M/S NBCC (INDIA) LIMITED (FORMERLY KNOWN AS NATIONAL BUILDINGS CONSTRUCTION CORPORATION LTD.) vs M/S NANGIA CONSTRUCTION (I) PVT. LTD.
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 16.04.2024
+ FAO(OS) 50/2020 and CM APPL. 22270/2020
M/S NBCC (INDIA) LIMITED (FORMERLY
KNOWN AS NATIONAL BUILDINGS
CONSTRUCTION CORPORATION LTD.) ….. Appellant
versus
M/S NANGIA CONSTRUCTION (I) PVT. LTD. ….. Respondent
Advocates who appeared in this case:
For the Appellant : Mr. Gopal Sankaranarayan, Senior Advocate with Mr. Abir Phukan, Advocate.
For the Respondent : Mr. Raman Kapur, Senior Advocate with Mr. Varun Kapur, Advocate.
CORAM
HONBLE MR JUSTICE VIBHU BAKHRU
HONBLE MR JUSTICE AMIT MAHAJAN
JUDGMENT
VIBHU BAKHRU, J
1. The appellant (hereafter NBCC) has filed the present appeal under Section 39 of the Arbitration Act, 1940 (hereafter the Act) impugning a judgment dated 28.05.2020 (hereafter the impugned judgment) passed by the learned Single Judge of this Court in CS (OS) 3299/2012 captioned M/s Nangia Construction (I) Pvt. Ltd. v. National Buildings Construction Corporation Ltd.
2. The respondent (hereafter Nangia) had filed the applications under Sections 30 and 33 of the Act for setting aside an arbitral award dated 18.10.2012 (hereafter the impugned award) made by an Arbitral Tribunal comprising of a Sole Arbitrator.
3. The learned Single Judge allowed Nangias objections and set aside the impugned award. The Arbitral Tribunal disallowed Nangias claim for refund of the mobilization advance recovered by NBCC by encashment of bank guarantee for two reasons. First, that mobilization advance was akin to a loan, which was required to be repaid; and second, that Nangia had used the machinery and resources purchased or arranged by it by utilization of the mobilization advance, in execution of the works subsequently.
4. The learned Single Judge found that the Arbitral Tribunals conclusion that resources mobilized by Nangia from the mobilization advance were used by it after resuming work consequent upon the same being awarded pursuant to a fresh tender, was wholly unsupported by any evidence. The Court held that while reappreciation of evidence was not within the limited scope of judicial review but, the present case was one where there was no evidence at all. It was Nangias case that since it had to walk away from the site leaving the resources raised by utilization of the mobilization advance consequent to the wrongful termination of the contract; it was not liable to repay the mobilization advance. Given this dispute, the learned Single Judge held that the reasoning that the mobilization advance was in the nature of a loan, was simplistic.
5. The learned Single Judge also found that the impugned award in favour of NBCC in regard to its claim for interest on delayed receipt of the mobilization advance was completely unjustified. Admittedly, the contract in question between the parties was on a back-to-back basis of a contract entered into by NBCC with the Government of State of Haryana (hereafter the Principal Employer). A sum aggregating 95% of the mobilization advance received by NBCC from the Principal Employer was provided to Nangia. Admittedly, the Principal Employers claim for interest on the amounts advanced as mobilization advance to NBCC was rejected by an arbitral tribunal constituted to adjudicate the disputes between NBCC and the Principal Employer in terms of an arbitral award dated 01.02.1999. The learned Single Judge found that NBCC had made payments against the mobilization advance to the Principal Employer in the year 2001 and thus, it was not entitled to interest for the period prior to the year 2001 in respect of the mobilization advance recovered by encashment of bank guarantee on 17.07.2008.
6. The only controversy that needs to be addressed is whether the Arbitral Tribunal had misdirected itself insofar as rejecting Nangias claim for refund of the amount recovered by encashment of the bank guarantee furnished against the mobilization advance and allowing NBCCs claim for interest on the amount recovered by encashment of bank guarantee for the period from 01.08.1991 to 17.07.2008.
FACTUAL CONTEXT
7. NBCC was awarded the work of widening of four lanes including strengthening of existing pavement of National Highway No.1 from 50 km to 74.80 km (Murthal to Smalkha) in Haryana (hereafter the Project) by the State of Haryana by a letter dated 01.07.1987.
8. A formal agreement for executing the Project was entered into between the Principal Employer and NBCC on 24.08.1987 (hereafter the Principal Agreement). The estimated contract value was ?9,43,92,969.46. The Project was to commence on 01.11.1987 and was expected to be completed after forty-two (42) months, that is on or before 30.04.1991.
