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Section 31(7) in THE ARBITRATION AND CONCILIATION ACT, 1996
Section 18 in THE ARBITRATION AND CONCILIATION ACT, 1996
Section 30 in THE ARBITRATION AND CONCILIATION ACT, 1996
Section 31(3) in THE ARBITRATION AND CONCILIATION ACT, 1996
Section 34(2) in THE ARBITRATION AND CONCILIATION ACT, 1996

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Bombay High Court
Godrej Properties & Investments ... vs Tripura Construction And Ors. on 8 January, 2003
Equivalent citations: 2003 (2) ARBLR 195 Bom, 2003 (2) BomCR 1, (2003) 2 CompLJ 245 Bom, 2003 (2) MhLj 306
Author: F Rebello
Bench: F Rebello

JUDGMENT

F.I. Rebello, J.

1. Heard forthwith.

2. By the present petition under Section 34 of the Arbitration and Conciliation Act, 1996, the petitioners have impugned the award - dated I6th July, 2002 of the Arbitral Tribunal. The petitioners herein had awarded in favour of the respondents a civil contract for construction of two buildings. Disputes and

differences arose between the parties. There being an arbitral clause the matter was referred to arbitration. Parties have filed their claims and counter claims, which have been disposed by the common award. The Arbitral Tribunal has awarded in favour of the respondents a sum of Rs. 22,33,619/- after reducing the counter claim awarded in favour of the petitioners. The Arbitral Tribunal has also awarded in favour of the Respondents pendente lite interest in the sum of Rs. 11,76,447/- which has been calculated at the rate of 18% per annum from 12th August, 1999 till 6th July, 2002, the date of the Award. Future interest is awarded from the date of the award at the rate of 18% per annum if the award amount is not settled within 30 days. The Arbitral Tribunal in respect of Claim No. 1 and considering counter claims No. 1 have awarded in favour of the respondents a sum of Rs. 3,48,936/-. These are the amounts outstanding towards the final bills taking into consideration the claim of the petitioners for deductions and counter claims as can be seen in the award itself. Insofar as Claim No. 2 is concerned it was for refund of security deposit and retention money. Against this claim an amount of Rs. 6,27,5467- has been awarded. Similarly under Claim No. 4 which is the claim for amount withheld from R. A. bills the Tribunal has been pleased to award a sum of Rs. 33,436/-. Claim No. 6 is for extra work done by the respondents. In respect of this amount what has been awarded is a sum of Rs. 5,93,398/-. Claim No. 7 is for payment is respect of the actual area of the work. Against this an amount of Rs. 4,86,703/- has been awarded. Claim Nos. 10 and 11 were for interest where the Tribunal was pleased to award 18% interest. The rest of the claims of the respondents have been rejected. Insofar as claim No. 1 is concerned, that was dealt with along with counter-claim No. 1 as can be seen in the discussion while answering Claim No. 1 and counter claim No. 1. Counter claim No. 2 was for liquidated damages. This has been rejected by the Arbitral Tribunal by holding that the delay in executing the work cannot be attributed solely to any one party. Similarly, counter claim No. 3 for supervision charges was also rejected. Counter claim No. 4 for electricity charges has been allowed in the sum of Rs. 65,365/-. Counter claim No. 5 was for work not carried out as per specifications. This has been allowed in a sum of Rs. 2,18,663/-. That has been adjusted against Claim No. 1 of the respondents. Counter claim Nos. 6 and 7 have been rejected. Counter claim Nos. 8 and 9 for interest were allowed for the period from 12th August, 1999 till the date of the Award at the rate of 18%. Counter claim No. 10 which was for costs has been rejected.

3. At the hearing of the petition on behalf of the petitioners it is contended that the award is liable to be set aside as (1) the party was under an incapacity and as such the award has to be set aside; (2) the Arbitral Tribunal did not consider that the contract was a lump-sum contract. Once that being the case, additional amounts could not have been awarded and as such the Award was liable to be set aside considering Section 34(2)(iv) of the Arbitration and Conciliation Act, 1996 namely that amounts had been awarded contrary to the terms of the contract and as such filed beyond the scope of the submission; (3) that the Arbitral Tribunal did not treat the parties with equality and considering that also the Award is liable to be set aside; (4) lastly that the Award is an unreasoned Award considering Section 31(3) of the Act of 1996 and lastly (5) the interest awarded is unreasonable as against the public policy of India considering the interest rates now prevailing.

