Case Law Details

Case Name : Gammon India Ltd. & Anr. Vs National Highways Authority of India (Delhi High Court)
Appeal Number : OMP 680/2011
Date of Judgement/Order : 23/06/2020
Related Assessment Year :
Courts : All High Courts (6110) Delhi High Court (1615)

Gammon India Ltd. & Anr. Vs National Highways Authority of India (Delhi High Court)

FACTS

The present application was filed under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”) to challenge the Arbitral Award which was rendered by the 2nd Arbitral Tribunal. The Parties had invoked arbitration thrice, raising various claims before three different Arbitral Tribunals which have rendered three separate final Arbitral Awards.

The Appellant i.e. Gammon – Atlanta JV entered into a contract with (“Contractor”) the National Highways Authority of India (“NHAI”) on 23rd December, 2000 for the work of widening to 4/6 lanes and strengthening of existing 2 lane carriageway in the State of Orissa. The said contract commenced on 15th January, 2001 which was to be executed within 36 months i.e. 14th January, 2004.

The project was not executed within the prescribed time and extension was granted till 31st December, 2006. Vehicular traffic was allowed on the main carriageway in March, 2007 and according to the Contractor, the same amounted to deemed ‘taking over’ of the carriageway by NHAI and therefore, the contract was completed.

First Award dated 5th October, 2007

During the course of the contract, a dispute arose with respect of compensation of loss and profits, reduced productivity and revision of rates under the Price Escalation Agreement. The Contractor invoked the arbitration clause on 27th January, 2005 in pursuance to which the Disputes Review Board was constituted.  The Claims in question are as under:

  • Compensation for the losses because of overhead and expected profit;
  • Compensation for reduced productivity of machinery and equipment deployed; and
  • Rates to be revised in order to cover for increase in cost of materials and labour during extended period in addition to the relief available under escalation provision of the Contract.

The Arbitral Tribunal rendered the Award in favour of the NHAI and rejected the claims raised and denied compensation to the Contractor. With respect the claim of price adjustment under (iii), the Tribunal held that the claim was beyond the scope of reference.

The First Award was challenged by the Contractor however, the Contractor withdrew the challenge in respect of claim of price adjustment and sought to approach the Second Arbitral Tribunal. The Order dated 13th March, 2009 by the Single Judge, Delhi High Court allowed the Contractor as under:

“The grounds XVI and XVII raised with regard to claim 2.3 and the prayer paragraph also in relation to claim 2.3 is allowed to be amended in the aforesaid terms with liberty to the petitioner to pursue the said claim before the Arbitral Tribunal and without prejudice to the rights of the respondent to take all pleas in opposition thereto before the Arbitral Tribunal.”

The First Award attained finality after being upheld by the Single Bench, Division Bench and also the Special Leave Petitions filed which were dismissed by the Supreme Court.

Second Award dated 21st February, 2011

The Contractor invoked the arbitration clause and constituted the Tribunal on 2nd January, 2008 for the payment of Tack Coat under Bill of quantities. The abovementioned claim (iii) of the First Arbitration i.e. price adjustment claim was also referred before the Second Arbitral Tribunal after the permission of the Court.

The claim which the Tribunal adjudicated upon was compensation for the loss, increased cost of material, labour, payment of tack coat, interest pendente lite. The majority Arbitral Tribunal passed an Award rejecting the claims of the Contractor.

“The 2nd AT further analysed that the total value of the work was approximately Rs.118.90 crores. Work worth Rs. 5031.43 lakhs was carried out by January, 2004 i.e., the stipulated period for completion of the contract. This constituted 42.3% of the work in monetary terms. The balance work was 57.7%, for which a hindrance-free site was already available. To execute this work, the Contractor took 4 years. Thus, there was clearly a low level of performance by the Contractor despite the site being available, which is, in fact, recorded in minutes dated 15th June, 2004.

1.52 The Arbitral Tribunal holds that under the provisions of Sub Clause 70.2, this claim does not succeed. Nothing more is admissible for payment beyond the provisions of sub clause 70.3. Hence amount awarded is Rs. Nil only.”

Third Award dated 20th February, 2012

NHAI imposed liquidated damages on the Contractor for delay of the project. For this, the third arbitration was invoked by the Contractor on 23rd December, 2008 for recovery of liquidated damages and other claims. The Tribunal vide Arbitral Award dated 20th February, 2012 allowed the Contractor’s claim for recovery of liquidates damages.

The Award was also upheld by the Single Bench and Division Bench of the Delhi High Court. Therefore, NHAI paid the awarded sum in dispute and the Award attained finality.

Present Application

The Second Award was challenged under Section 34 of the Arbitration & Conciliation Act, 1996 (“the Act”) before the Delhi High Court in August, 2011 on the basis of the findings of the Third Award stating that the findings in the Third Arbitral Award would also bind the present proceedings. The Contractor had prayed to uphold the minority award under which the Contractor was awarded the price escalation claim. On the other hand, NHAI had argued that the claim was barred as the claims under the Second Arbitral Award were not raised at the first opportunity during the first reference to the Arbitral Tribunal.

