O.M.P./166/2012 of M/S NBCC (INDIA) LTD Vs INDIAN RAILWAY CONSTRUCTION

* IN THE HIGH COURT OF DELHI AT NEW DELHIR-560

+ OMP 166/2012

NATIONAL BUILDINGS CONSTRUCTION CORPORATION LIMITED

..... Petitioner

Through: Mr. Arvind Minocha, Advocate.

versus

INDIAN RAILWAY CONSTRUCTION COMPANY LIMITED

..... Respondent

Through: Mr. Sanjay Goswami with Mr. K. Bhimraj Achary, Advocates.

CORAM: JUSTICE S.MURALIDHAR

O R R03.03.2017

1. The challenge in this petition under Section 34 of the Arbitration and Conciliation Act, 1996 („Act‟) filed by the Petitioner, National Buildings Construction Corporation Limited („NBCC‟) is to an impugned Award dated 4[th]November 2016 passed by the Arbitral Tribunal („AT‟) in the dispute between NBCC and the Respondent, M/s. Indian Railways Construction Company Limited („Ircon'), arising out of the Agreement dated 16[th] July 1990 whereby the work of construction of railway station-cum-commercial complex at Vashi, Navi Mumbai was awarded by IRCON to the NBCC.

2. The challenge in this petition is confined to two specific items. One is the dismissal of the Petitioner‟s claim for refund of two security deposits and the other the partial award of Counter-claim No. 3 in favour of IRCON.

3. It is submitted by Mr. Arvind Minocha, learned counsel appearing for NBCC that in rejecting the Petitioner‟s claim for refund of two security deposits, i.e., Claim Nos. 33 and 34, the AT sought to base its conclusion on Clause 17.4 of the Contract which permitted the forfeiture of the security deposit. It is pointed out that on the one hand the AT came to the conclusion that the termination of the contract with reference to Clause 60.1 of the General Conditions of Contract („GCC‟) was bad in law. However, the AT failed to allow Claims 33 and 34. Instead the AT sought to justify the forfeiture with reference to Clause 17.4.

4. In response, Mr. Sanjay Goswami, learned counsel appearing for Ircon submitted that AT did not categorically hold that the termination of the contract by Ircon was bad in law. It only held that the termination with reference to Clause 60.1 was bad in law. However, it justified the termination with reference to Clause 17.4 of the contract.

5. The Court first notes that under Claim 33 NBCC sought to release of security deposit in the sum of Rs. 5,57,486. Under Claim 34 NBCC sought to release of bank guarantee („BG‟) amounting to Rs. 3,80,86,840. However, this amount was in respect of several items, some of which pertained to security deposits. There was BG amounting to Rs. 15 lakhs towards security deposit. Further, under Clause No. 1 at page 173 of Special Conditions of Contract („SCC‟) NBCC submitted BGs in two denominations (i) for Rs. 28 lakhs and (ii) Rs. 32,85,840 totalling Rs. 60,85,840 against security deposit as performance guarantee. Mr. Minocha clarifies that it was these sums towards security deposits that NBCC was seeking return of under

Claim Nos. 33 and 34.

6. It is seen that in response to the above claims, the defence of Ircon was that the security deposit was not refundable as the NBCC failed to complete the work within the time. As noted in para 34.2 of the impugned Award, the defence of Ircon was that “the risk and cost amount is much more than security deposit and deposit against performance guarantee and therefore, the Respondent has taken action in terms of Clause 60.1 of General Conditions of Contract. The proceeds of this deposit has been adjusted against the risk and cost amount and therefore, is not refundable.”

7. The Court noticed that as far as termination of the contract is concerned, Clause 17.4 of the GCC if Ircon was not satisfied that the work would be completed by NBCC within the time allowed Ircon would be entitled to appropriate the security deposit and rescind the contract whether or not actual damage was caused by such default. However, in discussing the validity of such termination it was concluded by the AT that applicability of Clause 60.1 was not clearly proved and “so the right of the Respondent under Clause 60.1 (c) to get the balance work completed at cost of the Claimant do not get established”. It was thereafter concluded that “correct and appropriate course would have been to terminate the contract under Clause 59.1 of GCC instead of under Clause 60.1. The former would have been more appropriate also because time limit was allowed to lapse, no action to levy liquidated damages or extension of time limit was taken, IRCON‟s other agencies delayed the contractors work.” It was noted by the AT that “Clause 60.1 is applicable when default is only of the contractor. In

our view, therefore the action under Clause 60.1 was improper.” What is significant is that the above findings have not been challenged by IRCON.

8. Attention of this Court on the other hand is drawn by Mr. Goswami to the following observations in para 0.6.2 of the impugned Award: “thus though the action of Respondent to rescind the contract appears improper under the Clause 60.1 (vi), the same is contractually sanctified under Clause 17.4. Therefore, the action of Respondent to terminate the contract before 30[th]September 1994 was not improper.”

9. When both the above passages of the impugned Award are read together, it is clear that the AT concluded that the termination of the contract with reference to Clause 60.1 (v) GCC was not proper. It was not the case of the Ircon that it could justify the termination of the contract with reference to Clause 59.1 of the GCC or under Clause 17.4 That was conclusion reached by the AT of its own without any pleadings or evidence. Once the AT found that the termination with reference to Clause 60.1 was not justified, and in fact was “improper”, the logical result should have been to direct the return of the security deposit of NBCC. It is inexplicable that the AT rejected NBCC's claim Nos. 33 and 34.

10. For the above reasons, the rejection by the AT of Claim Nos. 33 and 34 of NBCC to the extent it concerned the return of the security deposit amounts i.e. Rs. 5,57,486 plus Rs. 60,85,840 is contrary to the AT‟s own finding and is hereby set aside.

11. However, under Section 34 of the Act this Court cannot substitute the

Award even it finds that that certain claims were admissible. The Court notes that NBCC can initiate fresh arbitration on Claims 33 and 34 to the above extent.

12. Next item of challenge is as regards Counter-claim No. 3 preferred by Ircon for total sum of Rs. 3,65,38,806 towards interest on various advances given to NBCC. There were two specific advances. First was mobilization advance and the second, advance towards plant and machinery. Insofar the impugned Award concerns the said two items, NBCC has not challenged it. The challenge is confined to other two items viz., „special advance‟ and 'advance against hypothecation of equipment‟. The contention of NBCC is that although the contract has no provision towards interest on these two advances, AT has, in the impugned Award while allowing the claim, allowed 18% interest on these items. It is pointed out that this determination of percentage of interest is without any reason and un supported by any clause in the contract.

13. No clause in the contract or other justification has been shown to the Court by Ircon which can form the basis for the AT‟s conclusion as regards the above two items and in particular awarding of 18% per interest. As regards „special advance‟ in the sum of Rs. 67.93 lakhs, it was governed by supplementary agreement which did not contain any clause for interest. As regards the advance against hypothecation of equipment in the sum of Rs. 48.03 lakhs, there is no provision in the contract as regards interest.

14. Consequently, this portion of the impugned Award in respect of Ircon's Counter-claim No. 3 is set aside.

15. The petition is disposed of in the above terms.

MARCH 03, 2017 Rm

S.MURALIDHAR, J