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National Highway Authority of India and ors. Vs. Bumihiway Ddb Ltd. (Jv) and ors. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtOrissa High Court
Decided On
Case NumberARBA Nos. 4 and 5 of 2004
Judge
Reported in2005(1)ARBLR157(Orissa); I(2005)BC486; 99(2005)CLT18
ActsArbitration and Conciliation Act, 1996 - Sections 37(1)
AppellantNational Highway Authority of India and ors.;bumihiway Ddb Ltd. (Jv) and ors.
RespondentBumihiway Ddb Ltd. (Jv) and ors.;national Highway Authority of India and ors.
Appellant AdvocateR.K. Rath, Adv. in ARBA No. 4/2004 and ;Sanjit Mohanty, Adv. in ARBA No. 5/2004
Respondent AdvocateSanjit Mohanty, Adv. in ARBA No. 5/2004 and ;R.K. Rath, Adv. in ARBA No. 4/2004
Cases ReferredIndian Oil Corporation Ltd. v. Amritsar Gas Service and
Excerpt:
.....1996 - appellant nos. 2 and 3 entered into joint venture - appellant no. 1, called for tenders of work - firm, among others, submitted its bid which was accepted by appellant no.1 - firm commenced work - disputes cropped up - due to inaction/negligence of firm country as whole was subjected to great loss and inconvenience, inasmuch as there was disruption of free flow of vehicular traffic - appellant no.1 issued notice for cancellation of agreement - firm approached court under section 9 of act for injunction - injunction granted till disputes among parties were resolved by disputes review board or by arbitration - aggrieved, appellant no. 1 filed present appeal - held, admittedly disputes have cropped up between parties and work in question has been discontinued for quite some time -..........the firm from the work-site till the disputes among the parties were resolved by disputes review board or by arbitration as envisaged in the agreement.6. mr. sanjit mohanty, learned senior counsel appearing for the appellants in arba no. 5 of 2004, forcefully contended that there was absolutely no justification for the n. h. authority to issue a show-cause notice to the petitioner on 14th january, 2004 for threatening to expel it from the work-site prematurely. as per the agreement, the firm was required to complete the entire work by 14th of february, 2004. he further submitted that the plea taken by the n. h. authority that there were disputes inter se between the two partners, of the firm for which the work suffered, was just a cock and bull story. in fact the firm was diligently.....
Judgment:

A.S. Naidu, J.

1. These two appeals have been filed invoking jurisdiction of this Court under Section 37(1)(a) of the Arbitration and Conciliation. Act, 1996 (hereinafter called 'the Act') assailing the Order dated 2 April, 2004 passed by the District Judge, Ganjam-Gajapati, Berhampur in Arbitration Petition No. 2 of 2004.

2. The aforesaid Arbitration Petition was filed by Bumihiway DDB Ltd. (JV) and others under Section 9 of the Act seeking interim protection by way of restraining the National Highway Authority of India and others from entering upon the work-site and/or giving effect to the order of cancellation dated 14th January, 2004 and further restraining the said National Highway Authority from invoking the Bank guarantee(s). The District Judge disposed of the said Arbitration Petition directing as follows :

'The opp. parties are hereby restrained from expelling the petitioners from the work site till the dispute between the parties is adjudicated and decided within the framework as envisaged in the agreement by the Disputes Review Board and if necessary by arbitration thereafter, within the period as specified in the agreement. The prayer for restraining invocation of the Bank guarantees is refused.'

3. Being aggrieved by the latter part of the order refusing to restrain invocation of the Bank guarantee(s), Arbitration Appeal No. 5 of 2004 has been filed by the Firm which was awarded the work of 'Widening and strengthening the existing 2-Lane Carriageway to 4/6-Lanes in the NH No. 5 from Km. 233.000 to Km. 284.000 (Ichapuram to Ganjam) in the State of Orissa.'

At the other hand challenging the first part of the impugned order restraining the National Highway Authority from expelling the Firm from the work-site till the dispute between the parties is adjudicated and decided within the framework as envisaged in the agreement by the Disputes Review Board, and if necessary by arbitration thereafter, within the period specified in the agreement, the National Highway Authorities have preferred ARBA No. 4 of 2004.

