NATIONAL HIGHWAY AUTHORITY Versus SARDAR MUHAMMAD ASHRAF D BALOCH (PRIVATE) LIMITED
MIANGUL HASSAN AURANGZEB, J.--- Through the instant appeal the appellant, National Highway Authority ("NHA"), impugns the order dated 15.12.2023 passed by the learned Executing Court whereby the respondent / decree holder, M/s. Sardar Muhammad Ashraf D Baloch (Private) Limited, was directed to provide accurate calculation of the outstanding decretal amount strictly in terms of the decree under execution. The said direction was made after the learned Executing Court held that financing charges payable to the respondent in terms of clause 14.8 of the contract read with the award dated 14.09.2021 as well as the judgment and decree dated 25.03.2022 were to be calculated on compound basis.
2. The record shows that on 25.04.2012, NHA had awarded the contract for Re-habilitation of Sarhad Bypass to Daharki Road (N-5) KM 552 to KM 576 ("the Contract") to the respondent. The Contract contained a clause providing for disputes between the parties to be settled through arbitration in accordance with the provisions of the Arbitration Act, 1940 ("the 1940 Act"). Vide order dated 07.05.2019 passed by this Court in Civil Revision Petition No.415/2018, NHA's application under Section 8 of the 1940 Act was allowed and the Hon'ble Mr. Justice (Retd.) Ijaz Nisar was appointed as the sole arbitrator. The documents on record show that the respondent's claim against NHA in the arbitration proceedings arose due to idling of machinery and manpower caused by the delay in the payments against Interim Payment Certificates ("IPCs") and the extension in time for the completion of the Contract. On 14.09.2021, the learned arbitrator rendered the award. Through the said award, the learned arbitrator directed NHA to pay the respondent Rs.52,183,412/- along with financing charges at the annual rate of three (03) percentage points above the discount rate of the State Bank of Pakistan on the said amount calculated from 26.09.2014 till the date when the actual payment is made.
3. Vide judgment and decree dated 25.03.2022 passed by the Court of the learned Additional District Judge, Islamabad, the said award was made a rule of Court. The said decree is reproduced hereinbelow:-
"Applicant filed above named application in the Court of District Judge wherefrom it was entrusted to this court. This application coming before me Muhammad Adnan, Additional District and Sessions Judge, Islamabad-West in presence of above. It is ordered that the Award dated 14.9.2021 is made rule of court. The award is as follows:-
"I therefore, Direct the respondent to pay to the claimant with immediate effect PKR.52,183,412/- (Rupees Five Crore Twenty one Lakh Eighty Three Thousand Four Hundred and Twelve Only) along with financing charges at the annual rate of three (03) percentage point above the discount rate of the State Bank of Pakistan on PKR.52,183,412/- calculated from 26th September, 2014 till the date actual payment is made.""
4. For the execution of the said judgment and decree, the respondent, on 21.06.2022, filed Execution Petition No.41/2023. Pursuant to the order dated 29.07.2022 passed by the learned Executing Court, NHA furnished a bank guarantee dated 12.09.2022 for the amount of Rs.52 million in the respondent's favour.
5. NHA had preferred an appeal against the said judgment and decree. Vide order dated 11.01.2023, this Court dismissed the said appeal. Thereafter on 28.03.2023, the learned Executing Court ordered for the amount under the said bank guarantee to be released to the respondent. As for the remaining amount of Rs.86,193,046/-, the learned Executing Court directed NHA to pay the said amount to the respondent by 12.05.2023. On 31.03.2023, a call deposit receipt for the amount of Rs.52 million was given to the respondent.
6. The parties were in dispute as to the calculation of the financing charges at the rate mentioned in the decree dated 25.03.2022. The order dated 27.04.2023 passed by the learned Executing Court shows that NHA's stance was that Rs.56,595,212/- was payable as financing charges under the decree whereas the respondent's stance was that Rs.86,193,046/- was payable up to 28.03.2023. The learned Executing Court vide order dated 27.04.2023 directed NHA to pay Rs.56,595,212/- to the respondent within seven days. The learned Executing Court, in its order dated 08.05.2023, repeated the said direction but to no avail. Vide order dated 08.05.2023, the learned Executing Court attached NHA's bank account with the National Bank of Pakistan ("NBP") to the extent of Rs.56,595,212/-. Furthermore, the NBP was directed to prepare a pay order for the said amount in favour of the respondent and submit the report before the Court on 12.05.2023. On the said date, a pay order for the said amount was handed over to the learned counsel for the respondent.
