Delhi High Court: In a petition filed under Section 9 of the Arbitration and Conciliation Act, 1996, (‘the Act’) wherein an interim stay was sought on the Termination Notice served by the National Highways and Infrastructure Development Corporation Ltd., (‘NHIDCL’) the Single Judge Bench of Yashwant Varma, J., refused to grant the interim stay and interfere with the action of the NHIDCL.
The dispute between the Ksheeraabd Construction Pvt. Ltd. (‘petitioner’) and NHIDCL emanated from a contract awarding the petitioner a Letter of Acceptance dated 11-03-2020, wherein the construction of two-lane with hard shoulder of Changtongya – Longleng Road in the State of Nagaland under NH (O) Plan was agreed at a contract price of INR 128 crores. The construction work was obligated to be completed by 30-06-2022 but on petitioner’s request the time for completion of the contract was extended from 30-06-2022 to 03-02-2023. The time period for completion was extended by an Extension of Time (‘EOT’). As per NHIDCL, despite the grant of EOT, the petitioner was able to achieve only 79.12 percent of the Cumulative Physical Progress targets. Therefore, a termination notice was issued to the petitioner. However, a Cure Notice was issued to the petitioner, but the petitioner had failed to take the effective steps for timely completion of the project on the scheduled completion date and failed to show any physical progress within the sixty days of the Cure Notice period.
Therefore, aggrieved by the Termination Notice, the petitioner sought interim measures and orders of injunction in respect of the Termination Notice issued by the NHIDCL.
Analysis and Decision
Whether the Contract Agreement in the present case is one which would fall within the parameters of Section 14(d) of the SRA?
The Court perused the Termination Notice and noted that it was issued by NHIDCL not only for the failure in achieving milestones in construction work but also raised the issue of certain forged Bank Guarantees.
The Court noted that Section 14 of the SRA specifies contracts which are not specifically enforceable. Clause (d) of Section 14 stipulates that a contract which is in its nature determinable cannot be specifically enforced. Resultantly, the grant of an injunction in respect of such a contract stands prohibited in light of Section 41(e) of the SRA and which prescribes that an injunction cannot be granted to prevent the breach of a contract the performance of which would not be specifically enforced.
The Court noted that in Turnaround Logistics (P) Ltd. v. Jet Airways (India) Ltd., 2006 SCC OnLine Del 1872 (‘Turnaround Logistics’) while dealing with the scope and ambit of Section 14(d) the word “determinable” was interpreted to mean any contract which could be put to an end. It had observed that all revocable contracts would thus fall within the breadth of the expression “determinable contracts”. It was further observed that Section 14(d) would thus extend not only to voidable contracts but also to those which stipulated or envisaged termination on the occurrence of a particular event.
The Court said that the decision in National Highways Authority of India v. Panipat Jalandhar NH-I Tollway Pvt. Ltd., 2021 SCC OnLine Del 2632 (‘National Highways Authority’) assumes significance as an identical question for the scope and ambit of Section 14(d) was answered and the Court was dealing with a highway construction project contract and which embodied identical clauses relating to termination, cure period and other like provisions. It was observed that since the contract was terminable, albeit on the occurrence of a breach or default, it was liable to be viewed as one falling within the scope of Section 14(d) and therefore the grant of an injunction was impermissible in law.
The decision in Gujarat Chemical Port Terminal Co. Ltd. v. Indian Oil Corpn. of India, 2016 SCC OnLine Bom 2605, was considered significant by the Court. While dealing with contracts which contemplated termination upon the occurrence of an eventuality, or an event, it was held to be determinable and thus falling within the scope of Section 14(d).
The Court said that it was bound by the legal position embodied in the decisions of the Court in Turnaround Logistics and National Highways Authority (supra) both of which had explained the injunct embodied in Section 14(d) of the SRA to be applicable to all revocable or voidable contracts. Further, the Court said that both the decisions in unequivocal terms explained the extent of the statutory embargo enshrined in Section 14(d) of the SRA as extending to contracts which can be revoked in terms of the stipulations contained therein. The principle appeared to be founded upon the reasoning that a contract which could be revoked by either of the parties cannot be specifically enforced.
The Court said that the invocation of power of judicial review in proceedings under Section 9 would also fall foul of the principles which were enunciated in Rajasthan Breweries Limited v. Stroh Brewery Company, 2000 SCC OnLine Del 481, Overnite Express Ltd. v. DMRC, 2020 SCC OnLine Del 2093 and Indian Railways Catering & Tourism Corp. Ltd. v. Cox & Kings India Ltd., 2012 SCC OnLine Del 113, wherein it was consistently held that the merits of a termination of a contract are issues which must be essentially left for determination by the Arbitral Tribunal.
The Court said that even though it is a Constitutional Court, in the instant petition it was essentially called upon to consider the exercise of powers conferred under a special statute. It would perhaps be impermissible to invoke the Constitutional powers of judicial review while considering a petition under Section 9 of the Act. The adoption of such a course would also run afoul ultimately since even if it were to eventually conclude that an action is arbitrary, its power to grant an injunction was still dependent upon and subject to the provisions of Section 14(d) of the SRA.
The Court was unable to hold or interpret Section 14(d) of the SRA to be confined only to those contracts where parties have the right to terminate without assigning any reason or where that power be exercisable even in the absence of an event or breach. As held in the several decisions of the Court, the power to terminate, whether it be for cause or otherwise, based on an allegation of breach or the happening of an event, if preserved would lead to the Court recognising such a contract falling within the scope of Section 14(d) of the SRA.
The Court said that insofar as the issue of the forged Bank Guarantees (BGs) was concerned, the petitioner had sought to evade the liability that came to be attached consequent to the discovery of those BGs being forged by attributing that infraction to a Financial Consultant which had been engaged by it. Thus, the Court refused to interfere with the impugned action of NHIDCL.
However, the Court said that the contention on merits addressed by the petitioner’s counsels were left open to be agitated in the arbitral proceedings.
[Ksheeraabd Construction Pvt. Ltd. v. National Highways and Infrastructure Development Corporation Ltd., 2023 SCC OnLine Del 3156, Order Dated: 23-05-2023]
Advocates who appeared in this case :
For the Petitioner- Advocate Vikas Mehta and Advocate Anshula Grover;
For the Respondent- Advocate Kunal Tandon and Advocate Richa Sharma.