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TMI Blog2020 (8) TMI 955X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal 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. - HON'BLE MR. JUSTICE ANIL KUMAR CHOUDHARY For the Appellants : Mr. Atanu Banerjee, Advocate Ms. Pooja Kumari For the Respondent : Mr. Indrajit Sinha, Advocate 19-08-2020 Per Anil Kumar Choudhary, J. Heard the parties through video conferencing. 2. This Arbitration Appeal invoking the jurisdiction of this court under Section 37 of the Arbitration and Conciliation Act, 1996 has been preferred against the order dated 20.03.2015 passed by the Civil Judge, Senior Division-I, Koderma in Arbitration Case No.01 of 2014 registered upon an application filed by the appellant herein under Section 34 of the Arbitration and Conciliation Act, 1996, with a prayer for setting aside the final arbitral award dated 16.02.2014 passed by the arbitral tribunal. 3. The brief fact of the case is that the claimant-responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1996 was filed before the court below, the order passed in respect of which application is impugned in this appeal. The arbitral tribunal in respect of issue No.1 concluded that the work was halted for a total period of about 347 days and 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 claimant cannot be held to have committed breach of contract since the performance on his part of the contract was entirely dependent on the performance of the contract by the respondents before the arbitral tribunal, on their part. The issue No.5 was answered by the arbitral tribunal by holding that the appellant-department cannot claim any right to deduct any amount of the bills for the claimant for extension of time and the appellant-department is liable to refund all such amounts which they may have deducted from the bills of the claimant on the ground of extension of time and that the appellant-department is liable to refund all such deducted amount. The issue No.6 was answered by the arbitral tribunal by holding that the claimant-respondent is not entitled to the claim of Rs. 3,26,614. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the arbitral tribunal must have ruled that it does not have any jurisdiction in the absence of any express terms in the agreement between the parties for referring the matter for arbitration. Mr. Banerjee in support of his contention that the source of the jurisdiction of the arbitral tribunal is the arbitration clause relied upon the judgment of Hon ble Supreme Court of India in the case of Wellington Associates Ltd. v. Kirit Mehta reported in (2000) 4 SCC 272 wherein the Hon ble Supreme Court of India has held that if there was no arbitration clause at the time of entry of the arbitrators on their duties, the whole proceedings would be without jurisdiction. The relevant portion of the said judgment in paragraphs-12 and 16 reads as under:- 12. In Dhanrajamal Gobindram v. Shamji Kalidas Co. [AIR 1961 SC 1285, 1293 (para 25)] (AIR at p. 1293, para 25) it was held that the question as to the existence of arbitration clause was for the court to decide under Section 33 and not for the arbitrators. In Khardah Co. Ltd. v. Raymon Co. (India) (P) Ltd. [AIR 1962 SC 1810] and in Waverly Jute Mills Co. Ltd. v. Raymon Co. (India) (P) Ltd. [AIR 1963 SC 90, 96 (para 17)] (AIR at p. 96, para 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration clause can be decided by the arbitrator. Take a case where the matter has gone to the arbitrator without the intervention of an application under Section 11. Obviously, if the question as to the existence of the arbitration clause is raised before the Arbitral Tribunal, it has power to decide the question. Again, in a case where the initial existence of the arbitration clause is not in issue at the time of the Section 11 application but a point is raised before the Arbitral Tribunal that the said clause or the contract in which it is contained has ceased to be in force, then in such a case, the arbitrator can decide whether the arbitration clause has ceased to be in force. A question may be raised before the arbitrator that the whole contract including the arbitration clause is void. Now Section 16 of the new Act permits the Arbitral Tribunal to treat the arbitration clause as an independent clause and Section 16 says that the arbitration clause does not perish even if the main contract is declared to be null and void. Keeping these latter and other similar situations apart, I am of the view that in cases where to start with there is a dispute raised at the stage of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings would be without jurisdiction hence the impugned arbitral award be set aside on this preliminary objection alone. 