Bangalore District Court
/ : Bruhat Bangalore Mahanagara Palike vs ) M/S.Ivrcl Infrastructure And on 11 September, 2019
IN THE COURT OF THE VI ADDL. CITY CIVIL & SESSIONS JUDGE
AT BENGALURU CITY
(CCCH.11)
Dated this the 11th day of September, 2019
PRESENT: Sri. Rama Naik, B.Com., LL.B.,
VI Addl.City Civil & Sessions Judge,
Bengaluru City.
A.S.NO:87/2014
PLAINTIFF / : BRUHAT BANGALORE MAHANAGARA PALIKE
APPLICANT Earlier known as Bangalore
Mahanagara Palike,
N.R.Square, Bengaluru -560 002.
Reptd.by its Commissioner.
/Vs/
DEFENDANTS : 1) M/s.IVRCL INFRASTRUCTURE AND
RESPONDENTS PROJECTS LTD.,
A Company incorporated under the
Companies Act, 1956,
Having its registered Office at
No.73/6, 17th 'E' Main,6th Block,
Koramangala, Bengaluru -560 095.
2) Sri.M.V.S.RAO, Arbitrator,
Arbitral Tribunal,
Arbitration Centre - Karnataka
(Demotic and International),
'Khanija Bhavana', No.49,
3rd Floor, East Wing, Race Course Road,
Bengaluru -560 001.
--
AS.87/2014
2
JUDGMENT
This suit is filed under Section 34 of the Arbitration and Conciliation Act, 1996, by Plaintif for setting aside the arbitral award dated 16.05.2014 passed by 2nd Defendant in A.C.No.8/2013.
2) Plaintif's case, in brief, is that, BBMP is the Employer and Defendant No.1 is the Contractor, who was awarded to execute an item rate contract for remodeling of primary and secondary storm water drains, culverts/bridges, formation of service roads, etc., in Hebbal Valley (H100) - Package - HIVD -1. Work was taken up by 1st Defendant; work was delayed and same was not fully completed. Certain disputes arose between Plaintif and 1 st Defendant resulting in filing of CMP No.125/2011 before the Hon'ble High Court of Karnataka, wherein, by order dated 12.06.2013, 2nd Defendant was appointed to resolve the dispute between the parties.
AS.87/2014 3
3) It is stated that, 2nd Defendant entered reference. 1st Defendant filed claim statement and Plaintif filed its counter claim. Issues were framed. Evidence was recorded and documents were marked. Award came to be passed on 16.05.2014 allowing the claim of 1st Defendant and disallowing the counter claim of Plaintif.
4) Plaintif has challenged the arbitral award on the following grounds :
(1) Contract at Ex.R.4 was executed on 20.03.2006 between BBMP and IVRCL Infrastructure and Project Ltd. Claim statement is stated to have been signed by one Sri.T.Gopala Krishna, GPA holder of Claimant. GPA is not marked in evidence. GPA is not produced either.
Affidavit evidence is signed by Sri.Gopala Krishna, who had no authority to represent Claimant viz., IVRCL Infrastructure and Project Ltd. P.W.1 Sri.T.Gopala Krishna adduced evidence by virtue of his Special Power of Attorney executed by M/s. IVRCL Ltd. At AS.87/2014 4 any rate, Claimant is not the same as IVRCL Ltd., hence, claim statement is not maintainable.
(2) Observation of 2nd Defendant in so far as determining the tender premium as discussed in Para-55 of the award is erroneous. Work Order dated 30.03.2006 is relevant to the issuance of the work order. Schedule rates for 2005-06 were applicable for calculation of the tender premium. Letter of Intent is dated 20.08.2005, wherein, tendered rate has been stated as 27.97% above the schedule rate of 2003-04. Tribunal has misconstrued the tender rate referred to in Letter of Intent dated 30.08.2005 as tender premium. Tender rate and tender premium are diferent. Said reasoning of learned Arbitrator apart from being erroneous is also opposed to principles of public policy.
(3) Contract was awarded to Contractor in the year 2005-06.
Contractor has claimed Rs.600 per cubic meter as the rate for clearing silt from AS.87/2014 5 the storm water drain, whereas, the original quoted price by Contractor was Rs.210 per cubic meter. Learned Arbitrator has opined that there is a change in the circumstances from the time of contract to the time of execution of the work and therefore, Contractor is entitled to said enhancement from Rs.210 per cubic meter to Rs.600 per cubic meter. Rate awarded by learned Arbitrator is not in consonance with the agreement of the parties and therefore, is liable to be set aside under Section 34 of the Act.
(4) Total contract amount is Rs.24.34 crores. Work done by Contractor is only 14% of the total work. Work was done in the year 2005. Amount paid by Plaintif to 1st Defendant is Rs.3.35 Crores and the balance of amount admitted to be payable by Plaintif is only Rs.25 lakhs;
whereas, the amount awarded by Tribunal for that work not completed by 1st Defendant is above Rs.10 Crores. This itself would establish that the claim is imaginary, exorbitant and baseless.
AS.87/2014
6
Arbitral Tribunal ought to have
appreciated the conduct of the
contractor and exercised caution by not awarding liberal compensation.
(5) Payment dues to Contractor have been paid at regular intervals. Claim is filed after a period of 3 years from 17.07.2008, the date in accordance with which the orders of the government vide G.O.No.UDD 84 CSS 2008 dated 17.07.2008 came to be passed terminating the contract. Claim is, therefore, beyond time.
(6) Claim No.3 is not as per contract clauses. According to Clause 3.5 of Special Conditions of Contract, the refund of security deposit shall be made as per the terms and conditions of the contract and not according to the whims and fancies of Claimant as claimed. Security Deposit of the Contractor will be refunded as per the terms of the contract.
AS.87/2014
7
(7) Claim No.6 pertains to
compensation towards loss of profit due to abnormal reduced value of the work and Tribunal was awarded a sum of Rs.2,25,30,000=00. Basis of arrival of the said sum is erroneous and not acceptable.
(8) Claim No.7 is for compensation for loss of overhead charges due to
abnormal reduction in the contract value within contract period. Basis arrived by Tribunal is erroneous. Tribunal has arrived at that conclusion merely on the basis of the report of the auditor.
Contractor claims to be a Company carrying various contract works including the work of BBMP. Report does not reflect as to the alleged loss of overhead charges for this HVD-I project. In other words, the auditor report is for the particular year and not for the instant project.
(9) Claim No.8 is for compensation for
loss of overhead charges due to
extended stay of the claim. Again
AS.87/2014
8
Tribunal has relied on the auditor report for awarding Rs.128.44 lakhs. Tribunal failed to appreciate that there was no substance for granting such compensation.
