23 December 2021 | National Highways Authority of India v. KMC Construction Ltd. | OMP (Comm.) No. 461 of 2020 | Vibhu Bakhru J | Delhi High Court 

The Delhi High Court has rejected a set-aside application reiterating the applicable standards. The contract was for widening and strengthening a few lanes in a section of NH-8 at Rajasthan. The tribunal partially allowed the claims and rejected NHAI’s counterclaim. NHAI applied to set aside the award as regards four claims.

Variation ordered by NHAI: KMC had been asked to do additional work. For this variation, NHAI had to pay market rates. KMC submitted the rates for the new items and proceeded to execute the work. Later, NHAI fixed lesser rates, and KMC signed variation orders based on the lesser rate though treating it as provisional. The question was: was KMC bound by the variation orders? The arbitrator said no and awarded the claimed amount. It “evaluated and considered” all material and accepted KMC’s argument that the rate was accepted without objection, and NHAI permitted the work to continue. The arbitrator also found that KMC had signed the variation orders because payments had already been unreasonably delayed.

The court said the tribunal’s view was plausible and had no patent illegality (citing PCL-Suncon 2015 SCC OnLine Del 13192).

Overheads for variation exceeding contract price: KMC had also claimed additional overheads it had incurred in executing additional work (which exceeded the stipulated threshold limit of 15% of the original contract price). The tribunal interpreted a clause of the agreement [Clause 52 GCC] to find that KMC was entitled to overheads for the variation. It relied on PCL-Suncon.

The court said it was not for it to re-adjudicate the dispute, and the arbitrator’s interpretation was final [citing McDermott (2006) 11 SCC 181].

Idling men and machinery: In addition, KMC had claimed compensation for idling men and machinery due to the transporter’s strike and the Mining Department’s instructions to stop work. These events were covered, the tribunal ruled, under the employer’s risk set out in the contract [Clause 20.4 COPA].

The court said the view is plausible, and the construction of the contract is the tribunal’s jurisdiction.

The court also rejected this challenge based on another ground, i.e., it was limitation barred, which the tribunal did not consider. The court said the tribunal did not deal explicitly with it, but it was apparent that it rejected the argument. The contract, it noted, was running, and all claims were within limitation.

In addition, the court also refused to entertain another argument, i.e., the tribunal simply accepted the claim without KMC having substantiated it. The tribunal had relied on a data book of the government, which indicated usage charges in respect of machinery. NHAI argued that usage charges included the cost of operating the machinery and was not an appropriate measure of idling costs. The court ruled that estimating costs are involved, but the award cannot be questioned if the measure is based on some relevant material. It cited Delhi Airport Metro 2021 SCC OnLine SC 695 to reiterate that an award can only be impeached on the ground of patent illegality if the illegality goes to the root of the matter.

Award of interest: The court upheld an award of interest of 16% per annum. It reiterated that the tribunal has wide discretion.

Read the decision here.