Partly allowed

Union of India v. M/S. Arora Associates

Bombay HC3 Sept 2007ARBP/163/2007

Case brief

AI extract

What is this about?

Arbitration Petition challenging an arbitral award. The court held that the award's grant of pendente lite interest violated a specific contractual clause prohibiting such interest. The court modified the award to set aside interest up to the date of the award but upheld future interest and dismissed challenges regarding other claims.

What did the court decide?

Award modified to set aside interest payable up to the date of the Award; future interest at 10% per annum maintained from date of Award.

Union of India Vs M/S. Arora Associates — Arbitration | Bombay HC (2007)

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 IN THE HIGH COURT OF JUDICATURE AT BOMBAY

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 ORDINARY ORIGINAL CIVIL JURISDICTION

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ARBITRATION PETITION NO.163 OF 2007

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 Union of India .. Petitioner.

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 Versus

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 M/s.Arora Associates .. Respondents.

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 Mr.Suresh Kumar for petitioner.

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 Mr.S.U.Kamdar for respondents.

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CORAM : S.C.DHARMADHIKARI, J.

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 DATE : 3rd September, 2007.

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P.C.:

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 1. Admit. Respondents waive service. By consent,

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 returnable forthwith.

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 2. Heard Mr.Kumar appearing for the petitioner and
 Mr.Kamdar, learned Counsel appearing for the respondents.

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 3. The challenge is to the Arbitration Award dated
 14th February, 2007 of the Arbitral Tribunal.

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 4. If the claims, that are awarded are perused,

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 Mr.Kumar submits that only three claims have been awarded.
 He has a grievance with regard thereto. The payment of
 second running account bill, refund of security deposit
 and payment of interest are the three claims, which have
 been awarded and the Arbitral Tribunal has directed the
 Union of India to pay to the claimant a sum of
 Rs.15,61,718/- within 60 days from the date of publication
 of this Award, failing which simple interest is directed
 to be paid from the 61st day from the date of Award upto
 the date of payment.

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 5. The submission of Mr.Kumar, insofar as the payment
 under the second running bill is concerned, is that the
 same could not have been awarded. He submits that this is
 a case where the majority has awarded the claims but the
 minority proceeded to reject the same. He further submits
 that the first running bill, recorded on 26th April, 1999,
 was paid for Rs.6,17,084/-. The first running bill was
 paid for lumpsum quantity against two items. He also
 submits that the second running bill was lodged on 25th
 July, 1999, but the same was cancelled. He then submits
 that in the second running bill also, lumpsum amount has
 been claimed with regard to the quantities recorded
 therein. However, no supporting calculations or other
 details have been forwarded. In such circumstances, and

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 when the bill was submitted after the termination of the
 Contract, the amounts therein were not payable. He
 submits that there are overwritings in the recorded
 quantities entered into second running bill. In such
 circumstances, and when no over writing is permitted, the
 bill could not have been directed to be honoured. He has
 invited my attention to the reasonings of the Arbitrator,
 who has differed from the majority. In this behalf, he
 has invited my attention to the terms and conditions of
 the Contract. He submits that once the measurements and
 certificates are contemplated under the terms and
 conditions, then, unless and until the payment is
 certified, there is no question of honouring the bills
 raised by the Contractor. He has also invited my
 attention to the majority Award and submitted that the
 same does not assign any reasons. Further, they have
 failed to discuss the final measurements recorded by the
 party. In these circumstances, this claim could not have
 been awarded.

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 6. Insofar as the refund of the security deposit is
 concerned, he submits that the same is awarded in
 contradiction to the terms and conditions and more
 particularly, the clause with regard to the payment
 contemplated when the contract was entered into. He has

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 invited my attention to Clauses 61 and 62 so also Clause
 64 of the terms and conditions in this behalf.

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 7. Finally, with regard to interest, Mr.Kumar submits
 that no interest could have been awarded. He further
 submits that there is a specific prohibition in Clause
 64(5) where it is clearly stipulated that if the arbitral
 Award is for payment of money, then, no interest shall be
 awarded on the whole or any part of the money till the
 date on which the Award is made. He also submits that
 this prohibition has been clearly ignored and, therefore,
 the Award is clearly vitiated. He submits that the Award
 would be liable for interference in terms of Section
 34(2)(iv) so also Section 34(2)(b)(i)(ii) of the
 Arbitration and Conciliation Act, 1996 (for short "the
 said Act").

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 8. In support of his submissions, Mr.Kumar has relied
 upon the following decisions of the Supreme Court and
 Bombay High Court.

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 1) AIR 2002 S.C. 1272 (General Manager,
 Northern Railways and Anr. v/s. Sarvesh Chopra)

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 2) Arbitration Petition No.357 of 2005 (Union

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 of India v/s.M/s.B.D.Shah & Co., Order dated 13th
 December, 2005).