(10) Claim No.10 is for repetitive de- silting work. Tribunal has awarded a sum of Rs.1,17,60,000=00 towards the said claim. Contract provides for the defect liability period of 2 years and maintenance period of further 3 years after defect liability period. Work done by Claimant is only a maintenance work and does not amount to repetitive de- silting work. In other words, it is repetitive claim and not a repetitive work. Even otherwise, the rate applicable is Rs.210 per cubic meter, which is the quoted rate and Tribunal erred in awarded Rs.600 per cubic meter.
(11) Additional works are executed by Plaintif. Work undone by Contractor is being got done by BBMP from external agency for higher value. Tribunal ought AS.87/2014 9 to have appreciated that Contractor has breached the terms of the contract and as a result, BBMP was constrained to spend additional sum for completing the project. Observation of Tribunal is contrary to the principles of Public Policy of India.
(12) Award of interest is very high. Award of interest at 15% under Section 31(7)(a) is higher side. It is clear from the facts that BBMP has not delayed its payment due to Contractor and the amount payable being the additional amount payable under the award.
Tribunal ought not to have awarded any interest. Amount awarded is more than the work done. Even award of interest at 18% post award is also on the higher side and deserves to be reduced.
For all these reasons, Plaintif prays for setting aside the arbitral award.
5) 1st Defendant has marked its appearance through its counsel and filed its statement of AS.87/2014 10 objections, wherein, it is stated that, Plaintif invited tenders for the subject work on 16.11.2004 for an estimated cost of Rs.1902.72 lakhs based on the schedule rates 2003-04. Defendant was the successful bidder and after negotiations, Defendant accepted the rebate ofered by Plaintif and Letter of Intent was issued on 20.08.2005 for an amount of Rs.2434=60 lakhs. Agreement for the contract work was executed on 20.03.2006 and work order was issued on 30.03.2006. Contract as executed between the parties is an item rate contract for a contract amount of Rs.2434-60 lakhs with a contract period of 18 months commencing from 30.03.2006 and ending 29.09.2007. Whereas, the work could not be completed within the contract period of 18 months ending on 29.09.2007 due to the default of Plaintif in not handing over the site free from encumbrance not only during the contract period but also till 17.07.2008 and the contract is not close. Consequently, Defendant was able to AS.87/2014 11 execute only Rs.162.59 lakhs work in respect of BOQ items as per the final bill in contract to contract amount of Rs.2434.60 lakhs.
6) It is stated that, there were extra items amounting to Rs.196.91 lakhs and these extra items were items of works which were not contemplated in the BOQ. Claimant has set out claims 1 to 11 amounting to Rs.1284.97 lakhs and interest thereon at 18% per annum, which became disputes. Whereas, Plaintif denied all the claims while filing statement of defence and they put all the burden on Defendant and contended that Defendant is in default of the required mobilization to execute the works even in stretches that are handed over to Defendant.
7) It is stated that, upon consideration of oral and material evidence on record, Tribunal has come to right conclusion and has passed the award in question with detailed reasonings. Suit filed by AS.87/2014 12 Plaintif is barred by limitation as prescribed under Section 34(3) of the Arbitration and Conciliation Act, 1996. Plaintif has not filed any application for condonation of delay, hence, on this ground alone, the application is liable to be dismissed at threshold.
8) It is stated that, suit of Plaintif fails to satisfy any of the conditions, where the party making the application should furnish proof under Section 34(2)
(a)(i) to (v), thereby, the suit of Plaintif is not sustainable under law and deserves to be dismissed. Hence, prays for dismissal of the suit.
9) Heard. Perused the pleadings and the records.
10) Points that arise for my consideration are :
(1) Whether Plaintiff proves any of the grounds as enumerated in Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the impugned award?
(2) What Order?
AS.87/2014 13
11) My answers to the above points are :
Point No.1 - Partly in the Affirmative;
Point No.2 - As per final order, for the following :
REASONS
12) POINT NO.1 : This suit came to be filed by Plaintif [Respondent in arbitral proceedings] for setting aside the award dated 16.05.2014 passed by learned Arbitrator/2nd Defendant in A.C.No.8/2013, whereby, learned Arbitrator was pleased to award Claims No. 1 to 8, 10 and 11 in favour of Defendant No.1 [Claimant in arbitral proceedings] and against Plaintif and to reject the Counter Claims of Plaintif.
13) Plaintif's challenge to award is that, arbitral award has been passed in contravention of 'Fundamental Policy of Indian Law'.
AS.87/2014 14
14) Learned Counsel for 1st Defendant is pleased to submit that, scope of interference with the award is very limited and is restricted to the grounds mentioned in Section 34 of the Arbitration and Conciliation Act, 1996 [for brevity 'Arbitration Act, 1996']. It is submitted that, the Arbitration and Conciliation (Amendment) Act, 2015 [for brevity 'Arbitration Amendment Act, 2015'], which came into force on 23.10.2015 reduces the scope of judicial intervention on the ground of "Public Policy"
and Court must have refrained from giving a wide interpretation to "Public Policy" or interfering with the merits of the case.
15) Learned Counsel for Plaintif is pleased to submit that, amendment to Section 34 of the Arbitration Act, 1996, as amended by Arbitration Amendment Act, 2015, can be made applicable even retrospectively. No narrower interpretation can be attributable to amendment to Section 34 of the Arbitration Act, 1996. On the other hand, it AS.87/2014 15 contemplates wide interpretation. To substantiate the submission, learned Counsel for Plaintif is pleased to rely upon the Judgment in Board of Control for Cricket in India Vs. Kochi Cricket Private Limited and others [(2018) 6 Supreme Court Cases 287], wherein, it is held that :
"....The scheme of Section 26 is thus clear : that the Amendment Act is prospective in nature, and will apply to those arbitral proceedings that are commenced, as understood by section 21 of the principal Act, on or after the Amendment Act, and to Court proceedings which have commenced on or after the Amendment Act came into force."
" Since it is clear that execution of a decree pertains to the realm of procedure, and that there is no substantive vested right in a judgment debtor to resist execution, Section 36, as substituted, would apply even to pending Section 34 applications on the date of commencement of the Amendment Act"
" 67. .......It would be clear that looking at the practical aspect and the nature of rights presently involved, and the sheer unfairness of the unamended provision, which granted an automatic stay to execution of an award before the enforcement process of Section 34 was over (and which stay could last for a number of years) without having to look at the facts of each case, it is clear that Section 36 as amended should apply to Section 34 applications filed before the commencement of the Amendment Act also for the aforesaid reasons."
