Jammu & Kashmir High Court - Srinagar Bench
State Of J&K Through Chief Secretary vs Kamal Krishan Chibber on 4 July, 2024
Author: Sanjeev Kumar
Bench: Sanjeev Kumar
HIGH COURT OF JAMMU & KASHMIR AND LADAKH
AT SRINAGAR
AP No. 5/2019
Arb P No. 5/2019
Reserved On: 28.05.2024.
Pronounced On: 04 . 07.2024.
1. State of J&K through Chief Secretary,
New Secretariat, Srinagar/Jammu.
2. Commissioner Secretary, Power
Development Department, New
Secretariat, Srinagar/Jammu.
3. Managing Director, Power Development
Corporation, Boulevard Road, Srinagar.
4. Chief Engineer, Generation Incharge
USHP-II, PDD Complex, Bemina
Srinagar.
5. Executive Engineer, Civil Maintenance
Division Formerly Wangat Link Division
(USHP), Kangan. ...Petitioner(s)
Through: Mr. M.A. Chashoo, Advocate
Vs.
Kamal Krishan Chibber.
S/O: Noralta Singh
R/O: Ram Nivas, 1st Floor M.K. Road, m
Khannaq, Punjab. ...Respondent(s)
Through: Mr. Manzoor A. Dar, Advocate.
CORAM:
HON'BLE MR. JUSTICE SANJEEV KUMAR, JUDGE.
JUDGMENT
1. The challenge in this application filed under Section 34 of the Jammu and Kashmir Arbitration and Conciliation Act, 1997 ["the Act"], by the then State of Jammu and Kashmir and Ors. (now Union Territory) is thrown to an arbitral award dated 30th December, 2018, passed by sole arbitrator Mr. G.M. Dar, former District and Sessions Judge, in the Arb P No. 5/2019 Page No. 1 of 31 arbitration matter titled "Kamal Krishan Chibber Vs. State of Jammu and Kashmir and Ors." whereby the learned arbitrator has held the respondent- Contractor entitled to the following amounts: -
Amount Head
25,75,036/- Payment on account of restoration work.
50,000/- Payment on account of earnest money.
8,10,000/- Payment on account of security deposit.
21,43,536/- Payment on account of escalation.
76,865/- Payment on account of final bill.
2. The respondent-Contractor has been held entitled to the aforesaid amount along with interest @6% per annum from the date of filing of the arbitration petition before the Hon'ble Chief Justice till the date of award and 18% per annum after one month of passing of the award till the final payment of the award amount. The petitioners herein are also obligated to pay an amount of Rs. 1.00 lacs as arbitrator's fee, to be released along with the awarded amount.
FACTUAL MATRIX:
3. The dispute between the parties owes its origin to allotment of a contract by the petitioners to the respondent-Contractor vide allotment letter No. USHP-II/EC/27 dated 3rd June, 1988. The contract was for execution of balance work of Wangat Weir at USHP-II Kangan. According to the terms and conditions of the contract entered into between the parties, the initial period of completion was up to 30th November, 1989. Since the contractor Arb P No. 5/2019 Page No. 2 of 31 failed to complete the work within the stipulated period, as such, the time to complete the work was extended up to 1992.
4. Having regard to the disturbed law and order conditions in the valley, the respondent-Contractor was granted enough time to complete work, but he failed to do so. Consequently, the petitioners terminated the contract on 5th May, 1998. At the time of termination of contract, the respondent-Contractor had completed the work only to the extent of Rs. 113 lacs up to 01.04.1994, as against the total cost of the allotted work of Rs. 199.06 lacs. The petitioners claim that they suffered huge loss because of delay caused in the execution of the allotted work and, therefore, the petitioners were left with no option but to terminate the contract, which was done on 5th May, 1998.
5. The respondent-Contractor claimably approached the petitioners by way of several representations made from time to time, for release of amount payable to the respondent-Contractor for the work it had executed till the termination of the contract. The earliest communication which is relied upon by the respondent-Contractor is dated 21st November, 2000, whereby the Executive Engineer, Wangat Link Division, USHP-II Kangan, was requested to pay the legitimate dues of the respondent-Contractor. The Executive Engineer was also informed that if dues are not paid, he would be left with no other alternative but to report the matter to Central Bureau of Investigation (CBI). This communication is followed by other communications made by the respondent-Contractor on 30th December, 2000, 22nd May, 2001, 11th April, 2001, 25th July, 2003, 31st July, 2004, 3rd September, 2005 and 26th February, 2011 wherein the respondent-contractor Arb P No. 5/2019 Page No. 3 of 31 quantified the total amount due to him at Rs. 63.40 lacs and requested for its release.
