AI Drafter 
TaxTMI 
TaxTMI 
2015 (2) TMI 1303
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....uffered by the contractor. Arbitration Petition No.1158 of 2012 arises out of Reference No.2, which pertained to the contractor's claims arising in respect of suspension of toll collection during particular intervals of the concession period fixed under the contract. 2 The Petitioner in Arbitration Petition No.1158 of 2012, who is the Respondent in Miscellaneous Application Nos. 229 and 230 of 2012, is the contractor, M/s Atlanta Limited, (hereinafter referred to as "Atlanta"). The State Government of Maharashtra through the Executive Engineer, Road Development Division, who had ordered the subject road work and entered into the contract with Atlanta, and who are the Respondents in Arbitration Petition No.1158 of 2012 and the Petitioners in the Miscellaneous Applications, are hereinafter referred to as the "State". 3 In October 1998, the State invited bids on 'Build, Operate and Transfer (B.O.T.)' basis for construction of Mumbra Byepass from KM 133/800 of Mumbai Pune Road, N.H.4 and joining the existing Mumbai Pune Road at KM. 138/200, i.e. for a total length of 5.41 km. Atlanta was the successful bidder. A formal agreement was signed between the State and Atlant....
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....l payment. The arbitral tribunal also awarded costs of Rs. 41,00,000/- to Atlanta. The arbitral tribunal directed the State to work out an extended concession period on the basis of the cash flow statement submitted by Atlanta to recover the awarded amount and to issue an appropriate Gazette Notification in that behalf, and in the event of its failure to do so within two months of the award, pay to Atlanta the entire awarded sum with interest. This award is challenged by the State by way of Miscellaneous Application No.229 of 2012. Atlanta, on its part, is aggrieved by the directions in the award for recovery of the awarded sum with interest. It wants the awarded compensation to be recovered in accordance with the details furnished in its cash flow statement of 40 years and 6 months in the event of the State not allowing the extended period of concession to Atlanta and instead taking over the facility. Arbitration Petition No.1158 of 2012 contains this challenge. 8 In Reference No.2, the arbitral tribunal accepted Atlanta's claims for compensation on account of suspension of toll collection for the two periods mentioned above and awarded a sum of Rs. 14,92,38,050/- to Atlant....
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....the Claimant? b) Whether any delay in completion of the project was caused by the Claimant ? If so, whether the delay in completion of the project was caused due to any default and/or breach on the part of the Respondent?" 12 For consideration of these two issues, the arbitral tribunal split up the total contract period between three periods: (i) the original stipulated period for completion of construction works under the BOT contract, which was two years starting from 18.8.2000 and ending on 17.8.2003, (ii) the extended period of completion, i.e. the period extended by the Supplementary Agreement between the parties, from 17.8.2003 to 17.5.2005; and (iii) the further extended period between 17.5.2005 and 27.12.2007 upto which date the State granted extension without levy of penalty. The breaches alleged by Atlanta as having been committed by the State were mainly: (a) breach of clause 3.7.15 of the General Conditions of contract ("GCC"), which required the State hand over the possession of the land required for the construction work progressively, (b) nonremoval of encroachments and non-rehabilitation of the encroachers, (c) nonresolution of disputes about the ownersh....
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....Central Railways to enable Atlanta to execute the work of Railway Over Bridge ('ROB'), (b) landslide between chainage 1.560 to 1.660, (c) non-initiation of remedial action to avoid landslides in future, as suggested by the State's own expert geologist, (d) the problems posed by the existence of a Madrassa at chainage 900 and stoppage of work by locals at chainage 3450, (e) lack of timely decision for extension of concession period on the part of the State, adversely affecting the cash flow of Atlanta already strained due to delays and variations ordered, and (f) further variation orders issued after July 2005. The arbitrators considered the pleadings of the parties and documentary evidence such as State's letter dated 20.4.2006 (Ex.C-48), Atlanta's letter dated 29.5.2006 (Ex.C.49), State's agreement with the Railways (Ex.6 in RD-1), Atlanta's letter dated 8.11.2006 (Ex.C-54), various letters exchanged between the parties (Ex.C-55 to C-87) and the proforma of time limit extension (Ex.C-88). On the basis of this material, it was held by the learned arbitrators that the facts and evidence on record established that the issues regarding delay and responsibil....