9. Immediately thereafter, on 26.10.1987, NBCC entered into a separate contract with Nangia (hereafter the Contract) on a back-to-back basis with its agreement with the Principal Employer the Principal Agreement. In terms of the Contract, the entire work under the Principal Agreement was subcontracted to Nangia at the value of the contract less 5%. Thus, NBCC would retain 5% of the amount received from the Principal Employer and pay the balance to Nangia.
10. In terms of Clause 3 of the Contract, All the accepted tender terms and conditions of the Agreement as finally signed by the Corporation with the Clients are annexed herewith as Annexure-I and hereinafter called the Agreement shall form a part of this agreement and shall be binding on the Associate Contractor.
11. The Contract also provided that in case the Principal Agreement between the Principal Employer and NBCC is terminated at any time, the Contract between NBCC and Nangia would stand automatically terminated as well. And, in case any payment is received by NBCC from the Principal Employer for the work done till the said date, the same would be released to Nangia after deducting a 5% margin by NBCC.1
12. In terms of the Contract, Nangia also furnished a performance bank guarantee for a sum of ?89,67,332/-, which was valid till 31.05.1992.
13. In terms of the Principal Agreement, the Principal Employer provided a sum of ?94,39,296.65/- to NBCC as mobilization advance. In turn NBCC advanced an aggregate sum of ?89,67,332/- in tranches, to Nangia as the mobilization advance. The said amount was 95% of the mobilization advance received by NBCC from the Principal Employer. Nangia secured the said mobilization advance by a bank guarantee of an equivalent amount.
14. Clause 4 of the Principal Agreement, proscribed NBCC from subletting/subcontracting the entire work to be executed under the Principal Agreement. It appears from the record that the Principal Employer had approved subcontracting three items of the work to Nangia being (i) General and Site Clearance, (ii) Earth work Embankment and, (iii) Cross Drainage Works, aggregating to a value of ?2.49 crores. However, the Principal Employer had not permitted NBCC to sublet the execution of the entire work to Nangia.
15. The execution of the Project was delayed for various reasons. It is NBCCs case in the arbitral proceedings between NBCC and Nangia, that the delay in execution of the Project was attributable to the failure on the part of Nangia to maintain sufficient progress in execution of the Project. However, it appears that the stand is somewhat in variance with NBCCs stand in the disputes with the Principal Employer.
16. NBCC claimed that it sent letters dated 08.10.1988, 25.11.1988, 10.02.1989 and 17.04.1989 to Nangia, in respect of slow progress of work, and also put Nangia to notice that the work relating to the Project would be withdrawn and completed at its risks and cost.
17. On 18.05.1989, the Principal Employer wrote to NBCC to terminate the Contract with Nangia, barring the three items of work, which were approved to be sub-contracted to Nangia.
18. On 19.05.1989, NBCC terminated the Contract with Nangia. As on that date, a sum of ?22,42,832/- had been recovered against the mobilization advance from the interim payments payable to Nangia for the work done.
19. NBCC sought to invoke performance bank guarantee (being bank guarantee no. NP/G/16/136 dated 07.12.1987) and bank guarantee (being bank guarantee no. NP/G/16/137 dated 19.11.1987) furnished by Nangia for securing repayment of the mobilization advance.
20. Nangia filed an application under Section 20 of the Act (being Suit No.1375-A of 1989) before this Court. It also filed an application (IA No.3945/1989) seeking interim relief restraining NBCC from recovering any amount against the bank guarantee. Nangia alleged that NBCC had committed fraud and had made false representations. Nangia claimed that NBCC had tendered for the execution of the work after securing rates from Nangia and its tender to the Principal Employer was based entirely on the discussions with Nangia. Thus, it was clearly understood between the parties that the entire work would be sublet to Nangia. Although, NBCC had immediately after entering into the Principal Agreement, entered into the Contract, it had not disclosed the same to the Principal Employer. NBCC had after more than six months sent a letter dated 24.04.1988 seeking permission to sub-contract three items of work to Nangia. Whereas, in fact, the parties had already entered into the Contract, whereby Nangia was executing the entire Project.
21. Nangia claimed that it sent a letter dated 19.04.1989 to the Principal Employer requesting that it be approved as a sub-contractor. However, in response to the said letter, the Principal Employer sent a letter dated 18.05.1989 to NBCC alleging that NBCCs action of subletting the entire work to Nangia was contrary to the terms of the Principal Agreement and further called upon NBCC to clarify its position before it initiated any action in this regard. Nangia claimed that on receipt of the letter, NBCC sought to invoke the performance bank guarantee and the bank guarantee furnished to secure the mobilization advance.
