M/S Msk Projects (I)(Jv) Ltd vs State Of Rajasthan & Anr

M/s. MSK Projects (I) (JV) Ltd. ... Appellant

Versus

State of Rajasthan & Anr. ...Respondents

with

CIVIL APPEAL NO. 5417 OF 2011

J U D G M E N T

Dr. B.S. CHAUHAN, J.

1. Both these appeals have been preferred by the rival parties

against the judgment and order dated 24.4.2007 passed by the High

Court of Rajasthan (Jaipur Bench) in Civil Misc. Appeal No.1581 of

2006 under Section 37(1)(A) of the Arbitration and Conciliation Act,

1996 (hereinafter called "Act 1996") against the order dated

17.1.2006 passed by the District Judge, Jaipur City, Jaipur in

Arbitration Case No.89/2004 whereby the application filed by the

State of Rajasthan under Section 34 of the Act 1996 for setting aside

the arbitral award dated 1.12.2003 had been allowed.

2. Facts and circumstances giving rise to these appeals are:

A. The Public Works Department of the State of Rajasthan

(hereinafter called "PWD") decided in September 1997 to construct

the Bharatpur bye-pass for the road from Bharatpur to Mathura,

which passed through a busy market of the city of Bharatpur. For the

aforesaid work, tenders were invited with a stipulation that the work

would be executed on the basis of Build Operate and Transfer

(BOT). The total extent of the road had been 10.850 k.ms. out of

which 9.6 k.ms. was new construction and 1.25 k.ms. was

improvement, i.e. widening and strengthening of the existing portion

of Bharatpur-Deeg Road.

B. After having pre-bid conference/meeting and completing the

required formalities it was agreed between the tenderers and PWD

that compensation would be worked out on the basis of investment

made by the concerned entrepreneur. The tender submitted by

MSK-appellant for Rs.1,325 lacs was accepted vide letter dated

2

5.2.1998 and the MSK-appellant was called upon to furnish security

deposit which was done on 25.7.1998. Concession agreement dated

19.8.1998 was entered into between the parties authorising collection

of toll fee by MSK-appellant. According to this agreement, period of

concession had been 111 months including the period of

construction. The said period would end on 6.4.2008. It also

contained the provisions for making repayment/collection of toll fee

and in case of any difference/dispute to refer the matter to the

Arbitrator.

C. MSK-appellant completed the Bharatpur bye-pass Project on

10.4.2000 and also started collection of toll fee as provided under the

agreement with effect from 28.4.2000. There had been some

problem in collecting the toll fee because of agitation by local

people. The State issued Notification dated 1.9.2000 under the

provisions of the Indian Tolls Act, 1851 and Rajasthan Motor

Vehicles Taxation (Amendment) Act, 1994 (hereinafter called the

`Notification dated 1.9.2000') preventing the entry of vehicles into

Bharatpur city stipulating its operation with effect from 1.10.2000.

MSK-appellant invoked arbitration clause raising the dispute with

respect to:

3 (a) Delay in issuance of Notification prohibiting entry of

commercial vehicles into Bharatpur town and diverting

traffic through the bye-pass; and

(b) Collection of toll from vehicles using Bharatpur-Deeg patch of

the road.

D. The State/PWD failed to make appointment of the Arbitrator.

MSK-appellant preferred SB Civil Arbitration Application No.31 of

2002 before the High Court and the High Court vide order 12.4.2002

appointed the Arbitrator. The Arbitrators so appointed in their

meeting on 8.5.2002 appointed the third Arbitrator. Claim Petition

was filed before the Tribunal by MSK-appellant on 23.9.2002. The

State submitted its reply to the claim petition on 7.12.2002.

E. The Arbitral Award was made in favour of MSK-appellant on

1.12.2003 according to which there had been delay on the part of the

State of Rajasthan in issuing the Notification and the State failed to

implement the same and the contractor was entitled to collect toll fee

even from the vehicles using Bharatpur-Deeg part of the road . The

State of Rajasthan was directed to pay a sum of Rs.990.52 lacs to

MSK-appellant as loss due upto 31.12.2003 with 18% interest from

31.12.2003 onwards. The Tribunal further gave various other

4

directions to the State in this regard.

