Public Works Department Failure to appeal against payment of Rs. 14.92 crore.
Failure of the Public Works Department to challenge an arbitral award within the stipulated time resulted in the rejection of the application and an opportunity lost to defend its case to avoid payment of Rs. 14.92 crore.
As per Section 34(3) of the Arbitration and Conciliation Act, 1996, an application for setting aside the award may not be made after three months from the date on which the party making that application had received the arbitral award.
The Public Works Department (the Department) awarded work of construction of a bridge across Yamuna River opposite ISBT, Kashmiri Gate, Delhi, to a private firm at a tendered cost of Rs. 9.39 crore with stipulated date of start and completion as 18 October 1984 and 17 April 1987 respectively. The firm could not complete the work even after an extension of time for 20 months. Only 52 percent of work was completed against which Rs. 4.06 crore had been paid to the firm. The Department rescinded the work on 5 December 1988 and blacklisted the firm for a period of five years. The remaining work was awarded to another firm in May 1989 which was completed in July 1990 at a cost of Rs. 7.95 crores.
The defaulting firm initiated arbitration proceedings and claimed payment of Rs. 8.64 crores against 27 items of works executed by it during the currency of their contract. The sole Arbitrator published his award on 18 August 2012 accepting 14 out of 27 items against which the firm claimed payment and directed the Department to pay Rs. 3.73 crores to the firm along with interest at the rate of 11 percent from 1 January 1989 till the date of payment.
The audit noted (April 2016) that the Government Counsel advised (26 September 2012) that the award should be challenged in the High Court of Delhi on the grounds that (i) the Arbitrator did not decide the matter on merit, and (ii) there is infirmity and illegality in the award as the Arbitrator rejected all the counterclaims of the Department and did not decide the facts on the merit of the counterclaims which was concurred in by the Law & Justice Department. The Principal Secretary, PWD also endorsed (13 December 2012) the proposal to challenge the award before the High Court.
The Department challenged the award only on 14 February 2013. The High Court rejected (25 February 2013) the application calling it time-barred as it was filed with a delay of 89 days beyond the prescribed time limit of 90 days. The Department filed an appeal for condonation of delay before the High Court which rejected the appeal (7 May 2013). The Department filed a Special Leave Petition in the Supreme Court which rejected the petition on 29 September 2015. Ultimately, the Department paid Rs.14.92 crore including interest of Rs. 11.19 crore to the firm on 31 March 2016.
Audit observed that delay occurred at every stage in the process of filing the first appeal in the High Court against the arbitral award as under:
• It took 38 days to obtain the advice of the Government Counsel;
• Engineer-in-Chief then took 35 days to refer the case to Principal Secretary, PWD, who conveyed his approval on 13 December 2012; and
• The Government Counsel took two months to file the appeal on 14 February 2013.
Thus, administrative delay in progressing the case resulted in the Department losing an opportunity to present its case and avoid payment of Rs. 14.92 crores.
The matter was referred to the Government in June 2016 their reply was awaited (December 2016).