Cobra Instalaciones Y Servicios, S.A. and Shyam Indus Power Solution Pvt. Ltd. Vs. Haryana Vidyut Prasaran

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CITATION	FAO(OS) (COMM) 195/2022 and FAO(OS) (COMM) 205/2022
DATE OF JUDGMENT	1st November, 2023
COURT	High Court of Delhi
APPELLANT	M/S Cobra Instalaciones Y Servicios, S.A. & M/S Shyam Indus Power Solution Pvt. Ltd. (JV)
RESPONDENT	Haryana Vidyut Prasaran Nigam Ltd. (HVPNL)
BENCH	Hon’ble Mr. Justice Manoj Kumar Ohri

INTRODUCTION

The core of the dispute revolves around the interpretation and execution of two contracts between the parties for the construction of various power transmission projects. The specific issue under contention is Cobra’s claim for reimbursement of sales tax on “bought-out items” used in the project. Cobra argues that they are entitled to separate reimbursement for this tax, while HVPNL asserts that the agreed-upon contract price was all-inclusive and encompassed all expenses.

This case has significant implications for both parties. For Cobra, it could mean recouping a substantial amount of money. For HVPNL, it could set a precedent for future contracts, impacting their financial obligations.

The High Court, under the guidance of Hon’ble Mr. Justice Manoj Kumar Ohri, will analyze the contract terms, relevant laws, and previous judgments to determine the validity of Cobra’s claim. The outcome of this case will not only resolve the present dispute but also provide clarity on the interpretation of similar clauses in future contracts between construction companies and government agencies.

FACTS OF THE CASE

A few agreements had been made between M/s. Cobra and Haryana Vidyut Prasaran Nigam Limited (HVPNL). Nevertheless, the works outlined in the Agreements were not finished by the deadline for completion, which was June 27, 2013, or earlier.
On September 24, 2013, Cobra filed the completion status for some of the works that were started on July 3, 2013, and it detailed the reasons behind the delay in finishing the project, including the lack of soil, the delay in opening the LC, the delay in vendor approval, the delay in issuing dispatch instructions, the slow progress at the site due to rainfall, and the delay in approving the civil and electrical drawings, among other reasons. Additionally, they asked HVPNL to give a seven-month extension of time, ending on January 31, 2014.
According to Clause 26.2 of the GCC, HVPNL notified Cobra on December 31, 2013, that due to the unfulfilled work, Liquidated Damages would be subtracted from Cobra’s Running Bills at a weekly rate of 0.5% of the contract price, plus interest on the amount postponed.
In a letter dated November 3, 2014, Cobra claimed that the delay was caused by a number of uncontrollable circumstances. And since HVPNL had not suffered any losses, it asked HVPNL for a time extension with no financial consequences. Cobra also asked for the sales tax and VAT on the things it had purchased to be reimbursed.
Following a series of correspondence between the parties, Cobra requested that the disagreements be sent to arbitration in a notification dated November 4, 2016, citing the agreement to do so included in Clause 46.5(b) of the GCC read with Clause 46.5 of the Particular Conditions.
In order to select an arbitrator, Cobra petitioned this Court under Section 11 of the A& C Act. By order dated October 25, 2018, this Court designated the qualified Sole Arbitrator to mediate the disagreements between the parties.

ISSUES RAISED

Whether an Arbitral Tribunal can reduce the liquidated damages if it finds that it is a genuine pre-estimate of damages and it is not possible to quantify the damages.
Whether the Arbitral Tribunal Correctly Interpreted the Contract
Whether the Arbitral Tribunal Exceeded its Jurisdiction

CONTENTIONS OF APPEALENT

The arbitrator erred in reducing the amount of liquidated damages to 50% on guesswork.
The arbitrator also erred in allowing the claims of the Respondent in respect of ward and watch and the extension of Bank Guarantee.
The arbitrator rightly observed that the Petitioner is engaged in the business of providing utilities and the loss of same is not quantifiable. However, the tribunal wrongly directed it to refund 50% liquidated damages to the Respondent on the assumption that some element of the loss was quantifiable.
The Petitioner suffered losses in various forms including, but not limited to, cost overrun as Interest During Construction (IDC), loss due to foreign exchange variation (in terms of foreign currency loan), loss in the form of reduced tariff allowed by the HERC due to no allowance of depreciation and return on equity

