Full Judgment Text
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 26.11.2021
+ O.M.P. (COMM) 560/2020
NTPC LTD ..... Petitioner
versus
LARSEN AND TOUBRO LIMITED ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr Aman Lekhi , ASG with Mr Adarsh
Tripathi, Mr Vikram S Baid, Mr Ritwiz
Rishabh, Mr Ajitesh Garg, Advocates.
For the Respondent : Mr Dayan Krishnan, Senior Advocate with
Mr Dhirendra Negi, Ms Tanya Tiwari, Mr
Sukrit Seth, Advocates.
AND
+ O.M.P. (COMM) 524/2020
LARSEN AND TOUBRO LIMITED ..... Petitioner
versus
NTPC LTD ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr Dayan Krishnan, Senior Advocate with
Mr Dhirendra Negi, Ms Tanya Tiwari, Mr
Sukrit Seth, Advocates.
For the Respondent : Mr Aman Lekhi , ASG with Mr Adarsh
Tripathi, Mr Vikram S Baid, Mr Ritwiz
Rishabh, Mr Ajitesh Garg, Advocates.
Signature Not Verified
Digitally Signed
By:DUSHYANT
RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 1 of 27
CORAM
HON’BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. The parties have filed these petitions under Section 34 of the
Arbitration and Conciliation Act, 1996 (hereinafter the ‘A&C Act’)
impugning an arbitral award dated 12.06.2020 (hereinafter ‘the
impugned award’) delivered by the Arbitral Tribunal constituted of
three members, Mr Arun Kumar, I.A.S (Retd.), Justice M.Y. Eqbal
(Retd.) and Justice Dr Mukundakam Sharma (Retd.) as the Presiding
Arbitrator (hereafter ‘the Arbitral Tribunal’).
2. The controversy in the present case arises in the following
context:
2.1 Tenders were invited by NTPC Limited (hereafter ‘NTPC’) for
implementation of contracts relating to setting up of the Khargone
Super Thermal Power Project (hereinafter ‘the Project’). The work was
divided into three packages as under:
Contract Package 1 : CIF Supply (Indian Port of
Entry)
Contract Package 2 : Ex-works (India) Supply
Contract Package 3 : Inland Transportation,
Inland Insurance, Civil
Works, Structural Works,
Installation. Testing &
Commissioning of EPC
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RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 2 of 27
Package (Indian Port and
Entry)
2.2 Larsen and Toubro Limited (hereafter ‘L&T’) had participated in
the bidding process pursuant to the aforesaid notice inviting tenders.
L&T’s bid for the contracts was accepted and on 31.03.2015, NTPC
issued three Notifications of Awards in favor of L&T.
2.3 Thereafter, contracts for all the aforesaid packages were signed
by the parties on 03.04.2015.
2.4 The impugned award was rendered in the context of the disputes
that have arisen between the parties in connection with the third contract
package (hereafter ‘the Contract Agreement’) for the ‘supply and
erection including civil works of EPC Package Khargone Super
Thermal Power Project’ awarded to L&T by NTPC by the Notification
of Award on 31.03.2015.
2.5 The dispute between the parties relates to the L&T’s claim for
payment of additional amounts as compensation for the increase in costs
on account of increase in the basic minimum wage rates notified in
terms of notification no. S.O.188 (E) dated 19.01.2017 (hereafter ‘the
Notification’) issued under the Minimum Wages Act, 1948.
2.6 By its various communications, L&T stated that the increase in
minimum wages of construction workers had severely affected the
labour cost portion in executing the contracts and requested NTPC to
consider reimbursement of additional costs in terms of Clause 31.4.3 of
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RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 3 of 27
the Special Conditions of Contract (hereafter ‘SCC’), which provided
for reimbursement of increased expenses, inter alia, resulting from any
change in law.
2.7 NTPC rejected L&T’s claim stating that price adjustment for
compensation for any increase in the minimum wages was covered in
Appendix-2 of the Contract Agreement.
2.8 L&T did not accept NTPC’s stand and requested NTPC to
appoint an adjudicator for settlement of the disputes. By the award
passed by the adjudicator on 07.10.2018, NTPC was directed to
reimburse L&T in terms of Clause 31.4.3 of the SCC.
