2009 (4) TMI 997 - SC - Indian Laws

Settlement of disputes by arbitration - Application u/s 20 r/w section 8 for filing the arbitration agreement into court and seeking appointment of an arbitrator - legal misconduct on the part of the arbitrator in making the award - error apparent on the face of the award - pendente lite interest - The contractor's stand was that in the absence of an extension of time for completion by mutual consent before the stipulated date for completion, it was not liable to continue the work on the tendered rates. HELD THAT- It was well settled that under the Arbitration Act, 1940, an award was not open to challenge on the ground that the arbitrator has reached a wrong conclusion or failed to appreciate facts, as under the law, the arbitrator is made the final arbiter of the dispute between the parties. When there is no allegation of moral misconduct against the arbitrator with reference to the award, and where the arbitration has not been superseded, there were only two grounds of attack. First was that there was legal misconduct on the part of the arbitrator in making the award. Second was that there was an error apparent on the face of the award. Keeping the said principles in mind let us examine the various claims. Loss of profitability due to late release of mobilization advance - HELD THAT - The Arbitrator committed a legal misconduct by ignoring the terms of contract, that is the agreement dated 11.1.1989,which specifically provided that in addition to the CTR, the work order and amendment to work order dated 8.11.1988 would also form part of the contract. The Arbitrator also overlooked the fact that additional provision regarding mobilization advance was introduced in the agreement itself. Therefore the mobilisation advance was governed by the terms in the CTR, the work order, the amendment to the work order dated 8.11.1988 and agreement dated 11.1.1989 read together. If so read, it was clear that there was no breach on the part of the employer and the contractor was itself responsible for the delay. If so, the question of compensating the contractor on that score does not arise. There is yet another aspect. The contractor claimed compensation on the basis that he could not do work of the value in view of the delay and he was entitled to 15% as compensation. But the arbitrator made an award in respect of the claim on the ground that there was delay in releasing the mobilization advance and during that period of delay, one third of the contract work could have been done and the value of the work that could have been done and 10% thereof was the loss of profit. Firstly, there was no such plea. Secondly, we have already held that the delay relating to mobilisation advance, was not on the part of the employer. Thirdly, even if there was delay, it was nobody's case that no work was done or that the contractor had suffered loss for non-execution of the work during the contract period. Therefore we are of the view that the award of compensation towards Loss of profitability due to late release of mobilization advance is liable to be set aside. Idle charges for machinery, staff etc. - HELD THAT - The amounts that allegedly became due to the contractor under the award were mostly towards damages and escalation in prices validity of which were under challenge and there was no provision in the contract for payment of interest thereon. As noticed above at best the arbitrator could have directed return of the documents of title to the contractor and could not have directed payment of damages at the rate of ₹ 12072/- per day - We therefore hold that viewed from any angle, awarding ₹ 12,072/- per day as damages, from the date of award under Claim 37A cannot be sustained and the same is liable to be set aside. Interest (pre-reference, pendent lite and future) Contractor claimed pre-reference interest at 18% per annum on all its claims from the date of claim to date of arbitrator entering upon the reference (18.6.1990 to 15.12.1991), as also pendente lite interest from 16.12.1991 to 21.9.1994 and future interest from the date of award till date of payment or decree whichever was earlier - HELD THAT - This Court has held that in the absence of an express bar , the arbitrator has the jurisdiction and authority to award interest for all the three periods - pre reference, pendente lite and future (vide decisions of Constitution Bench in Secretary, Irrigation Department, Government of Orissa vs. G. C. Roy 1991 (12) TMI 268 - SUPREME COURT , Executive Engineer, Dhenkanal Minor Irrigation Division vs. N. C. Budharaj 2001 (1) TMI 916 - SUPREME COURT and the subsequent decision in Bhagawati Oxygen vs. Hindustan Copper Ltd. 2005 (4) TMI 611 - SUPREME COURT . In this case as there was no express bar in the contract in regard to interest, the Arbitrator could award interest. Rate of interest - We are of the view that the award of interest at 18% per annum, in an award governed by the old Act (Arbitration Act, 1940), was an error apparent on the face of the award. In regard to award of interest governed by the Interest Act, 1978, the rate of interest could not exceed the current rate of interest which means the highest of the maximum rates at which interest may be paid on different classes of deposits by different classes of scheduled banks in accordance with the directions given or issued to banking companies generally by the Reserve Bank of India under the Banking Regulation Act. Therefore, we are of the view that pre-reference interest should be only at the rate of 9% per annum. It is appropriate to award the same rate of interest even by way of pendente lite interest and future interest upto date of payment. Payment for work done by the contractor - release/refund of amounts withheld or excess deductions - escalation in prices - compensation for slow progress due to reduction of width of trench - HELD THAT - The arbitrator has awarded certain amounts against these claims by examining the material placed before him and the terms of contract. He has also assigned reasons for awarding the amount against these claims. Courts can not sit in judgment over the award of the arbitrator, nor re-appreciate the evidence - The awards on these claims do not suffer from any infirmity which can be the basis for interference either u/s 30 or u/s 16 of the Arbitration Act, 1940. Neither want of jurisdiction, nor legal misconduct, nor any inconsistency nor error apparent on the face of the award are made out in regard to awards made in regard to these claims. The awards in regard to these claims are therefore upheld. Appeal allowed in part.