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....since the terms proposed were not acceptable to it; that there were various pressures brought to bear on Atlanta to sign the agreement; that throughout the period of negotiations, Atlanta disputed the compensation offered and brought out a comprehensive statement of claims which remained outstanding; and that the State finally reconciled and proposed to Atlanta that for the purpose of record, authenticating the additional work being incorporated by way of the Supplemental Agreement, Atlanta might sign the Supplemental Agreement pending finalization of its claims. The arbitrators were of the view that this clarification was expressly given by the State in its letter dated 7.4.2005 (Ex.C.45), which reads as follows: "The Claims raised by you are being processed separately. In the mean while, pending finalization of claims, you are requested to execute the Supplemental Agreement on Rs. 100 stamp paper as per letter no.982 dated 11.03.2005" The arbitrators also considered the circumstances in which Atlanta had continued to execute the additional work without entering into any supplemental agreement; and the fact that Atlanta was put to notice by the State that this entire work....
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....e to the claims which had already been made. Even if the High Court had considered these aspects it could not have substituted its views for those of the arbitrator as it could not be said that the view taken by the arbitrator is unreasonable or one which cannot be arrived at by a reasonable person. In this view of the matter the impugned judgment cannot be sustained and is set aside in respect of claims under Items 12(i) and (k)." The impugned award does not, thus, suffer from any infirmity and deserves to be sustained whilst exercising jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996. 18 We may now take up the individual claims, which are the subject matter of challenge on the part of the State. 19 (A) Extra Overheads and loss of expected profit. 19.1 Atlanta claimed a total sum Rs. 11.01 crores on this score. The claim was formulated on the basis of overheads and profits taken at 25 % of the construction cost in Atlanta's bid. It was the case of Atlanta, that due to reduced productivity, Atlanta incurred loss of overheads and profits, which, considering the cost of work accomplished during the stipulated period, work out ( at the rate o....
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....ation worked out by Atlanta, namely, 25 % of project cost. The compensation recommended by the Superintending Engineer was at the rate of 10 % of the project cost. 19.3 As noted above, the conclusions of the arbitral tribunal on the factum of delay and Atlanta's entitlement to recover compensation on that score are clearly sustainable. The question really is of the quantum of compensation payable. As noted above, the Superintending Engineer had originally proposed the rate of 10 % of the project cost. The arbitrators allowed the rate of 20 % and gave an award of Rs. 880 lacs on this claim. The Arbitrators considered the following material to work out this rate: (a) Various formulas used in adjudication of overheads and profits, such as Hudson formula, Ashley formula and particularly, Emdem formula; (b) The evidence placed by Atlanta on record (including its balance sheets and accounts) showing overheads as a percentage of the total value of works carried out - combined percentage during the relevant years ranging from 22-25 % to 42-43%; (c) The oral evidence of CW-1 in this behalf, which, according to the arbitrators, withstood the test of cross-exami....
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....rs' decision on this point is not sustainable, since the ultimate conclusion is supported by all other findings, which are beyond reproach in a challenge under Section 34, the same needs to be sustained. The award of Rs. 880 lacs on this score is, thus, upheld. 20 (B) Compensation on account of reduced productivity of plant and machinery due to extension of construction period. 20.1 This claim was on account of reduced productivity as a result of idling of the machinery and equipments at site during the extended period of construction and made on the basis of deployment cost of such machinery and equipments at the rate of 15 %. This claim was awarded in the sum of Rs. 494.27 lacs. On principle, the award of such a claim cannot be taken exception to. But the question is, is this claim proved. There are two important matters which need to be considered before such a claim is awarded. Whether the Contractor could not have employed the machinery elsewhere and what is the measure of damages. There are two findings in the award in this behalf. One, Atlanta's request for shifting of the idling machinery and equipments to some other site being turned down by the State; And two, ....