2.9 Aggrieved by the award passed by the adjudicator, NTPC
invoked Clause 6.2 of the General Conditions of Contract (hereafter
‘GCC’) read with Clauses 4 and 42 of the SCC and referred the matter
to arbitration for adjudication of the disputes.
3. The claims made by L&T before the Arbitral Tribunal are set out
below:
CLAIM PARTICULARS AMOUNT
Claim no.1 Impact due to
₹99 crores (revised
revision in minimum
to ₹103.2 crores/-)
wages
Claim no.2(a) Interest @14% per
₹13.03 crores/-
annum on monthly
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RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 4 of 27
payments due from
st
March 2017 till 31
December 2018
Claim no.2(b) Interest @14% per
annum on monthly
payments due from
st
1 January, 2019 till
date of payment
Claim no.3 To pay increased
costs on account of
the notification dated
st
19.01.2017 from 1
January 2019 till
completion of the
contract within a
time period and in
default, interest.
Claim no.4 Costs of arbitration ₹1,53,81,629/-
4. The impugned award was delivered by majority, with Justice
(Retired) M.Y. Eqbal entering a partially dissenting opinion. The
Arbitral Tribunal partially allowed the claims of L&T and held that
L&T was entitled to receive an amount of ₹18.24 crores from NTPC
along with an interest at the rate of 10% per annum from the date of
filing the claim before the Arbitral tribunal till the date of payment.
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By:DUSHYANT
RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 5 of 27
L&T was additionally allowed to prove its entitlement for further
reimbursement by providing evidence to NTPC that it had incurred such
additional expenditure, within six weeks from 12.06.2020. The Arbitral
Tribunal directed that the additional evidence, if provided by L&T,
would then be scrutinized by NTPC and both the parties would mutually
arrive at an agreed amount and NTPC would pay the amount within six
weeks along with an interest at the rate of 10% per annum on the said
amount from the date of filing of the claim till the date of payment.
However, if the parties could not agree on such amount, they would to
take assistance of a Chartered Accountant, who would determine and
certify the amount payable to L&T. NTPC would pay the amount as
certified within two months of the decision along with an interest at the
rate of 10% per annum from the date of the Statement of Claims till the
date of payment. Further, L&T was also awarded ₹50,00,000/- as costs
of arbitration to be paid within six weeks.
5. Aggrieved by the impugned award, the parties have filed the
present petitions.
6. L&T claims that the impugned award is patently illegal to the
extent that it requires L&T to prove payment of increased costs. It is
contended on L&T’s behalf that the Arbitral Tribunal had erred in
ignoring expert evidence, which established that the payments of
increased costs were required to be paid on the basis of the increase in
minimum rates of wages and the agreed labour component of each
work; and, not on the basis of actual payment vouchers.
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RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 6 of 27
7. NTPC contends that the impugned award is contrary to the terms
of the Contract Agreement, which expressly provides the manner in
which increase/decrease in cost of labour has to be factored in the
Contract Price. NTPC further contends that impugned award is vitiated
by patent illegality as after having concluded that the L&T had not
proved its claim, the Arbitral had issued directions to enable L&T to
once again prove its claims after the impugned award.
Reasons and Conclusion
8. The principal dispute between the parties relates to L&T’s claim
for additional payment on account of increase in the cost of labour
resulting from the increase in the minimum rates of wages payable to
various categories of labour in terms of Notification No. S.O. 188 (E),
dated 19.01.2017 (hereinafter ‘the Notification’) issued under the
Minimum Wages Act, 1948. According to L&T, the said notification
constituted a change in the law resulting in L&T incurring additional
costs, which was required to be reimbursed in terms of Clause 31.4.3 of
the SCC included in the Contract Agreement. Clause 31.4.3 of the SCC
is set out below:-
“31.4.3 If due to an enactment of any new Act
or Statute and rules made thereunder or
any modification to the Acts/Statute or
rules made thereunder, all after seven
(7) days prior to the date set for opening
of Price Bids and as a consequence
thereof, the Contractor has to incur
additional cost or expenditure, the same
will be reimbursed by the Employer to
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RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 7 of 27
the Contract, excepting those due to
reasons attributable to the Contractor
and those being already compensated
by other provisions of the Contract, like
Price Adjustment, Taxes and Duties
etc.”