6. It seems that when the dispute between the parties remained unresolved, the respondent-Contractor approached this Court in the year 2013 for appointment of an arbitrator and reference of the arbitrable dispute. It is claimed by the respondent-Contractor that he nominated Mr. Nazir Ahmad Mir, retired Chief Engineer as arbitrator, but the petitioners failed to act in the matter. Be that as it may, on the intervention of this Court Mr. G.M. Dar, retired District and Sessions Judge, was appointed as sole arbitrator, in terms of the order dated 4th November, 2013, passed in CM No. 19 of 2013 in AA No. 19 of 2013, by Justice Mansoor Ahmad Mir, the then judge of this Court.
7. In compliance with the order dated 4th November, 2013, passed by this Court, the learned arbitrator entered reference and summoned the petitioners herein to appear before him on 15th April, 2014. The respondent- Contractor, through his counsel, had submitted his statement of claims on 14th December, 2013, i.e., immediately after he appeared before the learned arbitrator in compliance to the order of this Court dated 4 th November, 2013.. In the statement of claims, the respondent-Contractor did not challenge the termination of the contract nor did he allege any breach of contract, except non-payment of dues by the petitioners for the work executed by him up to the date of termination of contract. The respondent- Contractor claimed that though the petitioners never disputed the payment due to him, yet there was reluctance on the part of the petitioners to release the amount without any ostensible reasons.
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8. It is submitted that at one point of time, the petitioners took the plea that due to litigation between the Contractor and his brother pending before the Court of Additional District Judge, Srinagar, it was not possible for them to make payment in favour of the respondent-Contractor. Moreso when the plaintiff (brother of respondent-Contractor) had also arrayed the petitioners as party defendant in the suit. The respondent-Contractor claimed that he moved the civil Court by way of an application on 18th August, 2005, and the position was clarified to the petitioners that the civil Court had not issued any prohibitory order to stall the release of payment due to the respondent-Contractor. The respondent-Contractor communicated the petitioners about the status clarified by the civil Court vide his communication dated 3rd September, 2005. As it comes out from the reading of the claims filed by the respondent-Contractor before the learned arbitrator, the respondent-Contractor remained quiet for almost six years and then issued a communication to the Executive Engineer and Chief Engineer Generation PDD on 26th February, 2011, in terms whereof the respondent- Contractor once again requested for release of his legitimate dues. It is claimed that in response to the communication dated 26 th February, 2011, (supra), the Assistant Executive Engineer, prepared the final bill and submitted it to the Executive Engineer. The respondent-Contractor also clamed that he had moved an application under Right to Information Act for seeking information about the payment due to him, in response whereof the petitioners informed the respondent-Contractor through his counsel that an amount of Rs. 21,43,536, was payable to the respondent-Contractor on Arb P No. 5/2019 Page No. 5 of 31 account of escalation, in addition to the balance amount of Rs. 76,865/- as per the final bill prepared by the Assistant Executive Engineer.
9. The respondent-Contractor also raised a claim for an amount spent by him on restoration of flood damaged works and construction of Bund. An amount of Rs. 24, 25,987/- was claimed by the respondent-Contractor under this head. He also raised a claim of Rs. 7, 75, 500/- on account of payments/deductions made from the running account bills. There was a separate claim laid for the earnest money of Rs. 50,000/-. The respondent- Contractor thus placed before the learned Arbitrator a total claim of Rs. 65,84,160/- along with interest @ 18% per annum.
10. The petitioners herein who were represented by the Executive Engineer Civil Maintenance Division, USHP-II, Kangan, contested the claims of the respondent-Contractor and filed their written objections/reply. The allotment of balance work in question to the respondent-Contractor vide allotment letter dated 3rd June, 1988, at a contract value of Rs. 199.06 lacs was not disputed. It was submitted that the date of completion of work was upto 30th November, 1989, which was later on extended up to 1992. The respondent-Contractor executed work to the tune of Rs. 113.0 lacs up to 1st April, 1994, and, thereafter, abandoned the same. The petitioners were constrained to allot the balance work to the M/S M and Company and terminated the contract with the respondent-Contractor on 15th May, 1998.
11. Interestingly, the petitioners did not complain specifically about the breach of the terms and conditions of the contract by the respondent- Contractor nor did they raise any counter claims before the learned Arb P No. 5/2019 Page No. 6 of 31 arbitrator. It was submitted by the petitioners in their objections that upon termination of the contract, the Contractor was requested to attend their office for settlement of amounts, but he never turned up. Regarding the claims raised by the respondent-Contractor, the petitioners did not specifically deny the escalation charges claimed by the respondent- Contractor. However, it was empathetically stated that the amount claimed by the respondent-Contractor on account of restoration work had been paid in full. It was clarified that the estimates prepared by the department for restoration of the flood damaged works were not admission by the petitioners with regard to the entitlement of the respondent-Contractor to such estimated amounts. The petitioners also placed on record communications dated 16th December, 2000, 3rd April, 2001, 12th September, 2000, to substantiate the averments made in the objections.