ISSUES BEFORE THE DELHI HIGH COURT

The following issues were considered by the Delhi High Court:

1. Whether multiple claim and multiple reference to arbitration at multiple stages is permissible from a single contract under the provisions of the Act?

2. Whether it was permissible for the Contractor to jettison the findings in Award No. 3 to argue that Award No. 2 ought to be set aside and the claims of the Contractor ought to be allowed?

OBSERVATION

ISSUE 1:

The Contractor submitted that;

  • The Third Award wherein NHAI was held responsible for the delay would bind the present proceedings as well.
  • The Contractor is entitled to compensation for the loss due to such delays like in appointment of engineer, handing the site over to the Contractor, non-extension of time and delay in constitution of the Disputes Review Board.

The Contractor contended that they were entitled to a claim under Section 55 of the Indian Contract Act, 1872 which was confused to be covered by the First Arbitral Tribunal. Claims (i) and (ii) of the First Tribunal were not subject to Section 55 of the Indian Contract Act, 1872.

Lastly, the claim of the Contractor ought to be allowed keeping in mind the Third Arbitral Award and the minority opinion of the Second Arbitral Tribunal should be upheld keeping in mind the difference between compensation under Section 55 and 73 of the Indian Contract Act, 1872.

Whereas, the Respondent submitted that the minority award holds no validity after a majority Award was passed by the Tribunal. The Second Award was detailed and the Contractor had many opportunities to present its case. The Respondent contended that the claim of the Contractor was barred and;

“escalation has in fact been granted under Clause 70.3. She further urges that the findings by the DRB, 1st AT and the 2nd AT are consistent and thus the petition is liable to be dismissed.”

The Court examined the position of multiple disputes raised at different stages and multiple Arbitral Tribunals in respect of a Single Contract. Under Section 7 of the Act, the Agreement to arbitrate could be for;

“…all or certain disputes which have arisen or which may arise”.

Further Section 8 (3) of the Act states the following;

“8. Power to refer parties to arbitration where there is an arbitration agreement –

(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.

And Section 21 of the Act mentions the following;

“21. Commencement of arbitral proceedings. – Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.”

The Court noted that that if there are multiple disputes which have been raised at different times, the commencement of the proceedings would be different qua each of the disputes.

The Court held that;

“This means that, if the court, thereafter comes to the conclusion that the dispute is arbitrable, after the first reference is either pending or concluded, a second reference can be made.

Filing of different claims at different stages of a contract or a project is thus permissible in law, inasmuch as the contract can be of a long duration and the parties may wish to seek adjudication of certain disputes, as and when they arise. Despite this permissibility, multiplicity ought to be avoided as discussed hereinafter.”

The Court observing the problem of multiplicity stated that under litigation, the problem of multiplicity of proceedings is protected by the principle of Res Judicata and referred Order 2 Rule 2 and Section 10 of the Civil Procedure Code, 1908, which is that subsequent suit is stayed until the first suit is decided.

Since, the arbitration is not governed by the Civil Procedure Code, 1908 and the provisions of the Act show that there can be multiple proceedings and claims at multiple stages, it is possible to invoke arbitration as and when the dispute arises at different stages.

Due to confusion and overlapping of awards, the Court cautioned against multiplicity of proceedings. Multiple proceedings will not only defeat the purpose of speedy dispute resolution but also be inherently counter-productive. In complex construction disputes where there is possibility of multiple Tribunals parallelly adjudicating up on different claims should be avoided.

The Court discussed and recognised three different type of multiple arbitrations:

1. Arbitrations and proceedings between the same parties under the same Contract.

2. Arbitrations and proceedings between the same parties arising from a set of Contracts constituting one series, which bind them in a single legal relationship.

3. Arbitrations and proceedings arising out of identical or similar Contracts between one set of entities, wherein the other entity is common.

The Court referred to the case of  Dolphin Drilling Ltd. v. ONGC AIR 2010 SC 1296, where the Supreme Court held that when the wording of the clause permits, the arbitration clause can be invoked again in the future for subsequent disputes and ultimately allowed for second reference to the arbitration.

“In Indian Oil Corporation Vs. SPS Engg Co. Ltd1, a claim relating to risk-execution of balance work, which was not referred to the first Tribunal, was referred to arbitration.”

The Court observed that it would be against the public policy to permit parties to raise claim as per their convivence. Although the provisions of Civil Procedure Code, 1908 do not strictly apply to arbitration proceedings, the principle of Res Judicata is still applicable to arbitration proceedings.

Therefore, when the arbitration clause of invoked, all the disputes which exists during the time of invocation should be referred and adjudicated together. If the party does not raise claim which exists on date of invocation, it would be deemed to have been waived its right to raise the issue and would be not allowed to raise it subsequently.

The Court further noted that:

“Keeping in mind the broad principles which are encapsulated in Order II Rule 2 CPC, as also Section 10 and Section 11 of the CPC, which would by itself be inherent to the public policy of adjudication processes in India, it would be impermissible to allow claims to be raised at any stage and referred to multiple Arbitral Tribunals, sometimes resulting in multiplicity of proceedings as also contradictory awards.”