7. With this payment, the execution proceedings did not come to a close. There remained the outstanding question of the exact calculation of the financing charges to be made in accordance with the decree dated 25.03.2022. As per NHA's calculation on the basis of simple interest formula, the amount of Rs.103,424,206/- was payable to the respondent, and this amount is said to have been deposited in the Court. NHA had calculated this amount up to the date when the bank guarantee for the amount of Rs.52 million was furnished by NHA. As per the respondent's calculation on the basis of compound interest formula, an amount of Rs.138,376,458/- was payable as financing charges under the said decree up to 29.03.2023.
8. On 16.06.2023, the respondent filed an application before the learned Executing Court seeking for this matter of exact calculation to be referred to two reputable banks in the private sector. NHA, in its reply to the said application, sought reference of the matter regarding calculation of the financing charges to United Bank Ltd. and / or Habib Bank Limited ("HBL"). Vide order dated 05.09.2023, the learned Executing Court referred to HBL and JS Bank Limited the matter regarding the mechanism for calculating financing charges on the basis of clause 14.8 of the Contract.
9. JS Bank Limited submitted its report to the Court on 27.09.2023 whereas HBL submitted its report on 23.11.2023. The execution proceedings culminated in the order dated 15.12.2023 whereby the respondent was directed to provide accurate calculation of the outstanding decretal amount by calculating the financing charges on compound basis. The said order dated 15.12.2023 has been assailed by NHA in the instant appeal.
10. It may be mentioned that on 08.03.2024, a further amount of Rs.21,170,104/- was paid by NHA to the respondent. The learned Executing Court also recorded the statement of the learned counsel for NHA that an amount of Rs.1,840,879/- would be paid through cheque No.27717946 as income tax on behalf of the respondent.
11. Learned counsel for the appellant / NHA, after narrating the facts leading to the filing of the instant appeal, submitted that it is well settled that the Executing Court cannot re-determine the parties' respective liabilities by going beyond the decree; that in the case at hand, the learned Executing Court has increased the actual liability of NHA under the decree dated 25.03.2022; that the decree had set out a specific formula for the calculation of financing charges; that the said decree did not obligate NHA to pay financing charges calculated on compound basis; that the learned Executing Court could not obligate NHA to pay financing charges calculated on compound basis on the decretal amount of Rs.52,183,412/-; that the learned Executing Court could only direct NHA to make payment in accordance with the terms of the decree and not otherwise; that the learned Court below erred by not appreciating that the learned arbitrator, while setting out the formula for the calculation of financing charges, did not resort to clause 14.8 of the Contract; that for the calculation of financing charges, the learned arbitrator had prescribed a formula different from the one contemplated by clause 14.8 of the Contract; that the decree dated 25.03.2022 had not been assailed by the respondent; that the interest under a decree is to be calculated as simple interest unless provided otherwise in the decree; that after the principal amount under the decree was deposited in the Court in the form of a bank guarantee, it operated as suspension in the accrual of further interest; that the principal amount under the decree, i.e. Rs.52 million was deposited in the Court in the shape of a bank guarantee on 16.09.2022 which was subsequently encashed on 28.03.2023; and that the impugned order dated 15.12.2023 is liable to be set-aside. Learned counsel for NHA prayed for the appeal to be allowed.
12. On the other hand, learned counsel for the respondent submitted that the learned arbitrator's authority to grant interest is limited to that allowed under the Contract; that the learned arbitrator can only grant interest if the same is agreed by the parties in the Contract; that clause 14.8 of the Contract specifically allows interest on compound basis, and the learned arbitrator specifically referred to the said clause in the award; that the learned arbitrator's award was strictly in accordance with the provisions of the Contract which entitled the respondent to financing charges for the delay in the payment under Clause 14.7; that an arbitrator cannot divert from the stipulations of the Contract as that could amount to re-writing the terms of the Contract which is not permissible under the law; that since the award dated 14.09.2021 was made a rule of Court, NHA was bound to make payment strictly in accordance with the direction made in the said award; and that the impugned order dated 15.12.2023 does not suffer from any legal infirmity. Learned counsel for the respondent prayed for the appeal to be dismissed.