AS.87/2014 16 "75. ............We do not express any opinion on the aforesaid contention since the amendments made to Section 34 are not directly before us. It is enough to state that Section 26 of the Amendment Act makes it clear that the Amendment Act, as a whole is prospective in nature. Thereafter, whether certain provisions are clarificatory, declaratory or procedural and, therefore, retrospective, is a separate and independent enquiry, which we are not required to undertake in the facts of the present case, except to the extent indicated above, namely, the effect of the substituted Section 36 of the Amendment Act."
(underlined by me)
16) From BCCI case, it is clear that, the Arbitration Amendment Act, 2015, would be applicable to arbitral proceedings and court proceedings, only if they commence after the Arbitration Amendment Act, 2015 came into force. It is further clear that, certain provisions in the Arbitration Amendment Act, 2015 are clarificatory, declaratory or procedural in nature may have the efect of retrospective operation depending on the nature and efect of the provisions. It is also clear that, regarding retrospective applicability of the Arbitration Amendment Act, 2015 to Section 34 of AS.87/2014 17 the Arbitration Act, 1996, Hon'ble Supreme Court was pleased to abstain from expressing any opinion, since said issue was not exclusively raised in BCCI case. When matter stood thus, this Court has to desist itself from expressing its opinion as to the applicability of Arbitration Amendment Act, 2015 to Section 34 of the Arbitration Act, 1996.
17) At this juncture, it is relevant to extract Section 34(2)(b) and Section 34(2A) of the Arbitration Act, 1996, as amended by the Arbitration Amendment Act, 2015 :
" 34. Application for setting aside arbitral award (1) xx xx xx (2) xx xx xx
(a) xx xx
(i) xx xx xx
(ii) xx xx xx
(iii) xx xx xx
(iv) xx xx xx
(v) xx xx xx
(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 India.
AS.87/2014 18 [Explanation I : For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if, -
(i) the making of the award was induced or afected by fraud or corruption or was in violation of Section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2 : For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.] (2A) An arbitral award arising out of the arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
PROVIDED that an award shall not be set side merely on the ground of an erroneous application of the law or by re-appreciation of evidence.] "
18) Prior to the Arbitration Amendment Act, 2015, award could be challenged on the ground that "award is in conflict with the public policy of India" under Arbitration Act, 1996. By the Arbitration Amendment Act, 2015, "Public Policy of AS.87/2014 19 India" has been explained in Explanation 1 to Section 34(2)(b)(ii). Section 34(2A) has also been introduced, whereunder, aggrieved party can also challenge the award on the ground of "patent illegality".
19) Applying the principle of law as laid down in ONGC Ltd. V. Saw Pipes Ltd. [2003) 5 SCC 705], Hon'ble Supreme Court in ONGC Ltd. Vs. Western Geco International Ltd. [(2014) 9 SCC 263], was pleased to hold that, "award could be set aside if it is contrary to :
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal".
Fundamental Policy of Indian Law, justice or morality have been introduced in Clause (ii) & (iii) to Explanation 1 to Section 34(2)(b)(ii) by way of the Arbitration Amendment Act, 2015. Clause (i) to Explanation 1 to Section 34(2)(b)(ii) is same as Explanation, as it was prior to commencement of AS.87/2014 20 Arbitration Amendment Act, 2015. "Patent illegality", the ground, on which, the award could be set aside as held in Judgments supra, has been introduced in Section 34(2A) by the Arbitration Amendment Act, 2015. Hence, it has been crystal clear that, the grounds mentioned in Judgments supra, on which, the award could be challenged, have been incorporated in Explanation 1 to Section 34(2)(b)(ii) and Section 34(2A) by the Arbitration Amendment Act, 2015. Explanation 2 to Clause (ii) of Explanation-1 puts the Court on guard that, Fundamental Policy of Indian Law shall not entail a review on the merits of the dispute. Likewise, proviso to Section 34(2A) mandates that, award shall not be set aside merely on the ground of an erroneous application of law or by re-appreciation of evidence.
20) In P.R.Shah Shares and Stocks Brokers Pvt. Ltd. Vs. BHH Securities Pvt. Ltd. [(2012) 1 SCC 584], Hon'ble Supreme Court was pleased to AS.87/2014 21 hold that "a Court does not sit in appeal over the award of an Arbitral Tribunal by re-assessing or re- appreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act." Said principle of law has been incorporated in proviso to Section 34(2A) by the Arbitration Amendment Act, 2015. From the above Judgments, it has been clear that, whatever the principles of law, that have been laid down by Hon'ble Supreme Court in the Judgments supra, have been introduced in Explanation 1 to Clause (ii) of Section 34(2)(b) and in Section 34(2A) by the Arbitration Amendment Act, 2015.
21) Hence, it can be said that, all these amendments are only clarificatory in nature, which the Court must take cognizance while assailing the merits of the arbital award on the ground of Fundamental Policy of Indian Law. In that view of the matter, in the absence of any express clarification as to whether amendment to Section AS.87/2014 22 34 of the Arbitration Act, 1996, would be applicable prospectively or retrospectively, this Court finds no impediment to go by the precedents as laid down in the Judgments supra and Section 34 of the Arbitration Act, 1996, as amended by Arbitration Amendment Act, 2015, to assail the contentions of the parties.
22) In Associate Builders Vs. Delhi Development Authority [(2015) 3 SCC 49], Hon'ble Supreme Court was pleased to hold that, "merits of arbitral award can be assailed only when it is in conflict with Public Policy of India". It is also held that:
" It must clearly be understood that when a court is applying the "public policy" test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the arbitrators approach is not arbitrary or AS.87/2014 23 capricious, then he is the last word on facts."
In these backgrounds, contentions as raised by the parties are to be looked into.
23) Plaintif's contention is that, Contract at Ex.R.4 was entered into between Plaintif and 1st Defendant on 20.03.2006. Claim statement is stated to have been signed by one Sri.T.Gopala Krishna, GPA Holder of 1st Defendant. Affidavit evidence is signed by one Sri.Gopala Krishna, who had no authority to represent 1st Respondent. P.W.1- Sri.T.Gopala Krishna adduced evidence by virtue of Special Power of Attorney executed by M/s.IVRCL Ltd. At any rate, 1st Defendant is not the same as IVRCL Ltd., hence, Claim is not maintainable.