22. This Court held that, prima facie, NBCC had not disclosed the truth of the matter to the Principal Employer and had taken a guarantee for an amount larger than what it ought to have keeping in view of the limited permission granted by the Principal Employer. The Court also found that, prima facie, Nangia had executed the works for which it had not been paid. However, the quantum of the same was required to be determined. In the circumstances, Nangia established a prima facie case for restraining NBCC from encashing the bank guarantee. Accordingly, the Court restrained NBCC from invoking the same. However, Nangia was directed to keep the bank guarantee alive till disposal of its application under Section 20 of the Act.
23. Thereafter, NBCC sought to execute the work relating to the Project on its own. However, on 05.10.1989, the Principal Employer terminated the Principal Agreement and expelled NBCC from the site.
24. It is material to note that the disputes between NBCC and the Principal Employer, stemming from termination of the Principal Agreement and expulsion from site, were referred to arbitration. The arbitral award rendered in context of said disputes indicates that the Principal Employer had expelled NBCC from the site and had taken over the works on three grounds. First, that the progress was not commensurate with the time elapsed (progress of the work was slow); second, that NBCC had mis-utilized the mobilization advance; and third, that NBCC had sublet the entire work to Nangia in violation of Clauses 3 and 4 of the General Conditions of Contract as applicable to the Principal Agreement.
25. The disputes between the parties (Nangia and NBCC) were also referred to arbitration. Mr P.N. Gadi was appointed as the Sole Arbitrator to adjudicate the disputes between the parties.
26. In the meanwhile, Nangia extended the bank guarantees from time to time. However, after 1996, it failed to deposit the charges for renewal of the bank guarantee and, therefore, by an order dated 15.02.1999, this Court permitted NBCC to encash the bank guarantees, but directed that the amounts be kept by NBCC in a fixed deposit. The concerned bank that had issued the bank guarantee, Bank of India (BOI), was aggrieved by the said order as its charges had remained unpaid. BOI appealed the said orders before a Division Bench of this Court [being FAO(OS) 81/1999]. The said appeal was dismissed by an order dated 26.10.1999. However, the Supreme Court by an order dated 15.05.2008 passed in Civil Appeal No.1315/2001 permitted NBCC to encash the bank guarantees. Thereafter, pursuant to the orders passed by the Supreme Court, NBCC encashed the bank guarantees on 07.07.2008.
27. Mr. P.N. Gadi entered reference on 14.03.1991. The learned Sole Arbitrator adjudicated the disputes between the parties and passed an order dated 08.10.1994 holding that Claim Nos.1, 3, 7 and 15 as pressed by Nangia were not referred and therefore, were beyond his jurisdiction. Being aggrieved by the said order, Nangia filed a petition under Section 33 of the Act (being OMP 9/1995) in this Court. By an order dated 25.01.2001 passed in the said petition, this Court set aside the order dated 08.10.1994 passed by the learned Sole Arbitrator (Mr. P.N. Gadi) and held that the claims raised by Nangia were prima facie covered under Clause 14 of the Contract. The matter was remanded to the learned Sole Arbitrator to decide afresh. However, Mr. P.N. Gadi had expired. By a letter dated 10.07.2000, the Chairman cum Managing Director of NBCC appointed Sh. P.B. Vijay as the Sole Arbitrator to adjudicate the disputes between the parties.
28. Sh. P.B. Vijay (hereafter the First Arbitrator) delivered an arbitral award dated 30.10.2010 [hereafter also referred to as the First Award].
29. Before the First Arbitrator, NBCC sought to justify termination of the Contract by claiming that Nangia had failed to maintain sufficient progress in execution of the Project. It had merely executed 8.90% of the works in eighteen months till the termination of the Contract on 19.05.1989.
30. The First Arbitrator found that both parties had defaulted in performing their obligations as per the Contract, which had led to slow progress of work. The First Arbitrator faulted NBCC for awarding the work on a back-to-back basis to Nangia and concluded that thus termination of contract by NBCC, cannot be upheld.
31. The First Arbitrator partly allowed the claim on account of the work done, but not measured (Claim No.1) and awarded an amount of ?39,86,748/- in favour of Nangia. The First Arbitrator also allowed some of the other claims made by Nangia as well as some of the counter claims made by NBCC.
