[S.34 Arbitration Act] Delhi High Court upholds arbitral award for lack of benefit of the ground of “patent illegality”

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Delhi High Court: A petition was filed under Section 34 of the Arbitration and Conciliation Act, 1996 was been filed against the final Award dated 11-09-2020 whereby the Arbitral Tribunal allowed the claims filed by the respondent/claimant seeking reimbursement of the additional costs incurred by him due to increase in size of the certain structures, related earth work and allied works arising from change in size of certain structures as a result of variation in the firm list of structures provided in the contract. Chandra Dhari Singh, J., held that the Tribunal, while making extensive observations upon appreciating the terms of the agreement between the parties as well as the subsequent course of the events unfolded between the parties, had rightly concluded the proceedings by directing the petitioner to pay for the additional costs incurred by the respondent/claimant for completion of the project.

The petitioner is a special purpose vehicle for the purpose of planning and development, mobilizing financial resources, building, maintaining, and operating dedicated freight corridors, and is under the administrative control of the Ministry of Railways. The respondent/claimant is an unincorporated joint venture referred to as Tata-Aldesa Joint Venture (‘Tata-Aldesa JV') comprising Tata Projects Limited having an office at Secunderabad, India, and Aldesa Constructions, a private company incorporated in accordance with the Spanish Laws, having its registered office in Spain. The petitioner undertook a project pertaining to “Design and Construction of Civil, Structures and Track Works for Double Line Railway involving formation in Embankments/Cuttings, Ballast on formation, Track Works, Bridges, Structures, Buildings including Testing and Commissioning on Design-Build Lump Sum Basis for Bhaupur-Khurja Section of Eastern Dedicated Freight Corridor” and the respondent claimant was duly awarded the contract based on bid submitted by them.

The respondent/claimant wrote a letter dated 17-07-2013 seeking clarification from the petitioner regarding the applicability of the size of boxes to be used for crossing roads below railway tracks for the preparation of design, drawing, and execution in accordance with the Contract Agreement and mentioned that the requirements sought by the petitioner were ‘variations' which might result in additional time and costs. The petitioner responded to the said letter stating that the submission of the plan, profile, and drawing should not be delayed owing to the issuance of approvals from the PWD and that the Contract Agreement was a design and build contract and the respondent was required to build and design the alignment profiles and Roads under Bridges (‘RUBs') in accordance with the terms of the Contract Agreement. A final list of RUBs was executed by the parties and the same was incorporated in the alignment plan and the profile of the respondent/claimant which was sent to the petitioner for approval with the note that variations in cost and time relating thereto would be sent later.

The Engineer appointed by the petitioner rejected the claim with respect to the increase in the number and change in sizes of RUBs by the PWD and stated that the General Arrangement Drawings (“GADs”) provided as part of the bidding document were indicative and were to be finalized after validation of the survey in compliance with the provisions of applicable Codes which cannot be considered a reason for any significant increase in the quantities. The respondent again sent the approval request qua the aforesaid claim, however, the same was also rejected by the Engineer. Three questions were framed out of which two have been adjudicated, however, the dispute pertaining to the question of whether the increase in the number and changes in the size of the RUBs can be considered as ‘variation' or not was decided in favour of the claimant. Aggrieved by this, the present petition was filed.

The Court noted that on perusal of the definition and its interpretation by the Tribunal, it is evident that the term “variation” as provided in the contract itself has a wider scope and does cover the change in the size as a ‘variation'. It is also clear that the said variation has occurred due to factors that could not have been either foreseen or evaluated at the time of bidding. Regarding issues ii), iii), and iv), the Tribunal revisited Sub-clause 2.0(3) along with clauses 18(2), 18(4), and of the Contract and conclusively determined that the entirety of the items enumerated in the list during the initial phase must be unequivocally regarded as definitive, and any subsequent alterations emerging at a subsequent stage would be categorized as variations. Thus, the interpretation of the sub-clauses dealing with the definition of the term “variation” and its application to the facts of the circumstances do not invite interference from this Court and therefore, the impugned Award cannot be termed as legally untenable.

On the aspect of violation of the principles of natural justice, the Court observed that the rejection of the profiles developed by the petitioner cannot be termed as a violation of the principle of natural justice as the same was taken into consideration by the Tribunal. On the aspect of interest levied on the sum awarded to the respondent/claimant, the Court noted the Tribunal had the jurisdiction and the power to grant and bestow an interest while passing the Award, given the absence of any preceding agreement between the parties concerning said interest.

The Court held that none of the elements outlined under Section 34 of the Act can be substantiated against the impugned Arbitral Award. The petitioner claimed that the Arbitrator mis-appreciated the evidence on record and wrongly interpreted the relevant clauses of the contract agreement, but a careful reading of the Award shows that the Arbitrator has rightly relied on relevant evidence to adjudicate and had fairly interpreted the clause dealing with the term “variation”.

[Dedicated Freight Corridor Corporation of India Limited V Tata Aldesa JV; 2023 SCC OnLine Del 5243, decided on 24-08-2023]

Advocates who appeared in this case :

Mr. Balbir Singh, ASG with Mr. Anshul Rai, Ms. Anu Sura, Mr. S.K. Pandey, Mr. Awanish Kumar and Mr. Chandrashekhar AC and Mr.Ujjawal Sharma, Advocates for petitioner

Mr. Sameer Parekh, Mr. Prateek Khandelwal and Mr. Jayant Bajaj, Advocates for respondents

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