F. Being aggrieved, the State of Rajasthan filed objections under

Section 34 of the Act 1996 and while deciding the same, the District

Judge vide order dated 17.1.2006 set aside the Arbitral Award on the

grounds that there was no clause in the agreement to issue

notification barring the entry of vehicles in the city of Bharatpur; and

the Tribunal erred in taking 1997 survey as basis for calculating the

loss suffered by MSK-appellant. It held that MSK-appellant was not

entitled to any monetary compensation under clause 10 of the

concession agreement, but only entitled to extension of concession

period, and the rate of interest was reduced from 18% to 10%.

G. Being aggrieved, MSK-appellant preferred an appeal before

the High Court wherein the High Court vide impugned judgment and

order dated 24.4.2007 held that Bharatpur-Deeg section was part of

the project and the contractor could collect the toll fee from the users

of this part of the road also. Clause 10 of the concession agreement

was not attracted in the facts of the case. There was no agreement

for issuance of Notification by the State barring the use of old route

and directing the vehicles to use the new route alone. Therefore, the

question of grant of compensation on that account for the traffic loss

5

could not arise. The District Judge was justified in reducing the rate

of interest from 18% to 10% in view of the provisions of Section

31(7)(b) of the Act,1996 and economic realities, whereby the rate of

interest had been reduced by the Banks in India.

Hence, these two appeals.

3. Mr. K.K. Venugopal, learned senior counsel appearing for the

private appellant, has submitted that it was implied in the agreement

and there has been an understanding between the parties that State

Government would issue notification barring the vehicles driven

through the markets of Bharatpur City. This was not even an issue

before the Tribunal and thus, could not be agitated by the State at all.

Thus, the courts below erred in setting aside the award of arbitral

tribunal to that extent, and secondly, that the rate of interest as

reduced from 18 per cent to 10 per cent by the District Court as well

as the High Court is in contravention of the terms of contract between

the parties which fixed the rate of interest at 20 per cent. Further

opposing the appeal by the State of Rajasthan, Shri Venugopal has

submitted that Bharatpur-Deeg patch was an integral part of the

project as there was only one composite contract of the entire bye-

pass and, therefore, the private appellant was entitled to collect the toll

fee from the users of that part of the road also.

6 4. Per contra, Dr. Manish Singhvi, learned Additional Advocate

General for the State of Rajasthan, has submitted that arbitration

proceedings could not be proceeded in contravention to the terms of

agreement and statutory provisions. There was no obligation on the

part of the State authorities to issue the notification restraining the

entry of vehicles to the market side of the city. The rate of interest has

rightly been reduced considering the prevailing rate of interest in

banking transactions during the relevant period of contract. In support

of the appeal of the State, it has been submitted that there was a clear

understanding between the parties that the private appellant shall not

collect any toll fee on the Bharatpur-Deeg patch and to that extent the

Tribunal and the courts below committed an error. It has further been

submitted that the total contract had been for a sum of Rs.13.25 crores

including interest. The project was to be executed in two phases. The

second phase for a sum of Rs.3.24 crores had never been executed by

the private appellant. The contractor could collect the compensation

only on the basis of investment made by it. The concept of toll fee is

of compensatory in nature wherein the State which has spent huge

amount on construction of roads/bridges etc. has a right to get the said

amount reimbursed, and therefore, in such a contract the concept of

profit which prevails in other forms of contract cannot be the relevant

7

component.

5. We have considered the rival submissions made on behalf of

the parties and perused the record.

In the appeal filed by the private contractor, MSK Projects,

two issues are involved; namely, whether it was mandatory/necessary

in view of the agreement/contract or on the basis of pre-bid under-

standing that the State had to issue the notification barring the

vehicles through the markets of Bharatpur city; and secondly whether

the rate of interest could be reduced from 18% to 10% by the courts

below.

In the State appeal, the only issue required to be considered is

whether the private appellant had a right to collect the toll fee on the

patch between Bharatpur - Deeg.

