Karnataka High Court
Union Of India vs S B Lal on 22 March, 2018
Author: S.Sujatha
Bench: S.Sujatha
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 22ND DAY OF MARCH, 2018
BEFORE
THE HON'BLE MRS.JUSTICE S.SUJATHA
M.F.A. No.10595/2010 [AA]
BETWEEN :
UNION OF INDIA
REP. BY ITS EXECUTIVE ENGINEER
TELECOM CIVIL DIVISION
MYSORE ...APPELLANT
(BY SRI Y.HARIPRASAD, ADV.)
AND :
1. S.B.LAL
SOLE ARBITRATOR
CHIEF ENGINEER (ARBITRATION)
MOHAN SINGH PLACE, II FLOOR
BABA KASAB SINGH MARG,
NEW DELHI- 110 001
2. M/s KWALITY CONSTRUCTION
ENGINEERS & CONTRACTORS
NO.7-1-67/10, AMEERPET,
HYDERABAD-16
REP. BY ITS MANAGING PARTNER
V.SUDHAKAR ...RESPONDENTS
(BY SRI A.MADHUSUDHANA RAO, ADV. FOR C/R-2;
R-1 NOTICE NOT ISSUED IN VIEW OF THE ORDER DATED
27.11.2014.)
THIS M.F.A. IS FILED UNDER SECTION 37 OF THE
ARBITRATION AND CONCILIATION ACT, AGAINST THE
JUDGMENT AND AWARD DATED 05.12.2009 PASSED IN
A.S.NO.2/2001 ON THE FILE OF THE PRINCIPAL DISTRICT
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JUDGE, MYSORE, DISMISSING THE SUIT FILED UNDER
SECTION 34 OF ARBITRATION AND CONCILIATION ACT.
THIS M.F.A. COMING ON FOR ADMISSION, THIS DAY,
THE COURT DELIVERED THE FOLLOWING:
JUDGMENT
This appeal is directed against the Judgment in A.S. No.2/2001 passed on 5.12.2009 on the file of the Principal District Judge at Mysore.
2. The tender was invited on behalf of Union of India for construction of Telephone Exchange [MAX 1] building at Gokulam, Mysuru on 26.05.1989 and the contract was awarded to Respondent No.2 on 15.11.1989. The building was completed and final bill was settled by the Respondent No.2 on 15.11.1996. Since there was some dispute relating to the bill settled on 15.11.1996, the Respondent No.2 invoked the arbitration clause. The Respondent No.1 was appointed as Arbitrator to decide 24 claims made by the Respondent No.2. Again, at the instance of the Respondent No.2, additional four items of claims were -3- placed which were referred to arbitration by the Chief Engineer as per the letter dated 22.09.1999. The Arbitrator passed the Award on 30.12.2000. Aggrieved by the said Award, the appellant filed A.S. No.2/2001 before the Principal District Judge at Mysore under Section 34 of the Arbitration & Conciliation Act, 1996 ['Act', for short]. The Respondent No.2 also challenged the same Award by filing A.S.No.3/2001. Both the arbitration suits were clubbed and common Judgment was passed. The A.S. No.2/2001 filed by the appellant came to be dismissed and A.S. No.3/2001 filed by Respondent No.2 has been allowed. The Award passed by the Respondent No.1-Arbitrator dated 30.12.2000 in so far as it relates to claim Nos.1, 7 and 13 is set aside. A.S. No.3/2001 is remitted back to the Arbitrator with a direction to reconsider the claim of the Respondent No.2 in respect of claim Nos.1, 7 and 13. Being aggrieved by the dismissal of A.S. No.2/2001, this appeal is filed by the Union of India, appellant herein. -4-
3. Learned Counsel appearing for the appellant would contend that the Award is illegal and not maintainable either in law or on facts. The Arbitrator failed to give reasons as contemplated under Section 31 of the Act. The Arbitrator erred in admitting the time barred claims i.e., claim Nos. 25 to 28 referred to by the Chief Engineer at the instance of Respondent No.2; that the claim Nos.4, 5, 6, 11, 14, 16, 17, 18, 20, 21, 22, 23, 25, 26, 27 and 28 are not considered by the Arbitrator in a justifiable manner. The learned trial Judge ought to have appreciated these claims of Respondent No.2, vis-à-vis availability of evidence on record. Elaborating the arguments on these claims, it was contended that the contractor-Respondent No.2 has taken all payments in the running bill status and even in final bill stage. Hence, there cannot be any extra payment to be awarded as sought for by the Respondent No.2. Learned District Judge confirmed the Award passed by -5- the Arbitrator without assigning proper and valid reasons i.e., denial of natural justice except claim Nos.1, 7 & 13, rejecting the suit of the appellant which requires interference of this Court
4. Further, learned Counsel would submit that the interest awarded by the Arbitrator at 15% per annum from 10.02.1997 till the date of the Award and 18% per annum simple interest from the date of publishing of the Award till the date of payment is not justified. In support of his contentions, learned Counsel placed reliance on the following Judgments:
[a] 'MCDERMOTT INTERNATIONAL INC. v. BURN STANDARD CO., LTD., AND OTHERS' reported in 2006 [11] SCC 181.