24) On perusal of Claim Statement makes it clear that, 1st Defendant's name has been shown as "M/s. IVRCL Infrastructure and Projects Ltd., being represented by its General Power of Attorney AS.87/2014 24 Holder, Sri.T.Gopala Krishna. Said Sri.T.Gopala Krishna has filed his affidavit evidence before learned Arbitrator being the GPA Holder of 1 st Defendant. He has been cross-examined to that efect. Special Power of Attorney has been marked as Ex.P.45 in the evidence of said Sri.T.Gopala Krishna, which is executed by Executive Director representing 1st Defendant appointing Sri.T.Gopala Krishna as Attorney Holder of 1st Defendant. In Special Power of Attorney, the name of 1 st Defendant is shown as "M/s. IVRCL Limited (formerly known as IVRCL Infrastructures and Projects Limited)" and in Claim Statement, the name is shown as "M/s.IVRCL Infrastructures and Projects Limited". In Special Power of Attorney, Executive Director put his signature for IVRCL Limited. Ex.R.4, Agreement, wherein, 1st Defendant's name has been shown as "IVRCL Infrastructures and Projects Limited". Agreement at Ex.R.4 got entered into between Plaintif and 1st Defendant on 20.03.2006.
AS.87/2014 25 In Ex.P.45, Special Power of Attorney, it has been specifically mentioned that, 'M/s. IVRCL Limited' formerly known as 'IVRCL Infrastructures and Projects Limited'. Hence, it is clear that, at the time of execution of Agreement at Ex.R.4, 1 st Defendant's name was "IVRCL Infrastructures and Projects Limited" and subsequently, at the time of filing Claim Petition in the year 2013, its name has been changed as "M/s. IVRCL Infrastructures and Projects Limited" and Executive Director of M/s.IVRCL Limited executed Special Power of Attorney at Ex.P.45 in favour of Sri.T.Gopala Krishna, who submitted Claim Statement in the name of 1st Defendant and deposed on behalf of 1 st Defendant. More important is that, Plaintif never disputes the identity of 1 st Defendant. Of course, in Claim Statement, it has been shown that M/s. IVRCL is represented by its General Power of Attorney Holder, Sri.T.Gopala Krishna. In evidence, said Sri.T.Gopala Krishna has produced Special Power of Attorney, dated AS.87/2014 26 24.07.2013. Claim Statement was filed on 20.08.2013. Hence, it has been established that, at the time of filing Claim Statement, said Sri.T.Gopal Krishna has been duly authorized by 1st Defendant vide Special Power of Attorney at Ex.P.45. Under such circumstances, mere naming the document as 'General Power of Attorney' instead of 'Special Power of Attorney', it does not come in the way of defeating the due representation of 1 st Defendant by Sri.T.Gopala Krishna vide Special Power of Attorney. Learned Arbitrator, having regard to the Special Power Attorney at Ex.P.45, was pleased to hold that "the SPOA, based on the resolution of the Board of the Claimant, which is notarized on the same day, is a document that should be relied and hence the contention of the Respondent does not deserve merit". In that view of the matter, contentions of Plaintif that, Claimant is not the same as IVRCL Ltd., and said Sri.T.Gopala Krishna had no authority to represent Claimant, viz., IVRCL Infrastructure and AS.87/2014 27 Project Ltd., are unmeritorious and do not hold any water.
25) Further contention of Plaintif is that, Claim is filed by 1st Defendant after a period of 3 years from 17.07.2008, the date on which the contract was terminated by Plaintif, vide Order of the Government, hence, claim is beyond time.
26) 1st Defendant's contention is that, Order of the Government dated 17.07.2008 has no relevancy under the context nor communicated to 1st Defendant by Plaintif. Limitation would commence only from the date, on which such notice is communicated to 1st Defendant. It is contended that, 1st Defendant was approaching the Executive Engineer and the Commissioner of Plaintif and upon failure of the Executive Engineer to settle the claims, 1st Defendant approached the Commissioner to act as an Arbitrator under the contract on 21.07.2011, even at that time the final bill was not AS.87/2014 28 paid. Due to failure of the Commissioner to enter upon reference, finally, as per the Order of Hon'ble High Court of Karnataka under Section 11 in CMP No.175/2011, 2nd Defendant was appointed as Arbitrator, vide Order dated 12.06.2013 with the consent of both the parties. In this background, the clock of limitation has stopped on 21.07.2011, when 1st Defendant invoked arbitration as per Section 21 of the Arbitration and Conciliation Act, 1996, read with Section 43 of the Arbitration and Conciliation Act, 1996.
27) At this juncture, it is relevant to extract Sections 21 and 43 of the Arbitration and Conciliation Act, 1996, which read as follows :
" 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."
AS.87/2014 29 "43. Limitation (1) The Limitation Act, 1963, shall apply to arbitrations as it applied to proceedings in court.
(2) For the purposes of this section and Limitation Act, 1963, 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 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, 1963, for the commencement of the proceedings (including arbitration) with respect to the dispute so submitted."
28) Section 21 specifically states that, arbitration 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 AS.87/2014 30 Defendant. Section 43(2) specifies that, for the purpose of Section 43 of the Arbitration and Conciliation Act, 1996 and the Limitation Act, 1963, an arbitration shall be deemed to have commenced on the date referred in Section 21 of the Arbitration and Conciliation Act, 1996. In that view of the matter, limitation point as raised by Plaintif is to be looked into.
29) In the instant case, 1st Defendant issued notice to Plaintif on 25.07.2011 invoking arbitration clause at 17.1 of the Agreement, whereunder, 1st Defendant called upon Plaintif to appoint an Arbitrator, as observed in CMP No.175/2011 by the Hon'ble High Court of Karnataka. 1St Defendant contends that, it approached the Commissioner to act as an Arbitrator under the Contract on 21.07.2011 and therefore, clock of limitation has stopped on 21.07.2011, when 1 st Defendant invoked arbitration as per Section 21 read with Section 43 of AS.87/2014 31 the Arbitration and Conciliation Act, 1996. In that view of the matter, it has to be said that, the arbitral proceedings in respect of the dispute commenced on either 21.07.2011 or 25.07.2011. However, Plaintif contends that claim petition had to be filed within three years from the date of the Order of the Government terminating the contract i.e., from 17.07.2007. As per section 21 of the Arbitration and Conciliation Act, 1996, date of termination of contract cannot be construed as commencement of arbitral proceedings. Be that as it may.
