Telecommunication Consultants India Ltd vs M/S MBL Infrastructure Ltd

,,

Vibhu Bakhru, J",,

The petitioner has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter ‘the A&C Act’)",,

impugning an arbitral award dated 20.01.2020 (hereinafter the ‘impugned award’) passed by the Arbitral Tribunal comprising of three,,

Arbitrators, Mr. O.P. Gaddhyan, Mr. Vipan Kumar and Justice (Retd.) Reva Khetrapal as the presiding arbitrator. Whilst Mr. O.P. Gaddhyan and",,

Justice (Retd.) Reva Khetrapal delivered the impugned award by majority, Mr. Vipan Kumar entered a dissenting opinion on 23.01.2020.",,

The impugned award has been rendered in the context of disputes that have arisen between the parties in relation to an agreement dated,,

17.09.2008, as amended by an agreement dated 31.10.2008.",,

By the impugned award, the Arbitral Tribunal has partly accepted the claims preferred by the respondent. The Arbitral Tribunal has accepted that",,

the total amount payable to the respondent in respect of its claim would be Rs. 5,91,36,814. The Tribunal further allowed interest at the rate of 12%",,

per annum, as per normal banking norms on the said amount calculated from 24.12.2013 (i.e. the date of filing of Statement of Claim) till the date of",,

making and publishing the award. The Tribunal further directed that the said payment be made within a period of 30 days failing which a further,,

interest of 12% per annum is to be applicable from the date of the Award till the date of payment. The Arbitral Tribunal also awarded cost quantified,,

at Rs. 58,48,927/- along with simple interest at the rate of 12% per annum.",,

The petitioner (hereinafter ‘TCIL’) assails the impugned award to the extent as noted hereafter, as being patently illegal and contrary to the",,

fundamental policy of Indian Law.,,

Briefly stated, the relevant facts that are necessary to address the controversy are as under:-",,

Haryana State Roads & Bridge Development Corporation Ltd. (hereafter ‘HSRDC’) invited tenders foâr €œConstruction of 144 nos.,,

Type V and 24 nos. Type VI houses with parking in basement (C+7 Storey) in the campus of Rajiv Gandhi Thermal Power Project at Khedar,,

in Hissar Districtâ€​ (hereinafter ‘the project’).,,

The petitioner (TCIL) submitted its tender for executing the project works on 22.07.2008. TCIL’s bid of Rs. 32,29,49,824/- was accepted by",,

HSRDC and the contract for implementation of the project was awarded to TCIL by a letter dated 21.08.2008.,,

In the aforesaid letter of acceptance, TCIL was directed to furnish a Performance Security as per Clause 34 of Section I- Instructions to Bidders,",,

for an amount equivalent to 5% of the contract price i.e. Rs. 1,61,47,491/-, within 21 days of the receipt of the letter dated 21.08.2008. The same was",,

duly furnished by TCIL.,,

Thereafter, TCIL approached the respondent (hereinafter MBL) to execute the said project as a sub-contractor and on 18.08.2008, MBL agreed to",,

the terms and conditions. It was agreed that the contract would be executed on back to back basis with TCIL retaining a margin of 2.5% and,,

disbursing the balance 97.5% to MBL. In addition, TCIL agreed to depute three engineers for co-ordination between MBL, TCIL and HSRDC and",,

MBL agreed to bear the cost of the aforesaid at the rate of Rs. 40,000/- per month for each engineer.",,

Thereafter, on 17.09.2008, an agreement was entered into between TCIL and MBL (hereinafter ‘the Agreement’). MBL agreed to",,

complete the project within a period of eighteen months. TCIL agreed to release the payments received from HSRDC, after deducting 2.5% margin,",,

immediately on receiving the same.,,

In terms of the Agreement dated 17.09.2008, MBL furnished a Performance Security in the form of a Bank Guarantee for the sum of Rs.",,

1,61,47,491 and an invoice payment Bank Guarantee for Rs. 60 lacs on 06.10.2010, in favour of TCIL.",,

On 31.10.2008, the parties agreed to an amendment to the said Agreement and the terms and conditions of such amendment were reduced into",,

writing. Essentially, the clause for Procurement of Material was amended.",,

The works as originally agreed were completed within the stipulated period, that is, 11.03.2010 for the tender amount of Rs. 32,29,49,824/-.",,