6. The issue regarding the jurisdiction of the Arbitral Tribunal to

decide an issue not referred to is no more res integra. It is a settled

legal proposition that special Tribunals like Arbitral Tribunals and La-

bour Courts get jurisdiction to proceed with the case only from the

reference made to them. Thus, it is not permissible for such

Tribunals/authorities to travel beyond the terms of reference. Powers

8

cannot be exercised by the Tribunal so as to enlarge materially the

scope of reference itself.

If the dispute is within the scope of the arbitration clause, it is

no part of the province of the court to enter into the merits of the dis-

pute on the issue not referred to it. If the award goes beyond the refer-

ence or there is an error apparent on the face of the award it would

certainly be open to the court to interfere with such an award. (Vide:

Grid Corporation of Orissa Ltd. & Anr. v. Balasore Technical

School, AIR 1999 SC 2262; and Delhi Development Authority

v. R.S. Sharma and Company, New Delhi, (2008) 13 SCC 80).

7. In Associated Engg. Co. v. Govt. of Andhra Pradesh &

Anr., AIR 1992 SC 232, this Court held that an umpire or arbitrator

cannot widen his jurisdiction by deciding a question not referred to

him by the parties. If he exceeded his jurisdiction by so doing, his

award would be liable to be set aside. Thus, an arbitrator cannot be al-

lowed to assume jurisdiction over a question which has not been re-

ferred to him, and similarly, he cannot widen his jurisdiction by hold-

ing contrary to the fact that the matter which he wants to decide is

within the submission of the parties.

9 8. If the arbitrator commits an error in the construction of the

contract, that is an error within his jurisdiction. But if he wanders out -

side the contract and deals with matters not allotted to him, he com-

mits a jurisdictional error. Extrinsic evidence is admissible in such

cases because the dispute is not something which arises under or in re-

lation to the contract or dependent on the construction of the contract

or to be determined within the award. The ambiguity of the award can,

in such cases, be resolved by admitting extrinsic evidence. The ra-

tionale of this rule is that the nature of the dispute is something which

has to be determined outside and independent of what appears in the

award. Such a jurisdictional error needs to be proved by evidence ex-

trinsic to the award. (See: Gobardhan Das v. Lachhmi Ram & Ors.,

AIR 1954 SC 689; Seth Thawardas Pherumal v. The Union of In-

dia, AIR 1955 SC 468; Union of India v. Kishorilal Gupta & Bros.,

AIR 1959 SC 1362; Alopi Parshad & Sons. Ltd. v. Union of India,

AIR 1960 SC 588; Jivarajbhai Ujamshi Sheth & Ors. v.

Chintamanrao Balaji & Ors., AIR 1965 SC 214; and Renusagar

Power Co. Ltd. v. General Electric Company & Anr., AIR 1985

SC 1156).

9. In Kishore Kumar Khaitan & Anr. v. Praveen Kumar

Singh, (2006) 3 SCC 312, this Court held that when a court asks itself

10

a wrong question or approaches the question in an improper manner,

even if it comes to a finding of fact, the said finding of fact cannot be

said to be one rendered with jurisdiction. The failure to render the

necessary findings to support its order would also be a jurisdictional

error liable to correction.

(See also: Williams v. Lourdusamy & Anr., (2008) 5 SCC 647)

10. In Cellular Operators Association of India & Ors. v. Union

of India & Ors., (2003) 3 SCC 186, this Court held as under:

"As regards the issue of jurisdiction, it posed a wrong

question and gave a wrong answer................The

learned TDSAT, therefore, has posed absolutely a

wrong question and thus its impugned decision suffers

from a misdirection in law."

11. This Court, in Oil & Natural Gas Corporation Ltd. v. SAW

Pipes Ltd., AIR 2003 SC 2629; and Hindustan Zinc Ltd. v. Friends

Coal Carbonisation, (2006) 4 SCC 445), held that an arbitration

award contrary to substantive provisions of law, or provisions of the

Act, 1996 or against terms of the contract, or public policy, would be

patently illegal, and if it affects the rights of the parties, it would be

open for the court to interfere under Section 34(2) of the Act 1996.