4. Expanding the contention of incapacity, it is pointed out that the Arbitral Tribunal relied upon the practice in trade and/or usage without giving to the petitioners herein an opportunity. That being the case the petitioners were incapacitated from putting their case before the Arbitral Tribunal. The Award, therefore, is liable to be set aside. On the other hand on behalf of the respondents their learned Counsel contends that this argument is solely based on the amounts awarded under the heading "of extra work". Attention is invited to page 18 of paragraph 17 of the affidavit in reply by Nainesh Gunvantrai Pandya. My attention is also invited to Annexure "A" to 1st respondent's letter dated 31st August, 1998 under which the petitioner's Architect certified the additional size of the overhead tank on the per litre basis. By doing so it is contended that trade practice was established. Apart from that the petitioners themselves had admitted that sum of Rs. 2,35,000/- was payable to the respondents for the extra work. It is then pointed out that the petitioners themselves had filed Exh. R.-67 before the Arbitral Tribunal on 14th March, 2001 of an unrelated contract of Oil and Natural Gas Commission to indicate the alleged basis of the petitioners claim for electricity charges. The charges have been allowed. The Tribunal has followed this practice while awarding counter claim No. 4. Apart from that, the petitioners themselves had pleaded before the Arbitral Tribunal as under :-- "It is submitted that the Government practice such as that of C.P.W.D./ O.N.G.C. establishes the reasonable rate and quantum of recovery in this regard."

Insofar as additional items were concerned, there was a dispute between the parties. The Arbitral Tribunal as constituted consisted of Engineers. Before them, in respect of counter claim, the petitioners themselves had shown for the purpose of computing electricity charges, the practice followed by CPWD. Once the petitioners themselves had relied upon CPWD rates for the purpose of ascertaining their claim, I find nothing wrong in the Arbitral Tribunal in their unanimous award applying the same practice in respect of other items which were not covered by specific rates. Ultimately, it was for the Arbitral Tribunal to arrive at a just decision considering that the parties themselves had agreed to the arbitral forum. The Arbitral Tribunal was consisting of Engineers conversant with the industry and in these circumstances I am of the opinion that it is difficult to accept the challenge that the parties were incapacitated from presenting their case before the Arbitral Tribunal in respect of the Tribunal following the trade and practice in the industry. Once the parties agreed to the composition of the Tribunal and as long as the Arbitral Tribunal has not applied tests which a reasonable person would not apply it would be difficult for this Court to interfere with the said award on that count. On the contrary in the absence of agreed rates, there is a duty cast on the Tribunal under Section 28(3) to take into account the usages of the trade applicable to the transactions whilst considering the contractual terms, which do not provide for the matter in issue.

5. We then come to the second contention namely that the Arbitral Tribunal did not take into consideration while awarding the amounts, that the

contract was a lump-sum contract. In answer to this on behalf of the petitioners their learned Counsel points out that lump-sum was amount only in respect of the over-head tank. The clause of the tender document itself provided as follows :--

"Payment shall be on the basis of actual area of work constructed by you."

The rate itself was agreed being at Rs. 332.25 per sq.ft. A perusal of the award and the contents of the affidavit in reply where material is placed based on the record, it is clear that the whole contract was not a lump-sum contract. Apart from the payments as set out in the tender document additional amounts were payable in terms of the tender document themselves. Once that be the case it is not possible to accept that the entire contract was a lump-sum contract. Dealing with the issue of over-head water tank the parties themselves agreed that the payment would be worked on the actual area. The rate to be paid per sq.ft. of the area worked was agreed. All that the Tribunal has done is that it has given a finding of fact as to actual area. The Tribunal having recorded a finding of fact has merely applied the rates which the parties had agreed to. Once that being the case again to my mind the case would not fall within the predicates of Section 34(2)(a)(iv) and (v). The contention on that count also must be rejected.

6. The third contention was based on a consideration of Section 18. Section 18 merely provides that the parties shall be treated with equality and each party shall be given a full opportunity to present its case. Section 18 by itself is not a ground of challenge an Award. A challenge to an award can only be under Section 34(2) of the Act of 1996. At the highest Section 18 could be invoked to point out that the petitioners were denied an opportunity of presenting their case. The entire argument has been dealt with earlier, namely that it was sought to be contended that the Tribunal had followed the usage or custom of the trade without giving an opportunity to the petitioners. That argument has been dealt with in the earlier part of this order. Considering that to my mind that challenge will also not be available.

7. We then come to the challenge under Section 31(3). Section 31(3) requires that the Award should be reasoned. Under Section 34 an unreasoned award prima facie could be the basis for a challenge under Section 34(2)(b)(ii) as the requirement of law itself is that the Award should be reasonable. In the instant case the Arbitral Tribunal has dealt with the merits of each claim. Consideration of facts on record is all that the Tribunal was called upon to do and thereafter decide the claims. It is not the contention that the material placed on record was not considered and/or that the reasons are so perverse which no reasonable person could have arrived which would warrant the Court in coming to the conclusion to hold that no reasons are given or that the reasons given are not germane for decision of the matter. On a perusal of the Award firstly it is clear that it is an unanimous award of the Arbitral Tribunal. The Arbitral Tribunal has dealt with the claims and counter claims of the parties. It is not as if that has not been dealt with. It is no doubt true that on behalf of the petitioners their learned Counsel pointed out that the Arbitral Tribunal was wrong in rejecting the counter-claim No. 2 for liquidated damages. Even if that argument could be considered a person who claims liquidated damages has to lead evidence before the Arbitral Tribunal in support of liquidated damages. In the instant case no such material was placed by the petitioner. Even otherwise the Arbitral Tribunal has given a finding of fact that the liquidated damages could not be awarded because there had been defaults on the part of both the parties in other words, both the parties were at fault and in these circumstances rejected the claim. It cannot be said that the view taken by the Tribunal was view incapable of being taken. To my mind, therefore, there is no merit also in that contention.