However, the actual date of completion was extended on account of extra work executed by MBL and also delay arising on account of various",,

decisions taken by HSRDC. The work was finally completed to the satisfaction of TCIL on 30.11.2011.,,

Certificates dated 01.02.2010, 29.12.2020 and 27.04.2013 were issued by TCIL indicating that MBL’s performance on various parameters",,

was “very goodâ€​.,,

HSRDC issued the Completion Certificate on 04.06.2013. HSRDC also granted extension of time for execution of project up to 30.11.2011,,

without any levy of liquidated damages by its memo dated 13.02.2017.,,

On 06.06.2013, MBL submitted the aforesaid Completion Certificate to TCIL. It is averred that MBL was also awarded an Excellence Award for",,

the aforesaid project and the said Excellence Award was also submitted by MBL to TCIL along with the Completion Certificate and a cheque of Rs.,,

10 lacs drawn in favour of TCIL by HSRDC. MBL further requested TCIL to release their payments withheld by it and also to release their security,,

deposit at the earliest.,,

In the meanwhile, since the Performance Security (in the form of a Bank Guarantee) was expiring on 04.07.2013 and the Certificate of",,

Satisfactory Completion of the Project from HSRDC was awaited, MBL extended the Performance Security from 04.07.2013 up to 04.10.2013 and",,

apprised TCIL of the same vide a letter dated 03.07.2013.,,

On 19.07.2013, HSRDC issued a certificate to the effect that the work had been successfully completed on 30.11.2011 and the defect liability",,

period had also expired on 25.06.2013. On 22.07.2013, MBL addressed a communication to TCIL enclosing Completion Certificate, Defect Liability",,

Certificate, cheque issued by HSRDC and also the original Performance Bank Guarantees released by HSRDC in favour of TCIL and requested",,

TCIL to release the original Performance Bank Guarantee furnished by it. It also requested TCIL to release the outstanding dues along with interest,,

at the rate of 18% per annum.,,

TCIL instead of releasing the Performance Bank Guarantees sent a communication to the bankers of MBL seeking encashment of the,,

Performance Bank Guarantees furnished by MBL. Aggrieved by the same, MBL approached this Court under Section 9 of the A&C Act (OMP No.",,

782/2013 captioned as MBL Infrastructures Ltd Vs Telecommunication Consultants India Ltd & Anr.) seeking a stay order. This Court, by an order",,

Claim No. 1,"Payment against Revised 17th Running Account Bill Rs. 5,53,47,958/- revised to Rs

5,14,48,210/-",

Claim No. 2,"Towards 18th RA and Final bill of Rs. 4,37,19,302/- revised to Rs. 2,03,82.492.51",

Claim No. 3,"Sales Tax, VAT Deduction at source wrongfully made by the respondent amounting

to Rs. 31 ,43,111/-",

Claim No. 4,"Deductions wrongfully made with respect to the Man Power employed amounting to

Rs. 40,20,000/-",

Claim No. 5,"Claim towards encashment of Performance Bank Guarantee Rs. 1,61,47,491",

Claim No. 6,"Release of Bank Guarantee No. 507941 OBG0003499 dated 06.10.2010 for Rs. 6

lacs towards invoice payment issued from State Bank of Patiala = Rs. 60 lacs",

Claim No. 7,"Claim on account of losses incurred due to nonfulfillment of reciprocal obligations by

TCIL, due to prolongation of the contract, losses and damages caused due to

invocation of the bank guarantees, losses and damages caused due to non

confirmation of the Completion /Performance Certificates etc = Rs. 15 Crores",

Claim No.8,"Cost of Proceeding = Rs. 50 Lacs revised to Rs. 79,33,827/-",

Claim No. 9,"Claimants claim Interest at the rate of 18% per annum pre-suit, pendent elite and

future.",

a Fixed Deposit by the Registry of this Court plus accrued interest on the same with regards to Claim no. 5; release of Bank Guarantee dated,,

06.10.2010 of Rs. 60 Lacs with regards to Claim No. 6; 10% simple interest on Claim No. 1 as on August 2017 subject to the adjustment of Counter,,