12. In the communication dated 12th September, 2000, issued by the Executive Engineer concerned to the respondent-Contractor plea of 'force majeure' clause in the agreement was specifically raised to contend that the reconstruction of the damaged works due to floods was governed by the aforesaid clause and, therefore, same was not payable to the respondent- Contractor. The plea of delay in invoking the arbitration was though not specifically taken in the objections, but the same was raised at the time of arguments being a pure question of law. The parties also led their respective evidence before the learned arbitrator.
13. The matter was considered by the learned arbitrator at length and vide arbitral award impugned the learned arbitrator allowed the claims of the respondent-Contractor and rejected the defense of the petitioners including Arb P No. 5/2019 Page No. 7 of 31 the plea of limitation raised during the course of arguments. The amount as detailed in the beginning of this order was awarded to the respondent- Contractor. It is important to notice that during the pendency of the arbitral proceedings and in the light of the fair stand taken by the petitioners and the concession given by their counsel, the learned arbitrator had already passed an interim award to the extent of escalation.
14. The interim award was challenged before the learned District Judge under Section 34 of the Act. The challenge failed on account of limitation and the order of rejection of the application filed before the District Court was challenged in an Arbitration appeal No. 06/2017 filed by the petitioners under Section 37 of the Act. The appeal was dismissed by this Court vide order dated 21st September, 2023. The order passed by the learned Principal District Judge, Srinagar, dated 8th February, 2017, rejecting the application of the petitioners under Section 34 of the Act, throwing challenge to an interim award was upheld. It is in this background, the petitioners have challenged the arbitral award by way of this petition. SUBMISSION ON BEHALF OF THE PETITIONERS:
15. The impugned arbitral award is assailed by the petitioners inter alia on the following grounds:-
(i) That the learned arbitrator committed an error apparent on face of record by entertaining time barred claims. It is argued that the work in question was allotted to the respondent-Contractor on 3rd June, 1988, and due to his inability to complete the execution of the work within stipulated period including the extensions granted from Arb P No. 5/2019 Page No. 8 of 31 time to time, the petitioners were constrained to terminate the contract on 5th May, 1998. The cause of action to challenge the termination of contract or to claim the amount, if any, due under the contract accrued to the respondent-Contractor on 5th May, 1998. The respondent-Contractor approached this Court for appointment of arbitrator by way of an application under Section 11 of the Act in the year 2013 i.e., after a gap of fifteen years, whereas the law of limitation provides only three years period. It is, thus, argued that the claims raised by the respondent-Contractor before the learned arbitrator were time barred and stale.
(ii) That the impugned arbitral award suffers from grave error of fact and law apparent on face of record, in that the learned arbitrator has not taken note of 'force majeure' clause contained in the agreement (clause 32), which clearly stipulates that the parties shall bear their own losses, if any, caused due to an unforeseen event like earthquake, floods etc. It is thus argued that the amount of Rs. 25, 75,036/- awarded by the learned arbitrator on account of restoration work is against the terms and conditions of the contract and, therefore, not tenable in law.
(iii) That the learned arbitrator has not appreciated that the contract awarded to the respondent-Contractor was terminated due to his failure to complete the work within the stipulated period. The security amount and the earnest money was thus not payable to the respondent-Contractor who was guilty of committing the breach of contract.Arb P No. 5/2019 Page No. 9 of 31
(iv) That the impugned award is in conflict with public policy.
The interest awarded by the learned arbitrator is contrary to the statutory provisions contained in the Act.
16. The learned counsel appearing for the petitioners, however, could not dispute the payment of escalation charges except by pointing out that the allotted rates were enhanced by the Government w.e.f. 01.04.1993 with the corresponding change in the base price index i.e.,04/1998 (original contract 03/1993) for escalation clause. The respondent-Contractor pleaded with the Chief Engineer that the escalation rates in respect of certain items of work were not beneficial to him and, accordingly, the Chief Engineer offered the respondent-Contractor either to accept pre 1993 or post 1993 structure commensurate with the base price index. It is thus suggested that because of the failure of the respondent-Contractor to make a choice, the escalation charges could not be paid.
SUBMISSION OF BEHALF OF THE RESPONDENT-CONTRACTOR:
17. It is argued on behalf of the respondent-Contractor that the plea of limitation raised by the petitioners is not tenable, in that, no such plea was ever raised in the proceedings under Section 11 of the Act nor was the same raised before the learned arbitrator at the time of filing of objections in response to the claims raised by the respondent-Contractor.
18. It is submitted that after the dismissal of the partition suit between the Contractor and his family members in the year 2011, the petitioners were requested to process the case for payment and a communication in this Arb P No. 5/2019 Page No. 10 of 31 regard was addressed on 1st December, 2012. It was only when the petitioners did nothing, the matter was taken to the High Court for appointment of arbitrator by way of an application under Section 11 of the Act.
