concededly, the liquidated damages sought to be claimedpertained to the period prior to 31.10.2009.

23.Even, according to PHHL, IDEB had abandoned the works in June2010. In the circumstances, the Arbitrator rightly rejected PHHL'sapplication for raising counter claims as barred by limitation.

24.It is also relevant to note that before the Arbitrator, PHHL hadclaimed that the cause of action arose on 03.02.2016 when the earlierreference was decided. PHHL had claimed that since it was pursuing itsclaims for liquidated damages before the arbitral tribunal constitutedearlier, it became aware for the first time on receiving the award on03.02.2016 that its claims were outside the scope of reference. The saidcontention was not accepted by the Arbitrator and rightly so. However, nosuch contention has been advanced before this Court. On the contrary, it isa conceded position that the disputes relating to liquidated damages for theperiod beyond 31.01.2009 were not covered within the scope of the earlierreference.

25.In view of the above, the only contention that remains to beconsidered is whether the period of limitation for raising the counter claimon account of liquidated damages was to be reckoned from the date offiling of the statement of claims before the Arbitrator.

26.Mr Taneja has canvassed the above proposition, solely on thestrength of the decision of the Supreme Court in Praveen Enterprises(supra). In view of this Court, the said decision does not advance the caseof PHHL. In that case, the Supreme Court had held as under:-

“20. As far as counterclaims are concerned, there is no roomfor ambiguity in regard to the relevant date for determiningthe limitation. Section 3(2)(b) of the Limitation Act, 1963provides that in regard to counterclaim in suits, the date onwhich the counterclaim is made in court shall be deemed to be

the date of institution of the counterclaim. As the LimitationAct, 1963 is made applicable to arbitrations, in the case of acounterclaim by respondent in an arbitral proceeding, thedate on which the counterclaim is made before the arbitratorwill be the date of ‘institution’ insofar as counterclaim isconcerned. There is, therefore, no need to provide date of‘commencement’ as in the case of claims of claimant.Section21oftheActisthereforenotrelevantforcounterclaims. There is however one exception. Where therespondent against whom claim is made, had also made aclaim against the claimant and sought arbitration by serving anotice to the claimant but subsequently raises that claim as acounterclaim in the arbitration proceedings initiated by theclaimant, instead of filing separate application under Section11 of the Act, the limitation for such counterclaim should becomputed, as on the date of service of notice of such claim onthe claimant and not on the date of filing of the counterclaim.”

27.Plainly, the date of filing the counter claim would be the date inreference to which the question of limitation is required to be considered;the exception being where notice for raising the counter claim was servedearlier. In Voltas Limited (supra), the Supreme Court referred to the abovequoted passage from the decision in Praveen Enterprises (supra)andobserved as under:-

"25. On careful reading of the verdict in PraveenEnterprises [State of Goa v. Praveen Enterprises, (2012) 12SCC 581], we find that the two-Judge Bench, afterreferring to, as we have stated hereinbefore, Sections 21and 43 of the Act and Section 3 of the Limitation Act hasopined, regard being had to the language employed inSection 21, that an exception has to be carved out. It savesthe limitation for filing counterclaim if respondentagainst whom claim has been made satisfies the twin test,namely, he had made claim against the claimant andsought arbitration by serving notice to the claimant...."

28.In view of the above, the contention that the period for making acounter claim would run from the date of filing of the statement of claimsby the claimant is misconceived. IDEB had invoked the arbitration clauseon 17.12.2012 and, therefore, could only raise claims that stem from acause of action arising within period of three years prior to the said date.Plainly, PHHL could not be permitted to raise claims beyond the saidperiod only for the reason that IDEB had filed its claims.

29.The next question to be considered is with regard to the award ofinterest at the rate of 10% p.a. There is no dispute to the proposition that ifthe contract between the parties prohibits award of any interest on anyamount, the arbitral tribunal would have no power to award the same. Thisis apparent from the opening words of Section 31(7)(a) of the Act whichexpressly provides "unless otherwise agreed by the parties".

30.In Shree Kamatchi Amman Constructions (supra), the SupremeCourt has explained that the opening words of Section 31(7) of the Actcategorically clarified that the arbitrator is bound by the terms of thecontract insofar as the award of interest from the date of cause of action tothe date of award is concerned and, therefore, in cases where parties hadagreed that no interest would be payable, the arbitral tribunal would haveno jurisdiction to award any interest from the date when the cause of actionarises till the date of the award.

31.In Ambica Construction (supra), the Supreme Court had discussedthe law on the issue of pre-award interest at some length and after notingvarious earlier decisions concluded that the question of grant of pendentelite interest would depend on several factors such as "phraseology used inthe agreement, clauses conferring power relating to arbitration, nature of

claim and dispute referred to Arbitrator and on what items power to awardinterest has been taken away and for which period''.

32.Thus, plainly the question whether payment of interest wasprohibited would have to be considered in the context of the language ofthe Agreement between the parties. In the present case, the Arbitrator hadconsidered the Agreement between the parties and after noting the relevantclause (41.3 of the GCC) concluded that the same applied only during thecontract period and not beyond that. Thus, the only question to beconsidered in the present proceedings is whether the said decision isperverse, patently illegal and contrary to the plain language of theAgreement between the parties.

33.In this regard, it is necessary to observe that clause 41.3 of the GCCfalls within Article 41 of the GCC which is captioned as "SECURITYDEPOSIT (INTEREST FREE) TOWARDS DEFECT LIABILITY:".

34.In terms of clause 41.1, the contractor was obliged to deposit thesum of 10% of the value of the Agreement as security deposit with PHHL.The contractor had various options to deposit the amount. The same couldbe deposited in lump sum or could be deposited in tranches; the samecould also be recovered by deductions from the RA bills submitted by thecontractor.