32. NBCC filed objections to the aforementioned arbitral award dated 30.10.2010 (the First Award) in this Court [CS(OS) 1375/1989 captioned Nangia Construction (India) Pvt. Ltd. v. National Building Construction Corporation Limited]. A learned Single Judge of this Court upheld NBCCs objections to the First Award in respect of Claim No.3 (a claim of escalation) and set aside the award of the sum of ?8,78,443/- in respect of the said claim. Additionally, NBCCs Counter Claim no.4 to the extent of ?2,32,080/- was allowed. Apart from the above two claims, the remaining part of First Award was upheld.
33. NBCC appealed the said decision before the Division Bench of this Court [in FAO(OS) 276/2012]. It is material to note that the said appeal was taken up for hearing by the Division Bench of this Court on 04.07.2012 and the same was confined to only one issue the award for refund of the mobilization advance recovered by NBCC by invoking the bank guarantee in question (Claim No. 5B).
34. The said appeal [FAO(OS) 276/2012] was disposed of by an order dated 08.08.2012. Whilst NBCC had contended that the refund of the unrecovered mobilization advance which was recovered by invoking the bank guarantee was not liable to be refunded to Nangia; Nangia disputed the said contention. According to Nangia, the Contract had been wrongly cancelled by NBCC at the behest of the Principal Employer. Resultantly, Nangia had to walk away from the site. The amounts received as mobilization advance were invested at the site, which was taken over by NBCC. Thus, Nangia claimed, that it was not liable to refund the mobilization advance. Consequently, the balance amount of mobilization advance recovered by NBCC by invoking the bank guarantee was liable to be refunded.
35. The Court found that the issue involved was not examined by the First Arbitrator (Sh. P.B Vijay). Thus, it would be necessary to remit the matter for a fresh adjudication. The relevant extract of the order dated 08.08.2012 passed by the Division Bench of this Court is set out below:
We have heard learned counsels for the parties. The only issue which was pressed by learned counsel for the appellant at the time of issuance of notice on 4.7.2012 was that the unutilized portion of the mobilization advance against which the bank guarantee was encashed is not liable to be refunded back to the respondent. This position was sought to be contested by the respondent alleging that it was a back-to-back contract with the appellant retaining 5 per cent commission. Since such subletting was not permissible, an aspect stated to be unknown to the respondent, the contract was cancelled by the appellant at the behest of the principal. The result was that the respondent had to walk away from the site and it is the case of the respondent that the amounts received towards mobilization advance were invested which was utilized by the appellant after a takeover of the site by the appellant.
It is not in dispute that this issue as such has not been examined
which was necessary in order to determine the result of counter claim No.1 of the appellant and claim No.5(b) of the respondent. It is, thus, agreed that to this extent the matter would require to be remitted for fresh adjudication by the arbitrator.
36. The Division Bench also proceeded to appoint a Sole Arbitrator, Sh. Dinesh Dayal (hereafter the Arbitral Tribunal) to adjudicate the disputes regarding refund of the amount of unrecovered mobilisation advance that was recovered by NBCC by encashment of the bank guarantee furnished by Nangia (Claim no.5B). The corresponding counter claim of NBCC for interest in respect of the said amount for the delayed recovery (Counter Claim no.1) was also referred to the Arbitral Tribunal.
THE IMPUGNED AWARD
37. The Arbitral Tribunal found that NBCC was entitled to recover the balance mobilisation advance as it was in the nature of a loan. The same was secured by furnishing of a bank guarantee and therefore, NBCC was entitled to invoke the same. The Arbitral Tribunal rejected Nangias claim that it was entitled to refund of the unadjusted mobilisation advance, on the ground that Nangia had utilised the resources at site subsequently for execution of the balance Project after the same was awarded by the Principal Employer.
RIVAL CONTENTIONS
38. Mr. Gopal Sankaranarayan, learned senior counsel appearing for NBCC contended that the disputes between the parties were more than three decades old and none of the officers who had represented NBCC at the time of performance of the Contract were now available or working for NBCC. He submitted that there was a glaring inconsistency between the findings rendered in the First Award (arbitral award dated 30.10.2010 delivered by Sh. P.B. Vijay) in respect of Nangias Claim Nos. 4 and 6, and Claim No. 5B. He further submitted that the First Arbitrator found that Nangia had utilized the machinery after it was awarded the work directly by the Principal Employer, and therefore rejected the claim in this regard, However, the First Arbitrator allowed Claim No.5B for refund of the mobilization advance, which was utilized for raising resources at the site. He submitted that findings in respect of Claim Nos. 4 and 6 had attained finality and therefore, the reasoning of the Arbitral Tribunal which was founded on the findings returned in respect of Claim Nos. 4 and 6 by the First Arbitrator (Sh. P.B. Vijay) cannot be faulted.