For the sake of brevity, the appellants in ARBA No. 5 of 2004 who were petitioners before the District Judge are referred to in this Judgment as 'the Firm' and the appellants in ARBA No. 4 of 2004 who were the opposite parties before the District Judge are referred to as 'the N.H. Authority'. As the facts and questions of law involved in both the appeals are same, both the appeals were heard together and are being disposed of by this common judgment.

4. In order to appreciate the inter se disputes, bereft of unnecessary details, it would be prudent to state the cases of both sides.

Appellant Nos. 2 and 3 in ARBA No. 5 of 2004 entered into a joint venture in the name and style of 'Bumihiway DDB Ltd. (JV), Appellant No. 1. The N.H. Authority which is in charge of execution of the Golden Quadrilateral under the National Highways Development Programme for the entire country, with the aim and objective of connecting the four metropolis, such as Delhi, Mumbai, Chenai and Calcutta, called for tenders for the work as described in Paragraph-3 above. The Firm, among others, submitted its bid which was accepted by the N.H. Authority and a letter of acceptance was issued in favour of the Firm on 19th April, 2001. An agreement was also entered into on 19th June, 2001 between the parties inter se codifying the terms and conditions. According to the agreement, the work was scheduled to be completed within a period of thirty-two months. The Firm was required to furnish mobilization advance in the form of Bank guarantee(s) to a tune of around eighteen crores of rupees, which in fact it did. After completion of all paraphernalia and execution of agreement, it is averred by both sides, the Firm commenced the work. Unfortunately disputes cropped up soon thereafter. According to the N. H. Authority there were dissensions between the two partners of the joint venture, inasmuch as one of the partners made several correspondences with the N. H. Authority complaining against the other. But then as the same is not the subject matter of these appeals, there is no need to dilate over the said disputes. According to the N. H. Authority, due to such dissensions between the two partners, the work entrusted to the Firm suffered to a great, extent, inasmuch as from the day one, the Firm neglected in keeping up with the target fixed in the agreement. A number of opportunities were given to the Firm to speed up the construction work to reach the target. The Firm after negotiation though assured the N. H. Authority on several occasions to reach the target, yet failed to keep up its commitments. The construction of the work in question was of paramount importance and the time was the essence of the contract. However, due to inaction/negligence of the Firm the country as a whole was subjected to great loss and inconvenience, inasmuch as there was disruption of free flow of vehicular traffic, both passenger and goods, on N. H. No. 5. Having no other way out, the N. H. Authority, after giving adequate opportunity to the Firm, directed the Firm to show cause by 20th of December, 2003 as to why action under Clause 63.1 (d) of the agreement would not be taken against it for delay in fulfilling the contractual obligation and the agreement would not be cancelled.

The stand taken by the Firm, at the other hand, is that the allegations leveled by the N. H. Authority are unjust and there bereft of any substance. It is averred by the Firm that there was no dissension among the two partners of the joint venture, and even if there was any dissension at the initial stage, the same were streamlines later on. It is further averred that the progress of the work actually hampered due to the utter negligence of the N. H. Authority, inasmuch as though under the agreement it was specifically stipulated that possession of land would be handed over to the Firm within a stipulated date, the said Authority totally failed to keep up its commitment. Due to the negligence and/or inaction of the N. H. Authority in handing over land for widening of the N. H. No. 5, the work disrupted. The allegation of the N. H. Authority that due to laches of the Firm there was delay in execution of the work was strongly repudiated and it was emphatically submitted that the Firm kept up its promises and no laches whatsoever could be attributed to it. The firm had diligently and with all promptitude carried on the work. It also stuck to all its commitments and the delay in progress of the work was solely attribute to the N. H. Authority. It is submitted that in order to wriggle out of the conditions stipulated in the agreement, the N. H. Authority hurriedly issued a notice to the Firm to show cause as stated above, and such action was not only contrary to law, but also contrary to the terms of the agreement. The Firm further contended that the agreement entered into between the parties under inter se is a self-contained one. It stipulates constitution of a Disputes Review Board in terms of Clause 67.1 thereof for settlement of all disputes. There is also provision for referring the disputes between the parties inter se to arbitration with regard to execution of the work. According to the Firm, without resorting to the aforesaid Clause of the agreement which provides for redressal of the disputes, issuance of a notice to show cause and steps taken for terminating the agreement was unjust, illegal and contrary to law. It was further contended that if without resorting to arbitration the agreement is cancelled and/or the Firm is expelled from the work-site, it would cause great prejudice and loss to the Firm. It is further submitted that until decision on the inter se disputes, if any, between the parties is arrived at by the Disputes Review Board, the N. H. Authority should be restrained from encashing the Bank guarantee(s) furnished by the Firm and cancelling the agreement. With the aforesaid averments the Firm had approached the Court below with a petition under Section 9 of the Act, as aforesaid, praying for protection of its rights and preservation of the subject-matter of the agreement by granting injunction against the N. H. Authority.

