New Delhi: A “complete waste of time and a reckless exercise undertaken by an irresponsible appellant”— in a blistering judgment, the Meghalaya High Court pulled up the state Public Works Department (PWD) for its conduct during a dispute with a contractor, fined it Rs 10 lakh, and also sharply criticised corruption and inefficiencies in official processes.
The judgement, passed on 19 June but made available only later, came after the PWD appealed to the high court regarding a commercial court’s order in favour of a contractor.
The matter in question arose from a years-long dispute over delayed payments between the PWD (National Highways) and a contractor that it had hired for the two-laning of National Highway-44 from Shillong to Nongstoin.
Initially, per the contract between PWD and the contractor, the disputes had been referred to a Dispute Review Expert Board. The board ruled in favour of the contractor, M/s BSC-CC & JV, in February 2017 and decided it was entitled to a sum over Rs 117 crore.
The PWD did not challenge this order before an arbitrator but paid only parts of its dues. The contractor then approached an arbitral tribunal, which eventually awarded it Rs 75 lakh in interim payment.
The PWD appealed against this in a commercial court and when that did not go in its favour, it filed an appeal in the Meghalaya High Court on 15 June to deny payment.
Before the commercial court as well as the high court, the PWD raised several objections — ranging from challenging the existence of the dispute to involving the Union Ministry of Road Transport and Highways in the litigation.
However, the high court bench, comprising Chief Justice Sanjib Banerjee and Justice W Diengdoh, was not impressed.
“It has become fashionable, particularly for public sector undertakings and government litigants, to throw sheafs of paper at the court and believe that such voluminous tomes would dissuade judges from looking deep into the matter and be frightened enough to grant an adjournment and delay the inevitable,” the bench observed, in a scathing indictment of the PWD’s conduct during the litigation.
It further noted that it was time that “unworthy litigants with frivolous causes give up the habit of preying on the court’s delays”. The only way this could be ensured, it added, was by “imposing actual and primitive costs for such misadventure”.
The court also criticised systemic “malaise” and corruption, especially in the manner in which contracts are issued by government agencies.
The bench highlighted how contractors often quote “ridiculous and incredibly low rates” to bag a tender and then rely on their “allies in the government” to make enhancement claims. This enhanced value, the bench added, doesn’t just benefit contractors but also goes towards “service charges” to their “allies in the system”.
“Rather than waging only a verbal war against corruption from every possible pulpit, persons in authority may serve the system better by setting the government house in order,” the bench advised.
With regard to the demand for involving the Union Ministry of Road Transport and Highways in the litigation, the court observed” “Surprises never cease. Such ludicrous assertion may probably be because the officials who are behind the appellant; who do not need to pay from their own pockets for their recalcitrance and it is the tax-payers’ money that being squandered.”
Dismissing the appeal, the court directed the PWD to pay the contractor Rs 10 lakh “over and in addition to the amount awarded” by the arbitral tribunal.
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How the dispute escalated
Court documents outline that the contract between the PWD and the contractor provided for a two-tier mechanism for the resolution of disputes. It provided for a Dispute Review Expert Board (DREB) to decide on a dispute, and also allowed the parties to refer the board’s decision to an arbitrator within 28 days.
The contract said that if neither party referred the dispute to arbitration within 28 days, the board’s decision would be final and binding.
On the dispute over delayed payments, the DREB first gave a decision on 25 September 2016, finding that the contractor was entitled to a substantial sum.
The contractor, however, requested the DREB to re-examine its claim since several aspects of the delay had not been accounted for. The board then passed a revised decision on 19 February 2017, finding that the contractor was entitled to a sum of over Rs 117 crore, inclusive of interest for delayed payments and unpaid bills for bitumen.
According to the terms of the contract, this decision of the board should have been challenged within 28 days. But, as observed by the HC, the PWD did not do so. Since it made only partial payments towards the amount due, the contractor invoked arbitration.
The contractor wrote to the PWD on 11 June 2018 about the arbitration, describing the disputes under three specific heads: additional usage of bitumen, reimbursement of labour cess, and interest on delayed payments.
In response, the PWD claimed that it wanted “to appeal against the order of the Dispute Review Board and the matter is being communicated” accordingly.
The HC judgment noted that this response was erroneous given that the only way the PWD could challenge the board’s decision was to refer the matter to arbitration, which it had not done.
Nevertheless, an arbitral tribunal was eventually constituted in 2019. During the initial proceedings, the PWD did not raise any objections to the inclusion of the decisions made by the DREB.
However, several months later, it filed an application before the arbitral tribunal, arguing that the claims related to the DREB’s decisions were not arbitrable.
Despite this, the arbitral tribunal gave an interim award of Rs 75 crore to the contractor on 27 July 2021, by partly allowing its application under Section 31(6) of the Arbitration and Conciliation Act 1996.
While the contractor had demanded payment of all the claims decided by the DREB, the tribunal awarded a part of its dues that had remained outstanding for a long time.
In passing this interim award, the arbitral tribunal considered the fact that the PWD had not contested the decisions given by the DREB. As a result, it asserted that the PWD could no longer object to the amount awarded to the contractor.
‘Unimpeachable’ award
The PWD challenged the order of the arbitral tribunal in a commercial court in Shillong, but things did not go its way here either. In May this year, the court upheld the arbitral award of Rs 75 lakh given to the contractor.
This prompted the PWD to approach the high court, which dismissed its submissions as “a complete waste of judicial time”.
The high court pointed out that the PWD had “admitted categorically and unequivocally that it had not raised any dispute” against the DREB’s decision.
“In clear words, the appellant herein admitted, accepted and acknowledged that it was liable to pay such amount; only that the arbitral tribunal could not go into it since there was no dispute in such regard and, as a consequence, the matter was not amenable to arbitration or any form of adjudication,” the court said.
In simple terms, the commercial court as well as the high court opined that the PWD had accepted and acknowledged in the past that it had to pay the amount awarded by the DREB. It had participated in the proceedings before the DREB and had even made partial payments to the contractor. However, despite this, before the arbitral tribunal, as well as the courts, it now asserted that the arbitral tribunal did not have the jurisdiction to look into this claim at all. In doing so, the PWD even went on to challenge the very existence of an “arbitrable dispute”, per the agreement.
It also contended that arbitration could not be invoked to “execute” the decision of the DREB and so the contractor should approach the civil court instead of bringing this to arbitration.
The bench further opined that the Rs 75 lakh award dated 27 July 2021 was “unimpeachable”.
(Edited by Asavari Singh)
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