9. NTPC disputes that L&T is liable to be paid any amount in terms
of Clause 31.4.3 of the SCC on account of increase in labour wages
pursuant to the Notification. It is NTPC’s case that the price variation
on account of increase in labour costs is specifically provided for in
Appendix-2 of the Contract Agreement and Clause 31.4.3 of the SCC
is inapplicable as it applies only in cases where the increase in
expenditure is not factored in the price adjustment provisions.
According to NTPC, Appendix-2 to the Contract Agreement contains
an exhaustive mechanism to compensate L&T for any changes in the
cost of labour and material component during the execution of the
contract.
10. The Appendix - 2 to the Contract Agreement contained a formula
for revision in the price component for civil works, structural works,
installation, testing and commissioning. The said formula for the Indian
Rupee Portion for the Installation Services is set out below:-
“ For Installation Price Component (excluding Civil
Works and Structural Works component) of the
contract :
i) It is understood that the price component for
erection portion of Installation Services
comprises a fixed portion and variable portion
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RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 8 of 27
linked with the index of labour (description and
co-efficient as enumerated).
ii) The monthly price adjustment amount for the
erection portion of Installation Services
component will be computed as per the formula
given below:
a) Indian Rupee Portion of the Installation Services
ER = ER1 – ERo
ER1 will be computed as follows:
ER1 = ERo (0.15 + O.85 F1)
-------
Fo
Where :
ER = Adjustment to Erection portion of
Installation Services component of
contract price expressed in Indian
Rupees payable to the contractor for
each billing.
ER1 = Adjustment amount of Erection
portion of Installation Services
component of contract price
expressed in Indian Rupees payable
to the Contractor.
ER0 = Value of the Erection work done in
the billing period, which shall be
calculated as under:
For the purpose of computing ERo,
each Erection bill (which is excluding
initial Advance and amount payable
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RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 9 of 27
on completion bill (which is
excluding initial Advance and amount
payable on completion of the
Facilities and on successful
completion of Guarantee test) during
the Erection period upto the
‘Completion of the Facilities’ shall be
divided by a factor as indicated
below:
Erection portion of Installation –
Services component of the
Contract Price
[Initial Advance amount
+ Erection Portion of
Installation Services
component of the
Contract Price payable on
completion of the
Facilities + Erection
Portion of Installation
Services component of
the Contract Price
payable on successful
completion of Guarantee
test]
11. The Arbitral Tribunal considered the aforesaid dispute and found
in favour of L&T that it is entitled for reimbursement of additional
expenditure on account of the increase in the basic minimum rates of
wages for various categories of labour.
12. The Arbitral Tribunal also referred to Section 4 of the Minimum
Wages Act, 1948 and the same is set out below:-
“ 4. Minimum rate of wages.- (1) Any minimum rate of
wages fixed or revised by the appropriate
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RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 10 of 27
Government in respect of scheduled employments
under sec. 3 may consist of-
(i) a basic rate of wages and a special allowance at
a rate to be adjusted, at such intervals and in
such manner as the appropriate Government
may direct, to accord as nearly as practicable
with the variation in the cost of living index
number applicable to such workers (hereinafter
referred to as the “cost of living allowance”);
or
(ii) a basic rate of wages with or without the cost
of living allowance and the cash value of the
concessions in respect of supplies of essential
commodities at concessional rates, where so
authorised; or
(iii) an all inclusive rate allowing for the basic rate,
the cost of living allowance and the cash value
of the concessions, if any.
(2) The cost of living allowance and the cash value of the
concessions in respect of supplies of essential commodities
at concessional rates shall be computed by the competent
authority at such intervals and in accordance with such
directions as may be specified or given by the appropriate
Government.”
13. The Arbitral Tribunal noted that the minimum rate of wages had
two components – the basic rate of wage and a cost of living allowance
which was required to be computed by the Competent Authority at such
intervals as may be specified.