13. I have heard the contentions of the learned counsel for the contesting parties and have perused the record with their able assistance. The facts leading to the filing of the instant appeal have been set out in sufficient detail in paragraphs 2 to 10 above and need not be recapitulated.
14. For the purpose of this case, it is not necessary to go into the merits of the contesting parties' claims against each other in the arbitration proceedings. This is because the judgment and decree dated 25.03.2022 making the award dated 14.09.2021 a rule of Court had attained finality, and the question that the learned Executing Court had to determine was whether the respondent's claim under the decree was in conformity therewith.
15. On account of the cost of idle manpower and the cost of idle machinery and equipment, the learned arbitrator had held the respondent entitled to the payment of Rs.52,183,412/-. Issue No.9 framed by the learned arbitrator was whether the respondent was entitled to mark up as prayed for in the statement of claim. Reference was made by the learned arbitrator to clause 20.1 of the Contract which requires the Engineer to determine the extension of the time for completion and the additional payment within a period of 42 days. After doing so, the learned arbitrator noted that the respondent had submitted its final claim to the Engineer on 24.04.2014 and substantiated the same on 17.05.2014. This claim was rejected by the Engineer on 01.07.2014. Furthermore, it was noted that had the Engineer accepted the respondent's claim, the amount so determined would have been entered by the respondent in the IPC and submitted to the Engineer for processing by 01.08.2014. In terms of clause 14.7 of the Contract, the employer had 56 days within which to make payment against a certified IPC. The deadline for such payment, according to the award, was 26.09.2014. It is for this very reason that the arbitrator has held the respondent entitled to interest in the form of financing charges to be calculated with effect from 26.09.2014.
16. The learned arbitrator proceeded further by making reference to clause 14.8 of the Contract which entitles the contractor for the delay in making payment in accordance with clause 14.7 to receive "financing charges compounded monthly on the amount unpaid during the period of delay." Clause 14.8 also provides that the financing charges shall be calculated at the annual rate of three percentage points above the discount rate of the Central Bank in the country of the currency of payment. For the purposes of clarity clause 14.8 ibid reads thus:-
"If the Contractor does not receive payment in accordance with clause 14.7 [Payment], the Contractor shall be entitled to receive financing charges compounded monthly on the amount unpaid during the period of delay. This period shall be deemed to commence on the date for payment specified in sub-clause 14.7 [Payment], irrespective (in the case of sub-paragraph (b)) of the date on which any Interim Payment Certificate is issued. Unless otherwise stated in the Particular Conditions, those financing charges shall be calculated at the annual rate of three percentage points above the discount rate of the central bank in the country of the currency of payment, or if not available, in interbank offered rate, and shall be paid in such currency."
17. While entitling the respondent to the payment of financing charges on the principal amount of Rs.52,183,412/-, the learned arbitrator had the mechanism provided in clause 14.8 of the Contract in mind and none other. I say so on the strength of the operative paragraphs of the award dated 14.09.2021, which are reproduced herein below:-
"The Claimant filed its Final Claim on 24th April, 2014 and its substantiation on 17th May, 2014. The Engineer rejected his Claim vide its letter dated 1st July, 2014. Had the Engineer accepted the claim of the Contractor, the determined amount would have been entered into an Interim Payment Certificate and submitted to the Engineer for processing by 1st August, 2014, which should have been paid as per Clause 14.7
Clause 14.7 of Contract Agreement General Conditions of Contract with regards to payment of IPCs provides that "The Employer shall pay to the Contractor: the amount certified in each Interim Payment Certificate within 56 days after the Engineer receives the Statement and supporting documents;". Meaning thereby that intended date for payment specified in Clause 14.7 was within 56 days of 1st August, 2014 i.e. 26th September, 2014.
Clause 14.8 [Delayed Payment] of Contract Agreement General Conditions of Contract with respect to delayed payments provides "[i]f the Contractor does not receive payment in accordance with Sub-Clause 14.7 [Payment], the Contractor shall be entitled to receive financing charges compounded monthly on the amount unpaid during the period of delay. This period shall be deemed to commence on the date for payment specified in Sub-Clause 14.7 [Payment], irrespective (in the case of its sub-paragraph (b)) of the date on which any Interim Payment Certificate is issued. Unless otherwise stated in the Particular Conditions, these financing charges shall be calculated at the annual rate of three percentage points above the discount rate of the central bank of the country of the currency of payment, or if not available, the interbank offered rate, and shall be paid in such currency."