[b] 'STATE OF UTTAR PRADESH AND OTHERS v.
COMBINED CHEMICALS COMPANY PRIVATE LIMITED' reported in 2011 [2] SCC 151. [c] 'SRI CHITTARANJAN MAITY v. UNION OF INDIA' reported in 2017 [9] SCC 611.
-6- [d] 'SRI. S.V. SAMUDRAM v. THE STATE OF KARNATAKA AND OTHERS' in MFA No.24507/2010 [DD-7.2.2007].
5. Learned Counsel Sri. A. Madhusudhana Rao, appearing for Respondent No.2 justifying the impugned Judgment and order, submits that the claims made by the Respondent No.2-Contractor are legal and justifiable. Considering the material evidence placed on record by both the parties, the Arbitrator evaluating the evidence on record, allowed the claims in part and rejected certain claims. On the challenge made to the rejection of the claims in A.S. No.3/2001 before the learned trial Judge, the same came to be allowed and with respect to claim Nos.1, 7 and 13, has been set aside and the matter has been remitted to the Arbitrator with a direction to reconsider the claim in respect of claim Nos.1, 7 and 13. The claims relating to different items are considered elaborately by the Arbitrator and the same has been appreciated by the trial Judge -7- meticulously and the decision has been arrived at which requires to be confirmed by this Court.
6. As regards the interest, learned Counsel would submit that the Respondent No.2 is fighting the litigation since 15.11.1996 and as such 15% per annum simple interest awarded by the Arbitrator from the date of the claim till the date of the Award and 18% per annum from the date of the Award till the date of payment confirmed by the trial Judge is in accordance with law. Reference is also made to Section 31[7][b] of the Act to contend that unless the Award otherwise directs a sum to be paid by an Arbitral Award shall carry interest @ 18% per annum from the date of the Award till the date of payment.
7. In support of his contentions, learned Counsel placed reliance on the Judgment of the Hon'ble Apex Court in the case of 'HYDER CONSULTING [UK] -8- LIMITED v. STATE OF ORISSA, THROUGH CHIEF ENGINEER' reported in (2016) 6 SCC 362.
8. This Court by order dated 27.11.2014 has observed that the Respondent No.1 being the Arbitrator has passed the Award in question, the question of taking notice to Respondent No.1 does not arise.
Hence, no notice was issued to Respondent No.1. Hence, hearing of Respondent No.1 is not necessary.
9. I have given my anxious consideration to the submissions made at the bar and perused the material on record.
10. The main argument of the learned counsel for the appellant inasmuch as no reasons assigned by the Arbitrator in arriving at a decision, Judgment of the Hon'ble Apex Court in 'MCDERMOTT INTERNATIONAL INC's case (supra) has been relied upon. It is true that it is the duty of the Arbitrator to assign reasons in -9- support of the award. In this regard, the Hon'ble Apex Court referring to the Bachawat's Law of Arbitration and Conciliation, 4th Edition, has observed that the mandatoriness of giving reasons unless arbitration agreement provides otherwise is to be followed by the Arbitrator.