14. The Arbitral Tribunal observed that the Notification of the
minimum wages for labour are in two parts. The first being the basic
minimum wage rate and the second being a Variable Dearness
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By:DUSHYANT
RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 11 of 27
Allowance (VDA). The second component of VDA is revised from time
to time to commensurate with the increase in the cost of living. The
Arbitral Tribunal found that insofar as the VDA is concerned, the same
was factored in the formula for the variation in the Contract Price, as
stipulated in Appendix-2 of the Contract Agreement but not the increase
in the basic minimum wage rate. This was apparent as in the terms of
the formula, the price for labour component was linked to the “ All India
Consumer Price Index for Industrial Workers ” as published by Labour
Bureau. Thus, the Arbitral Tribunal was persuaded to accept that
Appendix - 2 only factored in the variable cost of living allowance as
published by the Labour Commissioner periodically and did not factor
any rise in the basic minimum rate of wages.
15. Accordingly, the Tribunal held that insofar as the increase in the
basic rate of wages is concerned, the same was not factored in
Appendix-2 to the Contract Agreement and consequently, was required
to be compensated in terms of Clause 31.4.3 of the SCC.
16. Mr Lekhi, learned ASG contended that the said conclusion was
contrary to the plain language of the Contract Agreement. He submitted
that Clause 31.4.3 of the SCC could not be interpreted in the manner as
done by the Arbitral Tribunal. Clause 31.4.3 of the SCC expressly
excluded any increase which is compensated by other provisions of the
Contract Agreement and Clause (i) of Appendix – 2 to the Contract
Agreement expressly provided for computation of adjustment in the
Contract Price to reflect the changes in cost of labour.
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By:DUSHYANT
RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 12 of 27
17. Clause (1) of Appendix-2 to the Contract Agreement reads as
under:-
“The Contract price shall be subject to price
adjustment during performance of the Contract to
reflect changes in the cost of labour and material
components etc. in accordance with the provisions
described below :”
18. Mr Lekhi submitted that the aforesaid clause made it amply clear
that Appendix-2 to the Contract Agreement catered to reflect all
changes in the cost of labour, which would also include the basic
minimum rate of wages. He submitted that merely because the formula
for calculating the variation in Contract Price did not fully reimburse
any variation in the basic minimum rate of wages, it did not follow that
the same was required to be separately reimbursed. Thus, the impugned
award is contrary to the terms of the Contract Agreement.
19. This Court is unable to accept that the impugned award is ex-facie
contrary to the term of the Contract Agreement and therefore, is vitiated
by patent illegality. The Arbitral Tribunal has interpreted the provisions
of Clause 31.4.3 of the SCC along with Appendix - 2 to the Contract
Agreement. The decision of an Arbitral Tribunal in respect of
construction of a Contract is final and the Court cannot supplant its view
in place of that of the Arbitral Tribunal. Concededly, the scope of
interference with an impugned award under Section 34 of the A&C Act
is limited. Unless the court finds that the impugned award is patently
illegal on the face of the award or falls foul of the fundamental policy
of Indian Law, the impugned award cannot be set aside. In the present
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RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 13 of 27
case, the Arbitral Tribunal’s interpretation as to the construction of
Clause 31.4.3 of the SCC is a plausible one. This Court is unable to
accept that such an interpretation is ex-facie erroneous and contrary to
the plain language of the Contract Agreement.
20. The second question that needs to be addressed is whether the
Arbitral Tribunal’s decision to award a sum of ₹18.24 crores in favour
of L&T, is patently illegal. Mr Lekhi, contended that even if it is
assumed that L&T was entitled to reimbursement of additional
expenditure on account of increase in the minimum rates of wages, L&T
was required to prove the quantum of additional expenditure incurred
on that count. He pointed out that Arbitral Tribunal had accepted that
Clause 31.4.3 of the SCC provided for reimbursement of actual
costs/expenditure incurred and L&T had failed to substantiate its claim
as it had not provided any evidence of payment of additional
expenditure. Notwithstanding the aforesaid finding, the Arbitral
Tribunal awarded a sum of ₹18.24 crores in favour of L&T on the
ground that NTPC had admitted that the same was payable in the written
submissions filed by it. He submitted that NTPC had not filed any
affidavit admitting that the aforesaid sum was payable to L&T. In the
written submissions filed before the Arbitral Tribunal on behalf of
NTPC, it was merely stated that the additional costs incurred by L&T
would not amount to more than ₹18.24 crores. He submitted that this
could not be construed as an unequivocal admission that in fact, L&T
had incurred any such expenditure. He contended that the said
submission was made in the alternative and merely stated that on the
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By:DUSHYANT
RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 14 of 27
basis of certain documents submitted by L&T at the material time, its
claim could not exceed ₹18.24 crores; NTPC did not accept L&T’s
claim as construed by the Arbitral Tribunal.