30) Main crux of the matter is that, whether claim of 1st Defendant was within the period of limitation at the time of commencement of arbitral proceedings. Before taking into consideration of this aspect of the matter, it is relevant to look at the claims made by 1st Defendant and interest thereon from the date of accrual as claimed in the claim petition. It reads as follows :
AS.87/2014 32 Claim Claimed Amount Date of Interest @ 18% until Nos. Accrual 19.03.2013 1(a) Rs.2,20,38,543.96 08.05.2006 Rs.2,89,09,739.31 1(b) Rs. 53,13,334.45 27.12.2006 Rs. 63,59,406.27 2 Rs. 42,68,000.00 30.11.2010 Rs. 20,90,033.75 3 Rs. 23,61,000.00 30.09.2007 Rs. 25,03,306.85 4 Release of BG 5 Rs. 55,97,000.00 20.02.2012 Rs. 15,07,049.75 6 Rs.2,25,30,000.00 30.09.2007 Rs.2,38,87,972.60 7 Rs.2,25,30,000.00 30.09.2007 Rs.2,38,87,972.60 8 Rs.1,28,44,000.00 30.09.2007 Rs.1,36,18,158.90 9(a) Rs.1,06,26,876.00 30.09.2007 Rs.1,12,67,400.03 9(b) Rs. 86,28,660.00 15.07.2007 Rs. 79,18,982.27 10 Rs.1,17,60,000.00 30.09.2007 Rs. 82,29,422.47 TOTAL Rs.12,84,97,414.41 Rs.13,01,79,444.80 At the same time, it is also relevant to extract Para-96 of the arbitral award :
" 96. In the light of the above, I award the following in respect of Claims 1 to 11 :
Table showing the amount awarded against each claim & the interest amount allowed on each awarded amount.1 2 3 4 5
Claim Amount awarded Due Date of Till the Date Amount of No. accrual of award interest @ 15% SI 1 2,73,55,772.71 30.09.2007 18.05.2014 2,71,83,393.00 2 22,61,000.00 30.11.2010 18.05.2014 11,75,487.00 3 23,36,000.00 30.09.2007 18.05.2014 23,24,080.00 4 Direction Awarded 5 46,05,263.00 20.02.2012 18.05.2014 15,49,701.00 6 2,25,30,000.00 30.09.2007 18.05.2014 2,24,15,035.00 7 2,25,30,000.00 30.09.2007 18.05.2014 2,24,15,035.00 8 1,28,44,000.00 30.09.2007 18.05.2014 1,27,78,460.00 AS.87/2014 33 9 NIL 10 1,17,60,000.00 30.09.2008 18.05.2014 99,21,895.00 11 Simple Interest @ 15% from the date of accrual till the date of award as per Column-5.
Future Interest at 18% simple interest from the date of award till date of payment on amounts awarded under Column-2 only.
31) Plaintif invited tenders on 16.11.2004.
Agreement came to be executed on 20.03.2006. Work Order was issued on 30.03.2006. Contract period was 18 months commencing from 30.03.2006 and ending on 29.09.2007. As admitted by 1st Defendant, work could not be completed within the contract period of 18 months. Contract was terminated on 17.07.2008 by Plaintif, vide Government Order. Arbitral proceedings commenced on 25.07.2011, the date on which the arbitration clause has been invoked by 1 st Defendant. When fact stood thus, 1st Defendant's claim should have been within the period of limitation at the time of issuance of arbitration notice. In other words, 1st Defendant's claim must be AS.87/2014 34 a live claim at the time of issue of notice invoking arbitration clause as per Section 21 of the Arbitration and Conciliation Act, 1996. Claims of 1 st Defendant are that :
"Claim No.1 : Payment of balance certified amount as per final bill.
Claim No.2 : Refund of excess EMD Charged Claim No.3 : Refund of Security Deposit Claim No.4 : Refund and release of performance bank guarantee.
Claim No.5 : Compensation towards financial charges incurred due to excess BG towards performance.
Claim No.6 : Compensation towards loss of
profit due to abnormally
reduced value of the work.
Claim No.7 : Compensation for loss of
Overhead charges due to
abnormal reduction in the
Contract value within the
Contract period.
Claim No.8 : Compensation for loss of
overhead charges due to
extended stay.
Claim No.9 : Compensation towards loss
incurred due to Idling of
machinery.
Claim No.10 : Repetitive de-silting work
Claim No.11 : Interest on the claims."
AS.87/2014
35
32) On perusal of documents produced before
learned Arbitrator, it is clear that, all the claims were referred to Executive Engineer, vide letter dated 29.12.2010 and again same were brought to the notice of Chief Engineer by 1st Defendant, vide letter dated 16.02.2011. Even before making reference of said claims to Executive Engineer, vide letter dated 29.12.2010, number of correspondences were made by 1st Defendant demanding the said claims. In spite of letters dated 29.12.2010 and 16.02.2011, Plaintif did not consider the claims of 1st Defendant. Finally, 1st Defendant issued arbitration notice for initiation of arbitral proceedings. Hence, it is clear that, 1st Defendant did make his claims to Plaintif within three years immediately prior to the date of issuance of notice invoking arbitration clause. When matter being so, 1st Defendant's claim cannot be held as barred by limitation.
AS.87/2014 36
33) Plaintif contends that, it terminated the contract on 17.07.2008 and claims were to be made within three years from the date of termination. If the said contention is taken into consideration, then also, 1st Defendant's claims would come under the period of limitation, as 1st Defendant referred all its claims to Executive Engineer on 29.12.2010 within the period of three years from the date of termination of agreement. Since Plaintif failed to consider the same, 1st Defendant issued notice invoking arbitration clause within the period of three years. Under such circumstances, at any stretch of imagination, it cannot be said that, 1 st Defendant's claims are barred by limitation.
34) Plaintif's contention is that, 1st Defendant has claimed Rs.600/- per cubic meter as the rate for clearing silt from storm water drain, whereas, the original quoted price by 1st Defendant was Rs.210/-
per cubic meter. Learned Arbitrator has opined that there is change in the circumstances from the time AS.87/2014 37 of contract to the time of execution of work and therefore, 1st Defendant is entitled to said enhancement from Rs.210/- to Rs.600/- per cubic meter. There is no change in the circumstances warranting enhancement. There is no evidence to said efect. There is no justification as to how and why the Contractor is entitled to Rs.600/- per cubic meter, which is three times more of the quoted price. Rate awarded by the Tribunal is not in consonance with the agreement of the parties and therefore, the award is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996. On the contrary, 1st Defendant contends that, it is true that, principle of law is that, the rate as quoted cannot be varied or enhanced by the Contractor, but when a party to a contract commits breach of contract, the innocent party to the contract is entitled for compensation under Law of Contract as per Sections 55, 73 and 74. Provisions AS.87/2014 38 of law supersedes any provisions of the contract not in consonance with law.
35) At this juncture, it is relevant to extract the findings of learned Arbitrator regarding claim No.1- payment of balance certified amount as per final bill. Para-68 and 69 of the award read as follows :
" 68. The Claimant is seeking revised rate right from the beginning for the entire quantity and has requested the Respondent to treat it as an extra item being not covered under the SR and has asked for a rate of Rs.600.00 per Cum. The rate analysis at Annexure-8 of SOC shows that the actual rate per Cum is Rs.600.00 in view of the changed circumstances and the facts relating to working under continuous flow of sewage and removal of the same in a highly unhealthy and unhygienic condition. The Claimant has sought for this rate from the beginning to treat the item-5 as extra item vide letter dated 04.04.2006 at Pg.556. Further, even the same matter was also referred to the Chairman of the three member committee in Pg.558 giving the rate analysis giving the copy of the letter to CE & SE of the Respondent.
