1. This Arbitration Appeal filed in terms of Section 37 of the Arbitration Conciliation Act, 1997, for short Act, is directed against the judgment dated 05.12.2020, for short impugned order, passed in the application filed under section 34 of the Act by the applicants/ appellants herein, whereby the application filed by the appellants, seeking setting aside of the Award passed by the Arbitrator, has been dismissed.
2. To understand the controversy in proper perspective the brief resume of the facts that led to the filing of this appeal, are taken note of in the first instance, thus:
3. In the year 1988, a work of construction, RCC Cut and Cover Conduit for a length of 477 meters from (-) 494 meters to RD (-) 17 meters of the Sumbal Link Channel in Upper Sindh Hydel Project USHP-II in November 1988 was allotted to the respondent contractor in terms of Chief Engineer USHP- IFs No. USHP-II/37 dated 5.11.1988.
4. The allotted work to the respondent/contractor, for execution as detailed hereinabove, got delayed due to eruption of militancy in the erstwhile State of J&K now Union Territory and the appellants offered a package of incentives viz. upward revision of rates to the contractors on 1.1.1993. The respondent/ contractor, on the basis of the offer made a claim to the Corporation seeking benefit of up ward revised rates on the analogy adopted in the case of other contractors who had abandoned their works and resumed the same after April, 1993, for the work in question from 1.1.1990. The appellants have allowed the revised rates in favour of the respondent/ contractor for the 10% of work which was incomplete, as stated, from April 1993 and the claim for 90% of the allotted work which had been completed before 1.4.1993 was not admitted. The denial of the claim for revision of rates from 1.1.1990 for the work already completed formed a ground for the respondent/ contractor to approach this Court seeking reference of dispute to arbitration and this Court in terms of order dated 17.7.2012 appointed Sh Ghulam Mohi-ud-din Dar, former District & Sessions Judge as arbitrator to enter upon the reference and pass its award. The learned Arbitrator, as a consequence to the directions of this Court, entered upon the reference and after evaluation of the evidence on the issues framed, passed an Award dated 21.7.2014 in favour of respondent/ petitioner to the tune of Rs. 45,38,416. along with interest @10% per annum from the date of filing of the petition by the petitioner/ respondent herein before this Court till the date of passing of award. The learned Arbitrator also held petitioner/ respondent herein, entitled to interest @ 18% per annum from the date of award till its final realization.
5. Aggrieved of the Award of the learned Arbitrator, the appellants filed an application under section 34 of the Act before the court of Principal District Judge, Srinagar, for short court below, seeking setting aside of the Award of the learned Arbitrator. The Court below after hearing learned counsel for the parties and after a thorough discussion dismissed the application in terms of order dated 05.12.2020, holding that none of the grounds projected in the application have been substantiated within the parameters envisaged under Section 34 of the Act.
6. The impugned order is challenged in this Arbitration Appeal inter alia on the grounds that: the order impugned is patently illegal, erroneous and against the settled position of the law on the subject having been passed against the terms and conditions of the agreement; there is total non-application of mind; the arguments advanced before it by the applicants/ appellants were not considered at all; the objections filed by the applicants/ appellants on the issue of limitation have not been addressed; the court below did not appreciate that the claim petition was an afterthought as the claim petition was filed after a gap of 17 years; the learned Arbitrator has awarded interest in violation of the statutory provisions which go to the roots of the Award as well as the impugned order; the award of the learned Arbitrator is not only in violation of the terms and conditions of the agreement but is in conflict with the fundamental policy also. Etc.
7. It is reiterated at the cost of repetition that the respondent had been allotted a construction work in the year 1988 and the same was to be completed within 21 calendar months from 28.10.1988, which however got delayed on account of disturbed conditions. The respondent was granted extension in time but the works were not executed even within the extended timeline. Subsequent thereto, the respondent filed the arbitration petition bearing no. AA 16/2011 in which the Sh Gh. Mohi-ud-din Dar, retired District & Sessions Judge, came to be appointed as Sole Arbitrator. Claim petition came to be filed on 21.07.2012 before the learned Arbitrator who furnished a copy to Mr M. A. Chashoo, Advocate, for filing his reply. The reply came to be filed on 15th September, 2012. In the reply so filed before the learned Arbitrator, the appellants/ respondents inter alia stated that the claim petition deserves to be rejected for being hopelessly time barred; the Arbitrator lacks jurisdiction to take cognizance of the claim in sequel to the claim petition being time barred; the relief claimed on account of Bonus cannot be granted because bonus is not the part of the agreement but is claimed on the unmatured decision of the Empowered Committee; the claim is untenable as the agreement has outlived its life; the amount of compensation claimed is exceeding by a huge margin the principal cost of contract; the claimant has failed to give the mode and breakup of the assessed amount claimed; the petitioner could not achieve the fixed targets in accordance with the stipulations of the agreement which resulted in the delayed execution of work; the timely completion of the work awarded to the petitioner was essence of the contract in order of commissioning the prestigious project and it was obligatory for the petitioner to complete the work within the stipulated time of completion; the performance of the petitioner was not upto the mark although he was given the benefit of revision of rates and extension of time for completion of work with benefits of escalation.