Claim of TCIL, with regards to Claim No. 9. He also held that in case, HSRDC recovers any amount from TCIL as per the orders of Hissar Courts,",,

MBL will contribute its share plus legal expenses borne by TCIL with effect from the date of the award. And, in the event HSRDC has to pay any",,

amount to TCIL as per the orders of Hissar Courts, TCIL will pay to MBL its share less legal expenses borne by TCIL with effect from the date of",,

the award. According to him, MBL was liable to bear the expenses incurred by TCIL till date in defending the suit of HSRDC to be adjusted against",,

Claim No. 1 of MBL. He held that TCIL was entitled to Rs. 3,40,790 plus Rs. 41,863/- with simple interest at the rate of 10% per annum with effect",,

from 01.4.2010.,,

On 04.02.2020, TCIL filed a petition under Section 33 of the A&C Act and by an order dated 25.06.2020, the Arbitral Tribunal allowed",,

corrections regarding non-inclusion of declaratory relief granted in paragraph nos. 165 & 171 of the award and in the final reliefs mentioned in,,

paragraph no. 175. However, majority Arbitrators held that there was no merit in the plea as no such statement was made by the counsel for the",,

petitioner during the course of arguments as noted in paragraph nos. 92 & 101 of the impugned award and further, the same did not fall within the",,

purview of Section 33 of the A&C Act.,,

Aggrieved by impugned award, TCIL has filed the present petition.",,

Submissions of counsels,,

Although the petition mentions several grounds, Mr. R.K. Singh, learned counsel appearing for TCIL, assailed the impugned award only to the",,

following extent.,,

First, he submitted that the Arbitral Award in respect of Claim No.2 is patently erroneous inasmuch as, the Arbitral Tribunal had not considered",,

that a sum of Rs. 1,32,15,493/- was erroneously disbursed by the principal employer (HSRDC) on inflated measurement of the work done. He",,

submitted that there was no dispute that the measurement of the work performed was in excess of the work executed, resulting in disbursal of an",,

excess amount of Rs. 1,32,15,493/- till the 17th RA Bill. He submitted that HSRDC had deducted the said amount from the 18th RA and Final Bill.",,

Therefore, this was necessarily to be taken into account. He submitted that although TCIL had filed a counter claim against HSRDC in a suit filed by",,

HSRDC, TCIL had not disputed the aforesaid amount and had accepted that excess payment had been disbursed by HSRDC to the extent as stated",,

above. He contended that the Arbitral Tribunal had erred in treating the 17th RA Bill and 18th Bill separately, resulting in the said patent error.",,

Second, he submitted that the Arbitral Tribunal had erroneously proceeded on the basis that MBL had received payments to the extent of Rs.",,

21,84,99,001/- from TCIL. However, TCIL had, in fact, made payments amounting to Rs. 22,13,17,609/- to MBL. The difference of Rs. 28,18,608/-",,

was on account of excess withheld by TCIL on account of Works Contacts Tax (hereinafter ‘WCT’). He stated that the same had been paid,,

by TCIL to MBL and this was admitted by MBL’s witness (CW-1) in response to Question No. 199. The Arbitral Tribunal had noted the same,",,

however, had not accounted for the same on the ground that the said amount of Rs. 28,18,608/- was merely a refund made by TCIL out of a sum of",,

Rs. 59,61,715/- withheld by TCIL from RA Bills No. 1 to 7. He submitted that notwithstanding the amount that was refunded from the sum of Rs.",,

59,61,715/- withheld by TCIL, it was still required to be accounted for.",,

Third, he submitted that admittedly a sum of Rs. 31,43,111/- had been deposited by TCIL towards WCT and there was no dispute that MBL was",,

liable to bear the WCT. However, the Arbitral Tribunal had not taken that into account while computing the amount payable under Claim No.1.",,

Fourth, he submitted that admittedly MBL was liable to pay for the manpower employed by TCIL. TCIL had deducted a sum of Rs. 40,20,000/-",,

on that account and the same was claimed by MBL as Claim No.4. The Arbitral Tribunal had found that the amount withheld by TCIL on account of,,

the project supervision charge was in excess of what was justified, as TCIL had not deployed the necessary manpower resources as claimed by it.",,