39. He also contended that this Court by an order dated 31.07.1991 had expressly allowed Nangia to remove the machinery from the site and therefore, it was not open for Nangia to now claim that it had not utilized the resources raised by utilization of the mobilization advance received by NBCC. He also referred to the decisions of the Madras High Court in M/s Chandragiri Construction Company v. State of Tamil Nadu & Ors.: 2010 SCC OnLine Mad 5247 and the decisions of this Court in Ario Infrastructure Pvt. Ltd. v. Gail Gas Ltd. & Anr.:2016 SCC OnLine Del 5371, Vinay Heavy Equipments & Foundation Pvt. Ltd. v. Oriental Structural Engineers Pvt. ltd. & Anr.:2018 SCC OnLine Del 12607 and Altus Group India Private Limited. v. Darrameks Hotels & Developers Private Limited.: 2018 SCC OnLine Del 8263 in support of his contention that the mobilization advance is in the nature of a loan. He submitted that the learned Single Judge had grossly erred in faulting the Arbitral Tribunals conclusion to the said effect.
40. Mr. Raman Kapur, learned senior counsel appearing for Nangia countered the aforesaid submissions. He pointed out that there was no dispute that the mobilization advance was fully utilized by raising resources for execution of the works relating to the Project. He submitted that NBCC had also furnished details of utilization of mobilization advance to the Principal Employer. He submitted that even after termination of the Contract, NBCC continued to be at site for almost six months till it was expelled on 05.10.1989. Therefore, the contention that Nangia had remained in control of the resources mobilized by utilization of mobilization advance, is palpably erroneous.
41. He submitted that after expelling NBCC from the site, the Principal Employer had invited tenders for the balance remaining work and Nangia had participated in the bidding process by furnishing its offer. The Contract for completing the Project was awarded to Nangia sometime in the year 1993. It is only thereafter, that Nangia had resumed work at the site. He contended that it would be impossible to believe that the resources such as labour hutments and other materials which were brought at site had continued to remain there, unaffected for more than three years.
42. Insofar as removal of machines are concerned, he submitted that Nangia was permitted to remove two machines being Motor Grader and Vibratory Roller, from the site by an order dated 31.07.1991. He submitted that prior thereto, Nangia had removed the said two machines from the site but was directed by this Court to bring back the same at site while disposing of IA No.5818/1989 filed in Suit No.1375-A/1989. Nangia had thereafter, moved an application being IA No.3840/1990 seeking permission to remove the machinery from the site as they were no longer required by NBCC. The Court by an order dated 31.07.1991 passed in IA No.3840/1990 in Suit No.1375A/1989 had permitted Nangia to remove the machines subject to furnishing a bank guarantee in the sum of ?3,50,000/- in favour of NBCC. He submitted that the same cannot be a reason for holding that Nangia had utilized all the resources brought at site in the year 1993 after it was awarded the work directly by the Principal Employer.
REASONS AND CONCLUSION
43. It is apparent from the facts as narrated above that the controversy involved falls in a narrow compass. The Arbitral Tribunal accepted that NBCC was entitled to recover the amount of the mobilization advance that remained unrecovered as on date of termination of the Contract. It had done so by encashment of the bank guarantee furnished by Nangia. Thus, the Arbitral Tribunal allowed NBCCs claim for interest on the said amount from 01.08.1991 to 17.07.2008 (the date on which the Bank Guarantee was encashed). The Arbitral Tribunal reasoned that no interest was payable on the mobilization advance prior to the stipulated date for completion of the Project 30.04.1991. In addition, the Arbitral Tribunal also granted further three months before liability of interest would run. Accordingly, the Arbitral Tribunal held that interest would be payable from 01.08.1991.
44. As noted at the outset, the learned Single Judge found that the Arbitral Tribunals reasoning to the effect that Nangia had utilized the resources brought at site subsequently was not based on any material.
45. At the outset, it is necessary to note that there is no dispute between the parties that the mobilization advance extended by NBCC to Nangia had been fully utilized for raising resources for execution of the Project.
46. Nangia has placed on record the letter dated 27.09.1988 addressed to the Chief Manager, NBCC disclosing the expenditure incurred by it against the mobilization advance received from NBCC. The statement annexed to the said letter provides an account for utilization of the mobilization advance. It is noticed that much of the advance had been utilized in items such as tractor maintenance, vehicle maintenance, electricity expenses, materials from the head office, work expenses, new electricity connection and equipment rental etc. The said account also indicates that a sum of ?3,50,000/- were spent for arranging a Motor Grader; sum of ?39,810/- were spent on concrete vibrator; sum of ?37,840/- were spent on weigh batcher; sum of ?33,170/- were spent on concrete mixture and ?39,971/- were spent on laboratory equipment; and, sum of ?3,98,757/- were spent on construction of an office building. Nangia has also placed on record the details of investments / expenses aggregating ?237 lakhs for raising resources for executing the Project.