8. The learned Arbitrator, on the basis of the pleadings of the parties, framed the following issues for determination:
"1. Whether the claim petition is time barred and is as such liable to be dismissed. (O.P.R)
2. Whether the petitioner is entitled to bonus/ incentive as he has continued to execute the allotted work by the respondents during militancy and turbulence right from 1.1.1990 till the complete execution of work (O.P.P)
3. Whether the petitioner is entitled to an amount of Rs. 2,52,80,157. on account of revision of rates/ bonus as the computation of this amount has been sent to the respondents along with the representation made by the petitioner. (O.P.P)
4. What are the special reasons on the basis of which petitioner claims bonus/ incentive from January 1990 instead of 1.4.1993 as has been done in case of other contractors working on the same project (O.P.P).
9. After considering the matter on the basis of material available on record the learned Arbitrator returned finding on the issues and passed an award dated 21.07.2014 to the tune of Rs. 45,38,416. along with interest @10% per a num from the date of filing of petition by the petitioner/ respondent herein before this court till the date of passing of award. The Award of the learned Arbitrator, upon challenge, has been maintained by the court below in terms of the impugned order which is under challenge in the instant appeal.
10. Heard learned counsel for the parties.
11. Mr M. A. Chashoo, learned counsel for the appellants, submits that the impugned order of the court below and the award passed by the learned Arbitrator are bad in law as the learned Arbitrator has gone beyond the pleadings of the agreement, therefore, has mis-conducted himself by re-writing the agreement. In that view of the matter the court below has maintained an erroneous award which has been passed beyond the provisions of the contract agreement. He submits that the learned Arbitrator and the court below failed to appreciate that none of the contractors was granted bonus and the contention raised to that effect by the respondent in his claim petition is incorrect.
12. The learned counsel further submits that the learned Arbitrator cannot rewrite the agreement and if the agreement does not contain a provision for bonus, there was no occasion for the learned Arbitrator to award it in favour of the respondent/ petitioner that too retrospectively. Thus, the learned counsel submits that the learned Arbitrator has re-written the agreement by granting bonus. In support of his contention, the learned counsel referred to and relied upon the case law reported as AIR 2005 J&K 81 titled R. B. Jodhamal v. State and others, paragraphs 18 and 50.
13. The learned counsel further submits that the findings recorded by the learned Arbitrator are without reasons, record or basis. The learned counsel further submits that the computation taken recourse of has not been approved in any way by the competent authority, therefore, was not reliable.
14. The learned counsel further submits that the award passed by the learned Arbitrator is further bad for the reason that the interest component awarded is against the statute and maintaining such award in terms of the impugned order of the court below has caused miscarriage of justice.
15. Mr Chashoo, learned counsel, submits that in terms of scheme of law, after the final settlement, the reference to arbitration can be made within three years in terms of Article 181 of the Limitation Act. Mr Chashoo, learned counsel, submits that the claim for final settlement with the respondent/ contractor was made in the year 1996 and the reference to arbitration was sought in the year 2011 after a lapse of 15 years. The learned counsel, therefore, submits that the claim petition could not have been entertained after the period of limitation. In support of such contention, the learned counsel referred to and relied upon the law laid down in case 1993 SCC (4) 338 titled Panchu Gopal Bose v. Board of Trustees For Port of Calcutta; AIR 1995 SC 1927 titled Union of India v. M/s Momin Construction Company; 1996 SCC (2) 216 titled State ofOrrisa and anr. v. Damodar Das.