21. It is well settled that The Indian Evidence Act, 1872 does not
apply to Arbitral Proceedings. An arbitral tribunal is required to
evaluate the material placed before it to draw its inference. In the
present case, the Arbitral Tribunal had found that there was material on
record to support L&T’s claim that it had incurred a sum of ₹18.24
crores as additional expenditure on account of increase in the basic
minimum rates of wages. Such material was not furnished by L&T but
had been provided by NTPC. The relevant extract of the impugned
award setting out the reasons that persuaded the Arbitral Tribunal to
accept that there was material on record to sustain L&T’s claim to the
extent of ₹18.24 crores is set out below:-
“47. It is stated by the respondent that against the
claim of more than Rs.1113.00 Crores made
by the claimant the actual additional cost
incurred by the claimant would amount to not
more than Rs.18.24 Crores. When we are
faced with the situation of making an
assessment of the quantum payable in view of
the revision, we find that no evidence at all is
led by the Claimant to prove and establish as
to what amount was paid by the Claimant
(Contractor) to the labourers by way of
enhanced minimum wages which is required
to be reimbursed as stipulated in the
agreement and consequently, it was not
possible to make such an assessment and
therefore, the claim of the Claimant for
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RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 15 of 27
payment was found to be not proved. But
fortunately, for the Claimant, the Respondent
has led some evidence justifying payment of
such amount by way of reimbursement
through placing on record Annexure-R1 and
R2. The said evidence of the R1 and R2 is
based on the records available with the
Respondent showing enhanced payment to
the labourers by way of payment of revised
minimum wages which is to be reimbursed by
the Respondent and the assessment is on a
reasoning that the enhanced wage has been
paid by the Claimant to the Laboures by way
of payment of revised minimum wages which
is to be reimbursed by the Respondent. The
summation is based on month-wise, category-
wise labour employed and the total wages
paid category-wise. As discussed
hereinbefore, there is no difficulty in relying
upon the derive support from the said
evidence as the said evidence is in the nature
of admission towards obligation to pay by
way of reimbursement. Consequently, we act
upon such admission of the Respondent and
assess the quantum of the amount of Rs.18.24
crores as payable to the Claimant by way of
reimbursement towards payment of revised
wages. We also, in the interest of justice, grant
one more opportunity and liberty to the
Claimant, to prove and establish before the
Respondent through production of reliable
and cogent evidence that it is entitled to more
amount than Rs.18.24 crores by way of
reimbursement of the amount paid by the
Claimant to the labourers which is the amount
assessed by us on the basis of the admission
of the Respondent. We also make it clear that
we are inclined to provide this one time
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By:DUSHYANT
RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 16 of 27
opportunity to the Claimant as could not and
did not produce any evidence in the
arbitration proceeding to justify assessment of
the quantum by way of reimbursement in
view of its own separate interpretation of the
clause referred to hereinbefore, which we find
illegal, unacceptable and baseless.”
22. It is seen from the above that the Arbitral Tribunal had relied
upon the documents placed by NTPC marked as R-1 and R-2. It is thus,
essential, to briefly examine the affidavit filed by NTPC’s witness, Sh
Vijender Singh, Senior Manager (P&P), NTPC. The relevant
paragraphs of the said affidavit are set out below:-
“20. I say that in any case, even if it is
accepted for the sake of argument, but without
admitting the same, that the Claimant is
entitled to some reimbursement due to its
incurring additional cost/expenditure due to
increase in minimum wage than also the
reimbursement has to be only of the actual
expenditure and not on the basis of any
theoretical percentage cost in each work price
component.
21. I say that for claiming such
reimbursement the Claimant should have
placed the actual cost incurred by it due to the
increased minimum wage rate. I say that every
month the Claimant submits the record of
payment received by each of its workmen,
including the workmen employed by its sub-
contractors, to the Respondent as required by
the contract between the parties.
22. I say that thus, the number of workers
employed by the Claimant (directly or
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RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 17 of 27
indirectly), the number of days worked by
each of the workmen and the rate at which he
is paid by the Claimant or its sub-contractors
is mentioned in the proof of payments
submitted to the Respondent by the Claimant.