11. In the case of STATE OF UTTAR PRADESH's case (supra), the Hon'ble Apex Court has held that the Arbitrator was duty bound to examine the tenability of the claim made by the respondent under different heads and decide the same by assigning some reasons, howsoever briefly. His failure to do so constituted a valid ground for setting aside the award and the trial court committed a serious error by making the award rule of the court. Unfortunately, the High Court also overlooked this lacuna in the award and approved the judgment of the trial court.
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12. In SRI CHITTARANJAN MAITY's case (supra) the Hon'ble Apex Court has held that in Section 31(7)(a), a specific provision has been created, whereby if the agreement prohibits award of interest for the pre- award period (i.e. pre-reference and pendent elite period), the arbitrator cannot award interest for the said period. Thus the arbitrator, could not have awarded such interest. Referring to this Judgment, learned counsel has drawn the attention of this court to clause 29 of the agreement entered into between the parties to contend that it is the agreed term of the contract that the sum of money or monies withheld or retained under the lien referred to in the agreement by the Engineer-in- charge of Government, till the claim arising out of or under the contract (if the contract is governed by the Arbitration clause) by the competent court, as the case may be and the contractor will have no claim for interest or damage whatsoever on any account in
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respect of such withholding or retention, duly noticed to the contractor under this clause.
13. In the Judgment of SRI. S.V. SAMUDRAM's case supra, this court referring to the Judgment of the Hon'ble Apex Court in Mukund Ltd -v- Hindustan Petroleum Corporation Limited reported in [2006] 4 SCALE 453, considering the long lapse of time between the date on which the cause of action arose and on the date on which award was made and if the entire award is specified, the respondent would have to pay huge sum of money by way of interest, confirmed the interest awarded by the trial Judge wherein interest awarded by the Arbitrator at 18% p.a. was reduced to 9% p.a.
14. In the case of HYDER CONSULTING [UK] LIMITED's case supra, the Hon'ble Apex Court while dealing with an appeal arising from rejecting an objection under Section 34 of the Arbitration and Conciliation Act, 1996, modifying the award especially
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the rate of interest determined by the learned arbitrator held that rate of interest granted by the Arbitrator is in consonance with the decision in HYDER CONSULTING [UK] LIMITED v- GOVERNOR, STATE OF ORISSA reported in [2015] 2 SCC 189 and hence, there was no justification on the part of the High court admitting the appeal to modify the interest compounded applying equitable principle.
15. In the light of these Judgments, the arguments advanced at the hands of the learned counsel for the parties has been examined.
16. As regards the claim made by respondent No.2-contractor before the Arbitrator, the same has been adjudicated upon to partly allow the claims assigning reasons which cannot be faulted with. To examine the same, claim No.4 inasmuch as whether the claimant/contractor is entitled to payment of labour charges for steel reinforcement said to be due to higher
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coefficient including compensation claimed, has been partly allowed assigning the reasons that the respondent/appellant in the 4th hearing has admitted that the claimant/respondent No.2 has been paid less amount of steel to the tune of 4504 kgs. The claimant is, therefore, entitled at the rate of Rs.1.55 per Kg amounting to Rs.6981/-. As regards claim No.5, whether the claimant contractor is entitled to payment for lift charges on RCC and brick work items beyond floor height of 3.50mt including compensation claimed, is partly allowed for the reason that it is an admitted fact that as per specifications the claimant is entitled to extra, on account of carrying out work at a height which is more than 3.5 Mtrs. It is also not in dispute that the claimant has carried out concreting of RCC slab, beams, columns, staircase and walls on various floors. Though the claimant claimed at Rs.50/- per cubic meter, Rs.30/- per cubic meter is awarded is reasonable. Similarly in respect of claim No.6, reasons are assigned
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by the Arbitrator in awarding extra rate for rock excavation for quantity said to be in excess of 20% of agreement quantity including compensation claimed. A sum of Rs.2,17,500/- is awarded considering 50% of deviation as reasonable, rejecting the compensation of the respondent No.2 that there is no deviation limit for any itemn carried out in the foundation. Likewise claims No.11, 14, 16, 17, 18, 20, 21, 27 and 28, on examination reveals the reasons assigned by the learned Arbitrator to arrive at a conclusion.
