O.M.P. (COMM)/153/2017 of BRAHMAPUTRA CRACKER AND POLYMER LIMITED Vs RVR PROJECTS PRIVATE LIMITED

*IN THE HIGH COURT OF DELHI AT NEW DELHI

+O.M.P. (COMM) 153/2017 & IA No.3789/2017BRAHMAPUTRA CRACKER AND POLYMERLIMITED

..... PetitionerThrough:Mr N. L. Ganapathi and Mr MitashCharan, Advocates.

versus

RVR PROJECTS PRIVATE LIMITED

..... Respondent

Through:Mr Sridhar Potaraju and Ms AnkitaSharma, Advocates.

CORAM:

HON'BLE MR. JUSTICE VIBHU BAKHRUO R R%30.03.2017

VIBHU BAKHRU, J

1.Brahmaputra Cracker and Polymer Limited (hereafter ‘BCPL’) hasfiled the present petition under Section 34 of the Arbitration andConciliation Act, 1996 (hereafter ‘the Act’) for partially setting aside thearbitral award dated 11.01.2017 (hereafter ‘the impugned award’) to theextent that BCPL has been directed to refund the amount of ₹1,33,21,601/- deducted as price reduction in terms of price reduction schedule from theamount payable to the respondent (hereafter ‘RVR’). BCPL is alsoaggrieved with the award of pendente lite and future interest in favour ofRVR.

2.BCPL had invited bids for Civil, Structural, Architectural & ElectricalWorks for the Product Ware House of BCPL’s Petrochemical Complex in

Lepetkata, Assam (hereafter ‘the works’). RVR submitted its bid, which wasaccepted by issuance of Fax of Intent (FOI) dated 14.01.2009 along with aletter of acceptance dated 05.02.2009. Thereafter, the parties entered into anAgreement dated 20.02.2009 (hereafter 'the Agreement'). In terms of theAgreement, the works had to be completed within 16 months from the dateof the Fax of Intent; that is, by 13.05.2010.

3.Clause 27 of the General Conditions of Contract (hereafter ‘GCC’)included as part of the Agreement, provided for price reduction schedule(hereafter ‘PRS’) wherein for every complete week's delay (or part thereof)on the part of the contractor, the total contract price was to be reduced by1/2% subject to maximum of 5%. The execution of the works wasinordinately delayed and the time for completion was extended to31.07.2011 (by third and final extension). The works were completed on31.07.2011 after delay of 444 days.

4.RVR claimed that it was entitled to be compensated for delay andprolongation of the works. On the other hand, BCPL deducted 2% of thecontract value on account of delay of 23 days (out of 444 days) that wasalleged to be attributable to RVR.

5.Engineers India Limited (hereafter ‘EIL’) - which was appointed byBCPL as the Engineer-In-Charge for the works - conducted detailedanalysis of the delay and concluded that delay of 23 days was solelyattributable to RVR and therefore, decided to apply PRS at 1.64%. The saiddecision was communicated to BCPL by letter dated 14.03.2012. However,in its meeting dated 22.08.2012, BCPL resolved to apply PRS at 2% on the

final executed value of the Agreement. Consequently, BCPL deducted anamount of ₹1,33,21,601/- from RVR’s final bill. This led RVR to invoke the arbitration clause by its letter dated 22.04.2015/14.05.2015.

6.Beforethearbitrator,RVRmadeseveralclaimsaggregating₹14,52,75,018/- which included refund of the amount of ₹1,33,21,601/- deducted under PRS as Claim no.1; ₹1,46,25,434/- being interest on the amount deducted under PRS as Claim no.2; ₹9,40,60,620/- on account of loss due to abnormal increase in labour wages as Claim no.3; ₹2,02,50,456/- on account of overheads for time overrun as Claim no.4; and ₹21,25,700/- as bank charges for extending the bank guarantees beyond the initial period ofthe Agreement as Claim no.5. RVR also claimed interest and costs.