19. It is further argued that the learned arbitrator has decided the factual aspect of the dispute in the light of pleadings of the parties, documents on record and the evidence recorded and the same cannot be interfered with by this Court in a proceeding under Section 34 of the Act. DISCUSSION AND ANALYSIS:
20. Having heard learned counsel for the parties and perused the material on record, following questions arise for determination in this petition:-
(i) Whether the claims entertained and awarded by the learned arbitrator in terms of the impugned arbitral award are stale and time barred and thereby rendering the arbitral award in conflict with pubic policy of the State and such claims are otherwise beyond the scope of submission of arbitration?
(ii) Whether the award on an amount of Rs. 25, 82,609/-
on account of restoration of flood damaged works in the presence of clause 21 of the agreement ('force majeure' clause) does not fall within the terms of submission to arbitration?
(iii) Whether the interest awarded by the arbitrator is contrary to statutory provisions of the Act and Arb P No. 5/2019 Page No. 11 of 31 therefore renders the award against public policy of the State.
(iv) Whether the interim arbitral award dated 21.01.2015 is an independent final award quo the item of claim it has decided and therefore does not merge with the impugned arbitral (final) award?
21. With a view to appreciating the issues framed hereinabove, it is necessary to first determine the applicability of law of arbitration to the case on hand. Admittedly, on the date of allotment of contract i.e., 3rd June, 1988, it was the Jammu and Kashmir Arbitration Act, 1940, which was applicable. However, the Act of 1940 came to be repealed and replaced by the Jammu and Kashmir Arbitration and Conciliation Act, 1997, which was brought into force in the then State of Jammu and Kashmir on 19 th November, 1997. Section 68 of the Act of 1997 reads thus:-
"68. Repeal and saving:
1) The Arbitration Act, Samvat 2002 is repealed.
(2) Notwithstanding such repeal,-
(a) the provisions of the said enactment shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force;
(b) all rules made and notification published under the said enactment shall, to the extent to which they are not repugnant to this Act, be deemed respectively to have been made or issued under this Act."Arb P No. 5/2019 Page No. 12 of 31
22. It is thus clear that the Arbitration Act 1940 (Samvat 2002) came to be repealed and it was provided that notwithstanding such repeal the provisions of repealed enactment shall apply in relation to arbitral proceedings commenced before coming into operation of the Act of 1997, unless otherwise agreed to by the parties. It is further reiterated that the Act of 1997 shall apply in relation to arbitral proceedings which have commenced or which commence on or after coming into force of the Act of 1997 i.e., 19th November, 1997.
23. With a view to find out the applicability of the relevant arbitration law to the instant case, we need to find out the date of commencement of the arbitral proceedings in this case. Section 21 of the Act deals with this aspect of the matter and reads thus:-
21. Commencement of arbitral proceedings:
Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent."
24. In the instant case, from reading of petition under Section 11 of the Act of 1997, filed by the respondent-Contractor, it is apparent that request for reference of dispute to arbitration was made by the respondent- Contractor to the petitioners on 4th January, 2013, which for the purpose of applicability of law of arbitration is to be taken as date of commencement of the arbitral proceedings. Obviously, on 4th January, 2013, the Act of 1997, as amended by Jammu and Kashmir Arbitration and Conciliation (Amendment Act), 2010, was in operation.
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25. Section 34 of the Act of 1997 prescribes and enumerates grounds on which the aggrieved party can challenge the arbitral award. Section 34 reads thus:-
34. Application for setting aside arbitral award"
(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration or it contains decisions on matters beyond the scope of the submission to arbitration :
Provided that, if the decision on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot Arb P No. 5/2019 Page No. 14 of 31 derogate, or, failing such agreement was not in accordance with this Part; or
(b) the Court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force; or
(ii) the arbitral award is in conflict with the public policy of the State.
Explanation:- Without prejudice to the generality of sub- clause (ii) of clause (b), it is hereby declared for the avoidance of any doubt, that an award is in conflict with the public policy of the State if the making of the award was induced or affected by fraud or corruption or was in violation of section 58 or section 64.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will Arb P No. 5/2019 Page No. 15 of 31 eliminate the grounds for setting aside the arbitral award."
26. As is seen from reading of Section 34 of the Act, the term "conflict with public policy of State" is not specifically defined or explained. However, the explanation appended to sub Section 2(b)(ii) lays down that an award will be in conflict with the public policy of the State if the making of the award is induced or affected by fraud or corruption or was in violation of Section 58 or Section 64. This explanation is, however, without prejudice to the generality of sub clause (ii) of clause (b) of Sub Section 2 of Section
34.