5. The Learned District Judge after considering the submissions of both sides held that a valid contract/agreement existed between the parties and the same contained a clause to refer the disputes, if any, arising out of the agreement to Disputes Review Board and if necessary to arbitration for redressal. Without resorting to that mutually agreed mode to resolve the disputes, the N. H. Authority issued a notice to the Firm for expelling it from the work-site, that too before completion of the period stipulated in the agreement, which was to expire on 14th February, 2004. Thus a situation had arisen, warranting exercise of jurisdiction of the Court under Section 9 of the Act and it was a fit case to grant interim protection to the Firm. On the basis of such findings, the Learned District Judge injuncted the N. H. Authority and restrained it from expelling the Firm from the work-site till the disputes among the parties were resolved by Disputes Review Board or by arbitration as envisaged in the agreement.

6. Mr. Sanjit Mohanty, Learned Senior Counsel appearing for the appellants in ARBA No. 5 of 2004, forcefully contended that there was absolutely no justification for the N. H. Authority to issue a show-cause notice to the petitioner on 14th January, 2004 for threatening to expel it from the work-site prematurely. As per the agreement, the Firm was required to complete the entire work by 14th of February, 2004. He further submitted that the plea taken by the N. H. Authority that there were disputes inter se between the two partners, of the firm for which the work suffered, was just a cock and bull story. In fact the Firm was diligently carrying on the work in full swing and the delay could only be attributed to the N. H. Authority which adopted dilly dally tactics in handing over the land. It was further forcefully submitted by Mr. Mohanty that whatever disputes arose in course of execution of the work, was to be resolved in consonance with the terms of the agreement, i.e., by referring the same to the Dispute Review Board, and if necessary, to arbitration thereafter. According to Mr. Mohanty the mala fide of the N. H. Authority is very much apparent and patently visible from the facts that though the Firm requested or called upon it to constitute a Disputes Review Board in consonance with the terms of the agreement, no action was taken by it, and at the other hand the aforesaid notice was issued to the Firm much before the date fixed under the agreement for completion of the work. The aforesaid conduct of N. H. Authority compelled the Firm to invoke the jurisdiction of the District Judge under Section 9 of the Act and the order passed by the District Judge restraining the N. H. Authority from expelling the Firm from the work-site till the disputes between the parties were adjudicated within the framework as envisaged under the agreement by a Disputes Review Board, and if necessary by arbitration thereafter is just, proper and in consonance with law. But then, according to Mr. Mohanty, the District Judge acted illegally and with material irregularity in not restraining the N. H. Authority from encashing the Bank guarantee(s) furnished by the Firm and it is a fit case where the said portion of the order of the District Judge should be set aside and the N. H. Authority should be restrained from encahsing the Bank guarantee(s).