7.The arbitrator accepted RVR's contention that the execution of theworks depended on the work of the earth filling agency for which the tenderwas not floated even till 14.01.2009 - date of commencement of theAgreement. RVR was also not made available the required land as the areawhere the works had to be completed was occupied by another agency.Further, the arbitrator considered the observations of BCPL’s tendercommittee recorded in note sheet dated 22.08.2012; he observed that therewas lack of planning on EIL’s part leading to delay in completion of theworks and therefore, held that levy of PRS on RVR was unjustified.

8.The arbitrator also held that Clause 27 of the GCC - PRS clause - is aclause for levying liquidated damages and thus, cannot be enforced as BCPLhad neither alleged nor proved that it had suffered any loss or damage as aresult of the delay in the execution of the works nor was it shown that the

amount deducted under the aforesaid clause was genuine pre-estimate ofloss as agreed to by the parties. In light of the above, RVR’s claim forrefund of ₹1,33,21,601/- was accepted.

9.The arbitrator also held that RVR was entitled to compensation forloss on account of increase in wages but rejected the claim as RVR failed toestablish the extent of labour component. Although the arbitrator acceptedthat RVR was entitled to claim overheads and bank charges, he rejected thesaid claims as being barred by limitation. Similarly, the claim for interest onamount deducted under PRS also stood rejected.

10.In addition, the arbitrator also awarded pendente lite interest from04.03.2016 till the date of the award and future interest as per Section31(7)(b) of the Act.

Submissions

11.Mr Ganapathi, learned counsel for BCPL advanced arguments toassail the award on solitary ground; he contended that the arbitrator haderred in holding that Clause 27 of the GCC provided for liquidated damages.He submitted that Clause 27 of the GCC only provided for variation in theprices and was neither in the nature of penalty nor liquidated damages. Heearnestly urged that it was not the case of RVR that PRS was in the nature ofliquidated damages and, therefore, there was no occasion for BCPL tocounter the same. He submitted that the arbitrator had exceeded hisjurisdiction by recording findings that were beyond the pleadings of theparties.

12.He also submitted that reliance placed by the arbitrator on thedecision in the case of Tema India Ltd. v. Engineers India Ltd.: (2015) 221DLT 348 was misplaced as the subject clause interpreted in that case wassignificantly different from Clause 27 of the GCC. He drew the attention ofthis Court to paragraph 22 of the said decision wherein this Court hadobserved that both the parties were treating clause 12 of the GeneralPurchase Conditions (GPC) (the relevant clause in that case) as clause forlevy of liquidated damages and, therefore, the issue was essentially whetherEIL was entitled to price reduction in terms of the PRS. He also referred tothe decision of the Division Bench rendered in the appeal preferred againstthe aforesaid decision (Engineers India Ltd. v. Tema India Ltd.: (2016) 226DLT 531) wherein the Division Bench of this Court concurred with theview expressed by the Single Judge that there was no issue as to whetherclause 12 of the GPC was for liquidated damages and, therefore, thearbitrator's decision holding that the said clause was neither clause forlevying liquidated damages nor penalty but simpliciter clause for pricereduction could not be sustained.

13.Mr Sridhar Potaraju, learned counsel appearing for RVR counteredthe submissions made by Mr Ganapathi on behalf of BCPL. He submittedthat Clause 27 of the GCC was plainly clause for liquidated damages. Hedrew the attention of this Court to the pleadings filed before the arbitratorwhich clearly indicated that it was RVR's case that PRS was being levied onaccount of delay, which was not attributable to RVR and was thus, whollyunjustified. He submitted that the pleadings of the parties before thearbitrator were premised on the basis that Clause 27 was clause for

liquidated damages. He also contended that plain reading of Clause 27would indicate that parties had agreed to reduction in the price on account offailure of the contractor to complete the works within the stipulated periodand, therefore, was plainly in the nature of liquidated damages. He furthersubmitted that the decision of the arbitrator to accept RVR's claim for refundof the amount deducted under PRS was also based on the finding that thedelay in completion of the works was not attributable to RVR.