16. The learned counsel placed reliance on the judgments reported as; AIR 1993 (JK) 14 titled Trim v. Devraj and others; AIR 1999 (86) SC 2262 titled Grid Corporation of Orrisa Limited and another v. Balasore Technical School; AIR 1999 (86) SC 3196 titled State of J&K and anr. v. Dev Dutt Pandit; AIR 2000 (87) SC 1294 titled State of Orrissa v. Sudhakar Das; AIR 2003 SC (90) p. 2629, titled Oil and Natural Gas Corporation Limited v. SAW Pipes Ltd; 2008 (13) SCC 80 titled Delhi Development Authority v. R.S. Sharma and Company, New Delhi; 2009 (12) SCC 1 titled State of Rajasthan v. Ferro Concrete Construction Pvt. Ltd.; 2009 Arbitration Law Reporter 13 titled Som Datt Builders Limited v. State of Kerala; 2011 (10) SCC 573 titled MSK Projects India (JV) Ltd v. State of Rajasthan and anr; and 2014 (9) SCC 263 titled Oil and Natural Gas Corporation Limited v. Western Geco International Limited.
17. While opposing the contentions raised by Mr M. A. Chashoo, learned counsel for the appellant, Mr R. A. Jan, learned Senior Counsel, submits that the appellant/Corporation has never settled the claim of the respondent/contractor and the same is unsettled even on date. The said fact, the learned senior counsel submits, is established by the respondent/ contractor before the learned Arbitrator and it was not controverted by the appellants before the Arbitrator when they had the chance to do so. He submits that the contention of the appellant qua time barred claim is factually incorrect and legally unsustainable as the learned Arbitrator as also the Court below has, by exhaustive examination and discussion, based on evidence, turned down the contention so made by the appellant referring to the pendency of the claim of the respondent/ contractor as also before this court from time to time. The learned senior counsel further submits that the learned Arbitrator was within his rights to go by the material available in absence of the assistance of the appellants/ respondents.
18. The learned senior counsel submits that the learned Arbitrator is the sole judge of the quality and quantity of the material available with him. He submits that the conduct of the appellants/ respondents before the Arbitrator is of vital importance and if a party chooses to stay away from the proceedings despite having filed its reply to the claim petition, it abandons the right to resist the claim at a later stage as it did not chose to do so when it was given chance for the same.
19. The learned senior counsel further submits that the Arbitral award can only be interfered with when it is patently illegal provided such patent illegality goes to the root of the matter which, however, is not the case in hand.
20. In support of his submissions, the learned senior counsel referred to and relied upon the law laid down in cases reported as 1988 (3) SCC 76 titled High Court of Judicature for Rajasthan v. Ramesh Chand Paliwal; 2006 (11) SCC 181 paragraphs 52, 58, 59 and 60 titled M. C Dermott International Inc. v. Burn Standard Co. Ltd and others; 2008 (2) SCC 444 paragraphs 20, & 21 titled /. C. Budhraja v. Chairman, Orrisa Mining Corporation Ltd., and anr; 2009 (10) SCC 63 paragraphs 29,34 & 36 titled Steel Authority of India Limited v. Gupta Brothers Steel Tubes Limited; 2020 (2) SCC 455 paragraphs 7 & 14 titled Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Cold Field Limited.
21. Considered the submissions made and went through the available material made.
22. The appellants allotted a construction work to the respondent in the year 1988 which got delayed due to eruption of militancy in the erstwhile State of J&K and the appellants, in view of the importance of the project, offered a package of incentives like upward revision of rates. A meeting in this behalf was convened on 28.4.1991 wherein the decision was taken to give the benefit of upward revision of rates to the contractors from 1.1.1993. The respondent, accordingly, made a claim to the respondents with complete details seeking the upward benefit of rates on the analogy adopted in the case of other contractors, who had abandoned their works and resumed the same after April 1993, for the work in question from 1.1.1990. The appellants appear to have allowed the revised rates for the 10% of the work which was incomplete in April 1993 and not to the 90% of the allotted work that was completed by the respondent till 1.4.1993. The contention of the respondent is that the benefit of upward revision of rates was required to be made to the whole work and not to the leftover work only. The learned Arbitrator upon entering into the reference passed the award holding respondent entitled to receive bonus/ incentive to the tune of Rs. 45,38,416. along with interest @ 10% per annum from the date of filing of petition by the petitioner before this Court till the date of passing of award and the learned Arbitrator held the petitioner/ respondent herein further entitled to interest @ 18% per annum from the date of award till the final realization of the awarded amount. The award of the learned Arbitrator has survived challenge made to it before the Court below by filing application under and in terms of Section 34 of the Act.
23. The challenge to the impugned order is made perse on the limitation aspect as also on non-application of mind and the higher interest component having been awarded.
