Recent Arbitration Judgments Involving Construction Disputes
With the rampant progress in the infrastructure sector, there is a rise in the number of disputes. This article will examine the judgments of some of the very recent cases involving construction disputes.
Mumbai International Airport Ltd. V. Airports Authority of India
Mumbai International Airport Ltd. (MIAL) and the Airports Authority of India (AAI) entered into a formal agreement. According to the agreement, AAI leased certain areas to MIAL, including the Chhatrapati Shivaji Maharaj International Airport. The MIAL was required to upgrade the CSI, maintain, develop, operate and keep it in a good operating condition. Under the agreement, MIAL needs to pay an annual fee in 12 monthly installments. The State Bank of India is the Escrow Bank here. Due to COVID-19 and the following conditions, MIAL invoked the force majeure clause to exempt from paying monthly installments. It directed the Escrow Bank to suspend the monthly transactions payable to AAI starting from April 2020.
Also, facing subsequent losses and financial crisis MIAL requested AAI write to the Escrow Bank to transfer funds lying in an escrow account to MIAL for immediate use. AAI granted the concession but only for a limited period. AAI argued that despite the force majeure clause, MIAL is bound to fulfill its obligation under the agreement. MIAL demanded relief from the fee for the whole period force majeure clause was invoked. Consequently, MIAL approached the court seeking the restrain of AAI from appropriating funds in the escrow account. MIAL approached court u/s 9 of the Arbitration and Conciliation Act, 1996.
The court gave the judgment in favor of MIAL. It contended that under the force majeure clause of the agreement, the party is entitled to nonperformance of the obligation. The court rejected the contentions made by AAI. In addition, the court allowed MIAL to utilize the payable funds for immediate requirements.
Also, the court decides specific timeframes for both the parties to appoint the arbitrators. The court opined that u/s 9 is open to passing an interim order for relief and conducting arbitration proceedings within a timeframe.
SEPCO Electric Power Construction Corpn. V. Power Mech Projects Ltd.
SEPCO was a Chinese entity. It was awarded Coal-based power projects in India. In the execution of the work, a dispute arose between SEPCO and one of its sub-contractors, Power Mech. Both the parties opted for arbitration. The award was issued in favor of Power Mech. Power Mech moved to the court u/s 9, seeking the direction of the court to secure the award. The court directed SEPCO to furnish a bank guarantee of Rs 30 crores with a scheduled bank located in India. SEPCO produced the bank guarantee of the said sum with Industrial and Commercial Bank Of China (ICBC). The ICBC is located in China.
Power Mech filed an interim application demanding the guarantee with a scheduled bank located in India as per the court directions. Replying to this, SEPCO, too, filed an interim application seeking the acceptance of ICBC bank guarantee. The court refused the interim application of SEPCO. SEPCO filed an appeal against this refusal u/s 37 of the Arbitration Act.
The court held that the order was an order granting interim relief under sec 9 of the act. It contained two directions: Firstly, the SEPCO was required to produce a bank guarantee of Rs 30 crore. Secondly, the bank guarantee must be of a scheduled Indian Bank. It was pronounced that SEPCO was not aggrieved from the former direction. But SEPCO was aggrieved from the last movement of the court. Although the order was not final, it must be considered an order under sec 9 of the act. Therefore the judgment increased the scope of the definition of order u/s 9. Hence The appeal was maintainable.
Delhi Metro Rail Corpn. Ltd. V. N.S. Publicity (I)(P) Ltd.
Delhi Metro Rail Corpn. Ltd.(DMRC) and N.S. Publicity (I)(P) Ltd.(NSP) entered into a formal license agreement. The purpose of the deal was to advertise on civil structures between two metro stations. There arose certain disputes between the parties. Both opted for arbitration. The claimant was NSP, and the respondent was DMRC. While issuing the award, the arbitration tribunal satisfied some claims of NSP as well as some counterclaims of DMRC. Both the parties challenged this award.
Claim for loss of profits: The NSP claimed for the profits it would have earned if DMRC had performed its obligations. It claimed a gross profit margin of 21.5%. The tribunal rejected this claim and relied on the profit margin calculated based on the balance sheet of NSP of the year 2008-2009. The court set aside the award, stating that the claim cannot be calculated based on values for the years 2008-2009. As these are neither trusted upon nor produced by the parties.
Claim for overheads: The tribunal refused this claim stating that the share of overheads was absorbed in its declaration of loss of profits. The court held that the claim of overheads is above and over the claim of loss of profits. So the reasoning of the tribunal to deny the claim was flawed. Hence the court set aside this award.
The questions of these two types of claims are highly prevalent in construction disputes. The arbitrators could rely upon these decisions to decide upon such cases.
DDA V. Varindera Construction Ltd.
The Delhi Development Authority(DDA) filed a petition to set aside an arbitration award issued in favor of Varindera Construction Ltd. (VCL). The tribunal issued the on 29-11-2019. The DDA refiled the petition thrice then. Also, an application was clubbed with it demanding condonation of delay in filing a petition.
Under section 34(3) of the A&C Act, the time limit to file a set-aside petition is three months from the date of issue of the award. Additional 30 days can be provided only on a show of valid cause or reason. VCL argued that DDA filed the set-aside petition in gross violence of sec 34(3). It filed the petition on 28-01-2020 and refiled it on 27-02-2020. The date of refiling the petition is after more than three months’ issuing of the award. The reason for the delay was provided as the health issues of the counsel. VCL argued that the counsel of DDA was attending several hearings during the due course and the reason for sickness was false.
The court held that the petition, even though refiled on 27-02-2020, is under the time frame of 3 months and thirty days. The reason for the health issues of counsel is a valid cause to grant the extension of 30 days. Hence the court rejected the arguments of VCL. The court contended that it could not see any dilatory tactics involved. The court followed a common-sense-driven approach in deciding this case.
Hindustan Petroleum Corpn. Ltd. V. Banu Constructions
Hindustan Petroleum Corporation Limited (HPCL) filed a petition under sec 37 to reject an order passed to dismiss a set-aside petition filed u/s 34. It filed the petition against Banu Construction and the sole arbitrator. The reason provided for the petition was the unreasonable nature of the award. There was no quantum outlined except the quantum that the amount claimed matched the amount awarded.
The court deeply analyzed the arbitration award through a careful study. The court observed that the arbitrator did not give any reason for such action while issuing the award. Though it is not necessary to justify each claim of the award issued, it is essential to assign the primary rationale to reach the award. Therefore the court under sec 37 set aside the award. After facing hectic arbitration procedures: evidence, hearings, etc., the parties must have the right to know why their claims are accepted or rejected.
The courts recently followed a common-sense-driven approach while deciding upon the cases. The courts have started to opt for a ‘commercially driven’ system with a concealed ‘business as usual approach.’ When construction disputes are overgrowing, the court needs to find new solutions to meet the need of the hour. In a country like India, the activities get halted due to judicial proceedings. The court should find a way so that the dispute resolution takes place shortly and effectively. The approach followed by courts is the driving force of what the people will suffer. The recent judgments paved the way for arbitrators to keep certain things in mind while deciding on construction disputes.
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