Reasoning and Conclusion

14.At the outset, it would be necessary to refer to Clause 27 of GCC,which is set out below:-which is set out below:-

"27.Price Reduction Schedule:27.1Time is the essence of the CONTRACT. In casethe CONTRACTOR fails to complete the Workwithin the stipulated period, then, unless suchfailure is due to Force Majeure as defined inClause 26 here above or due to EMPLOYER'Sdefault, the Total Contract price shall be reducedby 1/2% of the total Contract Price per completeweek of delay or part thereof subject to amaximum of 5% of the Total Contract Price, byway of reduction in price for delay and not aspenalty. The said amount will be recovered fromamount due to the Contractor/Contractor's ContractPerformance Security payable on demand.

The decision of the ENGINEER-IN-CHARGE inregard to applicability of Price Reduction Scheduleshall be final and binding on the CONTRACTOR.

27.2 All sums payable under this clause is thereduction in price due to delay in completionperiod of the above agreed rate."

15.A plain reading of the aforesaid clause indicates that the reduction ofprice is contemplated as consequence of delay in completion of the workson the part of the contractor (in this case, RVR); the only exceptions beingwhere the delay is caused due to force majeure events or for reasonsattributable to the employer (BCPL). The question whether the said clause isa mere price variation clause or clause for liquidated damages has to bedetermined on the basis of the intention of the parties.

16.It could hardly be disputed that the purpose of the said clause isessentially to serve as disincentive against any delay and to compensateBCPL for the same. The object appears to be to impose damages on thecontractor for delays attributable to it. The arbitrator had considered theimport of the said clause and held the same to be clause for levy ofliquidated damages. The question relating to the interpretation of contractfalls squarely within the scope of jurisdiction of an arbitrator and hisdecision in this regard is final unless it is found that his view is perverse orpatently illegal. In the present case, it is difficult to accept that thearbitrator's view that the PRS is in essence liquidated damages can beregarded as perverse or patently illegal.

17.Having stated the above, it is necessary to examine Mr Ganapathi'scontention that the issue whether PRS was in the nature of liquidateddamages was not an issue before the arbitrator and, therefore, the arbitratorhad erred in proceeding on the aforesaid basis. There is much merit in the

contention that if controversy is not raised before the arbitrator, thedecision on the same would be outside the scope of arbitrator's reference.Further rendering decision on an issue neither raised nor debated wouldmilitate against juridical approach which the arbitrator must bear whileadjudicating the disputes.

18.However, plain reading of the pleadings indicates that is not so inthis case. Although, Mr Ganapathi is correct that the expression "liquidateddamages" was not used by RVR in its pleadings, bare perusal of the sameindicates that RVR had placed its case on the fundamental premise that PRSwas essentially in the nature of damages and the same could not be leviedwithout BCPL establishing its loss. Paragraphs 75 and 80 of the Statementof Claims filed by RVR before the arbitrator are indicative of the above andare set out below:-

"75. The Claimant submits that the delays and defaults arepurely attributable against the Respondent and not againstthe Claimant. The Claimant has executed the works as andwhen the fronts were handed over to them. Had theRespondent handed over the entire fronts at time theClaimant could have completed all the works and would nothave suffered any losses. The surprising and astonishingissue is that the party who committed delay in honouringthe terms and conditions and obligations intentionallyaccusing/alleging delay on the other party and imposed PRSagainst the Claimant without suffering any losses. There isno evidence to show that it has suffered any losses and hasnot handed over any document to show that because ofalleged delay the Respondent has suffered losses. TheRespondent after completion of the work i.e., at the time ofsettling the final bill illegally recovered an amount ofRs.1,33,21,601/- under the guise of PRS. The imposition

and recovery was made 14 months after completion of thework/contract/the defect liability period, keeping Claimantunder impression that no PRS will be levied.