12. Thus, in view of the above, the settled legal proposition

11

emerges to the effect that the arbitral tribunal cannot travel beyond

terms of reference; however, in exceptional circumstances where a

party pleads that the demand of another party is beyond the terms of

contract and statutory provisions, the tribunal may examine by he

terms of contract as well as the statutory provisions. In the absence of

proper pleadings and objections, such a course may not be

permissible.

13. Be that as it may, in the instant case, a reference to the

Tribunal had been made on the basis of statement of facts, claims by

the private appellant, defence taken by the respondent-State and re-

joinder by the claimant. After completing the formalities of admission

and denial by each party in respect of each other's documents and

submission of draft proposed issues and respective oral evidence, the

Tribunal on 4.1.2003 framed the following issues:

1. Whether claimant as per agreement is entitled to recover

its amount of claim of Rs.453.69 lacs upto 31.12.2002 and on-

wards or not?

2. Whether there was delay on part of State in issuing noti-

fication for restriction of traffic through the Bharatpur Town,

which has effected the toll tax or not? If so, how much delay and

delay in full rate of safe implementation as on date, or not? By

virtue of it, is the claimant entitled to recover its claim of

Rs.292.17 lacs upto 31.12.2002 and thereafter onward or not; or

merely by extension of concession period as averred by respond-

ent?

12 3. As a consequence of issue 1 &2, which party breached the

contract?

4. Whether the claimant is entitled to claim interest on its

any due claim amount as per decision of issue 1 & 2? If so, from

what date and at what rate of simple/compound interest?

5. Whether claimant or respondent is entitled for cost of arbitra-

tion incurred and claimed by, each party? If so, what amount

and to which party?

6. Any other if any demanded by any party during proceed-

ings.

14. The Tribunal considered the relevant agreement provisions as

well as land lease deed, total package documents, minutes of pre-bid

meetings and deed authorising collection of toll fee etc., and pro-

ceeded with the arbitration proceedings. The State of Rajasthan had

not taken the defence that it was not agreed between the parties to is-

sue the notification barring the traffic through the markets of Bharat-

pur city. The only issue remained as to whether there was delay in is-

suance of notification and implementation thereof. In such a fact-situ-

ation and considering the settled legal propositions, we are of the

view that the District Judge as well as the High Court fell in error con-

sidering the issue which was not taken by the State before the

Tribunal during the arbitration proceedings.

13 15. Furthermore, it is a settled legal proposition that the arbitrator

is competent to award interest for the period commencing with the

date of award to the date of decree or date of realisation, whichever is

earlier. This is also quite logical for, while award of interest for the

period prior to an arbitrator entering upon the reference is a matter of

substantive law, the grant of interest for the post-award period is a

matter of procedure.

(Vide: Seth Thawardas Pherumal (Supra); Union of India v. Bungo

Steel Furniture Pvt. Ltd., AIR 1967 SC 1032; Executive Engineer,

Irrigation, Galimala & Ors. v. Abnaduta Jena, AIR 1988 SC 1520;

Gujarat Water Supply & Sewerage Board v. Unique Erectors

(Gujarat) (P) Ltd. & Anr., AIR 1989 SC 973; Secretary, Irrigation

Department, Govt. of Orissa & Ors. v. G.C. Roy, AIR 1992 SC

732; Hindustan Construction Co. Ltd. v. State of Jammu & Kash-

mir, AIR 1992 SC 2192; Executive Engineer, Dhenkanal Minor Ir-

rigation Division, Orissa v. N.C. Budharaj (Dead) by Lrs., AIR

2001 SC 626; Bhagawati Oxygen Ltd. v. Hindustan Copper

Ltd., AIR 2005 SC 2071; and Indian Hume Pipe Co. Ltd. v. State

of Rajasthan, (2009) 10 SCC 187).

