The Delhi High Court has partly allowed an appeal filed by the Delhi Jal Board (DJB), setting aside an arbitral award regarding financing charges and additional costs for manpower and machinery (Claim 12A). The Division Bench, comprising Justice C. Hari Shankar and Justice Om Prakash Shukla, held that awarding claims based solely on Chartered Accountant certificates without verifying underlying proofs amounts to patent illegality. However, the Court upheld the Single Judge’s finding that the claims were not barred by limitation as the parties remained engaged in bona fide negotiations.
The appeal challenged the judgment dated July 4, 2022, passed by the Single Judge, which had dismissed DJB’s petition under Section 34 of the Arbitration and Conciliation Act, 1996 (“A&C Act”). The Division Bench examined whether the Arbitral Tribunal’s award suffered from patent illegality regarding specific claims and the issue of limitation. The Court concluded that the award of Claim 12A was based on “no evidence” and that the grant of financing charges violated the express terms of the contract, thereby warranting interference under Section 37 of the A&C Act.
Background
The dispute originated from a contract dated November 28, 2003, awarded to a consortium led by M/s Mohini Electricals Ltd. (“Respondent”) for the construction of reservoirs and booster pump stations in Trans Yamuna Areas. The project faced significant delays, with the Respondent attributing the delays to DJB’s failure to hand over sites and release mobilization advances.
Although the Respondent invoked the Dispute Adjudication Board (DAB) mechanism in 2005, the process was protracted. The DAB proceedings were mutually closed on March 5, 2018, leading to the commencement of arbitration. The Sole Arbitrator, in an award dated September 2, 2019, allowed the majority of the Respondent’s claims, including claims for overheads and financing charges. DJB challenged this award under Section 34, which was rejected by the Single Judge, prompting the present intra-court appeal.
Arguments of the Parties
The Appellant (DJB), represented by Senior Advocate Mr. Sanjay Jain, contended:
- No Evidence for Claim 12A: The claim for manpower and machinery costs during the overrun period was allowed solely based on a Chartered Accountant’s certificate without any primary evidence like vouchers or wage registers.
- Financing Charges: The award of financing charges was contrary to Clauses 14.3, 14.6, 14.7, and 14.8 of the contract, which require certification of payments by the Engineer before such charges can accrue.
- Limitation: The claims were time-barred as the cause of action arose in 2009 when the DAB process was deferred, creating a “breaking point” in negotiations.
The Respondent, represented by Senior Advocate Mr. Amit Sibal, argued:
- Limited Scope of Section 37: The Court cannot re-appreciate evidence or substitute its view for that of the Arbitrator.
- Validity of Certificates: The Chartered Accountant’s certificate constituted admissible secondary evidence under the Indian Evidence Act.
- Limitation: Negotiations continued in good faith until 2018, citing letters from 2011 and 2012, and thus the limitation period did not expire.
Court’s Analysis
1. Patent Illegality in Claim 12A (Overheads and Idling Costs)
The Court scrutinized the award of Claim 12A, which compensated the Respondent for manpower and machinery expenses during the delay. The Arbitral Tribunal had relied on Annexure 12A, certified by a Chartered Accountant. The Division Bench observed that these certificates merely acknowledged tax liabilities and did not verify the actual expenditure incurred.
The Court held:
“Self-serving documents, unsupported by corroborative proof, cannot be treated as evidence of actual expenditure. Reliance on such material renders the impugned award unsupported by evidence and squarely places it within the category of a finding based on ‘no evidence’.”
Citing the Supreme Court’s definition of patent illegality, the Court set aside Claim 12A.
2. Claim 12B (Head Office Overheads)
Regarding Claim 12B, the Court upheld the Arbitrator’s decision to award 5% of the value of the remaining work as compensation for head office overheads. The Court noted that the Arbitrator explicitly declined to use the Emden Formula to avoid exaggerated figures and instead adopted a “realistic” measure. The Bench ruled that this approach was not perverse.
3. Limitation
On the issue of limitation, the Court referred to the Supreme Court’s judgment in Geo Miller & Co. (P) Ltd. v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd. The Court noted that correspondence dated September 1, 2011, and June 20, 2012, demonstrated that the parties were actively negotiating the disputes.
Rejecting DJB’s plea that a “breaking point” occurred in 2009, the Court observed:
“In the absence of such an unequivocal repudiation, the correspondence demonstrates that the parties continued negotiations and remained engaged in addressing disputes. Consequently, no clear or identifiable ‘breaking point’ emerges from the record so as to trigger the commencement of limitation.”
4. Financing Charges
The Court found serious infirmity in the award of financing charges. It analyzed Clause 14.8 of the contract, which provides for financing charges only if the Contractor does not receive payment in accordance with Clause 14.7. The Court emphasized that financing charges are triggered by a delay in payment of certified dues, not unverified claims.
The Bench stated:
“By granting financing charges without proof of certification or crystallised liability, the learned Arbitral Tribunal has effectively dispensed with a mandatory contractual pre-conditions… Where the learned Arbitral Tribunal travels outside the four corners of the contract and awards sums not legally due, the error amounts to patent illegality and a jurisdictional transgression.”
Consequently, the award of financing charges was set aside.
Decision
The High Court partly allowed the appeal.
- Set Aside: The award regarding Claim 12A and Financing Charges was set aside due to patent illegality and lack of evidence.
- Upheld: The findings on Limitation and Claim 12B were upheld.
No order as to costs was made.
Case Details:
Case Title: Delhi Jal Board v. M/s Mohini Electricals Ltd
Case Number: FAO(OS) (COMM) 210/2022 & CM APPL. 36624/2022 Bench: Justice C. Hari Shankar and Justice Om Prakash Shukla
Counsel for Appellant: Mr. Sanjay Jain, Sr. Adv. with Ms. Sangeeta Bharti, SC for DJB, Ms. Malvi Balyan, Adv.
Counsel for Respondent: Mr. Amit Sibal, Sr. Adv. with Ms. Anusuya Salwan, Mr. Bankim Garg, Mr. Rachit Wadhwa and Mr. Ankit Handa, Advs.