35.In terms of clause 41.2, the contractor had the option to furnish theinitial total security deposit either through demand draft or by bankguarantee from any Schedule Bank.

36.It is not disputed that the security deposit (either by way of the bankguarantee or by deposit of sums) was to secure PHHL towards any defectliability as is apparent from the caption of Article 41. Clause 41.3 must beread in the aforesaid context and is set out below:-

"All compensation or other sums of money payable by thecontractor to PHHL under terms of this contract may bededucted from or paid by the sale of sufficient part of hissecurity deposit or from any sums which may be due or maybecome due to the contractor by PHHL on any accountwhatsoever and in the event of his security deposit beingreduced by reasons of any such deductions or sale asaforesaid the contractor shall within ten days thereafter makegood in cash, bank draft, or Government securities endorsedas aforesaid any sum or sums which may have been deductedfrom or realized by sale of his security deposit, or any partthereof.No interest shall be payable by PHHL for sumdeposited as security deposit."

37.In the aforesaid context, the Arbitrator had noted that the entire workhad been completed around March 2011. Thus, in any event, the defectliability period could not extend beyond March 2012 and PHHL was dutybound to refund any sum deposited as security deposit on the expiry of thesaid period. The Arbitrator had reasoned that the stipulation formaintaining interest free deposit for defect liabilities would obviouslycease once the defect liability period expired. In view of the above, theArbitrator has awarded interest at the rate of 10% p.a. on the amount witheffect from 01.04.2012; that is after expiry of the defect liability period.

38.It is well settled that the question as to interpretation of an agreementbetween the parties is clearly within the jurisdiction of the arbitrator. InMcdermott International Inc. v. Burn Standard Co. Ltd and Others.:(2006) 11 SCC 181, the Supreme Court held as under:-

"112. It is trite that the terms of the contract can beexpress or implied. The conduct of the parties wouldalso be relevant factor in the matter of construction ofa contract. The construction of the contract agreement,is within the jurisdiction of the arbitrators having regardto the wide nature, scope and ambit of the arbitration

agreement and they cannot be said to have misdirectedthemselvesinpassingtheawardbytakingintoconsideration the conduct of the parties. It is also tritethat correspondences exchanged by the parties arerequired to be taken into consideration for the purposeof construction of contract. Interpretation of contractis matter for the arbitrator to determine, even if itgives rise to determination of question of law. [SeePure Helium India (P) Ltd. v. Oil & Natural GasCommission: AIR 2003 SC 4519 and D.D. Sharma v.Union of India : (2004) 5 SCC 325].

113. Once, thus, it is held that the arbitrator had thejurisdiction, no further question shall be raised and thecourt will not exercise its jurisdiction unless it is foundthat there exists any bar on the face of the award.”

39.In Steel Authority of India Ltd. v. Gupta Brother Steel Tubes Ltd.:

(2009) 10 SCC 63, the Supreme Court observed as under:-

“....If the conclusion of the arbitrator is based on apossible view of the matter, the court should notinterfere with the award.”40.TheCourtfurtherexplainedthat“anerrorrelatabletointerpretation of the contract by an arbitrator is an error within hisjurisdiction and such error is not amenable to correction by Courts as sucherror is not an error on the face of the award”.

41.In Sumitomo Heavy Industries Limited v. Oil and Natural GasCorporation Limited: (2010) 11 SCC 296, the Supreme Court held asunder:-

“.....The umpire has considered the fact situation andplaced construction on the clauses of the agreementwhich according to him was the correct one. One may at

the highest say that one would have preferred anotherconstruction of Clause 17.3 but that cannot make theaward in any way perverse. Nor can one substitute one'sown view in such situation, in place of the one takenby the umpire, which would amount to sitting in appeal.As held by this Court in Kwality Mfg. Corpn. v. CentralWarehousingCorpn.theCourtwhileconsideringchallenge to arbitral award does not sit in appeal overthe findings and decision of the arbitrator, which is whatthe High Court has practically done in this matter. Theumpire is legitimately entitled to take the view which heholds to be the correct one after considering the materialbefore him and after interpreting the provisions of theagreement. If he does so, the decision of the umpire hasto be accepted as final and binding.”

42.The aforesaid view was reiterated by the Supreme Court inRashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran: (2012) 5 SCC

306. In that case, the Supreme Court held as under:-

“43. In any case, assuming that Clause 9.3 was capableof two interpretations, the view taken by the arbitratorwas clearly possible if not plausible one. It is notpossible to say that the arbitrator had travelled outsidehis jurisdiction, or that the view taken by him wasagainst the terms of contract. That being the position,the High Court had no reason to interfere with the awardand substitute its view in place of the interpretationaccepted by the arbitrator.”

43.Although the decisions in Steel Authority of India Ltd. (supra) andSumitomo Heavy Industries Limited (supra) were rendered in the contextof the Arbitration Act, 1940, the view expressed therein continues to beapplicable as the scope of interference under the Act has not been widenedbut has only been narrowed down considerably.

44.The view of the Arbitrator that the agreement to maintain an interestfree security was limited to the defect liability period - on plain readingof the clause 41.3 in the context of Article 41 of the GCC - is plausibleone and it is difficult to hold that the same is perverse, patently illegal or aview that no reasonable person could take. Thus, the same cannot beinterfered with unless his view is found to be perverse or unreasonable.

45.In view of the above, no interference with the impugned award iswarranted. The petition and the pending application are, accordingly,dismissed.

VIBHU BAKHRU, JMARCH 20, 2017RK