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IN THE HIGH COURT OF DELHI AT NEW DELHI
C. Hari Shankar, J.
Crsc Research And Design Institute Group Co. Ltd. - Appellant
Versus
Dedicated Freight Corridor Corporation Of India Limited & Ors. - Respondent
Original Miscellaneous Petition (I) (Comm) No. 184 of 2020; Interlocutory Application No. 5642 of 2020, 5643 of 2020
Decided On : 30-09-2020
JUDGEMENT C. Hari Shankar, J. - This petition, under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the 1996 Act"), seeks an order of restraint against invocation/encashment of Bank Guarantees, furnished by the petitioner to Respondent No. 1.
Fact of the Case:
Vide Letter of Acceptance dated 23rd June, 2016, Respondent No. 1 informed the petitioner that its bid, for "Design, Supply, Construction, Testing and Commissioning of Signalling, Telecommunication and Associated Works of Double Track Railway Lines Under Construction On A Design Build Lump Sum Basis for Mughalsarai-New Bhaupur Section of Eastern Dedicated Freight Corridor-Contract Package-203" (hereinafter referred to as "the Project"), for construction of Double Line Electrified Section, covering 388.14 km, between Mughal Sarai and New Bhaupur and 29.15 km between Junction Stations and IR Stations, had been accepted, at the contract price of Rs. 471 crores.
Finding of the Court:
The petitioner was required, vide the Contract, to complete the Project Work during the period 4th August, 2016 to 30th April, 2019. The Contract fixed four Milestones, being dates by which specified sections of the Work was required to be completed by the petitioner. The specifics of the said Milestones may be depicted thus: (i) Milestone 1 was fixed as 360 days from the Commencement Date, i.e. 29th July, 2017. (ii) Milestone 2 was fixed as 600 days from the Commencement Date, i.e. 27th March, 2018. (iii) Milestone 3 was fixed as 800 days from the Commencement Date, i.e. 12th October, 2018. (iv) Milestone 4 was fixed as 1000 days from the Commencement Date, i.e. 30th April, 2019.
Issues: 1. Whether the petitioner was justified in approaching this Court, even when the dispute was pending before the DAB? 2. Whether only three extensions, as sought by the petitioner, had been granted by Respondent No. 1, viz. 21st July, 2018, 20th May, 2019, and 22nd April, 2020? 3. Whether the petitioner was entitled to an extension of time of at least three months, under Clause 19 of the contract as well as in terms of the OM dated 13th May, 2020 issued by the Department of Expenditure, especially as the petitioner had duly tendered a force majeure notice in terms of the contract? 4. Whether the termination of the contract, by Respondent No. 1, was based on alleged non-compliance, by the petitioner, with "Notices to Correct", issued by the PMC under Clause 15.1, which charged the petitioner with having been slow in the progress of the work? 5. Whether the dispute, regarding the validity of the termination of the contract, stood referred by Respondent No. 1 to the DAB and, unless such dispute was decided in favour of Respondent No. 1, it could not be permitted to invoke the Bank Guarantees? 6. Whether Respondent No. 1 was seeking to justify the invocation of the Bank Guarantees by reference to Clauses 15.3 and 15.4 of the GCC? 7. Whether Clauses 15.3 and 15.4 presupposed the existence of a valid termination of the contract, under Clause 15.2? 8. Whether the termination of the contract, by Respondent No. 1 was illegal? 9. Whether the amount to which the petitioner was entitled, from Respondent No. 1, was far in excess of the cumulative value of the Bank Guarantees submitted by the petitioner? 10. Whether special equities and irretrievable injustice justify the grant of injunction, under Section 9 of the 1996 Act?
Ratio Decidendi: 1. The petitioner was not justified in approaching this Court, even when the dispute was pending before the DAB. This, in fact, amounted to circumventing Clauses 20.2 to 20.5 of the contract. 2. Only three extensions, as sought by the petitioner, had been granted by Respondent No. 1, viz. 21st July, 2018, 20th May, 2019, and 22nd April, 2020. 3. The petitioner was not entitled to an extension of time of at least three months, under Clause 19 of the contract as well as in terms of the OM dated 13th May, 2020 issued by the Department of Expenditure, especially as the petitioner had duly tendered a force majeure notice in terms of the contract. Liquidated damages of Rs. 1.84 crores were levied, while granting extension of time in respect of Milestone 1. 4. The termination of the contract, by Respondent No. 1, was based on alleged non-compliance, by the petitioner, with "Notices to Correct", issued by the PMC under Clause 15.1, which charged the petitioner with having been slow in the progress of the work. The reliance, by Respondent No. 1, on the said Notices to Correct, was misguided, as the Engineer himself had, subsequently, determined and recommended extension of time, in Terms of Clause 8.4 read with Clause 3.5 of the Contract. These extensions of time were also approved by Respondent No. 1, the last such approval having been accorded vide letter dated 22nd April, 2020. 5. The dispute, regarding the validity of the termination of the contract, stood referred by Respondent No. 1 to the DAB and, unless such dispute was decided in favour of Respondent No. 1, it could not be permitted to invoke the Bank Guarantees. 6. Respondent No. 1 was seeking to justify the invocation of the Bank Guarantees by reference to Clauses 15.3 and 15.4 of the GCC. 7. Clauses 15.3 and 15.4 presupposed the existence of a valid termination of the contract, under Clause 15.2. 8. The termination of the contract, by Respondent No. 1 was illegal. If Respondent No. 1 did not desire to continue with the contract, it should have resorted to Clause 15.5, which read thus: "15.5 Employer's Entitlement to Termination The Employer shall be entitled to terminate the Contract, at any time for the Employer's convenience, by giving notice of such termination to the Contractor. The termination shall take effect 28 days after the date of the dates on which the Contractor receives this notice or the Employer returns the Performance Security. The Employer shall not terminate the Contract under this Sub-Clause in order to execute the Works himself or to arrange for the Works to be executed by another contractor. After the termination, the Contractor shall proceed in accordance with Sub- Clause 16.3 [Cessation of Work and Removal of Contractors Equipment] and shall be paid in accordance with Sub-Clause 19.6 [Optional termination, Payment and Release]." 9. The amount to which the petitioner was entitled, from Respondent No. 1, was far in excess of the cumulative value of the Bank Guarantees submitted by the petitioner. 10. Special equities and irretrievable injustice do not justify the grant of injunction, under Section 9 of the 1996 Act.
