2008 (1) TMI 963 - SC - Indian Laws

Adjudication of disputes and claims - Arbitration Agreement - acknowledgement of liability - claim of the contractor was barred by limitation - Validity of Arbitral Award - arbitrator exceeded his jurisdiction in awarding huge amounts towards alleged extra work, even though there was nothing to indicate that conditions contemplated in proviso to Clause 11 (relating to additional work) - Interest could be awarded by the arbitrator only from the date of reference and could not be awarded in regard to any pre-reference period - HELD THAT - In this case, the cause of action accrued on 14.4.1977 when the final bill was signed by the contractor. It is not in dispute that the final bill showed that a sum of ₹ 17,69,608.73 was payable to the contractor (after giving credit to the payments made and after withholding a sum of ₹ 7,45,953.83 as 5% security deposit). Towards the said sum of ₹ 17,69,608.73. ₹ 17 lacs was paid on 25.2.1976 and ₹ 70,000/- was paid on 6.8.1977.The contractor had made some claims and OMC wrote a letter dated 28.10.1978 in regard to the pending claims of the contractor. In view of the acknowledgement in writing on 28.10.1978 and payment of the ₹ 3,50,000/- on 4.3.1980, it can be said that in regard to the pending claims of the contractor, the limitation stood extended by three years from 4.3.1980 and at all events by three years from 28.10.1978. It is not in dispute that the contractor issued the notice invoking arbitration on 4.6.1980 and immediately filed a petition under section 8(2) of the Act for appointment of Arbitrator which was allowed on 6.10.1980. Therefore, whatever claims were made before the Arbitrator which was part of the claim of ₹ 50,15,820, was within time, having been made within three years from 28.10.1978 and 4.6.1980. Out of the claim of ₹ 95,96,616 made by the appellant before the Arbitrator, the claim for only ₹ 28,32,138/- was not barred by limitation. The remaining claims of the appellant aggregating to ₹ 67,64,488/- out of the total of ₹ 95,96,616/- being fresh claims, were not pending claims in respect of which the acknowledgement was made. Therefore the said fresh claims aggregating to ₹ 67,64,488 made for the first time in the claims statement filed on 27.6.1986 were clearly barred by limitation. learned counsel for the appellant submitted that the limitation would begun to run from the date on which a difference arose between the parties, and in this case the difference arose only when OMC refused to comply with the notice dated 4.6.1980 seeking reference to arbitration. We are afraid, the contention is without merit. The appellant is obviously confusing the limitation for a petition under section 8(2) of the Arbitration Act, 1940 with the limitation for the claim itself. The limitation for a suit is calculated as on the date of filing of the suit. In the case of arbitration, limitation for the claim is to be calculated on the date on which the arbitration is deemed to have commenced. Therefore, the period of limitation for filing a petition under section 8(2) seeking appointment of an arbitrator cannot be confused with the period of limitation for making a claim. The decisions of this Court in Inder Singh Rekhi vs. Delhi Development Authority 1988 (3) TMI 446 - SUPREME COURT and Panchu Gopal Bose vs. Board of Trustees for Port of Calcutta 1993 (4) TMI 302 - SUPREME COURT also make this position clear. Under section 19 a payment made on account of a debt, enables a fresh period of limitation being computed. Therefore, the letter of OMC dated 28.10.1978 and the payment of ₹ 3,50,000/- by OMC, would result in a fresh period of limitation being computed only in regard to the 'existing debt' in respect of which acknowledgment and payment was made. Admittedly, as at that time, the claim of the contractor was only for a sum of ₹ 50,15,820. Therefore, the letter dated 28.10.1978 and payment on 4.3.1980 extended the limitation only in respect of the claims which were part of the said claim of ₹ 50,15,820. Therefore, the fresh claims of ₹ 67,64,488/- (out of the total claim of ₹ 95,96,616) is barred by limitation and the award made in that behalf is liable to be set aside. Consequently, we hold that only that part of the claim before the Arbitrator which was part of the claim of ₹ 5015,820/- made by the contractor, that was existing or pending as on 28.10.1978 and 4.3.1980, namely ₹ 28,32,128 (out of ₹ 95,96,616) could have been considered by the Arbitrator. Relief to the parties - Whether the award is liable to be set aside on the ground that the arbitrator exceeded his jurisdiction? - When the claim made in the claim statement is after adjusting ₹ 149,88,566.90 paid by OMC towards the work, the arbitrator cannot proceed on the basis that only ₹ 120,01,659.90 was paid towards the work. As a result though the Arbitrator found that the amount payable towards claims at Items 1 to 16 was only ₹ 365,862.18, he awarded ₹ 32,83,243/- to the appellant, thereby increasing the liability of OMC by ₹ 29,86,871/-. By awarding more than what was claimed in the claim statement (by showing a lesser amount as having been paid by OMC though claim statement showed a higher amount), the Arbitrator clearly exceeded his jurisdiction. The Arbitrator thus committed a legal misconduct and the award to that extent is liable to be set aside. Therefore the amount awarded in respect of claims at items 1 to 16 by the Arbitrator is to be reduced by ₹ 29,86,871/-. The Arbitrator has exceeded his jurisdiction in another respect. The total claim made by the contractor before the Arbitration was ₹ 95,96,616/- (excluding interest). But the amount awarded by the arbitrator towards the said claim was ₹ 1,02,66,901/36 (excluding interest). Making an award in excess of the claim itself by ₹ 6,70,285 is a clear act of exceeding the jurisdiction and amounts to a legal misconduct and to that extent of ₹ 6,70,285/- the award is invalid. In regard to item 35, that is escalation in cost, the claim in the claim statement was at the rate of 15% for the value of work done in 1972-73, 28.5% in respect of value of work done in 1973-74 and 32% in respect of work done in 1974-75. But the Arbitrator has awarded escalation at a flat rate of 32.6% on the entire cost of work done from 1.4.1973 and thereby awarded an escalation in excess of what was claimed. This also amounts to exceeding the jurisdiction and therefore legal misconduct. The award in excess of what was claimed was invalid. The award of the arbitrator in respect of time barred claim of ₹ 67,64,488 is an error apparent on the face of the award. Award of amounts in excess of claim (referred to in paras 22, 23 and 24) clearly amount to exceeding the jurisdiction. All these, that is awarding amount towards time barred part of the claim of ₹ 67,64,488, and awarding amounts of ₹ 29,86,871, ₹ 670,285 and escalation in cost at a rate more than what is claimed, are all legal misconducts and the award in regard to those amounts are null and void. There is however some overlapping of the aforesaid amounts. That part of the award which is valid and separable can be upheld. That part relates to the claims which were validly before the Arbitrator, which were part of the existing or pending claims of ₹ 50,15,820 and which were not barred by limitation. Only the amounts awarded by the Arbitrator against those claims can be considered as award validly made in Arbitration, falling within jurisdiction. They are clearly severable from the other portions of the award. Thus the total amount awarded by the Arbitrator against claims which were not barred by limitation was only ₹ 13,93,373.50. The award to this extent is not open to challenge. This part of the award does not suffer from any legal misconduct. There is also no error apparent on the face of the award in respect of the amount. It is not open to challenge. Therefore, the Award of the Arbitrator has to be upheld to an extent of ₹ 13,93,373.50. Thus, we allow these appeals in part, set aside the judgment of the High Court and direct a decree in terms of the award for a sum of ₹ 13,93,373.50 with interest at the rate of 12% P.A. from 1.8.1977 to date of award (28.11.1986) and at the rate of 6% P.A. thereafter, that is from 29.11.1986 till date of payment.