24. By the impugned order, the court below has decided the arbitration application filed in terms of Section 34 of the Act, therefore, the challenge laid to the impugned order has to be seen in consideration of the scope envisaged under Section 34 of the Act for dealing with the application filed under the said section seeking interference with the Arbitral Award.
25. It needs no reiteration that the consistent position of law vis-a-vis interference with the arbitral award is that the court does not sit in appeal over the arbitral award and may interfere on merits on the limited grounds of it being against the public policy; or being patently illegal. The patent illegality would refer to mean contravention of the Act and contravention of the terms of the contract. However, such interference also does not entail a review of the merits of the dispute but is only needed when the findings of the learned Arbitrator are perverse; arbitrary; capricious or when the conscience of the Court is shocked or when the alleged illegality goes to the roots of the matter.
26. The court below has appreciated the controversy in right perspective and the view it has taken that none of the grounds projected in the application have been substantiated within the parameters envisaged under Section 34 of the Act is quite in conformity with law in the facts and circumstances of the case.
27. Now, as far as the scope of interference with an impugned order made under Section 34, in terms of Section 37 of the Act, is concerned, the only thing that needs to be seen is that the power exercised by the court below under Section 34 of the Act is well within the contours of the provision under which the same has been exercised. The court is conscious of the fact that while assessing that the court below has exercised its power as per the mandate of the provision; the evidence on record has not to be re-appreciated.
28. The record available would reveal that the learned Arbitrator as also the Court below has deliberated over the issue of limitation in detail and have covered all the aspects related therewith. The contention of the learned counsel for the appellant that the claim made by the respondent before the sole Arbitrator is time barred does not hold ground as the claim never appears to have died as the respondent has been pursuing his cause all along by filing an Arbitration Petition before this Court and the claim petition before the learned Arbitrator. Thus the findings, recorded by the court below and the sole Arbitrator, are, no way, in contravention with law. The issue of limitation, therefore, goes. The issue further loses significance for the reason that the appellants have not chosen to contest the claim on such score but have restricted it only to a half hearted assertion made in the reply filed in opposition to the claim before the Arbitrator. The Court cannot lose sight of the fact that the appellants did not choose to contest the claim, before the learned Arbitrator, as they should have. The opportunities provided to them in this behalf by the learned Arbitrator have gone all waste. The submission of the learned Senior Counsel for the respondent that it is an afterthought assertion that the appellants are trying to work on, therefore, carries weight.
29. As to the argument that the learned Arbitrator misconducted himself and there was no material before it. The court below has elaborately dealt with the point raised before it in this regard. The point has been again raised before this Court for the sake of it, without there being even an iota of material or case on this score. This Court cannot interfere with the Award on the mere taking of a statutory ground against it by a party, unless there is a wrong shown to have been committed by the Arbitrator, which has materially prejudiced the party taking the ground, to put its case or defence before the Arbitrator.
30. The submission of the learned counsel for the appellants that the learned Arbitrator has committed a jurisdictional error as he has travelled beyond the agreement is also not supported by the material placed on record in the shape of an Arbitral Award etc. Therefore, the submission of the learned counsel on such count also is turned down.
31. The Hon'ble Supreme Court while laying down the principle that conduct of the parties is a relevant factor in the matter of construction of a contract has, in case titled Associate Builders v. Delhi Development Authority reported as 2015 AIR (SC) 620 held as under:
"This last contravention must be understood with 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.
In McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181, this Court held as under:
"112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. (See Pure Helium India (P) Ltd. v. ONGC [(2003) 8 SCC 593] and D.D Sharma v. Union of India [(2004) 5 SCC 325]).
113. Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award."
32. The constant view of the Courts of the Country including that of the Hon'ble Apex Court on the issue of interference vis-a-vis patent illegality has been referred to a contravention of the Arbitration Act itself meaning thereby that if the learned Arbitrator gives no reasons in support of his award such award will be liable to be set aside.
33. The court below has rightly held that the application filed in terms of Section 34 of the Act does not fall within any of the factors envisaged in the Act that may warrant interference and upsetting the award.