27. The petitioners have specifically raised the plea that learned arbitrator entertained time barred claims and passed the impugned arbitral award, which is against the public policy of State and beyond the scope of submission to arbitration. To adjudicate his plea, it is necessary to refer to Section 43 of the Act, which deals with limitation. Section 43 of the Act reads thus:-
43. Limitations "(1) The Limitation Act, Samvat 1995 shall apply to arbitrations as it applies to proceedings in Court.
(2) For the purposes of this section and the Limitation Act, Samvat 1995 an arbitration shall be deemed to have commenced on the date referred in section 21.
(3) Where an arbitration agreement to submit future disputes to arbitration provides that any claim to which the agreement applies shall be barred unless some step to commence arbitral proceedings is taken within a time fixed Arb P No. 5/2019 Page No. 16 of 31 by the agreement, and a dispute arises to which the agreement applies, the Court, if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and notwithstanding that the time so fixed has expired, may on such terms, if any, as the justice of the case may require, extend the time for such period as it thinks proper.
(4) Where the Court orders that an arbitral award be set aside, the period between the commencement of the arbitration and the date of the order of the Court shall be excluded in computing the time prescribed by the Limitation Act, Samvat 1995 for the commencement of the proceedings (including arbitration) with respect to the dispute so submitted."
28. From the bare perusal of the Section 43 of the Act, it is evident that the Limitation Act Samvat, 1995, is applicable to arbitrations as it applies to the proceedings in the Court. It further provides that for computation of limitation, an arbitration shall be deemed to have commenced on the date referred in Section 21. There is thus no controversy or dispute with regard to the application of the Limitation Act to the arbitrations. The term "arbitration" used in Sub Section 2 of Section 43 would encompass the arbitration proceedings before the Court as well as the arbitral Tribunal.
29. Learned counsel for the petitioners has raised the issue that the application filed by the respondent-Contractor under Section 11 of the Act of 1997, for appointment of arbitrator was barred by limitation. However, no such objection was ever raised by the petitioners before the learned single Judge, who appointed the arbitrator and referred the dispute for arbitration Arb P No. 5/2019 Page No. 17 of 31 under Section 11 of the Act of 1997. The argument that the application under Section 11 moved by the respondent-Contractor was barred by limitation and, therefore, the entire arbitral proceedings before the learned arbitrator culminating into passing of impugned arbitral award are vitiated, is not now available to the petitioners. However, the plea of limitation raised by the petitioners before the learned arbitrator that the claims were also barred by limitation is worthy of consideration.
30. The learned arbitrator has dealt with the issue in his own way and has held the claims within time. The reasoning given by the learned arbitrator is that the contract was terminated on 5th May, 1998, and the petitioners herein did not respond to the communication of the respondent- Contractor dated 12th September, 2000, wherein he had made a request for final bill as also payment in relation to other claims including payment on account of escalation.
31. It is observed by the learned arbitrator that initially the payment was declined by the petitioners on account of pendency of civil suit and later on the matter was clarified by the civil Court that there was no injunctive order against the petitioners against the release of payment to the respondent-Contractor. The final bill and payment on account of escalation was still not processed and remained pending till 2011. It was only after the dismissal of the suit, the Assistant Executive Engineer, was directed by the Chief Engineer, vide communication dated 11th July, 2012, to prepare the final bill for payment. Consequently, the bill for payment was submitted for an amount of Rs. 76.580. It was only after the final bill was prepared the steps were taken by the respondent-Contractor to approach the Hon'ble Arb P No. 5/2019 Page No. 18 of 31 Chief Justice of this Court under Section 11 of the Act of 1997, for appointment of arbitrator.
32. The learned arbitrator has opined that the cause of action in the instant case arose only after the final bill was prepared in the year 2012, and the right to sue accrued to the respondent-Contractor when the payments claimed were refused or the same were not found in final bill prepared by the petitioners. He, therefore, opines that the claims, which shall be deemed to have been preferred on the date of commencement of the arbitral proceedings i.e., 4th January, 2013, were within time.
33. I have given my thoughtful consideration to this vital aspect of limitation, that was raised by the petitioners before the learned arbitrator and in which way it has been discussed and disposed of by the learned arbitrator. Before proceeding further, it needs to be reaffirmed that there is a fine distinction between the plea that the claims raised are barred by the limitation and the plea that the application for appointment of an arbitrator is barred by limitation. So far as the application under Section 11 of the Act of 1997 is concerned, the same is governed by Article 181 of the Limitation Act 1995, which prescribes a period of three years to be reckoned from the date on which the right to apply accrues. The right to file for appointment of arbitrator accrues when a request is made by the party seeking appointment of an arbitrator to the other party to the contract and such request is refused or on expiry of thirty days from the date of receipt of request, whichever is earlier.