14 16. So far as the rate of interest is concerned, it may be necessary

to refer to the provisions of Section 3 of the Interest Act 1978, relev-

ant part of which reads as under:

"(1) In any proceedings for the recovery of any debt or

damages or in any proceedings in which a claim for in-

terest in respect of' any debt or damages already paid is

made, the court may, if it thinks fit, allow interest to the

person entitled to the debt or damages or to the person

making such claim, as the case may be, at a rate not ex-

ceeding the current rate of interest...." (Emphasis ad-

ded)

Thus, it is evident that the aforesaid provisions empower the

Court to award interest at the rate prevailing in the banking transac-

tions. Thus, impliedly, the court has a power to vary the rate of in-

terest agreed by the parties.

17. This Court in Krishna Bhagya Jala Nigam Ltd. v. G. Har-

ischandra Reddy & Anr., AIR 2007 SC 817, while dealing with the

similar issue held as under:

"...after economic reforms in our country the interest re-

gime has changed and the rates have substantially re-

duced and, therefore, we are of the view that the interest

awarded by the arbitrator at 18% for the pre-arbitration

period, for the pendente lite period and future interest be

reduced to 9%."

18. In H.U.D.A v. Raj Singh Rana, AIR 2008 SC 3035, this

15

Court considered various earlier judgments of this Court including

Ghaziabad Development Authority v. Balbir Singh, AIR 2004 SC

2141; Bihar State Housing Board v. Arun Dakshy, (2005) 7 SCC

103; Haryana Urban Development Authority v. Manoj Kumar &

Anr., (2005) 9 SCC 541; H.U.D.A v. Prem Kumar Agarwal &

Anr., JT 2008 (1) SC 590 and came to the conclusion:

".......the rate of interest is to be fixed in the

circumstances of each case and it should not be

imposed at a uniform rate without looking into the

circumstances leading to a situation where

compensation was required to be paid."

19. Be that as it may, the High Court while dealing with the rate of

interest has relied upon the judgment of this Court in Krishna

Bhagya Jala Nigam Ltd. (supra) and thus, there is no scope for us to

interfere with the rate of interest fixed by the courts below.

20. The issue raised by the State before this Court in its appeal as

to whether the Bharatpur-Deeg patch was an integral or composite

part of the project and the private appellant could collect the toll fee

on that part also stands concluded by the High Court after considering

the entire evidence on record.

21. It is evident from the record as well as the judgments of the

courts below that bid documents contained data collected on the flow

16

of traffic on 14th and 15th April, 1994 to find out the viability and re-

quirement of the establishment of Bharatput bye-pass and it included

the traffic flow on the Bharatpur-Deeg section also which indicates

that this particular patch had also been an integral part of the project.

22. In pre-bid conference the interveners wanted a clarification as

to whether the persons using this particular patch of road between

Bharatpur-Deeg could be liable to pay toll fee. It was clarified by the

respondent-State authorities that the users of this patch would be re-

quired to pay the toll fee.

23. Clause 5 of the Concession agreement also provided that Gov-

ernment would levy and charge the fee from all persons using the pro-

ject facilities. The project was not in parts rather it was a composite

and integrated project which included the Bharatpur-Deeg section

also. Hence, it was not permissible for the respondent-State to take

the plea that persons using such section of the road were not liable to

pay the toll fee. We do not find any force in the submission made by

Dr. Manish Singhvi, learned counsel for the State that it was not a

newly constructed road. However, he is not in a position to deny that

the said portion of road had been widened and strengthened by the

private appellant and could not be termed as service road which could

17

be used free of charge in view of clause 7 of the concession agreement

as service road has been defined as any road constructed temporarily

for use of traffic for short period during construction of the main

road. Such a facility had to be provided in order to maintain the free

flow of traffic during the construction of the road.

24. Thus, in view of the above, the issue raised by the State that

Bharatpur-Deeg section of the road was out of the project and the

private appellant was not entitled to collect the toll fee on that part of

the road, stands settled in favour of the private appellant.

25. Determination of the aforesaid three issues brings us to the en-

titlement of the private appellant.

