Liquidated damages cannot be imposed where responsible engineer argues cause of delay explained: Delhi High Court
the Delhi High Court ruled that liquidated damages cannot be imposed where the responsible engineer believes that the cause of the delay is explained.
The single bench of Justice Vibhu Bakhru found that when the Engineer in Charge was given the task of examining the causes of the delay, and had analyzed and accepted the justification provided by the contractor and recommended several extensions without the imposition of DLs, he did not was not open to the employer to levy LD when the delay is not attributable to the contractor and was therefore determined by the engineer in charge.
The Court further held that it was up to the arbitrator to decide on the probative value of any document presented in support of either party’s case.
GAIL (applicant) and Triveni Engineering (respondent) entered into an agreement dated 28.05.2012 for work relating to “the dematerialized water plant (DM) and the condensate polishing unit (CPU) for the complex petrochemical GAIL-II at Pata, Uttar Pradesh”. GAIL has appointed Engineers India Ltd. (EIL) as the “responsible engineer” under the agreement.
The project was expected to be completed within 18 months, however, there was a delay in completing the work. The Respondent requested various extensions of time which were accordingly granted by the Applicant; however, he withheld an amount of Rs. 2,75,00,000/- (Rs. two crores, seventy-five thousand only) as LD for the delay caused in the execution of the project works according to the price reduction schedule ( PRS). There was also controversy regarding the installation of the cathodic protection system (CPS), additional work carried out under the agreement and bank charges. Accordingly, the Court appointed the arbitrator.
The arbitrator upheld the respondent’s claims and dismissed the applicant’s counterclaims. Aggrieved by the award, the claimant challenged the award under section 34 of the A&C Act.
Reasons for challenge
The Claimant argued that the Arbitrator erred in granting the Respondent’s request for the return of the PRS held as LD for the delay caused by the Respondent and that the only ground on which this request was granted was the EIL recommendation. She argued that EIL’s recommendations were not binding on her, therefore her recommendation to grant the Respondent a no-debit extension would be of no consequence.
The claimant argued that Article 27 of the GCC expressly provided that EIL’s decision regarding the extension of time would bind only the contractor and not the employer. Moreover, under Article 47, the extension of the time limit should not be considered as a waiver of a right.
The applicant relied on Thermospares India c. BHEL, (2006) CSC OnLine Del 665 to submit that although EIL concluded that the Respondent was not responsible for the delay, it also did not conclude that the delay was attributable to the Claimant, therefore, the arbitrator could only award reimbursement of PRS when the delay was attributable to the petitioner.
He further challenged the award on the grounds that the arbitrator had erred in reducing the value of CPS and issuing reimbursement to the respondent when he had correctly found that CPS was part of the original work.
He also argued that the arbitrator could not award bank charges because bank guarantees were withheld due to disputes between the parties. Moreover, the interest rate granted at 15% is excessive.
Analysis by the Court
The Court held that Section 27 provided that the claimant could impose the PRS if the respondent failed to complete the work within the time allowed. However, the PRS could only be collected when the delay was attributable to the defendant.
The Court upheld the tribunal’s reasoning that the primary responsibility for determining the applicability of the PRS rested with the EIL and that it had recommended the levy-free extension of the PRS.
The Court held that under Article 27, EIL was responsible for examining the causes of the delay, and that it had analyzed and accepted the justification provided by the defendant and recommended several extensions without the imposition of PRS, therefore , it was not possible for the claimant to deduct the PRS when the delay is not attributable to the defendant and was therefore determined by EIL.
The Court rejected the claimant’s argument that the arbitrator could not grant the return of the PRS because the delay was also not attributable to the claimant.
The Court held that the decision of Thermospares (supra) was made in the context of the contractor claiming overage costs for the extended period and the court held that compensation for an extended period could only be provided where the delay was attributable to the employer. However, in the present case, the Respondent had not claimed any compensation but had simply opposed the Applicant’s request for the deduction of the PRS, therefore, the decision does not support the Applicant’s request.
The Court further rejected the argument that the arbitrator’s finding violated Article 47 which stated that the extension of time did not amount to a waiver of any provision of the contract.
The Court observed that the arbitrator’s conclusion was not based on the assumption that the extension of the contract would amount to a waiver of any provision, but rather on the fact that EIL had a duty to analyze the cause of the delay and to take a decision on the imposition of the PRS and that he had recommended the extension without the deduction of the PRS, the applicant could not therefore impose the PRS.
The Court held that the arbitrator’s conclusion as to the assessment of CPS was based on the probative value of the documents produced by the claimant and that it is purely for the arbitrator to decide on the probative value of a document before him, therefore, no fault could be found in the arbitrator’s reasoning.
The Court observed that the court was correct in awarding bank charges because the respondent was obliged to keep the bank guarantees alive beyond the period of liability for default.
The Court further held that the award of 15% interest cannot in any way be declared excessive or manifestly wrong.
Accordingly, the Court dismissed the motion.
Business Title: GAIL (India) Ltd. V. Trivendi Engineering & Industries LTD., OMP(COMM.) 390/2020.
Counsel for the applicant: Mr. Puneet Taneja, lawyer with Ms. Laxmi Kumari, Mr. Manmohan Singh Narula, lawyers
Counsel for the defendant: Me Anunaya Mehta, Me Vinayak Thakur, lawyers
Click here to read/download the order