Delhi High Court Holds Future O&M Claims Beyond Scope, Partly Quashes Louis Berger-COWI JV Award

The Delhi High Court on Monday, 3 August, held that an arbitral tribunal cannot award operation and maintenance charges for services that had not fallen due on the date of the award.

Justice Avneesh Jhingan partly allowed the National Highways Authority of India (NHAI)'s petition under Section 34 of the Arbitration and Conciliation Act, 1996, and partly set aside an award granting Rs. 5.16 crore and USD 60,769 with interest to The Louis Berger Group Inc.-COWI A/S joint venture. He held:

“Relief cannot be granted on an apprehension and for services yet to be rendered for which no amount was due on the date of passing of the award. The award to that extent travels beyond the scope of submission to arbitration and falls within the ambit of Section 34(2)(a)(iv) of the Act.”

The dispute arose from a consultancy contract executed on 7 December 2006, under which NHAI appointed the Louis Berger-COWI joint venture to provide design, construction supervision and maintenance consultancy services for a cable-stayed bridge across the Chambal River on the Kota bypass in Rajasthan.

The contract was valued at Rs. 8.16 crore and USD 24.40 lakh, excluding escalation and service tax, and the joint venture commenced work on 1 January 2007. After an accident damaged the partly constructed bridge on 24 December 2009, NHAI constituted an expert committee, which submitted its report on 7 August 2010. It later issued a show-cause notice proposing debarment and penalties.

NHAI's Executive Committee decided on 25 May 2012 to continue the consultancy subject to revised financial conditions and execution of a supplementary agreement. However, the joint venture refused to accept the conditions, and no supplementary agreement was executed.

Nevertheless, NHAI continued to use the joint venture's services and extended the project period. Disputes later arose over payments for the extended construction and operation and maintenance periods. It refused to release the outstanding amounts on 21 April 2020 unless the supplementary agreement was signed. The joint venture invoked arbitration on 26 January 2021.

The tribunal awarded Rs. 5.39 crore and USD 12.74 lakh for consultancy services provided during the extended construction period from 31 July 2013 to 29 August 2017. It separately awarded Rs. 5.16 crore and USD 60,769 under the operation and maintenance claim, including charges up to 19 November 2023, despite the award being delivered more than six months earlier.

Challenging the award, NHAI argued that the tribunal failed to decide responsibility for the 2009 accident, granted relief beyond the joint venture's claim, relied on financial calculations relating to operation and maintenance expert Sunil Bohra without giving NHAI an opportunity to respond, and entertained claims barred by limitation.

The joint venture argued that responsibility for the accident was not part of the payment dispute, that it continued providing operation and maintenance services until November 2023, and that the tribunal included the entire period to avoid further litigation.

The Court rejected NHAI's challenge to the construction-period award, observing that NHAI had neither terminated the contract nor imposed penalties and had instead obtained completion of the work under the original contractual terms. It also held that the claims were within limitation as arbitration was invoked within one year of NHAI's final rejection dated 21 April 2020.

Further, it held that while the ground of patent illegality does not apply to international commercial awards, a severable part of an award can be set aside where the tribunal exceeds the scope of the dispute referred to arbitration or denies a party a fair opportunity to present its case.

The Bench found that the tribunal exceeded the scope of the claim by awarding operation and maintenance charges for the period after the award date. It also held that the tribunal relied on financial information furnished through an email without giving NHAI an opportunity to respond. It observed:

“The tribunal granted relief beyond the prayer by awarding O&M charges for the period subsequent to the date of the award, i.e. till 19.11.2023. The relief travels beyond the scope of submission to arbitration and is contrary to the public policy of India. The relief granted for claim no.2 is in violation of Section 18 and is liable to be set aside.”

Accordingly, the High Court partly allowed NHAI's petition and set aside the portion of the award granting operation and maintenance charges while leaving the construction-period award undisturbed.

Appearances for petitioner (National Highways Authority of India): Senior Advocate Arun Kumar Varma with Advocates C. S. Chauhan and Kunal.

Appearances for respondent (The Louis Berger Group Inc. JV with M/s COWI A/S): Advocate Vadlamani Seshagiri.