The Court is not oblivious to the fact that the State authorities

cannot be permitted to use the collection of toll fee as augmenting the

State revenues. In State of U.P. & Ors. v. Devi Dayal Singh, AIR

2000 SC 961, this Court defined 'toll' as a sum of money taken in re-

spect of a benefit arising out of the temporary use of land. It implies

some consideration moving to the public either in the form of a

liberty, privilege or service. In other words, for the valid imposition of

a toll, there must be a corresponding benefit. The Court further held:

"Although the section has empowered the State

18

Government to levy rates of tolls "as it thinks fit",

having regard to the compensatory nature of the levy,

the rate of toll must bear a reasonable relationship to

the providing of benefit. No doubt, by virtue of Section

8 of the Act, the tolls collected are part of the public

revenue and may be absorbed in the general revenue

of the State, nevertheless by definition a toll cannot be

used for otherwise augmenting the State's revenue."

(Emphasis added)

26. In fact, the toll fee under the Tolls Act, 1851 is of

compensatory in nature wherein the Government can reimburse itself

the amount which it had spent on construction of road/bridge etc.

Clause IV(a) of the statutory notification dated 10.2.1997

which entitled the government to give present road on toll is

reproduced below:

"IV(a). The toll of any of the aforesaid

facilities/constructions shall be levied only for so long

as the total cost of its construction and maintenance

including interest thereupon, and the total

expenditure in realisation of toll has not been

realised in full or for a period of 30 years."

(Emphasis added)

It is evident that Clause IV(a) of the Notification dated

10.02.1997 envisages that toll can only be collected as long as total

cost of construction and maintenance including interest thereupon is

recovered. A person is debarred by law and statutory inhibition as

contained in Clause IV(a) of the notification from collection of toll

beyond the recovery of cost of construction.

19 27. Thus, from the above referred provisions, it is evident that toll

fee is compensatory in nature and can be collected by the State to

reimburse itself the amount it has spent on construction of the

road/bridge etc. The State is competent to levy/collect the toll fee only

for the period stipulated under the Statute or till the actual cost of the

project with interest etc. is recovered. However, it cannot be a source

of revenue for the State.

28. In common parlance, "reimbursement" means and implies

restoration of an equivalent for something paid or expanded.

Similarly, "Compensation" means anything given to make the

equivalent. (See: State of Gujarat v. Shantilal Mangaldas & Ors.,

AIR 1969 SC 634; Tata Iron & Steel Co. Ltd. v. Union of India &

Ors., AIR 2000 SC 3706; Ghaziabad Development Authority

(Supra); and H.U.D.A v. Raj Singh Rana, (Supra).

29. However, in Dwaraka Das v. State of Madhya Pradesh &

Anr., AIR 1999 SC 1031, it was held that a claim by a contractor for

recovery of amount as damages as expected profit out of contract

cannot be disallowed on ground that there was no proof that he

suffered actual loss to the extent of amount claimed on account of

20

breach of contract.

30. In M/s. A.T. Brij Paul Singh & Ors. v. State of Gujarat,

AIR 1984 SC 1703, while interpreting the provisions of Section 73 of

the Indian Contract Act, 1972, this Court held that damages can be

claimed by a contractor where the government is proved to have

committed breach by improperly rescinding the contract and for

estimating the amount of damages, court should make a broad

evaluation instead of going into minute details. It was specifically

held that where in the works contract, the party entrusting the work

committed breach of contract, the contractor is entitled to claim

the damages for loss of profit which he expected to earn by

undertaking the works contract. Claim of expected profits is legally

admissible on proof of the breach of contract by the erring party. It

was further observed that what would be the measure of profit would

depend upon facts and circumstances of each case. But that there shall

be a reasonable expectation of profit is implicit in a works contract

and its loss has to be compensated by way of damages if the other

party to the contract is guilty of breach of contract cannot be

gainsaid.

21 31. In B.S.N.L v. Reliance Communication Ltd., (2011) 1 SCC

394, this court held as under:

"53. Lastly, it may be noted that liquidated

damages serve the useful purpose of avoiding

litigation and promoting commercial certainty and,

therefore, the court should not be astute to

categorise as penalties the clauses described as

liquidated damages."