Final Decision: The petition is dismissed, with no orders as to costs.
JUDGMENT
C. Hari Shankar, J. - This petition, under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the 1996 Act"), seeks an order of restraint against invocation/encashment of Bank Guarantees, furnished by the petitioner to Respondent No. 1.
2. Detailed submissions were advanced by Mr. Rajiv Nayar, learned Senior Counsel for the petitioner and Mr. Tushar Mehta, learned Solicitor General for Respondent No. 1 and, at joint request of learned Senior Counsel (as recorded on 10th August, 2020, when orders were reserved), this judgment finally disposes of the present proceedings.
Facts
3. Vide Letter of Acceptance dated 23rd June, 2016, Respondent No. 1 informed the petitioner that its bid, for "Design, Supply, Construction, Testing and Commissioning of Signalling, Telecommunication and Associated Works of Double Track Railway Lines Under Construction On A Design Build Lump Sum Basis for Mughalsarai-New Bhaupur Section of Eastern Dedicated Freight Corridor-Contract Package-203" (hereinafter referred to as "the Project"), for construction of Double Line Electrified Section, covering 388.14 km, between Mughal Sarai and New Bhaupur and 29.15 km between Junction Stations and IR Stations, had been accepted, at the contract price of Rs. 471 crores.
4. This Letter of Acceptance crystallised into a formal Contract, dated 3rd October, 2016. The petitioner was required, vide the Contract, to complete the Project Work during the period 4th August, 2016 to 30th April, 2019. The Contract fixed four Milestones, being dates by which specified sections of the Work was required to be completed by the petitioner. The specifics of the said Milestones may be depicted thus:
(i) Milestone 1 was fixed as 360 days from the Commencement Date, i.e. 29th July, 2017. Prior thereto, the petitioner was required to have commenced the activities of Permanent Works, which entitled him to payment of at least 10% of the Accepted Contract Amount.
(ii) Milestone 2 was fixed as 600 days from the Commencement Date, i.e. 27th March, 2018. Prior thereto, the petitioner was required to have completed
(a) 75% of laying of outdoor signalling and telecom cable, and their termination and testing, and
(b) supply of S & T equipment and its progress of installation, which entitled the petitioner to payment of at least 40% of the accepted contract amount.
(iii) Milestone 3 was fixed as 800 days from the Commencement Date, i.e. 12th October, 2018. Prior thereto, the petitioner was required to have completed
(a) 90% of laying of outdoor signalling and telecom cable, and their termination and testing, and
(b) supply of S & T equipment and its progress of installation,
which entitled the petitioner to payment of at least 65% of the Accepted Contract Amount.
(iv) Milestone 4 was fixed as 1000 days from the Commencement Date, i.e. 30th April, 2019. Prior thereto, the petitioner was required to have completed all works, as per the Contract, and to have issued a Taking Over Certificate in accordance with Clause 10 of the Conditions of Contract.
5. The Contract appointed SYSTRA MVA Consulting (India) Pvt Ltd., Allahabad, as the Project Management Consultant (PMC) for the Contract. Communications with the petitioner were, generally, addressed by the PMC, on behalf of Respondent No. 1.
6. Four Advance Bank Guarantees, for a total value of approximately Rs. 38.06 crores, and one Performance Bank Guarantee, for Rs. 23.55 crores, were furnished by the petitioner, in accordance with the requirements of the Contract. The Advance Bank Guarantees are valid up to 1st May, 2021, and the Performance Bank Guarantee is valid till 24th June, 2021.
7. Various requests, for extension of time to perform the Contract, were made by the petitioner, and acceded to, by Respondent No. 1. Vide letter dated 19th May, 2020, however, Respondent No. 1 rejected the request, dated 7th May, 2020, of the petitioner, for further extension of time. A tabular depiction of this position has
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