The Tribunal held that out of the aforesaid sum, a sum of Rs. 28,20,000/- related to bills that were processed till 30.10.2010 (up to 13th RA Bill) and",,

MBL’s claim to the said extent was time barred, being beyond a period of three years. Out of the remaining amount of Rs. 12,00,000/-, Rs.",,

8,00,000/- had been charged in excess and, therefore, the Arbitral Tribunal awarded MBL a sum of Rs. 8,00,000/-against its Claim No.4. However,",,

the Arbitral Tribunal did not give TCIL any credit with respect to the sum withheld on account of the project supervision charges while computing the,,

amount payable against Claim No.1. Mr. Singh contended that this was a patent error on the face of the award.,,

Fifth, MBL had claimed that it had suffered an annual loss of Rs. 3,48,75,000/- on account of increased commission, from 0.5% per annum to",,

1.25% per annum, paid for the bank guarantees. However, the Arbitral Tribunal found that the said claim was bereft of any particulars and MBL had",,

failed to prove the said losses, if any, incurred by it. He drew the attention of this Court to paragraph no. 136 of the impugned award, where finding to",,

the aforesaid effect was recorded. He submitted that having found that there was no evidence to prove the losses, the Tribunal erred in awarding Rs.",,

10,00,000/- as compensation for wrongful and illegal invocation of the Bank Guarantees by TCIL. He contended that awarding damages, in the",,

absence of any evidence, would be patently illegal and opposed to the fundamental policy of Indian Law.",,

Sixth, he contended that the Arbitral Tribunal had erroneously awarded Rs. 60,00,000/- against MBL’s claim for a sum of Rs. 1,00,00,000/-as",,

compensation for loss allegedly suffered by it on account of non-confirmation of completion/ performance certificate. He submitted that the,,

respondent had not confirmed the certificate of performance issued to MBL on account of disputes that had arisen and TCIL could not be faulted on,,

that ground. Further, no evidence of suffering any loss had been led by MBL and therefore, the amount of Rs. 60,00,000/- as awarded, was",,

unsustainable.,,

Lastly, Mr. Singh submitted that the award of interest was also in excess of the claim made by MBL. He submitted that MBL had claimed interest",,

at the rate of 18% per annum. However, the Arbitral Tribunal had awarded 12% per annum “as per banking norms†on the awarded amount",,

from the dates of filing of the Statement of Claims till the date of making of the award and further interest at the rate of 12 % per annum “as per,,

banking norms†from the date of making the award till the date of receipt of actual payment. He submitted that the expression “as per banking,,

norms†is being construed as compound interest with monthly rests. He submitted that since simple interest was claimed by TCIL, the Arbitral",,

Tribunal could not award compound interest. He relied on the decision of the Supreme Court in State of Haryana and Ors. v. S.L. Arora and,,

Company: (2010) 3 SCC 690, in support of his contention.",,

The written submissions filed on behalf of TCIL mentions a few more grounds, but the same were not urged and therefore, it is not necessary to",,

advert to them.,,

Ms. Anusuya Salwan, learned counsel appearing for MBL countered the aforesaid submissions. She submitted that there was no error on the part",,

of the Arbitral Tribunal in not taking into account an amount of Rs. 1,32,15,493/-, which HSRDC claims was excess payment. She submitted that",,

admittedly the contract was on back to back basis and MBL was entitled to receive 97.5 % of the amount paid by HSRDC. Since there was no,,

dispute as to the amount disbursed by HSRDC, MBL was entitled to 97.5 % of the same. She stated that as far as the disputed amount is concerned,",,

the same was subject matter of the suit filed by HSRDC and the Arbitral Tribunal had held that MBL would also be bound by the results of the said,,

suit. She also stated that MBL has filed an application for being impleaded in the said suit and would comply with any decree that may be passed in,,

the said suit.,,

Next, she submitted that there was no dispute that the amount of Rs. 59,61,715/- was withheld by TCIL. TCIL had deposited a sum of Rs.",,