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....he arbitrators also observe that the recommendation is justified on the basis of log books maintained by the State. But the log books merely show the manner in which the work was done at site and what machinery was available at the relevant time. What we are concerned with is the claim for idling of machinery on the footing that it could not be deployed elsewhere. The log book does not make us any wiser in this behalf. In other words, the main and substntial basis of this claim could not be justified by any material on record. The quantum of damages also stands unproved. There is no discussion on the quantum of damages in the impugned award except a solitary observation that "the deployment cost of machinery and equipments at the rate of 15 % is partly justified on the basis of analysis of rates prior to submission of bids relied upon by the claimant". This unilateral material, in the absence of any other material in support, cannot by itself sustain the quantum of damages awarded. 20.2 The arbitrators' conclusion and award on this score, thus, cannot be accepted as a possible conclusion in the face of the material on record. 21 (C) Reimbursement of escalation in prices of H....
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....ls and cost of labour and transport during the extended period of contract from 9.5.1980 for the work under phase I and from 9.11.1989 for the work under phase II. The total amount shown was Rs. 5,47,618.50. After discussing the evidence and the submissions the arbitrator found that it was evident that there was escalation and, therefore, he came to the conclusion that it was reasonable to allow 20 % of the compensation under Claim I, he has accordingly allowed the same. This was a matter which was within the jurisdiction of the arbitrator and, hence, the arbitrator had not misconducted himself in awarding the amount as he has done." Similar views have been adopted by the Supreme Court in many subsequent decisions. In K.N.Sathyapalan Vs State of Kerala (SCC (2007) 13 SCC 43) , whilst resisting the claim of the contractor, the employer had contended that the original agreement in that case did not provide for such escalation, whilst the supplemental agreement between the parties specifically provided that no extra rates would be allowed. This is how the Supreme Court dealt with that contention: "31. The learned Single Judge of the High Court who was a party to the earlier o....
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....ate Tax (MAT). This claim was further updated, when MAT was enhanced to 15 % with 3 % education cess and a surcharge of 10 %. The arbitrators awarded the updated claim of Rs. 838 lacs upto financial year 2010-2011 and granted an award for payment or an extension of concession period on a pro rata basis, with a declaration that the concession period was liable to be extended after every three years based on actual payment of MAT certified by Statutory Auditors. 22.2 Ordinarily, such a claim would have no justification in law. A contractor cannot seek to recover from the employer taxes levied by the Government post the award of the contract on the ground that these laxes were not considered by the contractor whilst placing his bid. But in the present case, the claim is sought to be justified with reference to the contract between the parties. The argument goes like this. Clause 3.7.14 of the GCC requires the contractor to take into account all taxes payable unto 30 days prior to the last date of the receipt of the bids and Atlanta's bid having been submitted on 12.4.1999, Atlanta is entitled to claim additional taxes levied subsequent to 12.3.1999. Atlanta could have taken onl....
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.... legislation at all. The arbitrators are aware of this. But they say, clause 3.7.14 "though explicitly not a clause of subsequent legislation, it implies that the claimant is entitled for compensation on account of withdrawal of the concession in terms of income tax which was available to him on the date of submission of the bid". Nothing can be further from the true interpretation of the clause. 23. (E) Reimbursement of royalty charges 23.1 This claim was on account of royalty charges incurred by Atlanta. When the bid was submitted, there were no royalty charges payable on minor minerals required for construction of roads in Public Works Department, Government of Maharashtra. Due to change in laws subsequent to Atlanta's submission of bid, Atlanta was required to pay royalty at different rates on minor minerals and material from time to time. It sought a reimbursement of these royalty charges from the State. Even here, initially a claim of Rs. 196.18 Lacs was recommended by the Superintending Engineer to the higher authorities, but the same was not accepted by the latter. 23.2 Even this claim was allowed by the arbitrators only on the grounds of (a) clause 3.7.14 perm....