8. That brings us to the last issue of interest awarded by the Tribunal. There was no provision for interest. In U.P. Co-operative Federation Ltd. v. M/s Three Circles, a Division Bench of this Court after noting the provisions of the Interest Act, 1978 held that insofar as pre-reference interest is concerned, if there was no provision for interest it would not be more than the current rate of interest. In the instant case the Arbitral Tribunal has not awarded interest for the pre-reference period. The question then remains in respect of interest pendente life and after the award. Under Section 31(7) will be a guide in so far as that part is concerned. Under Section 31(7)(a) a power is conferred on the Arbitral Tribunal between the date of cause of action and the date of the Award to award interest which is reasonable. The Tribunal has awarded 18% interest both to the petitioner and to the respondents. It is sought to be contended that considering the interest rates now prevailing the interest awarded would be contrary to the public policy of India. It is secondly contended that between the completion of hearing and the date of the Award the period of 9 months had elapsed and in these circumstances a party should not be made to suffer the consequences of delays or the failure by the Tribunal to dispose of the proceedings expeditiously. Insofar as the contention of the public policy is concerned, a perusal of Section 31(7)(b) would indicate that where the Arbitral Tribunal does not award specific interest after the award the interest payable would be at the rate of 18% per annum. Once that being the case, it can safely be said that it is the policy of the law insofar as arbitral proceedings are concerned to award 18% interest. Once it is the policy of the law then the question of holding that reasonable interest pendente lite would be contrary to public policy would be unsustainable. Pendente lite and interest subsequent to the award is interest which the Arbitral Tribunal can award considering Section 31(7) itself. This is so affirmed even under the Act of 1940 by the judgment of the Apex Court in the case of State of Orissa v. B. N. Agarwalla, when the Court held that the Arbitrator has jurisdiction to award pre-reference interest, interest pendente lite and post award interest under the Act of 1996 and for that purpose on failure to award interest, statutorily, interest is provided at 18% per annum post award. See also Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa and Ors. v. N. C. Budharaj (deceased) by LRs. and Ors., (2001) 2 SCC 721. Apart from that the mere fact there has been delay cannot result in this Court holding that the amount awarded is unreasonable. The parties went before the forum of their choice. There was no limitation on the forum in deciding the arbitral proceedings. The objective of parties choosing the forum of their choice is no doubt that the matter should be disposed expeditiously. That, however, does not mean that once the parties have chosen their forum of their choice and if that forum does not dispose of the matter expeditiously, a party in whose favour the award is made can be denied interest, more so considering Section 31(7)(a). It perhaps could be within the jurisdiction of the Arbitral Tribunal considering the delay to award interest in those circumstances which it considered reasonable, but that is within their exclusive discretion. Once that discretion has exercised then it cannot be said that the decision in unreasonable as long as the interest awarded does not exceed the contractual rate of interest or where the contract does not so provide in excess of 18%, which is the rate statutorily fixed if the Tribunal does not award interest after the passing of the award. To my mind, therefore, it will be difficult to hold that the interest awarded is unreasonable.

9. Apart from that on behalf of the respondents their learned Counsel points out that in Steeman Ltd. v. The State of Himachal Pradesh and Ors., JT 1997(3) SC 390 under the Act of 1940 considering the provisions of Section 30 of the said Act a contention was raised that the interest awarded was unreasonable. That contention was rejected as under :--

"Further the jurisdiction of the Court to interfere with the award is confined to matters enumerated in Section 30 of the Arbitration Act. We do not think that the last point raised before us would fall within the ambit of Section 30 to interfere with the award."

If such challenge was not available under Section 30 of the Act of 1940 it will be difficult to hold that such a challenge would be available either under any of the provisions of Section 34(2)(a) or Section 34(2). Insofar as Section 34(2)(b)(i) is concerned possibly it could be said that the interest awarded is unreasonable if the interest awarded is contrary to the terms of the contract or exceeds 18% if there be no term in the contract or any statutory limits if it is so provided. As pointed out above in this case granting of interest at 18% per annum cannot be said to be against the policy of the law and consequently insofar as the facts of this case is concerned the amount awarded would not be subject to challenge under Section 34(2)(b)(ii).

10. For the aforesaid reasons there is no merit in the petition which is consequently rejected. Each party to bear their own costs.