Summary

Issues Involved:
1. Limitation of the claim.
2. Legal misconduct and error apparent on the face of the award.
3. Arbitrator exceeding his jurisdiction.
4. Relief entitled to the parties.

Issue-wise Detailed Analysis:

1. Limitation of the Claim:
The Arbitrator held that the claims were not barred by limitation, noting that the negotiation was ongoing, and the matter was in a "nebulous and fluid stage." The High Court, however, found that the cause of action arose on 14.4.1977 when the final bill was signed under protest, and since the arbitration notice was issued on 4.6.1980, the claim was barred by limitation. The Supreme Court clarified that the letter dated 28.10.1978 from OMC acknowledging pending claims extended the limitation period, making the claims filed within three years from 28.10.1978 valid. However, only claims aggregating to Rs. 28,32,138 out of the Rs. 95,96,616 were part of the pending claims and thus not barred by limitation. Fresh claims totaling Rs. 67,64,488 were barred by limitation.

2. Legal Misconduct and Error Apparent on the Face of the Award:
The Arbitrator committed legal misconduct by assuming that if the application filed under section 8(2) of the Arbitration Act was in time, all claims made in the claim statement were also in time. This assumption was erroneous. The Arbitrator also erred by awarding amounts in excess of the claims made, specifically Rs. 29,86,871, Rs. 6,70,285, and escalation in cost at a rate more than what was claimed. These constituted legal misconducts and errors apparent on the face of the award.

3. Arbitrator Exceeding His Jurisdiction:
The Arbitrator exceeded his jurisdiction by awarding more than what was claimed in the claim statement. The claim statement showed that OMC had paid Rs. 149,88,566.90, but the Arbitrator proceeded on the basis that only Rs. 120,01,659.90 was paid, thereby increasing OMC's liability by Rs. 29,86,871. Additionally, the Arbitrator awarded escalation at a flat rate of 32.6% on the entire cost of work done, exceeding the claimed rate. This amounted to exceeding jurisdiction and legal misconduct.

4. Relief Entitled to the Parties:
The Supreme Court held that the award for the time-barred claim of Rs. 67,64,488 and the amounts awarded in excess of the claims were invalid. However, the valid and separable part of the award, relating to claims aggregating to Rs. 28,32,128, was upheld. The Supreme Court directed a decree in terms of the award for Rs. 13,93,373.50 with interest at 12% P.A. from 1.8.1977 to the date of the award (28.11.1986) and at 6% P.A. thereafter until the date of payment.

Conclusion:
The Supreme Court allowed the appeals in part, setting aside the High Court's judgment and directing a decree in terms of the award for the valid claims. The parties were ordered to bear their respective costs.