2008 (9) TMI 935 - SC - Indian Laws

Whether during the course of progress or work or thereafter or after recession of the contract shall be referred to the arbitration as provided in the condition No.51 of the Heading scope and performance in the Tender documents and shall be deemed to be reference within the relevant provisions of the Indian Arbitration Act 1940 and or any statutory modification of enactment there under?

Summary

Issues Involved:
1. Jurisdiction of the Arbitrator
2. Deduction for unutilized steel
3. Inferior quality of workmanship
4. Payment of interest
5. Interest on interest
6. Interest on costs of arbitration

Detailed Analysis:

1. Jurisdiction of the Arbitrator:
The appellant contended that the Arbitrator lacked jurisdiction in certain matters due to specific clauses in the contract. Clause 10(f) specified that disputes under Clause 10 should be decided by the Managing Director and not referred to arbitration. However, the court found that issues like "bad workmanship" were not covered under Clause 10 and thus fell within the Arbitrator's jurisdiction. The court held that "lack of proper care or negligence" under Clause 10(c) was not synonymous with "bad workmanship."

2. Deduction for Unutilized Steel:
The appellant argued that the respondent should pay for unutilized steel at penal rates as per Clause 15(2)(6) of the contract. The Arbitrator found no clear evidence regarding the balance steel and directed payment at issue rates, not penal rates. The court upheld this decision, noting that Appendix 'C' of the award did not constitute a positive finding of unutilized steel.

3. Inferior Quality of Workmanship:
The appellant claimed deductions for inferior workmanship. The Arbitrator rejected this, noting that the bills had been approved by the Architect without objection. The court upheld this, stating that the issue of bad workmanship did not fall under the exclusive authority of the Managing Director as per the contract clauses.

4. Payment of Interest:
The Arbitrator awarded interest on claims, which included pre-reference interest. The court upheld the Arbitrator's power to award interest for the pre-reference period, citing Section 3 of the Interest Act, 1978. The High Court reduced the interest rate from 18% to 15%, which the Supreme Court further reduced to 7%, considering the long lapse of time since the award.

5. Interest on Interest:
The appellant argued against paying interest on an amount that included interest. The court referred to McDermott International Inc. v. Burn Standard Co. Ltd., stating that interest on the principal amount up to the date of the award becomes the principal amount, which is permissible. The court found no ground to set aside the judgment on this issue.

6. Interest on Costs of Arbitration:
The court examined whether the Arbitrator could award interest on arbitration costs. It noted that the discretion to award costs lies with the Arbitrator under the 1940 Act. The court found no prohibition against awarding interest on costs and upheld this part of the High Court's judgment, reducing the interest rate to 7%.

Conclusion:
The Supreme Court upheld the Arbitrator's award and the High Court's judgment with a modification to reduce the interest rate from 15% to 7% due to the long lapse of time. The appeal was dismissed with no order as to costs.