CA-Certified Audited Statements Are Valid Proof Of Actual Expenditure: Delhi High Court Partly Upholds Arbitral Award Against NHAI

The Delhi High Court dismissed a petition under section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) filed by National Highways Authority of India (NHAI) against an arbitral award passed in favor of Hindustan Construction Company Ltd. (HCC). The court further held that the arbitrator's award of compensation for expenses incurred during extended time period was reasoned, plausible and did not suffer from perversity or patent illegality. Justice Jasmeet Singh held that “the audited statements, duly certified by statutory auditors and submitted by the Claimant, constitute a true and reliable record of the actual expenses, and accordingly, the amounts certified by the auditors were accepted as reflecting the real overhead costs". Background: The dispute arose out of a contract executed between NHAI and HCC for four-laning National Highway-28 between Lucknow and Ayodhya. The construction was scheduled to be completed in 2008 but was delayed and completed in 2011. Disputes originated regarding additional costs incurred during the extended period. The Arbitral Tribunal awarded HCC approximately Rs. 53.79 crore with 12% compound interest on a monthly basis. This award had been challenged in the present petition. The NHAI submitted that the tribunal committed an error by not relying on engineer's contemporaneous reports demonstrating the HCC's failure to mobilise resources instead relied on the report prepared by the HCC itself. It was further submitted that the tribunal rewrote the clauses of the contract by awarding compensation under heads such as retention of machinery, labour, and overheads which were already accounted for in the price adjustment clause. Relying on New India Civil Erectors Pvt. Ltd., it was contended that the arbitrator cannot go beyond the terms of the contract. Lastly, it was submitted that the extension was granted in public interest and did not imply fault on the petitioner's part. The delays occurred due to HCC's poor planning and mobilisation. Per contra, the Respondent submitted that the Tribunal had relied Chartered Accountants certified accounts which reflected the actual expenses and on contemporaneous correspondences demonstrating that the time was extended without imposing liquidated damages which indicated that there was no fault on HCC's part. Lastly, it was argued that the tribunal had distinguished clauses 6.4, 12.2, and 42.2 of General Conditions of Contract (GCC) which deal with compensation for delay caused by the employer and clause 70.3 of the GCC which deals with price escalation. Relying on NHAI v. CEC-HCC Joint Venture, it was argued that the claims for prolongation costs were consistently upheld where the delay was not attributable to the contractor. Findings: The court at the outset observed that the interference under section 34 of the Arbitration Act is permissible only when the award is perverse, patently illegal or contrary to fundamental policy of Indian Law. “The Court does not sit in appeal over the Award, nor does it reappreciate evidence. If the Tribunal has adopted a plausible view, the Court is not to interfere merely because another interpretation is possible,” the court held. On delay, the court upheld the arbitrator's finding that the employer had extended the time period without imposing liquidated damages. Relying on clause 44.1 of the GCC, the court held that the arbitrator was right in opining that such extension could have been granted only when the delay was not attributable to the contractor. “EOT granted by the Engineer/respondent is for delay events other than through a default or breach of Contract by the Claimant,” the tribunal had held. The court further observed that the engineer's own letters and adjustment of price during the extended period indicated that the delay was attributable to the NHAI, not HCC. The NHAI also relied on clause 110.1 of the Technical Specifications which mandates the contract to coordinate with the authorities for trees cutting and utility shifting. However, the court, while agreeing with the tribunal's view, observed that this clause could not be read in isolation. “The provisions of Clause 110.1 cannot be interpreted in isolation. Clause 5.2 of the Contract establishes the hierarchy of documents, giving the GCC higher priority over the Technical Specifications. Under Sub-clauses 42.2, 12.2, 51.1(f), and 6.4 of the GCC, the Employer is obliged to provide unencumbered access to the site, and failure to do so gives the Contractor an entitlement to compensation for delays not attributable to it. Any delay arising from the Employer‟s default cannot be excluded by Clause 110.1.,” the court said. The court held that the contractor's responsibility was limited to coordination, not to ensuring site clearance. The court also rejected the petitioner's contention that the tribunal had awarded damages ...

CA-Certified Audited Statements Are Valid Proof Of Actual Expenditure: Delhi High Court Partly Upholds Arbitral Award Against NHAI

Mohd Malik Chauhan

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