Consulting Engineers Group Ltd v. National Highways Authority of India (NHAI)

Delhi High Court | OMP(I) (COMM) 244/2022 & IA 12741/2022

Background facts

  • A notice inviting tender dated March 15, 2018 was issued by the National Highways Authority of India (NHAI/Respondent), in order to provide consultancy services as its Engineer, for supervision of construction of 8 Lane Dwarka Expressway from Delhi-Haryana Border to start of rail over bridge in Gurugram, Haryana. As per the tender document, bidders could apply either as a sole firm or by forming joint venture with other consultants.
  • In order to participate in the aforesaid tender process and to provide consultancy services, Aecom Asia Company Ltd (Aecom) and Consulting Engineering Group Ltd (Petitioner) agreed to form a consortium wherein Aecom was the lead partner and the Petitioner was the associate partner. Accordingly, a Memorandum of Understanding (MOU) dated May 14, 2018 was entered into between the Petitioner and Aecom. Thereafter, the Petitioner entered into the bidding process as a joint venture with Aecom and it is Aecom who submitted the Technical and financial bids, which bids were required for participation in the tender process.
  • Subsequently, a Letter of Award dated October 22, 2018 (LOA) was issued by NHAI to the consortium of Petitioner and Aecom. It is pertinent to note that the LOA was specifically addressed to Aecom being the lead partner and authorized representative of the consultants.
  • On December 05, 2018, a Consultancy Agreement was entered into between the consortium of the Petitioner and Aecom as a joint venture on the one hand and the Respondent on the other hand. It is pertinent to note that Clause 8 of the said Consultancy Agreement under the General Conditions of Contract provided for amicable settlement of disputes between the parties thereunder.
  • The Contract for construction of 8 lane Dwarka Expressway was awarded to Larsen and Toubro Ltd (EPC Contractor). The consortium of the Petitioner and Aecom was engaged as consultant to act on behalf of Respondent as the Authority's Engineer for supervision of the said construction work.
  • Thereafter, on March 28, 2021 an accident occurred in the construction site. Subsequent thereto, the Respondent constituted an Expert Committee to carry out a detailed technical analysis in order to bring out the reasons of failure leading to accident.
  • The Expert Committee constituted by the Respondent and the Ministry of Road Transport and Highways of India (MoRTH) submitted its Report in September 2021, which inter alia concluded that there was laxity in monitoring of quality control measures by the EPC Contractor and the Authority's Engineer; lack in coordination and formal communication amongst the EPC Contractor, Authority's Engineer and designer and proof check consultants relating to deviations in construction related activities, etc..
  • Subsequently, NHAI sent a Show Cause Notice dated September 16, 2021 to the Petitioner and the EPC Contractor, citing the findings and observations of the Expert Committee. In response to the same, the Petitioner submitted its representation and appeared for a personal hearing before NHAI, as well.
  • Thereafter, the Respondent passed an Order against the EPC Contractor, thereby levying penalty to the tune of INR 6,67,00,000 along with self-imposed disciplinary measure from participating in bids of NHAI/MoRTH for three months. On August 02, 2022, the Petitioner received an Order passed by the NHAI, thereby debarring it from participating in all the tenders floated by the Respondent and other executing agencies of MoRTH, for a period of three months and also levying a penalty of INR 20,00,000. (Order).
  • Being aggrieved by the said Order, the Petitioner filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (Act) before the Delhi High Court, seeking interim reliefs.

Issue at hand?

  • Whether a member of a joint venture can invoke the Arbitration Clause under the Consultancy Agreement, in its individual capacity?

Decision of the Court

  • At the outset, the Court observed that as per the terms of the tender document issued by the Respondent, it was clearly stated prospective bidders could apply either as a sole firm or by forming a joint venture.
  • The Hon'ble Court further observed that in order to participate in the tender process, the Petitioner entered into the MOU with Aecom. As per the said MOU, the Petitioner formed a consortium with Aecom in order to provide services to the Respondent as the Authority's Engineer. As per the MOU, Aecom is the lead partner while the Petitioner herein is the associate partner
  • Further, the Court observed that as per the Consultancy Agreement between the joint venture/Consortium and the NHAI, it was not the Petitioner in its individual capacity, but the consortium of the Petitioner and Aecom, who were referred to as the 'Consultants' under the said Consultancy Agreement.
  • Subsequently the Court also observed that the Consultancy Agreement was signed by the lead partner, i.e., Aecom and the LOA as well as the Show Cause Notice dated September 16, 2021 was specifically addressed to Aecom, being the lead partner and authorized representative of the Consultants.
  • The Court also observed that MOU does not confer any express and/or implied authority on the Petitioner to pursue the contractual matters, which include invocation of dispute resolution clause, in individual capacity without the participation or approval or authorization or consent from the lead member i.e. Aecom.
  • The Court held that as per the terms of the Consultancy Agreement and MOU, it was clear that the Petitioner is not a party to the Consultancy Agreement in its individual capacity. The Court was of the view that it is the 'Consultants' and not the Petitioner in its individual capacity who are referred to as 'parties' in the arbitration agreement contained in the Consultancy Agreement. Therefore, the Petitioner not being a party to the arbitration agreement in its individual capacity, cannot take recourse to the thereto in its individual capacity, or approach the Hon'ble Court in its individual capacity.
  • Furthermore, the Court relied on its decision in the matter of Geo Miller & Co Pvt Ltd v. Bihar Urban Infrastructure Development Corporation Ltd & Anr1 whereby it held that when the agreement is with a consortium, it is never the intention that one of the members of the consortium separately invokes the arbitration agreement.
  • The Court placed its reliance on the decision of the Supreme Court in the matter of Gammon India Ltd v. Commissioner of Customs, Mumbai2 whereby it was held that a joint venture is a legal entity and that action by only one of the parties to the joint venture could not be construed as action on part of the joint venture. It was further held action by only one of the constituents of the joint venture was not held acceptable and legally tenable.
  • Lastly, the Court relied upon the decision of the Bombay High Court in the matter of Maharashtra State Electricity Distribution Company Ltd v. Godrej and Boyce Manufacturing Company Ltd3 3 wherein it was held since the joint venture agreement does not provide that the respondent alone was entitled to invoke arbitration agreement on behalf of the joint venture or to make any other claim on behalf of the joint venture upon the petitioner in any Court of law, hence such an individual cannot invoke arbitration.

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1. 2016 SCC Online Del 6248

2. (2011) 12 SCC 499

3. 2019 SCC Online Bom 3920

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