Author: Shrijeta Pratik, 1st Year law student at KPMSOL, NMIMS, Mumbai.
Citation: AIR 2006 Delhi 239
Date of decision: 17 March, 2006
Bench: V Jain, R Sharma
Issues in questions:
- Whether the issue of liquidated damages arose?
- Whether the delay in payment was justified?
Background of the case:
- Satluj Jal Vitran Nigam Ltd has filed this appeal, which challenges the learned Single Judge’s order, prohibiting the appellant from invoking an existing Bank Guarantee given by the respondent for performance security and stabilization money in order to recover an exceptional ad hoc amount from the respondent at this time.
- In the impugned order, the learned Judge also directed that the appellant’s interest be protected up to the amount of the outstanding ad hoc payment by requiring the respondent to provide a new Bank Guarantee in the equivalent amount in favor of the appellant until all of the conflicts are resolved.
- The respondent Jai Prakash Hyundai Consortium filed a new appeal challenging this portion of the erroneous decision of the learned Single Judge directing the respondent to provide a bank guarantee, in the equivalent amount, in favor of the appellant.
- JHC filed a petition under Section 9 of the Arbitration & Conciliation Act, 1996, seeking an ad interim order prohibiting SJVN from encashing the Bank Guarantee, i.e. performance guarantees and assurances in favor of security deposit, totaling Rs.75 crores, in order to recover its alleged claim of Rs. 53.12 crores until the assertions of JHC were finally settled in accordance with the terms of the agreement of the General Conditions of the contract.
- In 1993, JHC, an Indian corporation formed under Indian rules and involved in the turnkey construction of river valley and hydro-power schemes, signed a contract for the civil works for the compression shafts and power house compound. JHC was obligated to provide a performance guarantee as assurance for performing its obligations in line with the contract under Clause 10 of the General Conditions of Contract (GCC).
- It was alleged that JHC filed a claim with SJVN for productivity losses, outgrowth of time cost claims for extra items, asserts for modification of rates for work done beyond the timespan of completion, escalation claims, and other various claims as a result of delays due to reasons attributable to SJVN, changes or variations from the original plans, and execution of extra items of work.
- The proposal was a World Bank-funded project, and due to SJVN’s failure to pay dues of JHC and slowdowns in paying their final bill, the World Bank advised and recommended that SJVN hire the services of Mc. Donough Bolyard Peck, Virginia, USA, an international advisor with extensive experience dealing with similar assertions.
- In the meantime, JHC demanded that the CMD of SJVN provide an ad hoc payment of Rs.50 crores against an outstanding claim of Rs. 297.93 crores as of 31.1.1998 by letter dated 23.3.1998. SJVN had claims of JHC assessed in light of the CRP’s recommendations, and consented to provide an extra ad hoc payment of Rs. 13.98 crores against an EOT claim of Rs. 24.56 crores in exchange for an undertaking.
- There was no specific conflict because the respondent/owner never levied liquidated damages, either during the contract works or afterwards, and thus the terms of reference to the ADRB, as spelled out under the heading “scope” of the “Three Party Agreement,” did not explicitly consider liquidated damages. The focus of the reference was focused on the request for an extension of time and the resulting demand for expense compensation.
- The above-mentioned concrete facts led to the conclusion that the respondent never considered any lag to be attributable to the contractor in order to exercise the claim of liquidated damages. In terms of the interim/ad hoc extension of time, we believe that it was done this way since there was prima facie sufficient reason in the then necessities of the contract, leaning in favor of the contractor; and no liquidated damages were charged.
- The influence of the provisional prolongation cannot be allowed to continue indefinitely, and it would cease to be transitory in character with the passage of time or, at the very least, the issuance of satisfactory accomplishment certificates. It cannot be allowed to function only for the purpose of litigating/countering the contractor’s legitimate claims.
- Aside from the aforementioned conclusion, it was previously determined that the contractor was allowed to a time extension for grounds of no fault on its part, as envisaged by Clause 44 of the GCC.
- To now hold that liquidated loss was in favor of the respondent would be absurd. It has been adequately proven on the record that, despite the owner (SJVN) issuing a completion certificate to the contractor with immediate effect, the owner (SJVN) took time on its own to start just some of the hydroelectric project’s units in mid-November 2003.
- In this situation, the contractor’s claim that there was no fault on its part for any damage to the owner becomes admissible.