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....tion of the parties in the additional scope of work. It was Atlanta's case that this cost was required to be reimbursed to them. The State contested the claim relying upon the force majeure clause, clause 3.4.19 of GCC. The Superintending Engineer had earlier recommended this claim in the sum of Rs. 744.43 Lacs for the consideration of the State, but it was not considered. After the scrutiny of the claim, during the arbitration the State accepted the claim of Rs. 181 Lacs in this behalf. 24.2 In relation to this claim, original measurement books maintained bilaterally as well as certificates were produced before the arbitral forum. The arbitrators noted that the relevant facts, namely, shifting of the alignment and landslides having taken place, were admitted by the State; that the quantities of extra excavation and transportation were recorded in measurement books bilaterally maintained and were not in dispute; and that the rate applied was the tendered rate. The arbitrators noted that the contractual provisions, clause 3.6.6 of GCC read with Form 6, implied that any extra work carried out by Atlanta was to attract 22% charges over the rate; and that accordingly the Superin....
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..... It was the case of Atlanta that some of these aspects were acknowledged by the Superintending Engineer and the State. 25.2 The arbitrators accepted the contention of Atlanta in respect of mark-up of 22 per cent over and above DSR rates. The arbitrators also accepted Atlanta's contention regarding provision of escalation in the cost of maintenance and renewal. The arbitrators decided the various subsidiary issues concerning rates for additional works. Taking into account the submissions and evidence presented by parties and based on the findings and conclusions referred to in this behalf, the arbitrators held that Atlanta was entitled to a sum of Rs. 1038.16 Lacs in this behalf and awarded the sum. 25.3 It is pertinent to note that many of these claims, as a matter of principle, were admitted by the State in the arbitration. In fact, in its statement before the arbitral tribunal, the State admitted that as per actual work done by Atlanta, the claim on account of anti crash barrier for Rs. 162.50 lacs was justified. Even for additional work after opening of the road, the claim of Rs. 27.86 lacs was accepted by the State in the arbitration. On the other hand, no comments w....
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.... as per details furnished by Atlanta in their 'cash flow statement'. This is the subject matter of challenge in Arbitration Petition No. 1158 of 2012. 29. The award is basically for recovery of damages occasioned by the delay for which the State was responsible and extra work carried out under the contract which was not in contemplation of the parties. Clause 3.6.6 of GCC, which applies for adjustment of the target date and project cost 'as a result of variation ordered by the Engineer' within the meaning of clause 3.6, cannot be made applicable to the recovery of the amount awarded. So also, clause 3.9 of GCC, which deals with the taking over of the facility by the Government during the concession period, cannot be invoked in the present case. Clause 3.9 applies, when the Government exercises its right to take over the facility at any time after completion of the project but before the concession period available to the contractor expires. In that event, the contractor is eligible to recover compensation for the unrecovered amount as per the details furnished by him in the accepted cash flow statement. Once it is clear that damages or compensation ordered to be ....
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..... 34. These clauses deal with suspension of the work and not the concession period. Besides, the only remedy available to the State in the event of non-compliance with the stipulation of repairs and maintenance, was to carry out the work at the risk and cost of Atlanta, under clause 7.1.8 of GCC. The arbitrators held that there was no provision in the contract for suspension of toll collection or the concession period as such, and in the absence of any specific provision in that behalf, the Chief Engineer was not within his rights to order suspension of toll collection. 35. These are matters of interpretation of the BOT contract and the arbitrators have taken a view, which is certainly a possible view. This Court ought not to interfere with it in its jurisdiction under Section 34. 36. On the question, whether Atlanta was in beach of the provision in the contract concerning repairs and maintenance, the arbitrators considered the records placed before them, and came to a conclusion that from the correspondence on record, and having regard to the proof tendered by Atlanta for maintaining the road in pothole free condition including the certified copies of deployment of manpow....