2006 (10) TMI 456 - SC - Indian Laws

Summary

Issues Involved:
1. Jurisdiction of the Arbitrator to award escalation.
2. Absence of an escalation clause in the contract.
3. Payment of minimum wages versus wage increase through settlement.
4. Ex-gratia payments and their impact on escalation claims.
5. Legal precedents on escalation and arbitrator's jurisdiction.
6. Award of interest rates by the Arbitrator.
7. Conduct and representations of the FCI regarding escalation claims.
8. Res judicata and previous judicial decisions on arbitrability of the dispute.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Arbitrator to Award Escalation:
The Supreme Court addressed the argument that the arbitrator exceeded his jurisdiction by awarding escalation in the absence of a specific clause in the contract. The Court noted that the issue of jurisdiction had already been settled in earlier proceedings, where it was determined that the claim for escalation was arbitrable. The Court held that the FCI is barred by res judicata from raising this issue again.

2. Absence of an Escalation Clause in the Contract:
The appellant argued that the absence of an escalation clause in the contract precluded the arbitrator from awarding any amount towards escalation. The Court, however, found that the arbitrator's decision was justified based on the subsequent acceptance of responsibility by the FCI to compensate for the increased wages due to statutory revisions. The Court cited precedents where escalation was allowed despite the absence of an explicit clause, emphasizing that escalation is a normal incident in contracts due to inflation.

3. Payment of Minimum Wages versus Wage Increase through Settlement:
The appellant contended that Clause 7 of the contract, which deals with payment of minimum wages, did not cover the wage increase through settlement. The Court rejected this argument, noting that the statutory wage revision was a significant factor that warranted compensation. The arbitrator had considered the correspondence and actions of the FCI, which indicated an acknowledgment of the need to address the wage increase.

4. Ex-gratia Payments and Their Impact on Escalation Claims:
The appellant argued that the High Court erred in considering ex-gratia payments to support the escalation claim. The Court found that the FCI's actions, including the appointment of committees and interim payments, demonstrated an implicit acceptance of the need for escalation. The arbitrator's award was based on a thorough examination of the facts and the FCI's conduct.

5. Legal Precedents on Escalation and Arbitrator's Jurisdiction:
The Court referred to several precedents, including Hyderabad Municipal Corporation vs. M. Krishnaswami Mudaliar and P.M. Paul vs. Union of India, to support the arbitrator's jurisdiction to award escalation. These cases established that escalation due to statutory wage revisions is a legitimate claim, even in the absence of an explicit escalation clause, provided the arbitrator has jurisdiction over the matter.

6. Award of Interest Rates by the Arbitrator:
The appellant challenged the interest rates awarded by the arbitrator as excessive. The Court agreed partially, modifying the interest rate to 9% per annum throughout, instead of 12%. The Court directed that the balance amount, after adjusting the amount already received by the claimant, be paid within two months, failing which it would attract 12% interest until realization.

7. Conduct and Representations of the FCI Regarding Escalation Claims:
The Court examined the FCI's conduct, including its communications and interim payments to the claimant. The FCI had repeatedly assured the claimant that the issue of wage revision was under consideration, which led the claimant to continue the work despite incurring losses. The Court found that the FCI's actions and representations justified the arbitrator's award of escalation.

8. Res Judicata and Previous Judicial Decisions on Arbitrability of the Dispute:
The Court emphasized that the issue of arbitrability had been conclusively determined in earlier proceedings, where the claim for escalation was deemed arbitrable. The FCI's attempt to re-litigate this issue was barred by res judicata. The Court upheld the arbitrator's jurisdiction to address the escalation claim based on the earlier judicial decisions.

Conclusion:
The Supreme Court modified the High Court's judgment by adjusting the interest rate awarded by the arbitrator to 9% per annum throughout. The Court upheld the arbitrator's award of escalation, finding it justified based on the statutory wage revisions and the FCI's conduct. The appeals were partly allowed, and the parties were directed to bear their own costs.