Feeling aggrieved and dissatisfied with the impugned judgment and order dated 14.08.2018 passed by the High Court of Delhi at New Delhi in FAO(OS) No.112 of 2018 by which the High Court has partly allowed the said appeal, the Indian Railway Construction // 2 // Company Limited (hereinafter referred to as “IRCON”) has preferred the present appeal. In terms of the supplementary Agreement dated 17.12.1991, a special advance of Rs.68 lakhs was also given to NBCC. While holding so, the Arbitral Tribunal held that though termination with reference to Clause 60.1 was bad in law, but justified the termination with reference to Clause 17.4 of the Contract and consequently rejected the NBCC’s claim for refund of two security deposits i.e. 3 Feeling aggrieved and dissatisfied with the award passed by the learned Arbitral Tribunal and insofar as relating to Claim Nos.33 and 34 and the Counter Claim No.3 which were in favor of IRCON, the NBCC // 5 // approached the High Court by filing an application under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “Arbitration Act”).
6 By the impugned judgment and order, the Division Bench of the High Court has partly allowed the said appeal under Section 37 of the Arbitration Act to the extent upholding the award passed by the learned Arbitral Tribunal insofar as awarding the interest on special advance is concerned. Hegde, learned counsel appearing on behalf of the appellant has vehemently submitted that on appreciation of entire evidence and the material on record as the learned Tribunal has observed and held that the IRCON was justified in rescinding the contract due to abandonment of work by NBCC and when the said finding attained the finality, the IRCON was justified in forfeiting the security deposits.
4.2
It is submitted that both, the learned Single Judge as well as the Division Bench of the High Court have // 9 // materially erred in not appreciating the fact that once the termination is justifiable with reference to the terms of the contract and even if a wrong clause is mentioned in the letter terminating the contract, the power to terminate the contract cannot be said to be illegal, more particularly, when the power is traceable to the specific terms of the contract, i.e., Clause 17.4. Minocha appearing on behalf of the respondent – NBCC while supporting the impugned judgment and order passed by the High Court has vehemently submitted that in the present case admittedly the IRCON invoked Clause 60.1 and rescinded the contract. It is submitted that therefore the learned Arbitral Tribunal was not justified in rejecting the claim Nos.33 and 34 which has rightly been set aside by the learned Single Judge and the Division Bench, which are not required to be interfered with by this Court in exercise of limited jurisdiction under Article 136 of the Constitution of India. The learned Arbitral Tribunal allowed the Counter Claim No.3 and awarded interest at the rate of 18% per annum in favour of the IRCON being interest on special advance and advances against hypothecation of equipments. 2 While considering the findings recorded by the learned Arbitral Tribunal and while appreciating the submissions made by the learned counsel appearing on behalf of the respective parties, relevant clauses of the Agreement, more particularly, Clause Nos.17.4, 59.1, 60.1 are required to be referred to, which are as under: “TIME TO BE OR THE ESSENCE OF THE CONTRACT: 17.4 The time for completion of the works by the date or extended date fixed for // 14 // completion shall be deemed to be the essence of the contract and if the contractor shall fail to complete the works within the time prescribed the Company IRCON shall, if satisfied that the works can be completed by the contractor within a reasonably short time thereafter be entitled without prejudice to any other right or remedy available on that behalf to recover by way of ascertained liquidated damages a sum equivalent to one per cent of the contract value of the works for each week or part of week the contractor is in default and allow the contractor such further extension of time as the Project Manager may decide.
RIGHT OF COMPANY (IRCON) TO DETERMINE CONTRACT:
Also Read: https://newslaw.in/case-type/civil/acquisition-of-land-and-deemed-lapse-under-the-act-2013/
59.1 The Company (IRCON) shall be entitled to determine and terminate the contract at any time should in the Company’s (IRCON) opinion, the cessation of work become necessary // 15 // owing to paucity of funds or from any cause whatsoever, in which case the value of approved materials at site and of work done to date by the contractor will be paid for in full at the rates specified in the contract. assign the contract or any part thereof otherwise than as provided in Clause 7 of these conditions, or vi. persistently disregard the // 16 // instructions of the Project Manager, or contravene any provision of the contract, or viii.