*********80. The Claimant submits that the Respondent had notgiven any reasons and valid grounds in support of theirdecision to impose and recover PRS from the Claimant.Even there is no whisper of any allegation that theRespondenthassufferedanylossbecauseofnoncompletion of the work within the stipulated period or inthe extended period. The Respondent has not suffered anylosses during the tenure of the contract or even after andthere is no legal injury to the Respondent hence theimposition of the PRS and recovering the PRS under theguise of the alleged default is illegal, unlawful and is notsustainable."

19.A plain reading of the aforesaid indicates that RVR had challengedthe levy of PRS on two grounds. First of all, it had contended that there wasno delay on the part of RVR and, therefore, the decision to levy PRS wasunjustified; and second, that there was no loss suffered by BCPL and,therefore, there was no legal injury to BCPL warranting imposition of PRS.

20.The second contention is plainly on the basis that Clause 27 is aclause for liquidated damages. In the event, BCPL wanted to contest theabove, it had full opportunity to counter the pleadings by stating that PRS isnot imposed as damages and, therefore, the fundamental assumption thatBCPL has to provide evidence of any loss for imposition of PRS is flawed.However, BCPL did not raise any such pleadings. Whilst BCPL contestedRVR's case that it had not delayed the execution of the works, it did notcounter RVR's claim that BCPL had not incurred any loss. In its Statement

of Defence filed before the arbitrator, BCPL had simply traversed thecontents of paragraphs 75 and 80 of the Statement of Claims by stating thatthe contents are repetitive and did not warrant any specific reply (seeparagraphs 6.75 and 6.80 of the Statement of Defence).

21.It is seen that BCPL had contested RVR's claim in regard to refund ofthe amount deducted under PRS mainly on the ground that it was anexcepted matter and was outside the scope of the arbitration clause.Undoubtedly, RVR's pleadings could have been more specific, but the lackof specific pleadings cannot detract from the substance of the case set up byRVR. In the circumstances, this Court is not persuaded to accept that therewas no occasion for BCPL to raise the defence that Clause 27 was not aclause for liquidated damages or levy of PRS was not in the nature ofliquidated damages; and, therefore, BCPL was not required to produceevidence of any loss incurred.

22.It is also necessary to observe that although Mr Ganapathi hadcontended that the question whether PRS was in the nature of liquidateddamages was not raised before the arbitrator, he did not question thereasoning that BCPL would have to establish that it had incurred loss onaccount of delay for claiming liquidated damages. Therefore, if it is acceptedthat Clause 27 is not in the nature of no fault liability clause - as accepted bythe arbitrator - then it would be necessary for BCPL to establish that it hadincurred loss. And, if the loss could not be quantified, BCPL would haveto establish that reduction of 1/2% of the contract value per week for everyweek of delay or part thereof (subject to maximum of 5%) was reasonable

compensation. InVishal Engineers & Builders v. Indian Oil Corporation:2012 (1) Arb.LR 253 (Delhi), Division Bench of this Court had referredto several decisions and explained that it is not open for party to claim thatit is "entitled to liquidated damages without, at least, proving semblance ofloss."

23.As stated above, this Court is not persuaded to accept the contentionthat the issue whether the PRS was in the nature of liquidated damages wasoutside the scope of controversy before the arbitrator as contended by MrGanapathi. However, even if the said contention is accepted, the impugnedaward cannot be set aside because the absence of material to establish anyloss to justify the levy of PRS was not the only reason for the arbitrator toaward the claim in favour of RVR.

