In FAO 179 of 2019 - DEL HC- NHAI was well within its right to levy penalty vis-a-vis liquidated damages against Contractor for not submitting collection of User Fee at Kharik Toll Plaza, Tribunal traversed beyond the agreed terms of Contract Agreement: Delhi High Cour
Justice Manoj Kumar Ohri [02-06-2023]

Read Order: National Highway Authority of India v M/S Suresh Chandra

Simran Singh

New Delhi, June 5, 2023: The Delhi High Court allowed the appeal under Section 37(1)(c) of the Arbitration & Conciliation Act, 1996, wherein the appellant had impugned the order passed by the Arbitral Tribunal whereby its objections filed under Section 34 of the Arbitration Act against the Award, were dismissed. It was stated that the Tribunal erred in misapplying rules of interpretation by abandoning the plain language used in Clause 25(b) to fit in ‘partial reduction of traffic' in the Clause 25(b), as a Force Majeure event. There was no reason cited by the Tribunal, or was otherwise apparent from the facts and records, if the parties had intended to include ‘partial reduction in traffic’ in Clause 25(b).

The Single-Judge Bench of Justice Manoj Kumar Ohri opined that the Tribunal’s decision to direct refund to the Contractor was contrary to Clause 9 of the Contract Agreement and was premised on the misunderstanding that the partial reduction in traffic was a Force Majeure event, and hence untenable. “Thus, the award of interest also was set aside and consequently, the appeal was allowed and the award dated 27.07.2018 was set aside.”

In the matter at hand, the appellant had engaged the respondent as a Contractor for collection of User Fee at Kharik Toll Plaza at km 333.150 pursuant to an e-tender issued by the appellant. The respondent alleged loss of revenue and lodged a claim for damages to the tune of Rs.1,35,26,024/- on account of reduction in the collection of User Fee in the period from 03.07.2014 to 24.11.2014. The respondent had also sought return of penalty amount of Rs. 88,93,346.00 levied on it by the appellant. Additionally, interest @ 18% p.a. was claimed on the principal sum awarded along with cost of litigation. Aggrieved by the award dated 27.07.2016, granted by the Tribunal, the appellant filed objections under Section 34 of the Arbitration Act, inter-alia including the ground that Tribunal has travelled beyond the agreed terms of the Contract Agreement and erred in the interpretation of clause 25. The Objections were however, dismissed by the Court vide the impugned order.

In the claim petition, the Contractor claimed that there were restriction/partial closure of Bhaina river bridge for heavy vehicles due to heavy rains and floods, which had caused damages and the passage of traffic at the toll plaza reduced significantly resulting in loss to the tune of Rs.1.25 lacs per day. Vide letter dated 22.07.2014, the Contractor sought reduction of weekly collection remittances that it was supposed to make to the appellant. A similar request was made for additional rebate of Rs.1 lac per day with respect to Bhaijini-Fulwaria bridge as well as for the Paras Banni bridge.

The Project Director, National Highway Authority of India (NHAI) vide letter dated 05.09.2014 recommended reduction of weekly remittance from Rs.28,82,352/- to Rs.22,33,840/- with effect from 26.07.2014. The said recommendation was claimed to be based on a survey conducted by a third party for the period from 09.08.2014 to 16.08.2014. The said recommendation was rejected by the Regional Officer of NHAI on the ground that Force Majeure clause was not applicable as there was no suspension of traffic under Clause 25 of the Agreement and also for the reason that the bridges affected were not in the same section as the toll plaza. On 02.03.2015, Regional Officer of the NHAI submitted its opinion that Contractor’s claim was not tenable. The recommendation of the Project Director was also rejected by the 3 Chief General Manager Committee of NHAI.

The issue that arose for consideration before the Tribunal was whether the aforesaid events would fall under Clause 9 or 25(b) of the Contract Agreement.  Admittedly, the events did not fall within the purview of Clause 25(a). Clause 9(b) prohibited the Contractor from making any claim on account of reduction in traffic on the ground of diversion of traffic as per Clause 9(a) which casted an obligation on the Contractor to survey the section of national highway or the said bridge or surrounding area and taking into consideration all such access or diversion of traffic due to deterioration of road condition or closure of road for maintenance work, whether existing or likely to come in future. The Tribunal interpreted the Contract Agreement and concluded that the events highlighted by the Contractor were squarely covered by Clause 25(b) of the Contract Agreement.

The Bench perused the clauses of the contract agreement which provided for ‘Diversions’ and ‘Force Majeure and its procedure’. The Court noted that as per the Contract Agreement, the contract period was from 25.03.2014 to 24.03.2015 however, the claim pertained to the period from 03.07.2014 to 24.11.2014.

The Bench stated that indisputably, there were reduction of traffic at the Kharik toll plaza in the period from 03.07.2014 to 24.11.2014. However, the moot question was whether reduction in traffic volume qualified as Force Majeure, as contemplated by the parties in Clause 25. In Clause 25(b)(ii), only complete blockade of ‘the road’ due to floods/earthquake was contemplated as a Force Majeure event.

The Bench referred to National Highway Authority of India v. TGV Projects & Investment Pvt. Ltd. wherein the Court had held the clause contemplated complete blockade of ‘the road’ affected by floods and not a mere reduction in traffic on account of a remote event of flood occurring, thereby affecting the flow of traffic leading to the contract road.  Accordingly, the Court was of the view that the interpretation of Clause 25(b) (ii) adopted by the Tribunal appeared to be contrary to the intent of the parties that was reflected in the plain words of Clause 25(b) i.e., complete blockade.

Thus the Court stated the Award in question was vulnerable to challenge on the ground that the award was contrary to the contractual provisions and thus squarely fell within the scope of Section 34 (2)(b)(ii) of the Arbitration Act.  “In terms of Clause 19 of the Contract Agreement, NHAI was well within its right to levy penalty (which to my mind are liquidated damages) @ 0.2% per day for initial one month of delay in depositing remittances and 0.5% for further delay beyond one month.”