2016 (2) TMI 1257 - HC - Indian Laws

Cancellation of a contract - tenability of the award by the arbitrator appointed under the Arbitration Act of 1940 - damages for alleged unlawful cancellation of the contract - HELD THAT - The CWE has also a power to decide if there was any delay attributable to the execution of the contract within the control of the Arbitrator, in which case, the amount claimed as increase in prices in materials would not be claimed. To the extent to which the redressal mechanism was also provided and the failure of the contractor to lead any evidence or make a statement that he had applied to CWE for such payment, the award by the Arbitrator was truly on a head of claim that must only be reckoned as 'improperly procured or otherwise invalid'. There is no error in the intervention made by the court in the light of the Supreme Court judgment in State of Rajasthan Versus Ferro Concrete Construction Pvt. Ltd. 2009 (4) TMI 997 - SUPREME COURT where it qualified the award of interest at 18% by the arbitrator as constituting an error apparent on the face of the record. The court guided for future awards that reference to interest for pendente lite or future interest should always be 9% in light of the provisions of the Interest Act, 1978. The civil revision partially succeeds in restoring the award passed by the Arbitrator - the rejection of the claim to Clause No.2(L) by the two courts below stands confirmed - The reduction of interest rate at 9% per annum is also justified - revision allowed in part.

Summary

Issues:
1. Tenability of the arbitrator's award under the Arbitration Act of 1940.
2. Rejection of certain portions of the claims by the lower courts.
3. Grounds for intervention by Civil Court in arbitral decisions.
4. Validity of the arbitrator's decisions on damages, increase in material prices, and valuation of tools and machinery.
5. Modification of interest rate awarded by the arbitrator.

Issue 1: Tenability of the arbitrator's award under the Arbitration Act of 1940
The case involved a dispute arising from the cancellation of a construction contract for 'married accommodation' at Dharamshala. The contractor claimed damages and additional costs, which were partly allowed by the arbitrator in an award. The Union of India did not challenge the award, but the contractor appealed against the rejection of certain claims by the lower courts.

Issue 2: Rejection of certain portions of the claims by the lower courts
The lower courts rejected claims for damages due to contract cancellation and increase in material prices, citing contractual clauses that limited the arbitrator's jurisdiction. The courts upheld the rejection of these claims, modifying one claim related to tools and machinery valuation. The courts also reduced the interest rate awarded by the arbitrator.

Issue 3: Grounds for intervention by Civil Court in arbitral decisions
The High Court analyzed the grounds for Civil Court intervention in arbitral awards under the Arbitration Act of 1940. It emphasized that intervention should be limited to specific grounds such as arbitrator misconduct or invalidity of the award. The court found that in this case, the arbitrator's award did not warrant setting aside under the specified grounds.

Issue 4: Validity of the arbitrator's decisions on damages, increase in material prices, and valuation of tools and machinery
The High Court examined the arbitrator's decisions on damages, increase in material prices, and tools/machinery valuation. It found that the arbitrator's decisions were within the scope of the contract terms and conditions. The court upheld the arbitrator's award on damages, modified the decision on material price increase, and reinstated the valuation of tools and machinery as per the arbitrator's assessment.

Issue 5: Modification of interest rate awarded by the arbitrator
Regarding the interest rate awarded by the arbitrator, the High Court reduced it from 12% to 9% per annum. The court justified this modification based on a Supreme Court judgment and the provisions of the Interest Act, 1978. The High Court partially allowed the civil revision, restoring certain awards by the arbitrator while confirming the rejection of other claims and justifying the interest rate reduction.

In conclusion, the High Court's judgment clarified the grounds for Civil Court intervention in arbitral awards and carefully analyzed each claim and decision made by the arbitrator and lower courts. The court upheld some decisions, modified others, and justified the reduction in the interest rate awarded.