2020 (8) TMI 955 - HC - Indian Laws

Invocation of jurisdiction of this court under Section 37 of the Arbitration and Conciliation Act, 1996 - Section 34 of the Arbitration and Conciliation Act, 1996 - prayer for setting aside the final arbitral award passed by the arbitral tribunal - absence of any clause for price escalation in the agreement entered into between the parties - compensation for delay - Legality of the interest rate awarded - award of interest on the interest component. Whether the impugned arbitral award is liable to be set aside on the basis of the preliminary objection that in the absence of any arbitration clause in the agreement, the arbitral tribunal acted without jurisdiction? - HELD THAT - The principle of law settled by the Hon ble Supreme Court of India in the case of S.B.P. Co v. Patel Engg. Ltd. 2005 (10) TMI 495 - SUPREME COURT decided by a seven judge bench of the Hon ble court holds the field. It has inter alia been decided therein that the Chief Justice or the designated Judge will have the right to decide the preliminary aspects as to his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power. In this case undisputedly the objections of the appellant against the prayer for appointment of arbitrator in the matter of the application under section 11(6) of the Arbitration and Conciliation Act, 1996 were not accepted by the designated judge of this court - there is no merit in the preliminary objection of the appellant and the impugned arbitral award cannot be set aside on the ground of non-existence of the arbitration clause in the agreement between the parties. This point for determination is answered accordingly in the negative against the appellant. Whether in the absence of any clause for price escalation in the agreement entered into between the parties and also in the absence of any clause for compensation for delay, idling charges and hire charges, the awarding of different amount of compensation under such heads were beyond the terms and conditions of the agreement entered into between the parties? - HELD THAT - It is a settled principle of law as has been held in the case of K.N. Sathyapalan (Dead) By LRs v. State of Kerala and Another 2006 (11) TMI 724 - SUPREME COURT that though ordinarily, the parties would be bound by the terms agreed upon in the contract, but in the event one of the parties to the contract is unable to fulfill its obligations under the contract which has a direct bearing on the work to be executed by the other party, the arbitral tribunal is vested with the authority to compensate the second party for the extra costs incurred by him as a result of the failure of the first party to live up to its obligations, even in the absence of any clause for escalation in the agreement entered into by the parties and thus the arbitral tribunal is well within his jurisdiction in allowing some of the claims on account of escalation of costs which are referable to the execution of the work during the extended period if the claimant is prevented by unforeseen circumstances from completing the work within the stipulated period if such delay could have been prevented by the State by its diligent action and the hardships to the claimant in completing the work in time could have been taken care of by eradicating the hurdles which forced the delay in completion of work by the claimant. As has been held in the case of Food Corporation of India Vs. A.M. Ahmed Co. Another 2006 (10) TMI 456 - SUPREME COURT that even in the absence of an escalation clause in the contract, once it is found that the arbitral tribunal has jurisdiction to find that there was delay in execution of the contract due to the conduct of the organization who has awarded the work to the claimant, such organization is liable for the consequences of the delay, hence escalation, being normal and routine incident arising out of gap of time in this inflationary age in performing any contract of any type, the arbitral tribunal has jurisdiction to go into the question of escalation. Coming to the facts of this case it is crystal clear from the pleading of the parties and the evidence produced that the appellant herein was very much aware that it was the case of the claimant that the delay resulted from the negligence of the government authorities. So the appellants herein were aware that they had to meet that case. Under such circumstances of this case, non-framing of separate issue that the government authorities before it were negligent does not lead to a mis- trial sufficient to vitiate the decision in exercise of the jurisdiction under section 37 of the Arbitration and Conciliation Act, 1996. This court is of the considered view that as arbitral tribunal on appreciation of the evidence in the record has reasonably held that the work suffered apparently on account of lack of promptness on the part of the concerned officers of the respondent to resolve the dispute, hence the arbitral tribunal was well within his jurisdiction to award compensation for delay, idling charges and hire charges even though there was no specific term in this respect in the agreement entered into by the parties. Thus the second point for determination is answered in the negative and against the appellant. Whether award of interest @ 12% per annum from 20.05.2010 to 14.10.2011 is on the higher side and is liable to be reduced? - HELD THAT - The arbitral tribunal has not assigned any reason for awarding the said interest. The pendentelite interest awarded by the arbitral tribunal is at the rate of 6% per annum. By the amendment vide section 16 of Act 3 of 2016 w.r.e.f 23.10.2015 the future interest in case the award does not otherwise direct which was earlier at eighteen per centum per annum as provided for in section 31(7)(b) of the Arbitration and Conciliation Act, 1996 have been substituted with two per cent higher than the current rate of interest prevalent from the date of the award which is no doubt much less than 12% per annum - In the case of National Aluminium Co. Ltd. v. Varun Shipping Co. Ltd. 2001 (4) TMI 959 - SUPREME COURT , of course in the facts of that case the Hon ble Supreme Court of India reduced the interest from 15% to 9% per annum. Under such facts of this case this court is of the considered view that award of interest @ 12% per annum from 20.05.2010 to 14.10.2011 is on the higher side accordingly the same is reduced to 9% per annum. Whether the interest that has been awarded upon the interest component of Rs. 10,40,105/- which was the interest calculated for the period 20.05.2010 to 14.10.2011 is illegal? - HELD THAT - It is crystal clear that the expression the sum for which the award is made occurring in clause (a) of sub-section (7) of Section 31 of the Act refers to the total amount or sum for the payment for which the award is made, that is if no interest is awarded the sum is only the principal. If both principal and interest is allowed then sum is the principal plus interest and if in any case only interest is allowed, sum is the interest. Section 31(7)(b)of the Arbitration and Conciliation Act, 1996 empowers the arbitral tribunal to award interest on the sum as mentioned in Section 31(7)(a)of the said Act. So it is the mandate of the Parliament that the arbitral tribunal shall award interest on the sum amount which may include interest also and may even in any particular case be only interest - this court has no hesitation in holding that there is no merit in the submission of the appellant in respect of the interest that has been awarded upon the interest component of Rs. 10,40,105/- which was the interest calculated for the period 20.05.2010 to 14.10.2011 is illegal, as the Parliament itself mandates the same. The arbitral award shall stand modified to the extent that interest @ 12% per annum from 20.05.2010 to 14.10.2011 upon the amount of Rs. 61,79,055/-, which is the sum of the claims under various heads approved by the arbitral tribunal is reduced to 9% per annum. Accordingly the interest from 20.05.2010 to 14.10.2011 upon the claims under various heads approved by the arbitral tribunal which has been worked out to be Rs. 10,40,105/- be substituted by Rs. 7,80,084/-. The appeal is disposed of accordingly - Let the lower court record with a copy of this judgment be sent to the learned court below forthwith.

