Overview
In this case, the Delhi High Court examined whether a contractor could claim additional costs for delay of a project after the Extensions of Time (EOTs) had been accepted where such benefits were specifically denied.
The dispute arose between the National Highways Authority of India (NHAI) and Progressive Constructions Limited as to a highway construction project concerning the widening and strengthening of National Highway 31C in Assam.
The Arbitral Tribunal had awarded compensation to the contractor under various categories such as loss of profit, unpaid work, machinery idling charges, and prolongation costs. Some claims were set aside under Section 34 of the Arbitration and Conciliation Act, 1996. The Division Bench examined whether the rest of the claims were legally sustainable or suffered from patent illegality.
Facts of the Case
NHAI, the appellant herein, and Progressive Constructions Limited, the respondent herein entered into a contract for the highway project in September 2005. Most of the project site was given at the very beginning, however, a six-kilometre forest could not be handed over for several years because of pending statutory clearances.
Due to the same, the completion of the project was hindered. The Engineer who was appointed under the contract recommended Extensions of Time (EOTs), which extended the deadline beyond the agreed completion period.
NHAI, however, approved only a few extensions and did not take decisions on time on subsequent requests. During this period, certain concerns were also raised as to the failure of the contractor to maintain proper deployment of machinery as well as manpower.
NHAI terminated the contract in March 2016 alleging poor progress. This termination was challenged by the contractor who then initiated arbitration proceedings. The Tribunal held the termination to be unlawful and granted compensation under different claims.
Aggrieved by the same, NHAI approached Delhi High Court challenging the arbitral award.
Legal Issues
- Whether termination of the contract was legally sustainable, despite NHAI’s prolonged inaction on extension of time recommendations.
- Whether the Tribunal was justified in allowing amendments to certain claims during the arbitration proceedings.
- Whether damages could be granted in the absence of sufficient evidence proving actual real loss.
- Whether the contractor could claim prolongation costs after accepting earlier EOT decisions where such costs were denied.
- Whether the findings of the Tribunal were consistent with the terms of the contract and principles governing arbitral awards.
Decision
The Delhi High Court partly allowed the appeal. The Court upheld the Tribunal’s finding that the termination of the contract was illegal.
The Court observed that NHAI’s silence as to the contractor’s request for extensions created uncertainty and affected the ability of the contractor to plan and complete the rest of the work. Therefore, the award granting loss of profit was upheld.
NHAI’s objection concerning the amendments to the unpaid work claim was also rejected. The Court noted that NHAI had sufficient opportunity to respond to the amendment but still it did not raise any objection.
However, the Court set aside the claims in relation to the prolongation costs, overhead expenses, and machinery idling charges. It held that the contractor had accepted earlier decisions as to EOT where such costs were expressly denied due to delays attributable to both parties. Since these decisions were accepted without any protest, the contractor could not later claim the same amounts through arbitration.
The Court further set aside compensation awarded for confiscated machinery, observing that the Tribunal had granted damages without proper evidence regarding the machinery’s actual value, depreciation or salvage value.
Case Reference: - FAO(OS) (COMM) 206/2023 (DB, Before V. Kameswar Rao and Vinod Kumar, JJ., Delivered by V. Kameswar Rao, J.)
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