7. Mr. R. K. Rath, Learned Counsel appearing for the N. H. Authority in both the appeals, submitted that the work of widening of the National Highway which is of National importance has been disrupted due to deliberate inaction on the part of the Firm. He further submitted that the allegation of the Firm that there was delay by the N. H. Authority in handing over the work-site to it is not correct. Even otherwise, with consent of both sides the work schedule was changed time and again. The Firm was warned on several occasions to stick to the work schedule, but it failed to deliver the goods. When the N.H. Authority was satisfied that the Firm was only killing time and not completing the work, and the work with the speed in which it was being executed could not be completed within the time stipulated in the agreement, it was constrained to issue the notice as aforesaid. According to Mr. Rath, the Section of the National Highway No. 5 which is the subject-matter of the present dispute is not only a very important Section, but also one of the busiest Sections of the National Highway. Due to inaction of the Firm, the common populous are put to unnecessary inconveninece. Considering all these facts and giving adequate opportunity to the firm, the N. H. Authority took the decision to cancel the agreement and to expel the Firm from the worksite. It is stated that in consonance with the terms of the agreement, the N. H. Authority has such power. It is submitted that the N. H. Authority was satisfied that unless the Firm was expelled from the work-site the entire programme would be frustrated. Mr. Rath also submitted that the direction issued by the District Judge restraining the N.H. Authority from expelling the Firm from the work-site is contrary to the public policy. It is further submitted by him that the disputes, if any, between the parties, inter se can be decided by arbitration and the loss caused to the Firm, if any, can be mitigated by award of compensation, and in that view of the matter, the order of restraint passed against the N.H. Authority is illegal and is liable to be set aside.

8. I have heard the Learned Counsel for the parties patiently, examined the materials meticulously and considered the submission diligently. According to Mr. Rath, the Firm completely failed to keep up its commitment not only once but on several occasions and the N.H. Authority was satisfied that the Firm could never complete the work within the stipulated time. Therefore it had no other option but to issue the notice to the Firm as aforesaid in the greater interest of the nation. Mr. Mohanty repudiated all the allegations made on behalf of the N.H. Authority and submitted that the laches an only be attributed to the N.H. Authority. According to him the Firm was diligently executing the work, but then the delay was caused only due to the inaction of the N.H. Authority which failed to hand over the land. Many other illegalities alleged to have been committed by the N.H. Authority were also highlighted by Mr. Mohanty. But then all these disputes are factual in nature which can be adjudicated by a Disputes Review Board and/or thereafter by arbitration proceeding. I, therefore, refrain myself from entering into the arena of such controversy as the same may amount to pre-judging the issue.

9. No doubt the rights of the parties are crisped, cabined and curtailed by the terms of the agreement entered into between them. None of the parties therefore can be permitted to wriggle out of the agreement. In course of arguments, both sides made several submission justifying their respective action. Clause 67 of the agreement between the parties provides for Settlement of Disputes. The procedure for Settlement of Disputes is stipulated in different Sub-clauses of the said Clause.

Sub-clause (1) of Clause 67 reads as follows :

Disputes Review Board: 'If any dispute arises between or arising out of, the contract or the execution of the works, whether during the execution of the works or after their completion and whether before or after the repudiation or other termination of contract, including any disagreement by either party with any action, inaction, opinion, instruction, determination, certificate or valuation of the Engineer, the matter in dispute shall be referred to the Disputes Review Board....'

Sub-clause (3) of Clause 67 provides for Arbitration and reads as follows :

Arbitration : 'Any dispute' in respect of which the recommendation(s), if any of the Board has not become final and binding pursuant to Sub-clause 67.1 shall be finally settled by arbitration as set for the below. The Arbitral Tribunal shall have full power to open up review and revise any decision, opinion, instruction, determination, certificate or valuation of the Engineer and any recommendation(s) of the Board related to the dispute...'

Another important Clause embodied in the agreement is Clause 75(1) which stipulates:

Termination of Contract for Employer's Convenience :

'The employer shall be entitled to terminate this Contract at any time for the employer's convenience after giving 56 day's prior notice to the Contractor with a copy to the Engineer. In the event of such termination, the Contractor

(a) shall proceed as provided in Clause 65.7; and

(b) shall be paid by the employer 'as provided in Sub-clause 65.8.'