34. So far as the point of award of interest by the Arbitrator is concerned, it is seen that the Arbitrator had awarded 10% interest on the award amount from the date of filing of the petition before this Court till the passing of award and 18% from the date of award till its final realization. It is true that there is no provision in the Act providing for grant of interest, nor did the agreement between the parties contain a clause in this regard, however, it is settled that the Arbitrator has got the discretion to allow interest pendent elite. In this connection, reference may be made to the judgment of the Supreme Court delivered in case titled Board of Trustees, Port of Calcutta v. Engineers-De-Space Age, reported as (1996) 1 SCC 516, wherein the two-Judge Bench, referring to the Constitution Bench judgment of the Court in Secy. Irrigation Deptt., Govt, of Orissa v. G. c. Ray, reported as (1991) 4 SCC 93, observed and laid down as under:
'3. A Constitution Bench of this Court in Secretary, Irrigation Department, Government of Orissa & others v. G. C Roy [1992 (1) SCC 508] was called upon to consider whether the decision of this Court in Executive Engineer (Irrigation), Balimela & ors. V. Abhaduta Jena & Ors. [1998 (1) SCC 418] correctly laid down the Rule in regard to Arbitrator's power to grant interest pendent elite. Dealing with this question the Constitution Bench summed up the legal position in regard to grant of interest pendent elite in the following terms:
"The question still remains whether arbitrator has the power to award interest pendent lite, and if so, on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge:
(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the Arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator.
(ii) An arbitrator is an alternative form (sic forum) for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. If the arbitrator has no power to award interest pendent lite, the party claiming it would have to approach the court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings.
(iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to Section 41 and Section 3 of the Arbitration Act illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement.
(iv) Over the years, the English and Indian courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendent lite. Thawardas has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jena's case almost all the courts in the country had upheld the power of the arbitrator to award interest pendent lite. Continuity and certainty is a highly desirable feature of law.
(v) Interest pendent lite is not a matter of substantive law, like interest for the people anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred."
It will appear from what the Constitution Bench stated to be the legal position, that ordinarily a person who is deprived of his money to which he is legitimately entitled as of right is entitled to be compensated in deprivation thereof, call it by whatever name. This would be in terms of the principle laid down in Section 34 of the Code of Civil Procedure. Their Lordships pointed out that there was no reason or principle to hold otherwise in the case of an arbitrator. Pointing out that arbitrator is an alternative forum for resolution of disputes arising between the parties, it said that he must have the power to decide all disputes and differences arising between the parties and if he were to be denied the power to award interest pendent lite, the party entitled thereto would be required to go to a Court which would result in multiplicity of proceedings, a situation which the Court should
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endeavor to avoid. Reliance was, however, placed on the observation in sub-para (iii) wherein it is pointed out that an arbitrator is a creature of an agreement and if the agreement between the parties prohibits the payment of interest pendent lite the arbitrator must act in accordance therewith. In other words, according to their Lordships the arbitrator is expected to act and make his award in accordance with the general law of the land but subject to an agreement, provided, the agreement is valid and legal. Lastly, it was pointed out that interest pendent lite is not a matter of substantive law, like interest for the period anterior to reference. Their Lordships concluded that where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute is referred to the arbitrator, he shall have the power to award interest pendent lite for the simple reason that in such a case it is presumed that interest was an implied term of the agreement between the parties; it is then a matter of exercise of discretion by the arbitrator. The position in law has, therefore, been clearly stated in the aforesaid decision of the Constitution Bench. " 35. It is thus no more res integra that the arbitrator is competent to award interest pendent elite. However, the rate of interest is to be fixed in the circumstances of each case and, therefore, it may vary from case to case; and cannot be imposed at a uniform rate without looking into the circumstances of a given case. 36. The substantive law, as it exists now, allows grant of interest on such amounts not to be more than 6%. 37. Having regard to the facts and circumstances of the case, I think, it would be just, proper and equitable to allow 6% interest instead of 10% awarded by the Arbitrator. 38. The judgments cited by the learned counsel for the appellants, reference whereof has been made hereinbefore, undisputedly lay down the principle vis-a-vis the points raised by the learned counsel for the appellants, but the principle laid down by the Hon'ble Supreme Court in such cases depends on the facts and circumstances of the case which does not come to the fore in the instant case. 39. The interest, therefore, awarded by the learned Arbitrator @10% being against statute is modified for 6% to be paid to the respondent from the date of reference to the Arbitrator till its final realization. The award of 18% interest from the date of award till its realization shall subsume into the modified rate of interest. 40. In view of above discussion, the impugned order is modified to the extent that the interest part of the Award shall now be 6% instead of 10% as granted by the Arbitrator. The said rate of interest shall cover the whole period from the date of reference to Arbitrator i.e. 17.7.2012 till the amount is realized. The impugned order and the Arbitral Award dated 21.07.2014 shall stand modified to the extent indicated above. 41. Records received from the court below be returned to the concerned against receipt along with a copy of this judgment for information and compliance.