69. Under the circumstances the Part Rate as determined by the Respondent under Clause-13(b) is not relevant for the actual conditions and hence the appropriate Clause would be Clause-13(d) based on actual observations. Also there is no comment on the rate analysis given by the Claimant as per Clause 13(d) by the Respondent. Hence the AT's considered opinion is that the Claimant is entitled for AS.87/2014 39 rate of Rs.600.00 per Cum and the claim is to be allowed. Hence the AT awards an amount of Rs.2,11,69,830.26 against this head of Claim-1."
36) It is important to note that, Annexure-8 got prepared by 1st Defendant and produced before learned Arbitrator at the time of filing its claim statement. Said document is marked as Ex.P.8. Item No.5 of Schedule 'B' to Agreement specifies the quantity as 24645.00 cubic meter and rate as Rs.210/- per cubic meter. As per claim petition, 'executed and certified quantity' is 48,037.66 cubic meter. 125% of the bill of quantities (BOQ) is 30806.25 cubic meter. 1St Defendant received payment at the quoted rate of Rs.210/- per cubic meter for 30806.25 cubic meter. Balance quantity is 17231.41 cubic meter [48037.66 - 30806.25]. Plaintif also received payment of balance quantity. Hence, it has been clear that no balance was due regarding final bill at the time of filing claim statement, except Rs.82,021.51, which amount is kept in reserve. When matter stood thus, 1 st AS.87/2014 40 Defendant claimed rate of Rs.600/- per cubic meter for the executed quantity of 48,037.66 in respect of item no. 5 of Schedule 'B' to Agreement under Claim No.1. Learned Arbitrator, having regard to Annexure- 8 got prepared by 1st Defendant and letter dated 04.04.2006, wherein, 1st Defendant sought for rate of Rs.600/- per cubic meter, awarded Rs.600/- per cubic meter.
37) Further, 1st Defendant claimed a sum of Rs.8,68,712.70 in respect of Item No.7 of Schedule 'B' to Agreement under Claim No.1, which specifies the quantity as 55 cubic meter and rate as Rs.1000/- per cubic meter. It is stated that, Plaintif paid to 1st Defendant said amount at the rate of Rs.682.13 per cubic meter. However, Defendant sought for Rs.1599.11 per cubic meter. Learned Arbitrator has considered the claim made by 1st Defendant and awarded a sum of Rs.8,68,608.00 as claimed by 1st Defendant in respect of Item No.7 instead of quoted rate of Rs.1,000/- per cubic meter.
AS.87/2014 41
38) 1st Defendant under Claim No.1 claimed EIRL- 1 to 4 (extra items).
(a) EIRL-1 - On perusal of Ex.P.10, rate analysis for extra items got prepared by Plaintif makes it clear that Plaintif added T.P (tender premium) at the rate of 6.94% which is against the work order, in which, tender rate quoted as 27.97% above SR(Schedule Rate) of 2003-04.
(b) EIRL-2 - Ex.P.12, rate analysis for extra items got prepared by Plaintif makes it clear that Plaintif added T.P at the rate of Rs.6.94% which is against the work order.
(c) EIRL-3 - Ex.P.14, rate analysis for extra items got prepared by Plaintif makes it clear that Plaintif added T.P at the rate of Rs.6.94% which is against the work order.
(d) EIRL-4 - Ex.P.16, rate analysis for extra items got prepared by Plaintif makes it clear that Plaintif added T.P at the rate of Rs.6.94% which is against the work order.
39) Learned Arbitrator, after taking into consideration of Exs.P.10, P.12, Ex.P.14 and P.16 got prepared by Plaintif and Exs.P.11, P.13, P.15 and P.17 got prepared by 1st Defendant, has rightly awarded that, 1st Defendant is entitled to claim for AS.87/2014 42 extra items under the contract. Findings of learned Arbitrator at Para-71 of the award read as follows :
" 71. Further, there are four extra items which are included in the final bill. The dispute regarding these four extra items is that the Respondent while determining the extra items as considered the tender premium of 6.94% over the current SR while only a part rates is released excluding this tender premium considered by him. As already held under Issues 7 & 8 the tender premium to be considered for the extra items is 27.97% over the current SR. Hence, in view of this the EIRL-1, EIRL- 2, EIRL-3 & EIRL-4 as setout by the Claimant is an entitlement to the Claimant as per the Contract and accordingly, I find it just and appropriate to award the following :
EIRL-1 : Rs.26,47,738.95 EIRL-2 : Rs.2,33,249.20 EIRL-3 : Rs.1,82,440.10 EIRL-4 : Rs.10,43,306.20 Accordingly under the claim-1 comprising of Item-5, Item-7, four EIRL's & the certified escalation amount of Rs.12,10,600/- I award an amount of Rs.2,73,55,772.71/-."
40) Learned Arbitrator has awarded a sum of Rs.1,17,60,000/- for repetitive de-silting work under Claim No.10. Para-92 of the award reads as follows :
"92. In the light of the above findings I award an amount of Rs.1,17,60,000/- (19600 x Rs.600.00) towards this Claim-
10. And interest to be reckoned after the later date of notification to the respondent of 09.08.2008, say 30.09.2009."
AS.87/2014 43 Learned Arbitrator has considered the rate as claimed by 1st Defendant in his claim statement at the rate of Rs.600/- per cubic meter as against the contract rate of Rs.210/- per cubic meter, which the parties have agreed while entering into contract and awarded claim No.10 in favour of 1st Defendant.
41) 1st Defendant has conceded the fact that, rates quoted cannot be varied or enhanced by Contractor. However, it is stated that, when a party commits a breach of contract, innocent party is entitled to compensation under Contract Act. It is important to note that claim for compensation for breach of contract is diferent from claim for work executed. Moreover, 1st Defendant has specifically claimed compensation under Claims No.6, 7 and 8 and same has been awarded by the learned Arbitrator. Under such circumstances, if the amount awarded in respect of Item No.5 and 7 of Schedule 'B' to Agreement under Claim No.1 is considered as AS.87/2014 44 compensation, that would doubly enrich 1 st Defendant, which is not permissible under law.