The principal amount calculated by me as aforementioned has not been paid till date. Had the amount due been paid on time, the Claimant would be able to put it to good use either on other projects to earn profits or at the very least invest it in a savings account to reap benefits. There is no dispute regarding the rate of financing charges as depicted in Clause 14.8 above. I also feel that this rate as negotiated and agreed between both the parties was reasonable as it almost covers the borrowing charges of a commercial bank that lends money to construction companies for such construction projects. In conclusion, I hold that the financing charges payable on account of Clause 14.8 shall be payable at the annual rate of three (03) percentage points above the discount rate of the State Bank of Pakistan on PKR. 52,183,412/- from 26th September, 2014 till the date actual payment is tendered to the Claimant.
I THEREFORE, DIRECT THE RESPONDENT TO PAY TO THE CLAIMANT WITH IMMEDIATE EFFECT PKR.52,183,412/- (RUPEES FIVE CRORE TWENTY ONE LAKH EIGHTY THREE THOUSAND FOUR HUNDRED AND TWELVE ONLY) ALONG WITH FINANCING CHARGES AT THE ANNUAL RATE OF THREE (03) PERCENTAGE POINTS ABOVE THE DISCOUNT RATE OF THE STATE BANK OF PAKISTAN ON PKR.52,183,412/- CALCULATED FROM 26TH SEPTEMBER, 2014 TILL THE DATE ACTUAL PAYMENT IS MADE."
18. The learned arbitrator did not discard the mechanism provided in clause 14.8 of the Contract. On the contrary, the learned arbitrator held NHA liable to pay financing charges at the annual rate of three (03) percentage points above the discount rate of the Central Bank of Pakistan (i.e. the State Bank of Pakistan) and by doing so it is clause 14.8 of the Contract that was enforced and none other. The interpretation that NHA is laying on the award is not even based on the wording of the last paragraph of the award extracted herein above. Even otherwise, it is well settled that an award of an arbitrator should be read as a whole to find out the implication and meaning thereof. In the case of Jajodia (Overseas) (Pvt.) Ltd. v. Industrial Development Corporation of Orissa Ltd. (1993 (2) SCC 106), it was held that "an award has to be read as a whole and harmoniously." Thus, the observations and findings of the learned arbitrator in the award, and in particular on issue No.9 thereof, have to be read as a whole. When the award dated 14.09.2021 is so read, it becomes clear that what the learned arbitrator did is to award as interest on financing charges in the respondent's favour in accordance with the mechanism agreed between the parties and set out in clause 14.8 ibid.
19. The learned arbitrator had not absolved NHA from being liable to pay financing charges in accordance with clause 14.8 of the Contract, which requires the same to be compounded monthly on the amount unpaid during the period of delay. Had the learned arbitrator decided to re-write clause 14.8 of the Contract, the award would have indicated such intention and the reasons therefor. What the learned Court below did is to allow in toto the application filed by the respondent under Section 17 of the 1940 Act to make the award dated 14.09.2021 a rule of Court. The learned Court below did not, in the least, interfere with the said award or modify it.
20. Section 29 of the 1940 Act does not permit the arbitrator to award interest prior to the decree unless there is an express or implied agreement between the parties to the contrary. In the case at hand, clause 14.8 of the Contract entitled the contractor to the payment of financing charges on a compound basis at a rate mentioned therein on the delay in payments under clause 14.7. The award dated 14.09.2021 enforced clause 14.8 ibid and the learned Court below made the said award a rule of Court by passing a judgment and decree in terms thereof. Although I do not find any ambiguity in the decree but assuming that there was any, the same can be resolved by reference not just to the judgment but also to the award and even the pleadings of the parties. Reference in this regard may be made to the law laid down in the cases of Azad Government of the State of Jammu and Kashmir v. Muhammad Aslam Khan (1990 MLD 2333), Bhavan Vaja v. Solanki Hanuji Khodaji Mansang (AIR 1972 SC 1371) and Topanmal Chhotamal v. M/s. Kundomal Gangaram (AIR 1960 SC 388).