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34. However, the limitation for filing the claims before the arbitrator starts from the date, the cause of action accrues to the party to file a suit, had there been no arbitration clause in the contract. "The cause of action" has been explained by the Hon'ble Supreme Court in numerous judgments. Cause of action means a whole bundle of material facts, which it is necessary for the plaintiff to prove in order to entitle him to succeed in the suit. The cause of action accrues when there is in existence a person who can sue and another who can be sued and when all the facts have happened which are material to be proved to entitle the plaintiff to succeed. The cause of action assumes importance when it comes to computing the period of limitation for bringing an action.
35. Ordinarily, on the completion of the work, right to receive the payment accrues to the contractor and in case of premature termination of the contract, the right to claim payment arises immediately on the termination of the contract. The moment a payment is claimed by the contractor and the same is denied, declined, or even avoided by the employer, the right to recover the payment begins and the cause of action accrues. By repeated communications, the respondent-Contractor, cannot invalidate the cause of action.
36. In the instant case, indisputably, the cause of action accrued to the respondent-Contractor on termination of the contract i.e., on 5th May, 1998. For it is this date when the respondent-Contractor became entitled to payments be it in relation to the work executed or by way of damages for breach of contract. The respondent-Contractor made the demand for payment on 29th November, 2000. The respondent-Contractor raised specific Arb P No. 5/2019 Page No. 20 of 31 claims under different heads in the year 2004, as is evident from the communication dated 31st July, 2004, addressed to the Executive Engineer Wangat Link Division, Kangan, placed on record by the respondent- Contractor along with his claims.
37. That apart, a communication of the Executive Engineer dated 12th September, 2000, written in reference to a letter of contractor dated 16th August, 2000, which is part of objections filed by the petitioners before the learned arbitrator, makes it abundantly clear that the claims put forth by the respondent-Contractor were repudiated, in particular, the claim raised on account of restoration of flood damaged works of 1995-96 and construction of diversion bunds. This happened in the year 2000, it is at least this date, when the right to sue accrued to the respondent-Contractor to raise the dispute.
38. I have no doubt in my mind that the application moved by the respondent-Contractor under Section 11 of the Act for appointment of arbitrator was barred by limitation for it had raised patently stale claims. The respondent-Contractor could not have waited for almost thirteen years to seek arbitration of his disputes through the intervention of the Court. Since this issue was not raised before this Court in a petition filed under Section 11 of the Act of 1997, as such, I feel handicapped to examine the same in these proceedings.
39. Suffice it to say, that notwithstanding entertainment of a petition under Section 11 and appointment of arbitrator by this Court, the issue as to whether the claims preferred before the learned arbitrator were within time Arb P No. 5/2019 Page No. 21 of 31 or barred by limitation could be validly raised before arbitrator. Indisputably, a suit for recovery of money payable on a contract whether it is in respect of breach thereof or otherwise is required to be filed within a period of three years from the date of accrual of cause of action. The cause of action in this case definitely accrued on 5th May, 1998, or at least on 12th September, 2000, when the claims put forth by the respondent-Contractor were repudiated by the petitioners. That being the position, the claims adjudicated upon by the learned arbitrator which shall be deemed to have been filed on 4th January, 2013, i.e., commencement of arbitral proceedings as explained above were patently time barred. Awarding of time barred claims by the learned arbitrator was patently illegal and thus contrary to the fundamental policy of State law.
40. The learned arbitrator has not appreciated this aspect in the right perspective. In the view I have taken I am supported by the judgments of the Hon'ble Supreme Court in "M/S B and T AG Vs. Ministry of Defence", [2023] 7 S.C.R. 599 and "M/S Arif Azim Co. Ltd Vs. M/S Aptech Ltd", [2024]3 S.C.R 73;2024 INSC 155.
41. Viewed thus, I am in agreement with the learned counsel for the petitioners, that the learned arbitrator by entertaining time barred claims has committed glaring illegality apparent on face of record and that renders the impugned arbitral award against the public policy of the State. It is not in dispute that entertaining and awarding the time barred claims is abhorrent to law and, therefore, must be held to against public policy of the State. Arb P No. 5/2019 Page No. 22 of 31
42. Having said that, I am still of the opinion that so far as the claim on account of escalation is concerned, the same having been already adjudicated upon by the learned arbitrator by rendering interim award dated 21st January, 2015, is no longer open to challenge yet again in this application filed under Section 34 of the Act of 1997, to throw challenge to final award. As noticed above, the aforesaid interim award was challenged by the petitioners before the Principal District Judge, Srinagar, by way of an application under Section 34 of the Act. The challenge to the interim award failed and the application of the petitioners was dismissed by the Principal District Judge, Srinagar vide order dated 8th February, 2017, being barred by limitation and the interim award passed by the learned arbitrator was upheld. The order of Principal District Judge, Srinagar, dated 8th February, 2015, was assailed before this Court by the petitioners by filing an appeal purportedly under Section 37 of the Act. The appeal was dismissed on merits and the order passed by the Principal District Judge, Srinagar, dated 8 th February, 2017, was upheld.