47. NBCC also sent a letter dated 10.10.1988 to the Principal Employer, inter alia, stating as under:
.The mobilisation advance paid to us has been fully utilized on this project for plant and machinery, setting up of site camp office, Arrangement of Borrow Areas, setting up of site camp office, setting up of field laboratory with all necessary equipments, procurement of materials, payment of advances for materials, labour and field overheads for last 11 months.
48. In view of the above, the principal dispute to be decided by the Arbitral Tribunal was whether Nangias claim that NBCC was not entitled to recover the mobilization advance, was merited. According to Nangia, the Contract had been illegally terminated. Thus, Nangia was prevented for executing the balance work against which mobilization advance was to be recovered.
49. There is no cavil that the mobilization advance is in the nature of an advance. However, in terms of the Contract, the mobilization was required to be recovered against bills raised for execution of the works. By its very nature, mobilization advance is interest free advance granted for mobilizing resources for executing the work. It is Nangias claim that since the Contract was terminated illegally, it was absolved of its liability to pay back the mobilization advance, which was admittedly fully utilized for raising resources at site.
50. The Arbitral Tribunal has proceeded on the basis that since Nangia was successful in securing a contract for executing the remaining Project pursuant to tenders floated by the Principal Employer subsequent to expelling NBCC, Nangia would have utilized the resources mobilized for executing the Contract subsequently for executing the remaining Project. The Arbitral Tribunal had relied solely on the findings in the First Award in respect of Claim Nos. 4 and 6 to arrive at the aforesaid conclusion.
51. It is relevant to note that Nangias Claim No.4 related to two machines being Motor Grader valued at ?24,73,200/- and Vibratory Roller valued at ?16,81,250/-. Nangia also claimed interest on the amount raised for financing the purchase of the said machinery. The First Arbitrator found that the requirement of the Motor Grader and Vibratory Roller was not specified in the Contract but the same was necessary for proper compaction for certain works such as those involved in executing the Project. Thus, it was the responsibility of Nangia for arranging the equipment. The Arbitral Tribunal also noted that this Court had permitted Nangia to remove the machines after furnishing of the bank guarantee in favour of NBCC. The First Award also mentions that these machines were used by Nangia when the work was subsequently awarded.
52. There is no dispute that Nangia had removed these two machines (being Motor Grader and Vibratory Roller) from the site pursuant to the order dated 31.07.1991 passed by this Court in IA No.3840/1990 in Suit No.1375-A/1989. A plain reading of the said order indicates that the said machines were removed earlier, however, NBCC had persuaded the Court to direct Nangia to bring back the said machines at site as at the material time NBCC was to execute the Project. These machines were, thus, brought back to the site. However, thereafter the Principal Employer expelled NBCC from the site and therefore, the machines were no longer required by NBCC for executing the Project. Nangia had acquired those two machines by availing advance from a bank and the machines were already hypothecated to that bank. In the aforesaid context, the Court had permitted Nangia to remove the machines but had protected NBCCs claim by directing that Nangia would furnish a bank guarantee in the sum of ?3,50,000/- in favour of NBCC.
53. The decision of the First Arbitrator in respect of Claim No.4 (relating to the value of the two machines as well as the financing costs) and the finding that the said machines have been used subsequently, does provide a plausible basis for the Arbitral Tribunal to conclude that at least some resources raised by utilizing mobilization advance were used by Nangia after a contract for executing the balance work of the Project was awarded to Nangia.
54. It is material to note that the aforesaid contract for executing balance works was awarded by the Principal Employer to Nangia sometime in the year 1993 and the Contract was terminated on 19.05.1989. NBCC was in seisin of the site thereafter till it was expelled by the Principal Employer on 05.10.1989. However, Nangia had recovered the said machines and used them in executing the works subsequent to NBCC being expelled by the Principal Employer. The First Arbitrator had also rejected Nangias claim for ?6,26,452/- regarding purchase of new machinery, which could not be utilized on the ground that Nangia had utilized the machines when the work was subsequently awarded to it.
55. It is apparent from the above that insofar as Nangias claim for machinery is concerned, the same was rejected on the ground that the said machines were utilized by Nangia after NBCC had terminated the Contract. The findings of the First Arbitrator in respect of Claim Nos.4 and 6 have attained finality.