31,41,111/- towards WCT and had refunded the balance amount of Rs. 28,18,608/-. Since the said funds belonged to MBL, TCIL should neither claim",,

the amount of WCT deposited ( Rs. 31,43,111/-) nor the amount of Rs. 28,18,608/- refunded by it. She submitted that the Arbitral Tribunal had rightly",,

excluded the said amounts from its computation.,,

Next, she submitted that the conduct of TCIL was reprehensible. It had encashed the Bank Guarantees furnished by MBL despite the contract",,

having been duly performed and no claim had been made by HSRDC. She submitted that it was merely on account of animosity on the part of certain,,

officials of TCIL. She stated that the work performed by MBL had been appreciated and acclaimed by various bodies. Nonetheless, certain officials",,

of TCIL had, with the view to harass MBL, encashed the Performance Bank Guarantee and caused immense loss to it. The Arbitral Tribunal had",,

found that encashment of the bank guarantees was mala fide and illegal and had thus, awarded Rs. 10,00,000/- as reasonable damages. She submitted",,

that award of such damages was not illegal and therefore, the impugned award was not liable to be interfered with.",,

Next, she submitted that TCIL had issued a certificate of performance and MBL had furnished the same as evidence of its experience and",,

performance to bid for other contracts from other entities. As a matter of due diligence, the employer (RITES Ltd.) had sought confirmation as to the",,

issuance of the certificates as the tender submitted by MBL was to be considered on that basis. TCIL had refused to confirm the said certificate and,,

the same had resulted in a direct loss to MBL as it failed to qualify for the tender submitted by it to RITES Ltd. In view of the above, the Tribunal had",,

awarded damages to the extent of Rs. 60,00,000/- to MBL.",,

She referred to the decisions of this Court in M/s. Kirti Associates (Pvt.) Ltd. v. Pramod Kumar Mittal and Anr.: O.M.P. (COMM) 203/2016,,

decided on 03.06.2016 and Sushil Kumar Jain v. Gajender Chopra: RSA 75/2019 decided on 03.12.2019, in support of her contention that punitive",,

damages could be awarded in given cases and it was not necessary to lead detailed evidence as to the quantum of damages.,,

Lastly, Ms. Salwan submitted that the interest awarded by the Arbitral Tribunal is less than the interest claimed. She handed over a chart showing",,

the computation of the interest at the rate of 12% per annum compounded with monthly rests, and simple interest at the rate of 18% per annum on the",,

net claim amounting to Rs. 5,91,36,814/- from 24.12.2013 to 28.09.2020. On the strength of the said calculation, she submitted that if interest at the",,

rate of 18% per annum as claimed by MBL, was awarded, the total awarded amount payable by TCIL would be higher than claimed.",,

According to the said calculation, 12% interest compounded with monthly rest works out to Rs. 6,81,90,727/- and with 18% simple interest works",,

out to be Rs. 7,20,33,500/-. She submitted that this Court had in various cases accepted that the Arbitral Tribunal could award compound interest. She",,

relied upon the decisions of this Court in Roentgen Oncologic Solutions Pvt. Ltd. and Ors. v. Dr. Kirti Jain: 2016 (234) DLT 388; NNR Global,,

Logistics (Shanghai) Co. Ltd. v. Aargus Global Logistics Pvt. Ltd.: O.M.P. 61/2012 and O.M.P. 201/2012, decided on 04.10.2012; and Novelty Power",,

and Infratec Ltd. and Ors. v. S.E. Investments Ltd.: O.M.P. 775/2014, decided on 20.07.2017.",,

She also referred to the decision of the Supreme Court in Reliance Cellulose Products Ltd. v. Oil and Natural Gas Corporation Ltd.: (2018) 9 SCC,,

266, in support of her contention that interest awarded by the Arbitrators could not be arbitrarily reduced.",,

Reasons and Conclusion,,

The first and foremost issue to be addressed is whether the Arbitral Tribunal has erred in not accounting for the adjustment of excess payment of,,

a sum of Rs. 1,32,15,493/-, which according to TCIL was made by HSRDC on account of the inflated measurement of the work performed. As noted",,

above, according to Mr. Singh, the Arbitral Tribunal had committed an error in treating the amount payable under the 17th RA Bill as independent of",,

the 18th and Final Bill under which such deduction had been claimed by HSRDC.,,

This Court finds no infirmity with the approach of the Arbitral Tribunal. There is was no dispute that the contract between TCIL and MBL was on,,

back to back basis with the contract awarded by HSRDC to TCIL. Admittedly, MBL was entitled to 97.5% of the amount disbursed by HSRDC to",,