Summary

Issues Involved:

1. Jurisdiction of the arbitral tribunal in the absence of an arbitration clause.
2. Awarding compensation for delay, idling charges, and hire charges without specific contractual clauses.
3. Legality of the interest rate awarded.
4. Awarding interest on the interest component.

Detailed Analysis:

1. Jurisdiction of the Arbitral Tribunal:

The appellant raised a preliminary objection regarding the arbitral tribunal's jurisdiction, arguing that there was no arbitration clause in the agreement. The court referred to the Supreme Court's decision in SBP & Co. v. Patel Engg. Ltd., which established that the Chief Justice or designated Judge has the authority to decide on the existence of a valid arbitration agreement. In this case, the designated judge had already ruled on the existence of the arbitration clause, and the appellant did not challenge this decision in the Supreme Court. Therefore, the arbitral tribunal had jurisdiction, and the award could not be set aside on this ground.

2. Compensation for Delay, Idling Charges, and Hire Charges:

The appellant contended that the arbitral tribunal awarded compensation beyond the terms of the contract, as there were no clauses for price escalation or compensation for delay. The court cited precedents, including K.N. Sathyapalan v. State of Kerala, which allow compensation for extra costs incurred due to one party's failure to fulfill contractual obligations, even in the absence of specific clauses. The tribunal found that the delay was due to the appellant's lack of promptness, justifying the compensation awarded. The court upheld the tribunal's decision, stating that it was within its jurisdiction to award such compensation.

3. Legality of the Interest Rate Awarded:

The arbitral tribunal awarded interest at 12% per annum from 20.05.2010 to 14.10.2011. The appellant argued that this rate was excessive. The court noted that the tribunal did not provide reasons for this rate, and compared it to statutory amendments and other judicial precedents, suggesting that 12% was indeed high. Consequently, the court reduced the interest rate to 9% per annum for the specified period.

4. Awarding Interest on the Interest Component:

The appellant challenged the legality of awarding interest on the interest component of Rs. 10,40,105/-. The court referred to Section 31(7) of the Arbitration and Conciliation Act, which allows interest on the total sum awarded, including interest. The Supreme Court's decision in Hyder Consulting (UK) Ltd. v. Governor, State of Orissa supported this interpretation. Thus, the court found no illegality in awarding interest on the interest component.

Conclusion:

The court modified the arbitral award by reducing the interest rate from 12% to 9% per annum for the period from 20.05.2010 to 14.10.2011, adjusting the interest component accordingly. The appeal was disposed of with each party bearing its own litigation costs. The court directed that a copy of the judgment be sent to the lower court.