56. NBCC challenged the First Award in respect of Claim No.5B and Counter Claim No.1. It is relevant to note the observations made by the learned Single Judge in paragraph 33 of the said decision. The same are set out below:
33. Apart from the above prima facie findings, it also appears that NBCC was not able to counter the submission of NCIPL that in fact it had utilized the entire mobilization advance amount in the works performed by it till the date of termination of the contract. Once the said termination was held to be legally unsustainable then the consequence had to follow. The case for denying NCIPL the amount representing the encashed bank guarantee did not exist. The impugned Award in respect of Claim 5 B does not call for interference.
57. However, in an appeal against the said order, the Division Bench found that the First Award did not address the dispute raised by Nangia that the Contract was on a back-to-back basis with the Principal Agreement, with NBCC retaining a commission of 5%. However, subcontracting was not permissible and therefore, the Contract was cancelled by NBCC at the behest of the Principal Employer. Resultantly, Nangia had to walk away from the site and NBCC had taken over the resources at site. This dispute that was referred to the Arbitral Tribunal.
58. As noted at the outset, the Arbitral Tribunal rejected Nangias claim on two grounds. First, that the mobilization advance was in the nature of an advance and was thus, required to be repaid and second that the resources raised by utilization of the mobilization advance were used by Nangia in executing the works relating to the Project.
59. We find no infirmity with the view of the Arbitral Tribunal that the mobilization advance being in the nature of an advance was required to be recovered from Nangia. In the normal course, the mobilization advance would have been recovered from the interim payments payable to Nangia. The same was not possible because the Contract was terminated. However, that did not alter the nature of the mobilization advance. It was an interest free financial assistance granted to Nangia for mobilizing resources for the execution of the Project. It is Nangias case that since it had walked away from the site and the resources raised by it were unutilized in the works and has gone waste due to improprieties of NBCC, it was not entitled to recover the same. It is apparent from the reading of the impugned award that this contention was not accepted by the Arbitral Tribunal primarily on the ground that the mobilization was in the nature of a loan and therefore, was required to be repaid. If Nangia had any claim on account of wasted expenses of for unpaid work, it was required to make and prove such claims separately. And, in fact Nangia had made such claims.
60. Plainly, a wrongful termination of the Contract by NBCC would entitle Nangia to claim compensation as arising from the illegal or wrongful termination. However, it did not absolve Nangia from repayment of the mobilization advance as availed.
61. Nangia structured its claim on the rational that since, it was deprived of the benefit of the resources it had raised by utilization of the mobilization advance on account of illegal termination, it was absolved from its liability to repay the same.
62. Mr. Raman Kapur, learned senior counsel for Nangia had strongly relied on the letter dated 27.09.1988 forwarded by Nangia to NBCC setting out the expenditure incurred by Nangia against the mobilization advance received from NBCC.
63. The said letter indicates that Nangia had utilized the said funds for paying the margin money of ?18,00,000/- paid for furnishing of the bank guarantee; bank commission, advance of ?2,21,080/- against Usha Atlas Vibratory Roller; advance of ?3,50,000/- against Motor Grader; material received from Head Office amounting to ?10,59,995/-; work expenditure amounting to ?21,79,565/-; other expenses incurred on Truck Maintenance, Road Roller Maintenance, JCB Maintenance, electricity expenses, new electric connection; equipment rental amounting to ?5,91,800/-; concrete mirror; Laboratories Equipment; Maruti Gypsy amounting to ?1,10,786. and other minor expenditures. He had also relied on a statement of investments made by Nangia.
64. Insofar as the Motor Grader and the Vibratory Roller are concerned, the same are clearly covered under Nangias Claim No.4 which was disallowed by the First Arbitrator.
65. As noted above, advance paid against the machine was included in the Statement of Utilization of mobilization advance annexed to the letter dated 27.09.1988. The claim for other machinery that was purchased but could not be used is covered under Claim No.6, which too was disallowed by the First Arbitrator. It is relevant to refer to Claim no.6 was made by Nangia. The relevant extract from the Statement of Claim is set out below:
CLAIM NO.6: CLAIMANTS CLAIM REFUND OF RS.10 LACS INVESTED IN PURCHASE OF NEW MACHINERY BUT WHICH COULD NOT BE UTILISED DUE TO ILLEGAL TERMINATION OF THE CONTRACT.
Apart from Vibratory Roller and Motor Grader, the claimants had to purchase the following new machinery for the execution of work:-
i) Well-sinking equipment with accessories
and its fabrication charges. Rs.3,45,255
ii) Weigh-batchers for R.C. work Rs.75,230
iii) Block making machines with
moulds etc. Rs.57,000
iv) Mixers 6 Nos. Rs.3,99,500
v) Vibrators 6 Nos. Rs.42,510
vi) Forms for RCC poles Rs.52,225
vii) Barricading with steel sheets Rs.1,93,700
Total: Rs.11,63,620
This claim is restricted to s.10 lacs.