Then and in any of the said cases, the Project Manager on behalf of the Company (IRCON) may serve the contractor with a notice in writing to that effect and if the contractor does not // 17 // within 7 days after the delivery to him of such notice proceed to make good his default in so far as the same is capable of being made and carry on the work or comply with such directions as aforesaid to the entire satisfaction of the Project Manager the Company (IRCON) shall be entitled after giving 48 hours notice in writing under the hand of the Project Manager (to remove the contractor from the whole or any portion or portions as may be specified in such notice) of the works without thereby avoiding the contract or releasing the contractor from any of his obligations or liabilities under the contract and adopt any or several of the following courses.
b) to carry out the works or any part thereof, by the employment of the required labour and materials, the costs of which // 18 // shall include lead, lift, freight, supervision and all incidental charges and to debit the contractor with such costs, the amount of which as certified by the Project Manager shall be final and binding upon the contractor, and to credit the contractor with the value of the works done as if the works had been carried out by the contractor under the terms of the contract. Provided always that in any case in which any of the powers conferred upon the Company (IRCON) hereof shall have become exercisable and the same shall not be exercised, the non- exercise thereof shall not constitute a waiver of any of the conditions hereof and such powers shall notwithstanding be exercisable in the event of any future case of default by the contractor for which his liability for past and future shall remain unaffected.” The learned Single Judge as well as the Division Bench of the High Court have set // 20 // aside the award passed by the learned Arbitral Tribunal rejecting Claim Nos.33 and 34 inter alia on the ground that once the Arbitral Tribunal gave the finding that the IRCON was not justified in invoking Clause 60.1, thereafter it was not open for the Arbitral Tribunal to take the help of Clause 17.4 and therefore, the learned Arbitral Tribunal was not justified in rejecting Claim Nos.33 and 34 which were with respect to forfeiture of security deposits, which could have been under Clause 17.4. The learned Arbitral Tribunal as such was absolutely // 21 // justified in considering whether IRCON was justified in rescinding the contract, may be either under Clause 60.1 or under Clause 17.4.
then the Project Manager on behalf of the Company may serve the contractor with a notice in writing to that effect and if the contractor does not within 7 days after the delivery to him of such notice proceed to make good his default in so far as the same is capable of being made good and carry on the work or comply with such directions as aforesaid to the entire satisfaction of the Project Manager, the Company (IRCON) shall be entitled after giving 48 hours notice in writing under the hand of the Project Manager (to remove the contractor from the whole or any portion or portions as may be specified in such notice) of the works without thereby avoiding the contract or releasing the contractor from any of his obligations or liabilities. 3
Thus, both, under Clause 17.4 and 60.1, on failure of the contractor to complete the work, the IRCON is justified in rescinding the contract and forfeit the security deposit. We are of the opinion that the learned Single Judge, therefore, exceeded in its jurisdiction under Section 34 of the Arbitration Act quashing and setting aside the well-reasoned award passed by the learned Arbitral Tribunal on rejecting Claim Nos.33 and 34, which the Division Bench of the High Court has wrongly affirmed.
Also Read: https://newslaw.in/case-type/civil/taxation-of-engineering-design-drawings-goods-or-services/
5 Now, so far as the quashing and setting aside the award passed by the Arbitral Tribunal awarding interest @ 18% on advance for the hypothecation of equipment, by the learned Single Judge confirmed by the Division Bench is concerned, at the outset, it is required to be noted that the Division Bench of the High Court has upheld the order passed by the learned Single Judge quashing and setting aside the interest awarded by the learned Arbitral Tribunal on advance for the hypothecation of equipment on the ground that there is no such stipulation in the agreement / contract. In the said decision, it is observed and held by this Court that an arbitrator has the power to award interest unless specifically barred from awarding it and the bar must be clear and specific. In the facts and circumstances of the case, if the interest is awarded @ 12% on advance for the hypothecation of equipment, the same can be said to be reasonable interest. The impugned judgment and order passed by the Division Bench of the High Court in confirming the judgment and order passed by the learned Single Judge insofar as quashing and setting aside the award passed by the Arbitral Tribunal awarding the interest @ 18% on the advance for hypothecation of equipment is concerned, the same is hereby quashed and set aside and the award passed by the Arbitral Tribunal awarding the interest on advance for hypothecation of equipment is hereby restored, however, with a // 29 // modification that there shall be paid an interest @ 12% pendente lite on advance for hypothecation of equipment instead of 18% as awarded by the Arbitral Tribunal. SHAH)…………………………………J.
Case Title: INDIAN RAILWAYS CONSTRUCTION COMPANY LIMITED Vs. M/S NATIONAL BUILDINGS CONSTRUCTION CORPORATION LIMITED (2023 INSC 248)
Case Number: C.A. No.-008460-008460 / 2022