TCIL. The Arbitral Tribunal had noted that a sum of Rs. 44,86,11,636/- had been accepted by HSRDC till the 17th RA Bill.",,

Mr. Singh did not dispute that the said amount had been disbursed till the 17th RA Bill. Concededly, MBL was entitled to 97.5% of the said",,

disbursement. Accordingly, the Arbitral Tribunal had rightly concluded that till the 17th RA Bill, MBL was entitled to 97.5% of the amount of Rs.",,

44,86,11,636/- and TCIL was entitled to a margin at the rate of 2.5% of the said amount. Thus, TCIL was entitled to retain a sum of Rs. 1,12,15,291/-",,

and was required to pay the balance amount of Rs. 43,73,96,345/- to MBL.",,

There was some dispute regarding the amount payable under the 18th and Final Bill. It appears from the record that HSRDC had sought to,,

recover an amount of Rs. 1,32,15,493/- as excess payment. According to TCIL, the said amount is computed in the following manner: Rs.",,

1,32,08,868.08/- on account of excess measurements plus Rs. 32,44,430/- as excess payments on account of payments for certain non-scheduled",,

items, totaling Rs. 1,64,53,298/-, less Rs. 32,37,807/- being the correct payment for certain non-schedule items.",,

HSRDC has filed a suit (being C.S. 54 of 2018) before the Additional Civil Judge (Senior Division), Hissar claiming recovery of an amount of Rs.",,

59,36,671/- along with interest. Whilst HSRDC claims that an amount of Rs. 1,32,15,493/- was overpaid to TCIL up to the 17th RA Bill; it accepts that",,

a sum Rs. 72,78,822/- ( Rs. 50,00,000/- plus Rs. 22,78,822/- withheld from the 17th RA Bill) is payable to TCIL. HSRDC has accordingly sought",,

recovery of only Rs. 59,36,671/- . Thus, even if the claim made by HSRDC is sustained, MBL would be liable to pay 97.5% of the said claim of Rs.",,

59,36,671/- and the interest that may be decreed. MBL would not be required to pay its share of Rs. 1,32,15,493/- as that is not the amount sought to",,

be recovered by HSRDC. It is essential to bear in mind that the Arbitral Award is based on the undisputed premise that MBL is required to receive,,

97.5% of the amounts paid by HSRDC to TCIL.,,

In addition to the above, it is also necessary to note that TCIL has also preferred a counter claim of Rs. 1,09,81,043/- against HSRDC.",,

Paragraph 20 of the said counter claim is relevant and is set out below:-,,

“20. Thus, applying the rate submitted on behalf of TCIL for N.S. items for cold TMT bar which is much lower than the contract rate i.e. HSR",,

rate, and the quantities certified in the 18th and Final Bill by HSRDC and after considering amount already paid upto 17th RA Bill, amount still",,

outstanding and payable by HSRDC for N.S. items other than cold TMT bar (Civil Works) comes to Rs. 9,45,128/-; Cold TMT bar comes to Rs.",,

,Amount payable up to the 17th RA Bill,"Â Rs. 43,73,96,345/-

Less:,Deductions,"Â Rs. 4,73,04,188/-

Less:,"Amount payable for materials adjusted By refund from

Birla Cement ( Rs. 12,08,81,304 less Rs. 7,36,358/-)","Â Rs. 12,01,44,946/

Less:,Amount received from TCIL (according to MBL),"Â Rs. 21,84,99,001/-

,Total,"Â Rs. 5,14,48,210/-

,,Amount ( Rs. )

(i),Against Claim No.1,"Â Rs. 4,14,66,495/-

(ii),Against Claim No. 4,"Â Rs. 8,00,000/-

(iii),Against Claim No. 7,"Â Rs. 2,89,575/-

,Total,"Â Rs. 4,25,56,070/-

Less :,"Counter Claim No. 2 of the

Respondent","Â Rs. 3,82,653/-

,Total,"Â Rs. 4,21,73,417/-