CONTENTIONS OF REPONDENT

The Petitioner did not suffer any loss due to the delay in the execution of the project.
The Respondent was not responsible for the delay for the reason that its work was dependent upon the completion of the work related to the transmission lines and the same was delayed and therefore no fault could be attributed to it.
Even assuming that the Petitioner had suffered any loss, it was incumbent upon it to prove it to levy liquidated damages.
The Tribunal erred in overlooking the evidence on record, especially the findings of the Superintendent Engineer, Project Manager, and Assistant Project Manager who recommended that no liquidated damages should be levied as no loss was suffered by the Petitioner.
The heads under which the Petitioner claimed to have suffered losses were clearly quantifiable and it could not recover any damages without establishing the exact loss suffered by it.
The affidavits of evidence furnished by witnesses for the Petitioner also did not mention the quantum of loss suffered under those heads. Further, the said loss was not informed to the Respondent at any prior point in time.

JUDGEMENT

The Arbitrator rightly concluded that since the Petitioner had suffered a substantial loss due to the delay in execution of the work, so it was justified in imposing liquidated damages on the Respondent.

Since it is undeniable that the Respondent delayed fulfilling its obligations, which were an essential component of the work that needed to be completed in order to commission the project, it cannot be released from liability for the delay on the grounds that another contractor delayed completing the work as well. It may also not be appropriate to use mathematics to identify which contractor’s work was, in essence, the key component that caused the project’s commissioning to be delayed longer than expected.

The contract at hand was to upgrade the infrastructure for the essential utility of electricity distribution, and the loss resulting from the delay in enhancing utilities is a loss that cannot be precisely valued. Therefore, the Tribunal erred in determining that the Petitioner was qualified to receive liquidated damages.

If the Arbitral Tribunal determines that the liquidated damages are pre-estimated and that it is impossible to quantify the harm, it cannot lower the damages based only on conjecture.

The arbitrator cannot reduce the amount of damages based solely on guesswork because only a portion of the losses could be quantified once it is determined that the employer has suffered significant losses as a result of the contractor’s negligence and the contract provides for liquidated damages that were a true preestimate of the loss because the claim could not be quantified.

The arbitrator took varying positions on the application of liquidated damages, and the arbitrator guess worked without sufficient evidence to base a reasonable estimate of the amount of damages payable, which is why the court partially threw aside the decision.

The Court refrained from interfering with the Tribunal’s rationale regarding additional claims, citing the fact that the claims were determined by the arbitrator through the interpretation of the agreement’s terms, and the Court is not permitted to replace the Tribunal’s opinion with its own.

ANALYSIS

Two distinct but identical conflicts resulting from two different contracts between the parties were at issue in this case. In two distinct rulings, the Delhi High Court announced its ruling on April 25, 2022, and May 6, 2022. For comparable cases involving ambiguity over taxes in building contracts, the ruling provides a useful precedent.

CONCLUSION

The Delhi High Court upheld an arbitral judgement rejecting Cobra’s request for separate reimbursement of sales tax on bought-out commodities in the matter of Cobra Instalaciones Y Servicios, S.A. and Shyam Indus Power Solution Pvt. Ltd. Vs. Haryana Vidyut Prasaran. The contract’s vagueness over tax inclusion, Cobra’s lack of adequate evidence, and the idea of respecting arbitral rulings served as the foundation for the court’s ruling. This case serves as a reminder to parties to clearly state tax issues in contracts in order to prevent future problems and highlights the significance of clear contract wording.

REFERENCES

This Article is written by Abraham Mutazu, law student at Lovely Professional University ; Intern at Legal Vidhiya.

Disclaimer: The materials provided herein are intended solely for informational purposes. Accessing or using the site or the materials does not establish an attorney-client relationship. The information presented on this site is not to be construed as legal or professional advice, and it should not be relied upon for such purposes or used as a substitute for advice from a licensed attorney in your state. Additionally, the viewpoint presented by the author is of a personal nature.

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