8. It is further submitted by Mr. Banerjee- the learned counsel for the appellant that the claimant-respondent did not complete the work as per the terms of the agreement as the work in the entire area of 2.70 kilometres road from Masmohna to Kundi Dhanwar was not completed as agreed to between the parties. So, it is submitted that the claimant- respondent is not entitled for the payment of incomplete work of Rs. 1,08264.06. Mr. Atanu Banerjee further submitted that the learned court below failed to appreciate that the arbitral tribunal while delivering the arbitral award has completely gone beyond the terms and conditions of the agreement in question. Learned counsel for the appellant then submitted that the learned court below failed to consider that 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 agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e mentioned in the notice to the date of institution of the proceedings, unless the court is satisfied that there are special reasons why no interest should be given in respect of those damages. (3) Nothing in this section, (a) shall apply in relation to (i) any debt or damages upon which interest is payable as of right, by virtue of any agreement; or (ii) any debt or damages upon which payment of interest is barred, by virtue of an express agreement; (b) shall affect (i) the compensation recoverable for the dishonour of a bill of exchange, promissory note or cheque, as defined in the Negotiable Instruments Act, 1881 (26 of 1881); or (ii) the provisions of rule 2 of Order II of the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908); (c) shall empower the court to award interest upon interest. (Emphasis Supplied) And submitted that the learned court below ought to have interfered with the part of the arbitral award whereby interest 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. 10. Mr. Banerjee relying upon the judgment of Hon ble Supreme Court of India in the case of Patel Engin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith a caveat. An arbitral tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person could do. (Emphasis supplied) And Submitted that as the ground of patent illegality is a ground under public policy for setting aside a domestic arbitral award and as in this case the arbitral award suffers from patent illegality hence the learned court below ought to have set aside the same. 11. Mr. Banerjee next relied upon the judgment of Hon ble Supreme Court of India in the case of Energy Watchdog v. CERC others reported in (2017) 14 SCC 80 para-34 and 42 of which read as under:- 34. Force majeure is governed by the Contract Act, 1872. Insofar as it is relatable to an express or implied clause in a contract, such as the PPAs before us, it is governed by Chapter III dealing with the contingent contracts, and more particularly, Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which may be taken into account only to show that the risk of supplying electricity at the tariff indicated was upon the generating company. And submitted that as the respondent was very much aware about the risks involved, hence it is not entitled to any compensation. It is then submitted by Mr. Banerjee that the learned court below ought to have held that the arbitral award is bad in law as the arbitral tribunal failed to frame any issue that the respondent government authorities before him were negligent and also did not give any finding in respect of the same. It is next submitted that the arbitral tribunal failed to appreciate the evidence in the record in its proper perspective. It is also submitted that though in page 65 of the arbitral award the claim towards payment of salary is rejected but contrary to the same the amount towards staff salary has been added in the arbitral award at item no.4 at page -77 of the arbitral award. 12. It is lastly submitted by Mr. Banerjee that the impugned judgment being not sustainable in law be set aside and also the arbitral award dated 16.02.2014 passed by the arbitral tribunal in Arbitration Application No.20 of 2010 be also set aside. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her Judge of the Supreme Court. (iii) In case of designation of a Judge of the High Court or of the Supreme Court, the power that is exercised by the designated Judge would be that of the Chief Justice as conferred by the statute. (iv) The Chief Justice or the designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be 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 and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the designated Judge would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the designated Judge. (v) Designation of a District Judge as the authority under Section 11(6) of the Act by the Chief Justice of the High Court is not warranted on the scheme of the Act. (vi) Once the matter reaches the Arbitral Tribunal or the sole arb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignated judge or the Chief Justice of India under Section 11 (6) of the Arbitration and Conciliation Act, 1996 is not an administrative power rather it is a judicial power and the Chief Justice or the designated Judge will have the right to decide the preliminary aspects including the existence or otherwise of a valid arbitration agreement and such order of the Chief or the designated judge as far as the High Court is concerned would be final and the only avenue open to a party feeling aggrieved by the order of the Chief Justice would be to approach the Supreme Court under Article 136 of the Constitution of India. 14. It is then submitted by Mr. Sinha that in its earlier judgment passed in the case of Konkan Railway Corpn. Ltd. v. Mehul Construction Co., reported in (2000) 7 SCC 201 the Hon ble Supreme Court of India held that in view of conferment of power on the arbitral tribunal under Section 16 of the Act, the intention of the legislature and its anxiety to see that the arbitral power is set in motion at the earliest, it will be appropriate for the Chief Justice to appoint an arbitrator without wasting any time or without entertaining any contentious issue by a party objecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted by Mr. Sinha that there is no merit in this preliminary objection of the appellant and as there is no illegality in the impugned order of the learned court below having not accepted the said contention of the appellant-department before it that the arbitral tribunal was not having a jurisdiction, the impugned arbitral award is not liable to be set aside on this score. 