43. Viewed, thus, there should be no doubt or confusion that interim award by virtue of which the claim of the respondent-Contractor for escalation charges to the tune of Rs. 21, 43,536/- has been finally adjudicated upon and, therefore, the interim award dated 21st January, 2015, which has since been upheld by this Court could not have been made the part of the final arbitral award dated 30th December, 2018, impugned in this petition nor could it be made subject matter of challenge yet again under Section 34 of the Act. The arbitral award dated 21st January, 2015, though passed at interlocutory stage of arbitration proceedings has assumed finality Arb P No. 5/2019 Page No. 23 of 31 in so far as the item of claim disposed of by the arbitrator in terms of the said award. Moreso, when the interim award dated 21st January, 2015, has already been upheld by this Court vide order dated 21st September, 2023, dismissing the appeal of the petitioners filed purportedly under Section 37 of the Act.
44. A distinction needs to be drawn between an interim award and the interim order that may be passed by the Arbitral Tribunal during the course of arbitration proceedings. An interim award passed by the Arbitral Tribunal during arbitration proceedings is in itself a final award in respect of the claim finally adjudicated in the said award. Whether or not an order passed by the Arbitral Tribunal during arbitration proceedings is an interim award depends upon the nature of the order. Both the interim awards as well as interim orders are passed at the interlocutory stage in the arbitration proceedings. However, what distinguishes an interim award from an interim order is the nature and consequences of such order passed during arbitration proceedings. If the interim award passed by the Arbitral Tribunal conclusively determines a claim or a point in issue it would be an interim award assailable at the instance of party aggrieved under Section 34 of the Act. Such interim award is an independent award in itself and does not merge with the final award that may be passed at the culmination of the arbitration proceedings before the arbitrator. Section 2(1)(c) of the Act defines arbitral award in the following manner:-
2(c) "Arbitral award" includes an interim award.
45. It is, thus, crystal clear that interim award is also an arbitral award and, therefore, can be validly challenged by the party aggrieved by having Arb P No. 5/2019 Page No. 24 of 31 resort to Section 34 of the Act. At this juncture, I deem it appropriate to set out Section 31 of the Act:-
31. Form and contents of arbitral award (1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.
(2) For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the signature of the majority of all the members of the arbitral tribunal shall be sufficient so long as the reason for any omitted signature is stated.
(3) The arbitral award shall state the reasons upon which it is based, unless-
(a) the parties have agreed that no reasons are to be given; or
(b) the award is an arbitral award on agreed terms under section 30.
(4) The arbitral award shall state its date and the place of arbitration as determined in accordance with section 20 and the award shall be deemed to have been made at that place.
(5) After the arbitral award is made, a signed copy shall be delivered to each party.
(6) The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter with respect to which it may make a final arbitral award.
(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, [3][at such rate, not exceeding 6% Arb P No. 5/2019 Page No. 25 of 31 as it may deem reasonable], on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made;
(b) A sum directed to be paid by an arbitral award shall unless the award otherwise directs, carry interest at the rate of [4][six per centum] per annum from the date of the award to the date of payment.
(8) Unless otherwise agreed by the parties,-
(a) the costs of an arbitration shall be fixed by the arbitral tribunal;
(b) the arbitral tribunal shall specify,-
(i) the party entitled to costs,
(ii) the party who shall pay the costs,
(iii) the amount of costs or method of determining that amount, and
(iv) the manner in which the costs shall be paid.
Explanation:- For the purpose of clause (a), "costs" means reasonable costs relating to-
(i) the fees and expenses of the arbitrators and witnesses,
(ii) legal fees and expenses;
(iii) any administration fees of the institution supervising the arbitration; and
(iv) any other expenses incurred in connection with the arbitral proceedings and the arbitral award.
46. As is evident from bare reading of the Sub-Section 6 of Section 31, an Arbitral Tribunal is well within its power to make an interim arbitral award on any matter with respect to which it may make a final arbitral award and such interim arbitral award may be passed by the Arbitral Tribunal at Arb P No. 5/2019 Page No. 26 of 31 any time during the arbitral proceedings. From reading of the definition of arbitral award which obviously includes interim award along with Sub- Section 6 of Section 31, it becomes abundantly clear that passing of an interim arbitral award during the arbitration proceedings in respect of any matter with respect to which it may make a final arbitral award is within the power and discretion of the Arbitral Tribunal. To qualify to be an interim arbitral award it must be on any matter with respect to which the Arbitral Tribunal is capable of making a final arbitral award. In other words, an interim order passed by the Arbitral Tribunal during the proceedings, which decides a claim/counter claim or any point in issue is an interim arbitral award having its existence independently of the final award. Such interim arbitral award is liable to be challenged at the instance of the aggrieved party by making an application under Section 34 of the Act. If the challenge to the interim arbitral award fails or it otherwise remains unchallenged by any party within time, it assumes finality. Such interim arbitral award cannot be made part of the final award nor shall it merge with the final arbitral award. Such interim award cannot thus be made subject matter of challenge in a petition under Section 34 of the Act filed to throw challenge to the final arbitral award passed at the culmination of proceedings
47. Viewed in the context of aforestated legal position, it is evident that interim arbitral award passed by learned arbitrator was in respect of escalation charges with respect to which the arbitrator was competent to pass final award. It determined finally the claim of escalation and decided it in favour of the respondent-Contractor and against the petitioners. The interim arbitral award assumed finality in the manner explained hereinabove. It was, Arb P No. 5/2019 Page No. 27 of 31 thus, not competent for the arbitrator to once again include the same claim while awarding the final award. It is equally not available to the petitioners to challenge it while seeking setting aside of the final award under Section 34 of the Act. The interim arbitral award dated 21st January, 2015, in respect of escalation charges awarded to the respondent-Contractor by the Arbitral Tribunal shall remain an independent arbitral award and can be put to execution by the respondent-Contractor if not already done.