The terms are very specific and leave no ambiguity.

10. During pendency of these Arbitration Appeals (ARBAs), this Court, in order to ascertain the extent of work executed by the Firm, thought it just and proper to direct the Superintending Engineer, R and B, Government of Orissa, Bhubaneswar, to conduct a spot enquiry, assess the work executed by the firm till the date of enquiry by measuring the same and submit a report to this Court. In consonance with the said direction issued by order dated 12th May, 2004, the Superintending Engineer concerned conducted spot enquiry and has submitted a Report Copies of the said report were made available to the parties. No objections have been filed by any of the parties. This Court thereafter by order dated 8.7.2004 further directed as follows ;

'It is directed that pendency of this case shall not stand in the way of the authorities to constitute the Dispute Review Board, as stipulated in the agreement.'

11. Admittedly disputes have cropped up between the parties and the work in question has been discontinued for quite some time. The tenure of the agreement has also come to an end by efflux of time. In such eventualities, it would neither be prudent nor in the interest of either party, or in public interest to delay the execution of the work with regard to construction of the National Highway for indefinite period. A perusal of the agreement reveals that the date of completion of the work had been fixed to 14.2.2004, i.e., thirty-two months from the date of signing of the agreement. Thus the period of contract has expired by efflux of time. The agreement in its very nature being terminable, even if it is presumed that the N. H. Authority committed breach of the agreement by prematurely cancelling the same, the Firm's remedy could only be to claim damages, if any, and it could not seek an injunction for restraining the N. H. Authority to cancel the agreement. Even if a reference was made to Arbitrator, the final relief granted could not be re-entrustment or continuation of the contract. A party to the agreement which committed breach could only be liable to compensate the other to the extent of loss or prejudice caused. The Delhi High court in the case of Rajasthan Breweries Ltd. v. Stroh Brewery, AIR 2000 Delhi 450, referring to the Supreme court decision in the case of Indian Oil Corporation Ltd. v. Amritsar Gas Service and others, (1991) 1 SCC 533, observed that in case ultimately it was found that termination was bad in law or contrary to the terms of the agreement, or of any understanding between the parties or for any other reason the remedy of the appellants would be to seek compensation for wrongful termination but to claim for specific performance of the agreement and therefore there could be no injunction.

12. I, therefore, direct the N. H. Authority to constitute a Disputes Review Board within a period of six weeks hence if the same has not been constituted till date. The constitution of the Board shall be intimated to the Firm and both sides will be at liberty to raise their disputes before the Board within two weeks from the date of receipt of the intimation. The Board shall deal with the disputes in consonance with the terms of the agreement and give its decision within a period of three months from the date of its constitution. Rights of the parties shall be guided or subject to the decision of the Board or the arbitration, as the case may be. With the aforesaid observation ARBA No. 4 of 2004 is disposed of. The order of restraint passed by the District Judge of the work, if it is so advised, in which the Firm or any of the partners of the Joint Venture will be at liberty to participate.

13. So far as ARBA No. 5 of 2005 is concerned, it is submitted at the Bar that in fact the Bank Guarantee(s) furnished by the Firm has/have already been encashed by the N. H. Authority. In order to protect the interest of the parties, I direct that the amount(s) covered under the Bank Guarantee(s) shall be kept by N. H. Authority in a separate account in a Nationalised Bank and the same shall be subject to decision of the Disputes Review Board or on arbitration, as the case may be, ARBA No. 5 of 2004 is accordingly disposed of.

14. Learned Counsel for both sides cited a number of decisions and also raised several contentions. But after going through the said decisions, I feel that in view of availability of alternative and efficacious remedy for effectual adjudication of the inter se disputes between the parties, it would not be necessary to dilate on those decisions at this stage.

15. Before parting, I express my satisfaction with the task undertaken and report submitted by Sri Govinda Chandra Mangual, S.E., Souther Circle (R & B), Berhampur who despite all ordeals diligently and promptly complied with the directions of this Court and deserves commendation.


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