16. Mr. Indrajit Sinha- learned counsel for the respondent-claimant defended the impugned judgment and relied upon the judgment of Hon ble Supreme Court of India in the case of K.N. Sathyapalan (Dead) By LRs v. State of Kerala and Another reported in (2007) 13 SCC 43 para-33 and 34 of which reads as under:- 33. We have intentionally set out the background in which the arbitrator made his award in order to examine the genuineness and/or validity of the appellant's claim under those heads which had been allowed by the arbitrator. It is quite apparent that the appellant was prevented by unforeseen circumstances from completing the work within the stipulated period of eleven months and that such delay could have been prevented had the State Government stepped in to maintain the law and order problem which had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was reasonable to allow escalation under the claim. Once it was found that the arbitrator had jurisdiction to find that there was delay in execution of the contract due to the conduct of FCI, the Corporation was liable for the consequences of the delay, namely, increase in statutory wages. Therefore, the arbitrator, in our opinion, had jurisdiction to go into this question. He has gone into that question and has awarded as he did. The arbitrator by awarding wage revision has not misconducted himself. The award was, therefore, made rule of the High Court, rightly so in our opinion. (Emphasis supplied) 18. Mr. Sinha further relied upon the judgment of the Hon ble Supreme Court of India in the case of Assam State Electricity Board Others v. Buildworth Private Limited reported in (2017) 08 SCC 146 para-14, 16 to 18 and 21 of which read as under:- 14. The view which has been adopted by the arbitrator is in fact in accord with the principles enunciated in the judgments of this Court. In P.M. Paul v. Union of India [P.M. Paul v. Union of India, 1989 Supp (1) SCC 368] , a Bench of two learned Judges of this Court has held that: (SCC p. 372, para 12) 12. Escalation is a normal incident a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en in the absence of any escalation clause. The said principle was reiterated by this Court in T.P. George case [T.P. George v. State of Kerala, (2001) 2 SCC 758] . 17. The award comports with principles of law governing price escalation firmly established by the decisions of this Court. For these reasons, we find merit in the contention of the learned counsel appearing on behalf of the claimant that the award does not suffer from any error apparent on the face of the record insofar as the aspect of price escalation is concerned. 18. The High Court has also adverted to the decision of this Court in Northern Railway v. Sarvesh Chopra [Northern Railway v. Sarvesh Chopra, (2002) 4 SCC 45] in support of the principle that if a party to a contract does not rescind it by invoking Sections 55 and 56 of the Contract Act, 1872 and accepts the belated performance of reciprocal obligations, the other party would be entitled to make a claim for damages. 21. The next aspect of the matter relates to the award of interest for the period from 7-3-1986 to 31-12-1997. The arbitrator awarded a lump sum of Rs 20 lakhs for a period of 11 years. The High Court set aside the award of interest on the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to mechanically apply a certain formula however well understood in the trade. This itself is going outside the jurisdiction to set aside an award under Section 34 inasmuch as in McDermott case [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] , it was held: (SCC pp. 222-24, paras 104-06) 104. It is not in dispute that MII had examined one Mr D.J. Parson to prove the said claim. The said witness calculated the increased overheads and loss of profit on the basis of the formula laid down in a manual published by the Mechanical Contractors Association of America entitled Change Orders, Overtime, Productivity commonly known as the Emden Formula. The said formula is said to be widely accepted in construction contracts for computing increased overheads and loss of profit. Mr D.J. Parson is said to have brought out the additional project management cost at US $1,109,500. We may at this juncture notice the different formulas applicable in this behalf. (a) Hudson Formula: In Hudson's Building and Engineering Contracts, Hudson Formula is stated in the following terms: Contract head office overhead and profit percentage X Contract sum Contract period X Period o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lump sum to the particular contract. The amount of head office overhead allocated to the particular contract is then expressed as a weekly amount by dividing it by the contract period. The period of delay is then multiplied by the weekly amount to give the total sum claimed. The Eichleay Formula is regarded by the Federal Circuit Courts of America as the exclusive means for compensating a contractor for overhead expenses. 