42) Hence, it has been clear that, learned Arbitrator relying on Annexure-8 got prepared by 1st Defendant and letter dated 04.04.2006, wherein, 1 st Defendant sought for rate of Rs.600/- per cubic meter awarded claim made in respect of Item No.5 and 7 of Schedule 'B' to Agreement under Claim No.1 and Claim No.10 against the terms of contract. Of course, 1st Defendant is entitled to quoted rate at 27.97% above the SR of 2003-2004. However, learned Arbitrator has fixed the rate denovo while deciding the claim under Claim No.1 and Claim No.10. In Associate Builders' case, it is held that, patent illegality would be one of the grounds in setting aside the arbitral award under Public Policy of India and held that, contravention of the terms of contract comes under principle of 'patent illegality'. Hence, this court is of the view that award passed in respect of Item No.5 and 7 of Schedule 'B' to AS.87/2014 45 Agreement under Claim No.1 and award under Claim No.10 is in violation of the terms of contract and same deserves to be set aside. It is made clear that award passed in respect of extra item [ERIL-1 to 4] under claim No.1 is based on reasons and no interference is called for in that part of the award.
43) 1st Defendant's contention is that, even the initial 50% of the project area was not handed over even as on 29.09.2007 being the end of the contract and even in reaches that were handed over to 1 st Defendant, there were encroachments and further, working drawings were not furnished. All these resulted in Plaintif being unable to carry out the work in its entirety. Inaction of Plaintif is fundamental breach of contract as per Clause 2.2(a) under Article-2 of Agreement. Plaintif contends that if possession was not handed over, the contractor would not have commenced the work at all.
AS.87/2014 46
44) Rival contentions of the parties have been considered by learned Arbitrator and elaborately discussed in the award by framing proper Issues. At this juncture, it is relevant to extract the findings of learned Arbitrator at para-23 and 24 of the Award. They read as follows :
" 23. The period of Contract is from 30.03.2006 to 29.09.2007 in view of the admitted position between the parties. The Respondent was obliged to hand over 50% of the site within 1 month i.e., on or before 30.04.2006 and it was also an agreed obligation of the Employer to hand over the entire worksite/project area within 12 months from 30.03.2006. Hence, the whole site should have been handed over within 30.03.2007.
24. The Respondents contention in the statement of defence that "it is very imported (important) to note at this point of time BBMP has not handed over any project area to Claimant" and further states that the work executed by the Claimant amounts to Rs.359.10 lakhs to establish that he has given the site since the Claimant could not have executed the work without the site being handed over. However, various hindrances to the site handing over of site continued and were in existence even as late as 27.09.2013. During the cross examination, when the RW-1 was confronted with the letter from Chief Engineer dated 27.09.2013 addressed to the Karnataka Lokayukta, the RW-1 has admitted that "this Contract package is one among the four packages stated under the letter. The problems identified for non completion of SWD AS.87/2014 47 package works is mentioned as continuous sewerage flow in SWD, encroachment, construction of buildings over existing retaining walls of SWD, Utility lines like constructed inside SWD, Obtaining necessary permissions for stenches belonging to defense and forest department". RW-1 further admits that "Due to these teething issues, the work could not be completed within a committed time lines". And further admits that "
Consultant has already been engaged to conduct detailed revenue survey on the land encroachments in order to clear the same on the time bound basis. This will enable the implementation of works as per revised project report without much problem". The replies to the lokayukta and the admissions of RW-1 that they are true replies show that the Respondent had not handed over the site in conformity with the provisions of the Contract, much more so the provision under Article-2.2(a). This letter to the Lokayukta is dated 27.09.2013 which is admitted by RW-1. Hence, I am of the opinion that even as on 27.09.2013 the various hindrances, encroachments, acquisition, problem of sewerage water flowing the SWD (Storm Water Drain) continued till 27.09.2013. Hence, it is clear that the site for the work was not handed over in conformity with Article-2.2(a) of the Contract."
45) In view of specific findings of learned Arbitrator there is no reason to assail pure question of fact which learned Arbitrator has elaborately discussed basing on the materials placed before him. Moreover, this court is not a fact finding court.
AS.87/2014 48 Appreciation of fact is within the exclusive domain of learned Arbitrator. From the findings of learned Arbitrator, it can be said that, 1 st Defendant could not complete the work within the stipulated time as pointed out by learned Arbitrator. Under such circumstances, when there is no fault on the part of 1st Defendant, 1st Defendant is certainly entitled to claim made under Claim Nos.2 to 8, regarding refund of excess EMD charged and illegally recovered EMD, refund of security deposit recovered from the bill, return and release of performance guarantee, compensation towards financial charges incurred due to excess BG, compensation towards loss of profit due to abnormally reduced value of the work, compensation for loss of overhead charges due to abnormal reduction in the contract value within the contract period and compensation for loss of overhead charges due to extended stay and accordingly, learned Arbitrator was pleased to award the same.
AS.87/2014 49
46) Plaintif contends that award of interest at 15% under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 is higher. Plaintif has not delayed its payment due to the Contractor and the amount payable being the additional amount payable under the award. Hence, the Tribunal ought not to have awarded any interest. Per contra, 1 st Defendant contends that, under Section 31(7)(a) of the Arbitration and Conciliation Act, learned Arbitrator has power to grant interest at the rate that he finds reasonable and amount of claim awarded for which the interest is allowable as appropriate.
47) It is relevant to extract Section 31(7)(a)(b) of the Arbitration and Conciliation Act, 1996. It reads as follows :
"31. Form and contents of 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, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any AS.87/2014 50 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 eighteen per centum per annum from the date of the award to the date of payment."
48) Admittedly, there is no provision in the contract as to interest. Clause(a) relates to the period between the date on which the cause of action arose and the date on which the award is made. Clause (b) relates to the period from the date of award to the date of payment. In the instant case, learned Arbitrator has awarded interest between the date of accrual of cause of action and the date on which award is made at the rate of 15% simple interest on Claims No.1 to 3, 5 to 8 and 10. Learned Arbitrator has awarded Rs.9,97,63,086/- in respect of Claims No.1 to 3, 5 to 8 and 10 towards interest between the date on which cause of action arose and the date on which the award is made. Here, it is important to note that, claim No.5, 6, 7 and 8 are relating to compensation claimed by 1 st AS.87/2014 51 Defendant against Plaintif and same has been awarded by learned Arbitrator having regard to the facts of the case and the materials placed before him. In fact, they were not the sum due to 1st Defendant by Plaintif. Said amounts are compensation for damages due to termination of contract. Under such circumstances, antelite and pendente lite interest cannot be awarded by way of damages. Once the compensation is awarded for damages sustained by 1st Defendant, learned Arbitrator by awarding antelite and pendente lite interest at the rate of 15% has indirectly enhanced the claim under Claim No.5 to 8.