Summary

Issues Involved:
1. Delay in release of mobilization advance.
2. Claim for compensation due to idle machinery and loss of production.
3. Award of interest on various claims.
4. Claims for payment for work done and refund of amounts withheld.
5. Rejection of certain claims by the contractor.
6. Rejection of counter-claims by the employer.

Detailed Analysis:

Issue 1: Delay in Release of Mobilization Advance
The contractor claimed compensation for loss of profitability due to the late release of mobilization advance, arguing that the delay prevented the timely setup of a factory necessary for manufacturing pipes. The arbitrator awarded Rs. 33,06,500/- to the contractor, finding that the employer delayed the release of mobilization advance by 8.5 months. However, the Supreme Court found this award erroneous. The contract stipulated that mobilization advance be released in three installments against bank guarantees, and the contractor had also provided multiple bank guarantees over time. The Court held that the delay was on the contractor's part, not the employer's, and thus, the award for claim No. 1 was set aside.

Issue 2: Claim for Compensation Due to Idle Machinery and Loss of Production
The contractor claimed Rs. 12,072/- per day for idle machinery and loss of production due to the employer's failure to release the mortgaged plant. The arbitrator awarded this amount from the date of the award, reasoning that the mortgage should end once the employer's counter-claim for mobilization advance was satisfied. The Supreme Court found this reasoning flawed, noting that the mortgage would continue until the mobilization advance was repaid with interest. The award was deemed a legal misconduct and error apparent on the face of the award, leading to its setting aside.

Issue 3: Award of Interest on Various Claims
The arbitrator awarded pre-reference, pendente lite, and future interest at 18% per annum on the sums awarded. The Supreme Court upheld the arbitrator's jurisdiction to award interest but modified the rate to 9% per annum, considering it more appropriate under the Interest Act, 1978, and the Arbitration Act, 1940.

Issue 4: Claims for Payment for Work Done and Refund of Amounts Withheld
The contractor's claims for payment for work done and refund of amounts withheld (Claims 2 & 16, 3 & 15, 5 & 18, 6 & 17, 9 & 19, 11 & 20, 24, 27 & 28, 29, 30, 31, 32, 33, 35 with 25 & 34) were upheld by the arbitrator. The Supreme Court found no infirmity in these awards, noting that the arbitrator had examined the material and terms of the contract before making the awards.

Issue 5: Rejection of Certain Claims by the Contractor
The arbitrator rejected several claims (Claims 4, 7, 8, 10, 21, 14, 22, 23, 26, 38, 39, 40, 41 & 41A, 42 & 42A, and 43) of the contractor. The Supreme Court upheld these rejections, finding no ground for interference.

Issue 6: Rejection of Counter-Claims by the Employer
The arbitrator rejected the employer's counter-claims (1, 2, 4, and 5), except for counter-claim No. 3, which was for the refund of mobilization advance with interest. The Supreme Court upheld the rejection of these counter-claims, noting that the arbitrator had found the delays and breaches to be on the employer's part.

Final Judgment:
1. The award of Rs. 33,06,500/- for claim No. 1 and Rs. 12,072/- per day from 21.9.1994 for claim 37A were set aside.
2. The awards for claims 2 & 16, 3 & 15, 5 & 18, 6 & 17, 9 & 19, 11 & 20, 24, 27 & 28, 29, 30, 31, 32, 33, 35 (with 25 & 34) totaling Rs. 1,34,24,407/- were upheld.
3. Interest on Rs. 1,34,24,407/- was set at 9% per annum from 3.9.1990 till payment.
4. The award of Rs. 59,42,275/- for counter-claim No. 3 with 18% interest per annum was upheld.
5. The direction for adjustment of amounts due under counter-claim No. 3 against amounts due to the contractor was upheld, and the employer was directed to release the title deeds.
6. Rejection of claims 4, 7, 8, 10, 21, 14, 22, 23, 26, 38, 39, 40, 41 & 41A, 42 & 42A, and 43 of the contractor and counter-claims 1, 2, 4, and 5 of the employer were upheld.
7. Each party was to bear its own costs.