21. The financing charges were to be calculated with effect from 26.09.2014 till the date of actual payment. NHA's position is that when it furnished a bank guarantee for Rs.52 million pursuant to the directions given by the learned Executing Court vide order dated 29.07.2022, the accrual of financing charges should have stopped. This may well have been NHA's desire but the same is without any solid foundation. The mere furnishing of the bank guarantee on 12.09.2022 did not result in payment of Rs.52 million to the respondent / decree holder. It is only when the said principal amount was actually paid to the respondent that the accrual of financing charges on the amount paid would stop. The payment of Rs.52 million was not made to the respondent until 31.03.2023. Therefore, in terms of the award, the accrual of the financing charges on Rs.52 million would continue until such date. NHA could have avoided paying a substantial portion of the financing charges had it promptly complied with the direction given by the learned arbitrator in the award dated 14.09.2021 or even when the judgment and decree dated 25.03.2022 was passed. NHA was well aware of the terms of the Contract, including clause 14.8 thereof and the adverse consequences which were to flow from non-compliance therewith, when it decided to avoid its obligation under the award and / or the judgment and decree. NHA dutifully challenged the award as well as the judgment and decree albeit unsuccessfully and during all this period, its liability under clause 14.8 of the Contract kept growing.
22. In the case of Syed Waqar-ul-Hassan Shah Bukhari v. Small Business Finance Corporation (2024 CLD 1481), the appellant had, in compliance with the order passed by the Hon'ble Supreme Court, deposited the decretal amount in the Executing Court in the form of a pay order. Such deposit was made with the caveat that the amount should be considered as having been deposited as trust and liable to be refunded to the appellant in the event the judgment and decree is set-aside. The question that came up for consideration was whether the accrual of interest on the decretal amount would stop on the date when the pay order was deposited in the Court or a subsequent date when the amount was released in favour of the decree holder. This question was decided by this Court in the following terms:-
"48. Had the deposit of Rs.28,05,180/- made by Nazar on 02.12.2002 before the learned Banking Court been unconditional, SME Bank would have been in a position to withdraw the same and at best Nazar would have been liable for the mark-up up to 02.12.2002 only. Since the said deposit made by Nazar was with the caveat that the said amount should be considered as having been deposited as trust and liable to be refunded in the event of the setting aside of the judgment and decree dated 21.10.2003, and since the payment of the said amount was made to SME Bank on 15.10.2003 on the basis of the terms of the settlement recorded by the learned Banking Court on 07.10.2003, SME Bank was well within its rights to have demanded interest of the said amount up to 09.10.2003."
23. As mentioned above, vide order dated 05.09.2023, the learned Executing Court referred to HBL and JS Bank Limited the matter regarding the mechanism for calculating financing charges on the basis of clause 14.8 of the Contract. I have gone through the reports of HBL and JS Bank Limited and find them to be not just consistent with each other but also in conformity with clause 14.8 of the Contract, which clearly provides that "the contractor shall be entitled to receive financing charges compounded monthly on the amount unpaid during the period of delay."
24. NHA, in paragraph 8 of the instant appeal, takes the position that by paying Rs.52,183,412/- as the principal amount and Rs.51,240,794/- as the financing charges, the entire decretal amount of Rs.103,424,206/- stands paid. This pleading is based on NHA's understanding that the financing charges payable to the respondent were to be on simple interest basis. On the other hand, the respondent asserts that by 29.03.2023, NHA was liable to pay Rs.138,376,458/- (i.e. Rs.52,183,412/- as the principal amount and the remaining as financing charges for the delay of 3,076 days up to 29.03.2023). This calculation is based on the accumulation of financing charges on compound interest basis. Although Rs.52 million was paid on 29.03.2023, an amount of Rs.86,376,458/- remained to be paid as financing charges. This amount swelled to Rs.88,954,698/- up to 12.05.2023 when NHA paid a further amount of Rs.56,595,212/- to the respondent. With the payment of this amount, there remained Rs.32,359,486/- payable to the respondent, which by 19.01.2024 had swelled to Rs.38,067,928/-. The respondent's claim of Rs.38,067,928/- up to 19.01.2024 (which would have by now arisen to a much higher figure) is based on the financing charges being compounded monthly "on the amount unpaid" during the delay in making payment as required by clause 14.8 of the Contract. This claim is consistent with the reports of HBL and JS Bank Limited as well as the judgment and decree dated 25.03.2022 read with the award dated 14.09.2021 as a whole.
25. The learned Court below, in directing the respondent to provide accurate calculation of the outstanding decretal amount strictly in line with the terms of the decree under execution, did not commit any illegality. Consequently, the instant appeal is dismissed. No costs.
MH/6/Isl Appeal dismisse