49) In Food Corporation of India Vs. Surendra, Devendra and Mahendra Transport Co., (AIR 1988 SC 934], the Hon'ble Supreme Court was pleased to hold that " grant of pendente lite interest without making it clear on what basis it was being awarded was held to be not justified." Hence, this court is of the opinion that interest AS.87/2014 52 awarded under Claim No.5 to 8 is not at all dues payable by Plaintif to 1st Defendant at the time of initiation of arbitral proceedings. They are compensation awarded by learned Arbitrator due to breach of contract. Granting of interest on compensation amount is not justifiable. In Somdatt Builders Ltd., Vs. State of Kerala [2009 AIR 170 SC], the Hon'ble Supreme Court was pleased to hold that " Section 31(3) mandates that the arbitral award shall state the reason 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 under Section 30." In the instant case, learned Arbitrator has not assigned any reason in awarding interest on compensation awarded under Claim No.5 to 8. That part of the award sufers from want of reasons, hence, the award in respect of interest between the date on which cause of action arose and the date on which AS.87/2014 53 the award is made on Claim No.5 to 8 deserves to be set aside.
50) Learned Arbitrator has awarded future interest at the rate of 18% from the date of award till the date of payment on Claim No.2, 3, 5 to 8. Arbitral Tribunal has power to award future interest under Section 31(7)(b) of the Act. It mandates that, unless and otherwise directs, the arbitral award shall carry interest at the rate of 2% higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment. Explanation to sub Section 7(b) of Section 31 states that, current rate of interest shall have the same meaning as assigned to it under Clause (b) of Section 2 of the Interest Act, 1978. Clause 2(b) of the Interest Act, 1978 reads as follows :
" 2(b) " current rate of interest" means the highest of the maximum rates at which interest may be paid on different classes of deposits (other than those maintained in savings account or those maintained by charitable or religious institutions) by different classes of scheduled banks in accordance with the directions given or issued to banking companies generally by AS.87/2014 54 the Reserve Bank of India under the Banking Regulation Act, 1949(10 of 1949).
Explanation.- In this clause, "scheduled bank" means a bank, not being a co-operative bank, transacting any business authorised by the Banking Regulation Act, 1949 (10 of 1949)."
51) The court may take judicial notice on current rate of interest of scheduled banks during the period 2014-15 under Section 57 of the Indian Evidence Act. During the said period, interest rate of State Bank of India on Term Fixed Deposit was 7% to 7.5% per annum. As per Interest Act, 1978, learned Arbitrator could have awarded 7.5% future interest in addition to 2% as envisaged in Section 31(7)(b) of the Arbitration and Conciliation Act. At the most, learned Arbitrator could have awarded 9.5% future interest on the claim amount. However, learned Arbitrator has awarded 18% future interest against the principle of law. In State of Haryana Vs. S.L.Arora and Co., [AIR 2010 SC 1511], the Hon'ble Supreme Court was pleased to hold that "some Arbitral Tribunals have misconstrued Clause AS.87/2014 55
(b) of Section 31(7) of the Act and assumed that the said provision requires a rate of post award interest in all arbitral awards should be 18% per annum and they do not have any discretion in regard to post award interest". Violation of statutes and contravention of Arbitration and Conciliation Act, 1996 itself would be regarded as 'patent illegality' as held in Associate Builders' case. Learned Arbitrator has not considered the Interest Act, 1978 while awarding future interest and hence, it is required to modify the future interest to 9.5% on Claim Nos. 2, 3 and 5 to 8 as observed above. In G.D.Tiwari Vs. Delhi Development Authority [2006 (Supplemental) Arb.L.R. 125], the Hon'ble Delhi High Court was pleased to hold that "even if the Arbitrator has exceeded his jurisdiction in awarding future interest, no objection thereto can be raised. All that can be said is that, from the date of the award till the date of realisation, the appropriate interest rate should be at the rate of 9% AS.87/2014 56 per annum." Hence, it is clear that even where Arbitrator exceeded his jurisdiction in granting future interest, this cannot be a ground for setting aside the award in its entirety and the maximum that can be said is that, the rate of future interest may be modified by the court.
52) In M/s.R.S.Jiwani V. Ircon International Ltd., ( A Government of India Undertaking) in Appeal No.245/2009 in Arbitration Petition No.347/2005, decided on 16.12.2009, the Hon'ble Bombay High Court was pleased to hold that :
"38 (1) The judicial discretion vested in the court in terms of the provisions of section 34 of the Arbitration and Conciliation Act, 1996 takes within its ambit power to set aside an award partly or wholly depending on the facts and circumstances of the given case. In our view, the provisions of section 34 read as a whole and in particular section 34(2) do not admit of interpretation which will divest the court of competent jurisdiction to apply the principle of severability to the award of the Arbitral Tribunal, legality of which is questioned before the court.
The legislature has vested wide discretion in the court to set aside an award wholly or partly, of course, within the strict limitation stated in the said provisions. The scheme of the Act, the language of AS.87/2014 57 the provisions and the legislative intent does not support the view that judicial discretion of the5 court is intended to be whittled down by the provisions.
(2) The proviso to section 34(2)(a)(iv) has to be read ejusdem generis to the main section, as in cases falling in that category, there would be an absolute duty on the court to invoke the principle of severability where the matter submitted to arbitration can clearly be separated from the matters not referred to arbitration and decision thereupon by the Arbitral Tribunal."
In view of the ratio as laid down in the judgment supra, having regard to the facts and circumstances of the case, this court opines that there is no impediment to set aside the award in part, as the same has been passed in contravention of fundamental policy of Indian law as observed above. Accordingly, I answer Point No.1 partly in the affirmative.
53) POINT NO.2 : In view of the foregoing discussion and answer 5to Point No.1, I proceed to pass the following :
ORDER (1) Suit filed by the Plaintiff under Section 34 of the Arbitration AS.87/2014 58 and Conciliation Act, 1996, for setting aside the arbitral award dated 16.05.2014 passed by 2nd Defendant in A.C.No.8/2013; is hereby allowed in part.
(2) Award in respect of Item No.5 and 7 of Schedule 'B' to the Agreement under Claim No.1 and award in respect of Claim No.10 are hereby set aside.
(3) Award of interest between the date on which cause of action arose and the date on which award is made in respect of Claim No.5 to 8; is hereby set aside.
(4) Award of future interest is
hereby modified to the rate of
9.5% per annum on Claim No.2, 3
and 5 to 8.
(5) No order as to costs.
[Dictated to the Judgment Writer, transcribed and computerized by her, transcript thereof corrected and then pronounced by me in open Court, on this the 11th day of September, 2019.] [RAMA NAIK] VI Addl.City Civil & Sessions Judge Bengaluru City.