48. In the case of "Satwant Singh Sodhi Vs. State of Punjab and Others" (1999) (3) SCC 487, what has been said about the interim award is set out below:-
"If the interim award is intended to have effect only so long as the final award is not delivered it will have the force of the interim award and it will cease to have effect after the final award is made. If, on the other hand, the interim award is intended to finally determine the rights of the parties, it will have the force of a complete award and will have effect even after the final award is delivered."
49. That the proviso 2nd of clause (iv) of Sub-Section 2 of Section 34 reproduced hereinabove clearly provides that if the decision on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside. It is thus trite that this Court, while exercising its powers under Section 34 of the Act of 1997, may not modify the award, but it can definitely uphold the award in part, provided the upheld part is clearly separable from the part which is set aside. Arb P No. 5/2019 Page No. 28 of 31
50. Lastly, the issue of grant of interest by the arbitrator, which was fiercely debated by both sides, is required to be addressed. Section 31(7) of the Act of 1997, as amended by the Amendment Act of 2010, deals with the issue of interest and reads thus:-
"31.(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate, not exceeding 6% as it may deem reasonable], on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made;
(b) A sum directed to be paid by an arbitral award shall unless the award otherwise directs, carry interest at the rate of six per cent per annum from the date of the award to the date of payment."
51. From reading of clause (a) and clause (b) of Sub-Section 7 of Section 31 of the Act of 1997, it clearly transpires that an arbitral Tribunal is conferred the discretion to award interest on the sum awarded at such rate not exceeding 6%, as it may deem reasonable, for the period between the date on which cause of action arose and the date on which award is made. So far as future interest is concerned i.e., interest from the date of award to the date of payment, it is left to the discretion of the arbitrator. However, in case Arb P No. 5/2019 Page No. 29 of 31 no such discretion is exercised, the arbitral award shall carry interest @ 6% per annum for such period.
52. In the instant case, the award of interest by the learned arbitrator @ 6% per annum till the passing of the award and the award of future interest i.e., interest from the date of passing of the award till the final payment @ 18% per annum cannot be found fault with. Although the award of interest @ 18% appears to be on the higher side, yet this Court in the exercise of its jurisdiction under Section 34 of the Act, shall not be in a position to interfere with such grant of interest as the same is not impermissible under law. Moreso, when the petitioners have not been able to demonstrate that award of post award interest @ 18% per annum is exorbitant or shockingly unreasonable.
53. Since the claims filed by the respondent-Contractor have been held time barred and arbitral award against public policy of State, as such, award of interest by the arbitrator even if done correctly shall be of no avail to the respondent-Contractor. Once there is no claim awarded, there could be no interest payable thereon. The arbitrator's fee in any case is required to be paid by the petitioners and the same shall remain part of the award.
54. For the foregoing reasons, this petition is allowed and the entire award is set aside except arbitrator's fee. The award of a sum of Rs. 21,43,536/- on account of escalation (covered by interim award dated 21st January, 2015), is found redundant and is held so. However, the respondent- Contractor shall be entitled to an amount of Rs. 21, 43,536/- in terms of interim arbitral award dated 21st January, 2015. The respondent-Contractor Arb P No. 5/2019 Page No. 30 of 31 shall be free to put interim award to execution if not already done. The learned arbitrator shall be entitled to a sum of Rs. 1.00 lac along with interest @ 6% per annum to be reckoned with effect from the 31st December, 2018, till the same is paid to the learned arbitrator by the petitioners provided the same is not already paid.
(SANJEEV KUMAR) JUDGE SRINAGAR:
04 .07.2024 "Mir Arif"
(i) Whether the Judgment is reportable? Yes MIR ARIF MANZOOR I attest to the accuracy and authenticity of this document 08.07.24 Arb P No. 5/2019 Page No. 31 of 31