105. Before us several American decisions have been referred to by Mr Dipankar Gupta in aid of his submission that the Emden Formula has since been widely accepted by the American courts being Nicon Inc. v. United States [331 F 3d 878 (Fed Cir 2003)] , Gladwynne Construction Co. v. Mayor and City Council of Baltimore [807 A 2d 1141 : 147 Md App 149 (2002)] and Charles G. Williams Construction Inc. v. White [271 F 3d 1055 (Fed Cir 2001)] . 106. We do not intend to delve deep into the matter as it is an accepted position that different formulae can be applied in different circumstances and the question as to whether damages should be computed by taking recourse to one or the other formula, having regard to the facts and circumstances of a particular case, would emin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Arbitral Tribunal are to the effect that the termination of the contract was illegal and without following due procedure of the provisions of the contract. The findings are on appreciation of evidence considering the relevant provisions and material on record as well as on interpretation of the relevant provisions of the contract, which are neither perverse nor contrary to the evidence in record. Therefore, as such, the first appellate court and the High Court have rightly not interfered with such findings of fact recorded by the learned Arbitral Tribunal. 7.2. Once it is held that the termination was illegal and thereafter when the learned Arbitral Tribunal has considered the claims on merits, which basically were with respect to the unpaid amount in respect of the work executed under the contract and loss of profit. Cogent reasons have been given by the learned Arbitral Tribunal while allowing/partly allowing the respective claims. It is required to be noted that the learned Arbitral Tribunal has partly allowed some of the claims and even disallowed also some of the claims. There is a proper application of mind by the learned Arbitral Tribunal on the respective claims. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011 is illegal? 23. So far as the first point for determination is concerned, 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. (supra) 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. The appellant even remained unsuccessful in the review application filed by it challenging the said order of the designated judge appointing the present arbitrator. For reasons best known to the appellant the said order appointing the arbitrator was not challenged before the Hon ble Supreme Court of India. In this backdr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of escalation. 26. In the case of Genral Manager, Northern Railway and Another v. Sarvesh Chopra, (2002) 4 SCC 45 it has been held by the Hon ble Supreme Court of India that if a party to a contract does not rescind it by invoking Sections 55 and 56 of the Contract Act, 1872 and accepts the belated performance of reciprocal obligations, the other party would be entitled to make a claim for damages. 27. Now coming to the facts of this case the arbitral tribunal in respect of issue No.1 concluded that the work was halted for a total period of about 347 days and 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 claimant cannot be held to have committed breach of contract since the performance on his part of the contract was entirely dependent on the performance of the contract by the respondent before him who is the appellant of this appeal, on their part. 28. So far as the contention of the appellant regarding the failure of the arbitral tribunal to frame specific issue that the government authorities before it were negligent is concerned it is a settled principle of law that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. (b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment. NOTE: By the amendment vide section 16 of Act 3 of 2016 w.r.e.f 23.10.2015 the words eighteen per centum per annum in section 31(7)(b) of the Arbitration and Conciliation Act, 1996 have been substituted by the words two per cent higher than the current rate of interest prevalent from the date of the award, The plain reading of the said section reveals that Clause (a) of sub-section (7) provides that where an award is made for the payment of money, the Arbitral Tribunal may include interest in the sum for which the award is made. So this provision confers the power upon the Arbitral Tribunal while making an award for payment of money, to include interest in the sum for which the award is made on either the whole or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arate judgment concurring with Hon ble Mr. Justice S.A. Bobde (as His Lordship then was) held as under 31. Coming now to the post-award interest, Section 31(7)(b) of the Act employs the words, A sum directed to be paid by an arbitral award . Clause (b) uses the words arbitral award and not the Arbitral Tribunal . The arbitral award, as held above, is made in respect of a sum which includes the interest. It is, therefore, obvious that what carries under Section 31(7)(b) of the Act is the sum directed to be paid by an arbitral award and not any other amount much less by or under the name interest . In such situation, it cannot be said that what is being granted under Section 31(7)(b) of the Act is interest on interest . Interest under clause (b) is granted on the sum directed to be paid by an arbitral award wherein the sum is nothing more than what is arrived at under clause (a). (Emphasis Supplied) In view of the principle of law discussed above 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 perio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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