The Court encapsulated suggestions for different situations to curb the menace of multiple proceedings:

Situation Opinion of the Court
One particular contract or series of contract The Court should endeavour to make reference in one go. The solution to this can be to draft the clause in a manner so as to ensure that claims can be referred in one go and none of the claim will be barred by limitation.
Disputes arisen at different stages The party invoking the arbitration clause should refer all the claims which have arisen the date of invocation for reference for arbitration. If not mentioned, the claim would be held as barred/waived, unless permitted by the Arbitral Tribunal.
Further dispute under a particular/series of contract after the Tribunal is constituted. Further, dispute should be referred to same Arbitral Tribunal and separate Award can be pronounced by the same Tribunal.
Arbitrations and proceedings arising out of identical or similar contracts between one set of entities, wherein the other entity is common. Endeavour should be made to constitute the same Tribunal. It not possible, the challenges to the Award should be heard together, if pending in the same Court.
Multiple Challenge pending at the same Court If there are multiple challenges pending in respect of awards arising out of the same contract, the parties ought to bring the same to the notice of the Court adjudicating a particular challenge so that all the challenges can be adjudicated comprehensively at one go.

ISSUE 2:

The Court examined after looking at the interpretation of clauses of the Contract by different Tribunals with respect to the remedy in question, the Court noted that the second Award has to independently stand on its own legs and any attempt to conflate Award No. 1 into Award No. 2 would result into unpredictable results. On the given facts, the Award No. 2 was well reasoned and did not defeat the claims under the other awards.

The Court further observed that a subsequent Award would not render the previous Award illegal or contrary to the law. The Award had to be tested against its own merits when it was pronounced and not on the basis of subsequent finding which was rendered by the later Tribunal. On application of the test, the Delhi High Court found that the Second Arbitral Award did not suffer from patent illegality, perversity or any ground of interference under Section 34 of the Act.

CONCLUSION

The Court concluded that the findings of a Subsequent Award would not render the previous Award illegal or contrary to law. To find the validity of the Award, the Award had to be tested as on the date when it was pronounced, on its own merits.

Therefore,

 “The findings of the second AT do not suffer from any patent illegality or perversity and no other grounds for interference under Section 34 of the Arbitration and Conciliation Act, 1996 are made out. Even if, for the sake of argument, one looks at the findings of the third AT, those relate to delays caused in the project and the right of NHAI to impose liquidated damages. Escalation or compensation for non-payment of increased rates, is not the subject matter of Award No.3. Thus, none of the findings in Award No.3 can be jettisoned or incorporated into the present petition to rule in favour of the Contractor qua Award No.2 for awarding compensation/rate revision/escalation. The stand of the Contractor is thus not tenable and is liable to be rejected.”

The Court also dealt with the issue of multiplicity of proceedings in arbitration proceedings and gave the following directions to avoid inconsistent/contrary awards.

  • For every petition under Section 34 of the Act, every party ought to disclose pending proceedings in respect of the same contract or series of contract along with the stage and forum of the proceedings thereof.
  • At time of hearing a petition under Section 34 of the Act, the party shall disclose if there is any other petition under Section 34 of the Act pending and arising out of the same contract or series of contract.
  • At the time of appointment of the Arbitral Tribunal, the parties should disclose if there is any other Tribunal which is constituted.
  • Appointing authorities should avoid appointing separate Tribunals for same or series of contract.

AMLEGALS REMARKS

The Court had categorically held that Indian policy is against allowing parties to refer disputes to multiple Arbitral Tribunals at their own convenience. In India, where arbitration are primarily ad-hoc in nature in comparison to Institutional Arbitrations, multiplicity of arbitration proceedings  can defeat the very purpose it was to created.

Expedition is the heart and soul of the arbitral proceedings. Not only multiple proceedings leads to inconsistent findings on the same set of facts but also create huge expenditure and loss of time for the parties.

The Delhi High Court therefore, utilised the opportunity and gave guidelines to advocates to keep in mind while filing for the appointment of an Arbitrator or a challenge application to mention all the pending proceedings which are arising out of the Contracts between the parties.

The Court opined that;

Though there is no doubt that multiple arbitrations are permissible, it would be completely contrary to public policy to permit parties to raise claims as per their own convenience. While provisions of the CPC do not strictly apply to arbitral proceedings, the observations of the Supreme Court in Dolphin (supra) show that when an arbitration clause is invoked, all disputes which exist at the time of invocation ought to be referred and adjudicated together. It is possible that subsequent disputes may arise which may require a second reference, however, if a party does not raise claims which exist on the date of invocation, it ought not to be given another chance to raise it subsequently unless there are legally sustainable grounds. This is necessary in order to ensure that there is certainty in arbitral proceedings and the remedy of arbitration is not misused by parties. The constitution of separate arbitral tribunals is a mischief which ought to be avoided, as the intent of parties may also not be bona fide.”

It is best to not elaborate the procedure of arbitration with multiple Tribunals which will result into multiple Awards. Therefore, even though the said reference to arbitration is allowed as under the Act, the same is not encouraged by the Delhi High Court under the said judgment.

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