32. This Court further stated in Oil & Natural Gas Corporation

Ltd. v. SAW Pipes Ltd. (Supra):

"64....This section is to be read with Section 74,

which deals with penalty stipulated in the contract,

inter alia (relevant for the present case) provides

that when a contract has been broken, if a sum is

named in the contract as the amount to be paid in

case of such breach, the party complaining of breach

is entitled, whether or not actual loss is proved to

have been caused, thereby to receive from the party

who has broken the contract reasonable

compensation not exceeding the amount so named.

Section 74 emphasizes that in case of breach of

contract, the party complaining of the breach is

entitled to receive reasonable compensation whether

or not actual loss is proved to have been caused by

such breach...."

33. Thus, the case requires consideration in the light of the aforesaid

settled legal principles.

Undoubtedly, the total construction was for Rs. 13.25 crores. It

is evident from the Bid-documents filed by the private appellant that

the work was to be executed in two phases and the relevant part

22

thereof reads as under:

PHASE - I

Year Const. Supervision Total Interest @ Total Upto date

Charges @ 20% investment investment Cost 10% of Strs (in lacs) (in lacs) (in lacs)

1998-99

6/98 75 7.5 82.50 4.12 86.62 86.62

9/98 80 8.0 88.00 8.52 92.52 183.14

12/98 80 8.0 88.00 12.92 100.92 284.06

3/99 80 8.0 88.00 17.32 105.32 389.32

Total 315 31.5 346.50 42.88 389.38 389.88

1999-2000

6/99 110 11.0 121 23.37 144.37 533.75

9/99 120 12.0 132.0 29.97 161.97 695.72

12/99 120 12.0 132.0 36.57 168.57 864.29

3/2000 125 12.50 137.50 43.44 180.94 1045.23

Total 475 47.50 522.50 133.35 655.85 1045.23

Grand 790 79.0 869.0 176.23 1045.23 1045.23

Total

PHASE - II

2005-06

6/2005 150 15.0 165 8.25 173.25 173.25

9/2005 150 15.0 165 16.50 181.50 354.75

Total 300 30.0 330 24.75 354.75 354.75

23

The documents further reveal that phase II work was of worth

Rs.354.75 lacs and it included repairing, maintenance and second

layer of bitumen on the entire road. Admittedly, this part of the

contract had never been executed by the private appellant. More so,

the chart filed by the State of Rajasthan shows that the estimated cost

of the work had been recovered by the private appellant as the

schedule prepared for repayment tally with the amount collected by

the private appellant as toll fee within the stipulated period.

34. In the first phase, the private appellant spent about Rs.10.45

crores and recovered the said amount with certain profit, though the

actual figure i.e. the toll fee recovered has not been disclosed. So far

as the second phase is concerned, admittedly, the amount of Rs.354.75

lacs has not been spent by the private appellant. This issue has been

agitated by the State of Rajasthan before this Court in its Counter

Affidavit wherein it is stated as under:

"It is respectfully submitted that as per the terms of

the Agreement, petitioner was required to complete

the project in two phases. In the first phase

investment of Rs.1045 lacs and after 5 years in the

second phase Rs. 354.75 lacs was to be made by the

petitioner. However, the petitioner has not abided

by the terms of the agreement and has not made any

investment for the second phase and, therefore, it

has breached the terms of the contract and,

therefore, it is respectfully submitted that the

contention of the petitioner that he is entitled to

recover its investment, is erroneous and petitioner

24

is trying to give wrong picture about investment

made and has not come to this Hon'ble Court with

clean hands and, therefore, the present Special

Leave Petition is liable to be dismissed by the

Hon'ble Court. The concession period has come to

an end."

35. The aforesaid allegations have not been denied by the private

appellant while submitting its rejoinder. Relevant part of the

rejoinder affidavit reads:

".....the present contention as raised was not part

of the arbitration proceeding, before the arbitral

Tribunal. It is further submitted that this

contention was never raised before the District

Court and as well as before the Hon'ble Court of

Rajasthan. The point as raised is subsequent to

completion of the project and work to be done after

the period of 5 years...."