I say that as the sample, the details submitted
by the Claimant regarding the payments made
by it or its sub-contractors to their respective
workmen/labour in each category for the
months of January, 2017 to December, 2018
along with the details submitted regard to
atleast one sub-contractor for each month are
being annexed hereto and marked as Exhibit
R/1 (Collectively).
23. I say that the said data has been collated
by me personally from the records of the data
submitted every month by L&T. I further that
based on the said collated data I have placed
on record charts which is being annexed
hereto and marked as Exhibit R/2
(Collectively) reflecting the actual quantity of
man days relation to increase in minimum
wages has to be considered.
24. I say that as per the said calculations it
is clear that even if it is accepted without
admitting that the total increase in additional
expenditure incurred by the Claimant would
be far less than what is now claimed by the
Claimant.
25. I say that the Claimant has failed to
place such materials or any other material on
record to support its claim and therefore the
present claim deserves to be dismissed with
costs in favour of the Respondent.”
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RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 18 of 27
23. It is clear from the above that NTPC’s witness had deposed that
he had collated the records and data submitted by L&T and the
Annexure (Ex. R/2 Colly) reflected “the actual quantity of man-days in
relation to which increase in the minimum wages has to be considered” .
Undeniably, the said data collated by NTPC’s witness did constitute
relevant material and therefore, it cannot be contended that the
impugned award is based on no material/evidence at all. Ex. R-2
collectively did reflect the contemporaneous data submitted by L&T
and it was affirmatively stated that the increase in minimum wages has
to be considered in relation to that data. As stated above, this Court
cannot reappreciate or re-evaluate the material placed before the
Arbitral Tribunal. In this case, the Arbitral Tribunal had examined the
material before it and found that there was material to support L&T’s
claim to the extent of ₹18.24 crores. The standards of examination under
Section 34 of the A&C Act do not permit any interference with the
aforesaid conclusion of the Arbitral Tribunal.
24. The last aspect to be examined is whether the decision of the
Arbitral Tribunal to grant further opportunity to L&T to further
establish that it is entitled to any sum in addition to ₹18.24 crores, is
patently erroneous.
25. In addition to granting L&T further opportunity to produce
material in support of its claim, the Arbitral Tribunal had also directed
that in case, the parties are unable to mutually agree on the amount of
additional payment required to be paid to L&T, the same would be
referred to a Chartered Accountant who, would examine the records
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RAWAL
O.M.P. (COMM) Nos. 560/2020 & 524/2020 Page 19 of 27
and issue a certificate. NTPC was directed to pay the aforesaid amount
along with 10% interest per annum. The operative part of the impugned
award setting out the aforesaid directions is reproduced below:-
“……It shall, however, be open to the claimant
within six weeks from today to prove and
establish through other and additional evidence
on proof of payment that they had incurred and
in fact paid more than this amount to their
labourers either directly or through their sub-
contractors. This nature of additional evidence
if any when produced by the claimant before
the respondent within six weeks, the
respondent shall examine the validity and
legality of the said evidence and proof and give
due weightage to such evidence and thereafter
jointly arrive at an agreed figure. If the said
figure is more than Rs.18.24 Crores the same
shall be paid by the Respondents within six
weeks thereafter. The additional amount,
which is found due and payable, shall also be
paid by the respondent to the claimant along
with an interest of 10% per annum on the said
amount also, from the date of filing of this
claim till the date of payment.
The evidence that is produced by the claimant
in support of its further claim would be
scrutinized by the claimants and respondents
jointly and the amount arrived at after such
mutual discussion shall be accordingly paid in
the aforesaid manner and, if in case, no joint
decision is arrived at, it shall be open to the
parties to take help of a recognized and duly
certified chartered accountant who shall
compare the records and on the basis thereof
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certify an amount which is found due and
payable, if any, to the Claimant in which case,
the said amount shall be paid by the
Respondent within two months of such
decision. The amount so determined by the
chartered accountant as payable to the
Claimant over and above payment already
received by the Claimant on this count shall
also carry an interest of 10% per annum from
the date of the claim petition till the date of
payment.”