66. Some of the expenditure and machinery covered under Claim no.6 is also included in the Statement of Utilisation of mobilisation advance annexed to the letter dated 27.09.1988 as well as in the list of investment referred to by Mr Kapur in support of his contention by the mobilisation advance have been fully utilised.
67. In addition to the above, Nangia had made a claim in regard to expenses incurred for office accommodation, cement store, installation of stone crusher, electric connection etc., which Nangia claimed was infructuous expenditure on works as the Contract was illegally terminated. This claim (Claim No.7) was also rejected by the First Arbitrator. It is relevant to set out the First Award in respect of Claim No.7. The same is reproduced below:
Claim No.7: Claimant claims towards infructuous expenditure on works as the contract was illegally terminated:
Original amount: Rs.40,50,000/-
Amended amount: Rs.24,99,156/-
The item covered under this claim are enabling works i.e. labour huts, land for camp, platform for casting cement concrete, office accommodation, cement store, installation of store crusher, electric connection, tube well etc. In any case these enabling works would have been utilized subsequently by NCIPL when the work was awarded to them by Haryana PWD. The COA in the arbitration between Haryana PWD and NBCC has not awarded any amount against these claims.
Accordingly, the claim is rejected and Nil amount is awarded against this claim.
68. It is apparent from the above that Nangia had also made separate claims in respect of most resources that were raised by utilization of the mobilization advance.
69. Since the mobilization advance is in the nature of a financial facility, the onus to establish that Nangia was entitled to a claim in respect of unamortized expenditure or infructuous expenses incurred for which it was required to be compensated rested on Nangia. In fact, Nangia had made claims in regard to the said resources as reflected in its Claim Nos.4, 6 and 7, all of which were rejected in terms of the First Award on the ground that Nangia had utilized the same when the work was awarded to it by the Principal Employer. The findings in regard to Claim Nos.4, 6 and 7 have attained finality. The Arbitral Tribunals findings that the resources raised by Nangia from utilization of the mobilization advance were covered by the findings in the First Award have to be understood in the aforesaid background. Viewed in the aforesaid context, the Arbitral Tribunals view is a plausible one. Nangia had made separate claims in regard to investments made and expenditure incurred by it, including those which were paid for by utilization of the mobilization advance. Therefore, its case that NBCC was not entitled to refund the mobilization advance as it had utilized the same, is clearly unsustainable. In our view, the Arbitral Tribunal had rightly rejected the said claim.
70. The next question to be examined is whether NBCC was entitled to any interest on the amount recovered by encashment of the bank guarantee for the period prior to the date of encashment, that is, 17.07.2008. It is material to note that the Contract was on a back-to-back basis with the Principal Agreement. NBCC had received the mobilization advance from the Principal Employer and an amount equivalent to 95% of the said amount was disbursed to Nangia. In terms of the Contract, the mobilization advance was interest free. Notwithstanding the same, NBCC would be entitled to reasonable interest if it is found that it was entitled to recover the mobilization advance and had suffered any loss on account of the same being withheld.
71. The learned Single Judge had noted that NBCC had not returned the mobilization advance to the Principal Employer till the year 2001 and therefore the interest on the period from the year 1991 to the date on which it had refunded the mobilization advance in 2001 was not justified. It is not controverted before us that NBCC had not paid any interest on the mobilization advance to the Principal Employer. In the circumstances we concur with the view of the learned Single Judge that the interest for the period prior to NBCC repaying the mobilization advance to the Principal Employer in the year 2001 is not justified.
72. In view of the above, the impugned award to the extent that the Arbitral Tribunal has awarded interest on the balance mobilization advance for the period prior to the date of repayment of the mobilization advance in the year 2001 by NBCC to the Principal Employer to 2001, is set aside. The impugned award except to the extent as set out above is upheld. The directions relegating the parties to arbitration afresh is also set aside.
73. The Registry of this Court is directed to release the amount lying deposited pursuant to the order of the Division Bench dated 03.08.2012 in FAO(OS) No.276/2012 along with interest accrued thereon to NBCC.
74. The appeal is disposed of in the aforesaid terms.
VIBHU BAKHRU, J
AMIT MAHAJAN, J
APRIL 16, 2024
RK/GSR
1 Clause 21 of the Principal Agreement
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FAO(OS) 50/2020 Page 1 of 2