24.According to BCPL, there was delay of 444 days out of which EILhad recommended that 23 days delay was attributable to RVR. RVR hadstoutly contested the aforesaid and had claimed that the delay wasattributable to BCPL. The stipulated time for completion of the Agreementwas 16 months and the works were to be completed by 13.05.2010.Admittedly, at the time when the contract was awarded, BCPL had not evenissued notice inviting tender for site grading works which was required tobe done for RVR to carry out its works. Indisputably, there were substantialdelays that were attributable to BCPL/EIL. In addition, the works were alsodelayed for other reasons that were not attributable to RVR. EIL hadexamined the reasons for delay and in its letter dated 14.03.2012

recommended that out of 444 days of delay in completion of the works, 23days were attributable to RVR.

25.RVR had claimed that there was delay of 21 days on account ofchanging the scope of "under reamed piling to open footing foundation".There was no dispute that the scope of works as claimed by RVR had beenchanged. However, the same had been denied as EIL concluded that RVRwas not geared up to start the works. Similarly, RVR had also claimed thatthere was delay of 46 days on account of unprecedented rain. This wasalso rejected as EIL was of the view that it was RVR's responsibility to keepthe site free from water during monsoons.

26.RVR had also claimed that there was delay of 594 days on account ofdelay in the task of earth filling which was entrusted by BCPL to anotheragency. However, EIL had only accepted the delay of 312 days. It is, thus,seen that there was significant controversy as to the reasons for the delay.However, even according to EIL/BCPL, bulk of the delay was not onaccount of RVR.

27.RVR had also claimed that it should be given benefit for the periodtaken by the earth filling agency which had been curtailed by EIL to only312 days. There was also an issue as to the coordination between theagencies as there were also other contractors working at the site. Although,RVR was obliged to coordinate with other agencies, the arbitrator was of theview that the same would be applicable only before the site was handed overto EIL. The arbitrator had considered the above and had concluded that there

was lack of planning on the part of EIL leading to the delays in completionof the job and thus, the levy of PRS on RVR was unjustified.

28.The arbitrator had also noted that the additional work of cabling wasawarded to RVR on 08.04.2011 and the Notice to Proceed was issued on20.04.2011 but only 1/2 day was added for additional work. Plainly, thearbitrator had not accepted the same as reasonable.

29.The arbitrator had not considered each of the causes of the delayseparately but it is apparent that the arbitrator had taken the overall view andhad attributed significant delay to lack of planning on the part of EIL; thus,it is apparent that the arbitrator had not concurred with the decision of EILregarding the delays being attributable to RVR.

30.This is apparent from paragraphs 112 and 113 of the impugned award,wherein the arbitrator observed as under:-

"112.....Consideringtheobservationofthetendercommittee as recorded in the note sheet dated 22.08.2012that there was lack of planning of EIL leading to delay incompletion of job, the levy of PRS on the Claimantappears to be unjustified.113. It has also been noted that additional work of cablingwas entrusted to the Claimant on 08.04.2011 and go aheadwas given on 20.04.2011. The Claimant was required topurchase the cable from the approved agency of theRespondent. Material had to be transported from Kolkataandthereaftertheworkhadtobeexecuted.TheRespondent should have taken the actual time required forthe job into consideration. The Respondent has granted

extra time for this additional job on value basis whichworks out to only 1/2 day. It may be true that the total timegranted for increase in value of work is 93 days but mostof this time relates to the increase in value due to change inscope of work which was at the initial stages of thecontract. Further by this time possession had already beentaken over by EIC and other agencies were working in thePWH which was causing obstruction in the working of theClaimant."

31.Plainly, if the arbitrator has not accepted EIL's findings as to the delayattributable to RVR, the question of accepting levy of PRS does not arise.As indicated above, the scope of the present proceedings does not entail re-appreciation of evidence and this Court cannot supplant its view over that ofthe arbitral tribunal. Thus, unless it is established that the impugned award isperverse, patently illegal or falls foul of the public policy of India, thearbitral award cannot be set aside.

32.In view of the above, this Court is unable to accept that anyinterference in the impugned award is called for. The petition and thepending application are, accordingly, dismissed. No order as to costs.

MARCH 30, 2017RK

VIBHU BAKHRU, J