26. Mr Lekhi had submitted that the aforesaid directions are patently
illegal. Once, the Arbitral Tribunal had found that L&T’s had failed to
prove its claim, the same was liable to be rejected. There was no
requirement for the Arbitral Tribunal to issue further directions
regarding holding of mutual discussions. He submitted that the Arbitral
Tribunal had also put in place a mechanism, which required any
difference in calculation to be referred to a Chartered Accountant with
a further direction to NTPC to pay the amount as certified by the
Chartered Accountant along with interest at the rate of 10% per annum.
27. This Court finds merit in the contention that the aforesaid
directions are beyond the scope of reference of the Arbitral Tribunal.
L&T had not sought any declaratory relief in its statement of claims. It
had claimed a sum of ₹112 crores along with interest at the rate of 14%
per annum on monthly payments due from March, 2017 till December,
2018 in addition to future interests and costs. The details of the amounts
were specified in Annexure - 1 to the Statement of Claims. A plain
reading of the Statement of Claims indicates that L&T claimed that it
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was entitled for reimbursement of additional costs or expenditure in
terms of Clause 31.4.3 of the SCC of the Contract Agreement. It had
then proceeded to quantify the claim on a notional basis assuming that
the Contract price for installation, civil and structural works included a
labour component of 85%, 25% and 15% respectively.
28. The Arbitral Tribunal had on the basis of pleadings framed the
following issues:
“I. Whether the claims of the Claimant are not
maintainable and are not arbitrable in the
light of the contractual provisions between
the parties?
II. Whether the Claimant is entitled to claim
any amount on account of rate of increase
in the minimum wages and in terms of the
claims made in the statement of claim and
if so far what amount and for which period?
III. If the aforesaid issue is decided in favour of
the Claimant, whether any interest is also
payable on the said amount and if so for
which period and at what rate?
IV. Cost, if any, and if so, payable to which
party?”
29. The Arbitral Tribunal found that although, L&T had established
that it was entitled to reimbursement of additional amounts on account
of the increase in the notified basic minimum wages, such
reimbursement was required to be based on actual payments and not on
any notional basis. Thus, having concluded that the L&T had failed to
establish its claim, the only award that an Arbitral Tribunal could make
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was to deny L&T’s claim. The first issue struck by the Arbitral Tribunal
was required to be decided accordingly.
30. L&T had prevailed in its stand that it was entitled to
reimbursement of additional expenditure incurred on account of
increase in the basic minimum wage rate, but had failed in its contention
that the said amount was to be determined on a notional basis. In view
of the decision of the Arbitral Tribunal, it may be possible for L&T to
claim reimbursement of additional expenditure on submission of the
proof of the same. It is also material to note that L&T’s claim is not one
of damages for breach of the contract in which case its failure to
establish the quantum of damages would be fatal to its case. L&T’s
claim is for reimbursement in terms of Clause 31.4.3 of the SCC which
is to be computed in accordance with the Contract Agreement. NTPC
had failed in its defence that Appendix 2 to the Contract Agreement
factors in all variations in the Contract Price arising from increase in
rates of wages and Clause 31.4.3 of SCC is inapplicable. In view of the
decision of the Arbitral Tribunal, NTPC is obliged to pay the
consideration determined in accordance with the Contract Agreement
as interpreted by the Arbitral Tribunal. If there is any dispute or
controversy that may arise resulting from L&T’s claim for
reimbursement, the same would clearly be a separate dispute.
31. However, the Arbitral Tribunal awarded interest on the amount
that L&T had failed to establish before the Arbitral Tribunal. Further,
the Arbitral Tribunal has also entered an award in favour of L&T for a
sum that may be certified by a Chartered Accountant and directed that
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the same be paid with interest at the rate of 10% per annum from the
date of the Statement of Claims.
32. This Court finds the same patently erroneous. There is no
mechanism under any Contract Agreement for reference of any dispute
regarding quantification of a claim to a Chartered Accountant. There
was no agreement between the parties that a certificate issued by a
Chartered Accountant would be final and binding. The Arbitral
Tribunal had no occasion to examine any such certificate. The award
against NTPC to pay an amount that may be certified by a Chartered
Accountant along with interest at the rate of 10%, clearly amounts to
making an award in respect of a dispute, which the Arbitral Tribunal
had no occasion to consider.