Thus, there is no specific denial of the allegations/averments

taken by the State as required by the principle enshrined in Order VIII

Rule 5 of the Code of Civil Procedure, 1908.

36. It is strange that a person who has not complied with terms of

contract and has acted in contravention of the terms of agreement

claims that he was entitled to earn more profit. The private appellant

cannot be permitted to claim damages/compensation in respect of the

amount of Rs.13.25 crores, as he did not spend the said amount

stipulated in the terms of agreement. Private appellant cannot claim

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the amount of Rs. 7.13 crores for a period of three years for a small

patch of 1.25 kilometres out of the total length of the road to the

extent of 10.85 kilometres.

37. In fact, the tribunal has dealt with the issue in correct

perspective only to the extent the period of delay by which the

notification barring the heavy vehicles through market of Bharatpur

had been issued stating as under:

"The traffic survey conducted by the claimant

on 17th, 18th & 19th April, 2000 has not been

accepted by the respondent. The arbitral tribunal

also feels that this survey, which has been done

by the claimant alone, cannot be relied upon for

this purpose, because respondent is not a party to

this survey. The claim lodged by claimant on its

own survey as per para 12.3(iii) from 12/4/2000

to 30/9/2000 is for Rs.31.18 lacs. In this regard

tribunal is of the opinion that traffic survey of

1997 as per agreement in which both parties

bears consent of each other therefore can safely

be relied upon for purpose of assessment of such

losses to the claimant, because the occurrence of

loss as such to the claimant has not been denied

by respondent, which otherwise is an established

fact as per documentary evidence on record. The

tribunal has assessed this part of loss on the

traffic survey of 1997 for commercial vehicles

only as Rs.26.34 lacs from 12/4/2000 to

30/9/2000."

As the notification had been issued, and it was not the

responsibility of the State to establish a police chowki etc. to

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implement the notification, there was no occasion for the tribunal to

proceed further. Therefore, any award in favour of the private

appellant in that respect for non-issuance of notification beyond the

date of the notification, cannot be held to be justified and the same is

liable to be set aside.

38. The State authority has decided to establish a toll road as it

was not having sufficient funds. In case the claim of the private

appellant is allowed and as the State is not in a position to grant

further facility to collect the toll fee at such a belated stage, the

purpose of establishing the toll road itself stands frustrated. More so,

the toll fee cannot be collected to recover the amount never spent by

the contractor. It is evident from the discourse in pre-bid meetings of

the parties that it had been decided that compensation would be

worked out on the basis of investment made by concerned contractor.

More so, the statutory notification dated 10.2.1997 provided to

recover the cost of construction and maintenance including interest

thereon. Therefore, the question of non-execution of work of second

phase of the contract becomes very material and relevant to determine

the real controversy. The State authorities for the reasons best known

to them, did not make reference to the arbitration proceedings for non-

execution of the work of the second phase of the contract. However,

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the relief claimed by the private appellant would prove to be a

"windfall profit" without carrying out the obligation to execute the

work just on technicalities. We have held in this very case, that the

arbitrator cannot proceed beyond the terms of reference and,

therefore, the question of considering the non-execution of work of

second phase of the work was neither permissible nor possible as it

had arisen subsequent to the date of award in the arbitration

proceedings.

Be that as it may, in order to do complete justice between the

parties and protect the public exchequer, we feel that the matter

requires adjudication and reconsideration on the following points by

the arbitration tribunal:

i) What amount could have been recovered by the private

appellant for Bharatpur-Deeg part of the road from the

vehicles using the road?

ii) What could be the effect on the contract as a whole for

non-executing the work of the second phase?

In view of the fact that a long time has elapsed, we request the

learned tribunal to decide the case as early as possible after giving due

opportunity to the parties concerned. The private appellant shall be

entitled only for a sum of Rs.26.34 lacs awarded by the tribunal for

delay in issuing the notification with 10% interest, if not paid already

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or it could be adjusted in the final accounts bills. With these

observation, the appeals stand disposed of. No costs.

.............................J.

(P. SATHASIVAM)

.............................J.

(Dr. B.S. CHAUHAN)

New Delhi,

July 21, 2011

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