17. Learned trial Judge on consideration of the pleadings in the suits filed by the parties framed following issues ;
1. Whether the plaintiff proves that the respondent has invoked the arbitration after the expiry of the period of limitation ?
2. Whether the plaintiff proves that the award passed by the arbitrator is against the provisions of Section 32 of the Arbitration and
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Conciliation Act, 1996 and violative of the principles of natural justice ?
3. Whether the plaintiff proves that the Arbitrator has not provided him sufficient opportunity in the said proceedings ?
4. Whether the suit is maintainable under Section 34 of the Arbitration and Conciliation Act, 1996?
On appreciation of the material evidence answered Issue Nos.1 to 3 in the negative and issue No.4 in the affirmative.
Issues framed in A.S.No.3/2001 are as under:
1. Whether the petitioner proves that the award passed by the Arbitrator is against the provisions of Section 31 of the Arbitration and Conciliation Act, 1996 and against the public policy ?
2. What order or decree ?
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On appreciation of the material evidence, answered Issue No.1 in the affirmative and issue No.2 as per final order recorded therein, setting aside the arbitral award with respect to claim Nos.1, 7 and 13 and remitting the matter to the Arbitral tribunal and partly allowing other claims.
18. While answering these issues, the trial Judge has examined the claims made by respondent No.2 and the decision given by the arbitrator in extenso. In the circumstances, the arguments advanced by the learned counsel for the appellant that no reasons are assigned by the Arbitrator for arriving at a conclusion cannot be countenanced and the same is negated. It cannot be held that the reasons assigned by the learned Arbitrator, confirmed by the trial Court are not inconformity with the Judgment of the Hon'ble Apex Court referred to by the learned counsel for the appellant. It is also pertinent to note that the appellant
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is in appeal only against certain claims confirmed by the District Judge, but accepted the decision of the learned District Judge in remanding claim Nos. 1, 7 to 13 to the learned Arbitrator for fresh consideration. Hence, on these points, no irregularity or infirmity is found in the Judgment impugned herein.
19. As regards rate of interest, much emphasis is placed by the learned counsel for the appellant on the decision of the learned Arbitrator relating to the claims remanded by the learned District Judge, whereby simple interest at 10% p.a. has been awarded against the claim with effect from the date of claim till the date of realisation. Though learned counsel for respondent No.2 placed reliance on the Judgment of the Hon'ble Apex Court in Hyder Consulating (UK) Limited's case supra, in the facts and circumstances of the case, arguments advanced by the learned counsel for the appellant appears to have some force. Though it was
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argued that in terms of Clause 29 of the agreement and in the light of the Judgment of the Hon'ble Apex Court in the case of Sri Chittaranjan Maity's case supra, respondent No.2 is not entitled for any interest at the first instance, the said clause 29 is relating to the money or monies withheld or retained for the lien in respect of sums claimed which would not have any bearing in awarding interest on the claims. Hence, interest awarded by the learned Arbitrator after remand deserves to be applied to the present facts of the case since the dispute arises from the very common contract and the said simple interest at 10% p.a. awarded by the learned Arbitrator has been accepted by the 2nd respondent after remand of certain claims by the learned District Judge. In the peculiar facts and circumstances of the case, the Judgment of Hon'ble Apex Court in Hyder Consulating (UK) Limited's case supra, is not applicable to the present facts of the case.
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20. For the aforesaid reasons, this court finds it appropriate to award 10% interest throughout from the date of the claim till the date of payment. Hence, the following:
ORDER
1. Appeal is allowed in part.
2. Judgment and decree passed in A.S.No.2/2001 is modified as far as the rate of interest is concerned. Rate of interest awarded by the learned Arbitrator, confirmed by the learned District Judge at 15% p.a. from 10.2.1997 till the date of payment is modified to 10% p.a. from 10.2.1997 till the date of payment.
3. In all other respects, the Judgment and decree passed in A.S.No.2/2001 on the file of the Principal District Judge, Mysore, as well as the Arbitral award passed by Respondent No.1
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dated 30.12.2000 in Case No.CE/ARB/SBL/18 remains intact.
4. No order as to costs.
Sd/-
JUDGE AN/-, ln.