33. This Court is also unable to accept that any interest could be
awarded on that amount from a date of the Statement of Claims
considering that the Arbitral had found that L&T had failed to establish
its claim. The Arbitral Tribunal found that L&T’s interpretation of
Clause 31.4.3 of SCC was “illegal, unacceptable and baseless” . In
view of the above, the impugned award to the extent that it directs
payment of pendente lite and future interest on the amounts that may be
found payable after L&T has submitted its claim for reimbursement and
NTPC has approved it, is patently illegal. Pendente lite interest cannot
be awarded on a claim that has been rejected. The impugned award to
the extent that it directs NTPC to pay an amount that is determined by
the Chartered Accountant is also patently illegal and is set aside.
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34. Mr Krishnan, had contended that in view of the decision of the
Supreme Court in Delhi Airport Metro Express Pvt. Ltd. v. Delhi
Metro Rail Corporation Ltd.: 2021 SCC OnLine SC 695 , the impugned
award could not be set aside on the ground of patent illegality as the
Court had explained that any contravention of law, which was not
linked to public policy or public interest, would be beyond the
expression of ‘patent illegality’ as used in Section 34 (2A) of the A&C
Act. There is merit in Mr Krishnan’s contention that the scope of patent
illegality is very narrow and as explained by the Supreme Court in Delhi
Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd.
( supra ), every error of law committed by an arbitral tribunal does not
fall within the scope of the patent illegality. However, the Court had
also clarified that illegality, which goes to the root of the matter will fall
within the concept of patent illegality. In the present case, this Court
finds that the award passed by the Arbitral Tribunal directing NTPC to
pay the amounts that may be determined in future along with interest
from the date of filing of the Statement of Claims after having
concluded that L&T had failed to establish the amount claimed by it,
reflects illegality that strikes at the root of the matter. The impugned
award to that extent is patently illegal on the face of the award.
35. L&T has also challenged the impugned award to the limited
extent that the Arbitral Tribunal has found that L&T would not be
entitled to any payment under Clause 31.4.3 of the SCC without proving
actual payment of additional expenditure. It is contended on behalf of
L&T that the Arbitral Tribunal had erred in ignoring the evidence of the
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expert which had clearly established that the practice of the construction
industry was to adjust the contract price by a price adjustment formula
and the price adjustment was never done on the basis of actual increase
or decrease in the costs of inputs required for execution of Contract
Works.
36. It was argued that a contractor could use various methods for
executing the work including by using mechanical means instead of
employing a larger work force and the correct method for determining
the increase in prices was to ascertain the components of the contract
on a notional basis. It was submitted that in the present case the parties
had already agreed to the labour components of different works on a
notional basis under Appendix - 2 of the Contract Agreement and
therefore, L&T’s quantification of its claim on the basis of the labour
components was required to be accepted.
37. The Arbitral Tribunal had considered the aforesaid contention
and found the same to be unmerited. The Arbitral Tribunal had
examined the language of Clause 31.4.3 of the SCC and found that the
use of the word ‘reimburse’ would necessarily imply that the Contractor
would require to prove actual payment of increased expenditure/costs
for seeking reimbursement of the same. Accordingly, the Arbitral
Tribunal concluded as under:-
“42 We also record a find that form a plain reading of
Clause 31.4.3 quoted at paragraph 16 above it
would be clear that the Clause pertains to
reimbursement of actual expenditure incurred,
on grounds of change of a law/statute. We are of
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the opinion that actual expenditures incurred
would only be liable to be reimbursed
subsequent to notification dated 19.01.2017. the
requirement of proof thereafter inevitably follow
for a claim of reimbursement.”
38. The contention that the aforesaid conclusion is patently
erroneous and the impugned award is liable to be set aside to the
aforesaid extent, is ex-facie unmerited. The conclusion of the Arbitral
Tribunal is clearly a plausible one. This Court is unable to accept that
the said interpretation of the clause is one that no reasonable person
could possibly accept.
39. In view of the above, the impugned award is set aside to the
limited extent that it directs further payments after the same are
determined with interest. The petition filed by NTPC [OMP (COMM)
560/2020] is partly allowed.
40. L&T’s petition [OMP (COMM) 524/2020] is dismissed.
41. Parties are left to bear their own costs.
VIBHU BAKHRU, J
NOVEMBER 26, 2021
pkv
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