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 9. On the other hand, Mr.Kamdar appearing for the
 respondents, urges that all grounds, which are raised in
 this petition, are based upon the reasonings given in the
 Minority Award of the Arbitral Tribunal. He submits that
 this cannot be the basis for challenging the Award. He
 further submits that it is fallacious to hold that the
 majority Award does not assign any reasons for awarding
 the claim. On the other hand, qua each of the claim
 awarded, the majority Award has assigned reasons.
 Further, with regard to some of the claims that have been
 awarded, the minority Award does not differ with the
 majority opinion. That apart, all the Arbitrators have
 concurred in rejecting most of the claims and those that
 have been awarded are after considering the entire
 material placed before the Arbitrators. This is not a
 Court of Appeal so as to appreciate the material once
 again. In such circumstances, there is no substance in
 the contention that the Award is liable to be set aside

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 insofar as it awards the claim under the second running
 account bill. Similarly, with regard to refund of
 security deposit, the Arbitrators have assigned reasons
 for refunding the same inasmuch as the Union of India

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 cannot withhold the same, contrary to the terms and
 conditions. If it has withheld the amounts, which are
 ultimately to be paid, then, an Award can be made in terms
 of the contract, directing refund of security deposit as
 well.

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 10. Finally, Mr.Kamdar submits that any stipulation in
 the contract, which runs contrary to Section 31(7) of the
 said Act would be bad and not binding upon parties. In
 other words, the Award insofar as it directs payment of
 interest is concerned, is not in conflict with Section
 31(7) (a) and (b) of the said Act. Further, it cannot be
 said to be beyond the terms of the contract or contrary
 thereto. In such circumstances, the Award is not liable
 to be interfered even on this ground.

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 11. Alternatively, Mr.Kamdar submits that the Award
 insofar as it directs payment of interest is clearly
 severable and that part of the Award can be separated from
 the earlier. Without disturbing the same, this Court,
 vide powers conferred under the said Act, so also in its
 inherent jurisdiction, can modify the Award to that
 extent.

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 12. I have perused the petition and the annexures

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 thereto, including the terms and conditions of the
 contract insofar as they are material for the purposes of
 appreciating the rival contentions.

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 13. The general conditions of contract for use in
 connection with engineering works contain general
 obligations and also specific obligations /
 responsibilities.

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 14. The Arbitrators entered upon Reference and
 considered the claims and counter claims of the parties
 before them. It is undisputed that the work is awarded to
 the respondents for providing Drainage Arrangement between
 174 kms and 186 kms in Pune Division, vide Contract /
 Agreement dated 19th March, 1999 for the total cost of
 Rs.29,10,140.76. The Letter of Authority was issued and
 the contract period was stipulated as five months. The
 contract work was bifurcated into four sites. The
 claimants sought opening of two or three other sites so
 that the work can be completed before on set of monsoon.
 Thereafter, further sites were to be opened. The Union of
 India/Railways granted extension of time but with penalty.
 However, the Contractor did not agree with the penalty and
 that is how the disputes arose and the claims were
 referred for adjudication.

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 15. Claim Nos.1 to 4 have been rejected.

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 16. Insofar as Claim No.5 i.e. payment of second
 running account bill is concerned, the majority Award
 considered the admitted facts and thereafter considered
 the material placed before it. It has assigned cogent
 reasons by taking into consideration the details in the
 site register. It has also noted the facts that certain
 payments have already been made. It has also noted the
 admitted fact that the bill and majority measurement book
 was jointly signed by the claimants as a token of
 acceptance. Overwriting has also been a matter, which has
 been considered by them and that is how the contention of
 the Union of India / Railways that the second running
 account bill has been cancelled as it is incorrect, has
 been rejected.

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 17. The majority Award takes into consideration of
 further admitted fact that if the said bill was cancelled
 as contended by the petitioner, then, there would have
 been some written material in that behalf. However, no
 intimation of this cancellation has been placed on record
 by the petitioner. The manipulation or overwriting, which
 was complained of, has also been taken into consideration

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 and it is observed that no material is placed before them
 in that behalf. In such circumstances, and when both
 sides do not lead any evidence but place reliance on
 documents, the contents of which are also undisputed,
 then, the figures taken into account and relied upon to
 award the subject claim cannot be said to be perverse or
 contrary to the terms and conditions of the contract or
 vitiated otherwise so as to call for interference in
 limited jurisdiction of this Court that is conferred under
 Section 34 of the said Act. I am in agreement with the
 submission that this is not a Court of Appeal which can
 undertake further appreciation and appraisal of the
 materials.

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 18. Thus, the first contention of Mr.Suresh Kumar must
 fail. Insofar as the second contention that the security
 is not liable to be refunded is concerned, the Arbitral
 Tribunal has taken into consideration the correspondence
 so also the oral arguments. It has noted that enough
 working sites were not made available by the Railways
 which caused delay in executing the work. It has further
 noted that there was a delay in honouring the second
 running account bill. There is no approval of various
 statements and thus, these lapses on the part of the
 Railways were, in the opinion of the Arbitral Tribunal,

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 enough for holding that there are breaches committed by
 the Railways and, therefore, forfeiture of the security
 deposit is invalid. Even the minority opinion agrees that
 the security deposit is liable to be refunded. However,
 there are some different reasons assigned for that
 conclusion. Once again, it is well settled that
 sufficiency or adequacy of reasons is not a matter for
 this Court to consider and interfere with the Award on
 that count. This Court may arrive at the same conclusion
 for some additional or different reasons but that is not a
 ground to interfere with the Award. In such
 circumstances, the second contention of Mr.Suresh Kumar
 must also fail.

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 19. With regard to the claim for payment of interest,
 the clause, which has been pressed into service reads thus
 :-

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 "64(5) Where the arbitral award is for the
 payment of money, no interest shall be payable on
 whole or any part of the money for any period till
 the date on which the award is made."

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 20. The Award directs payment of interest on the
 ground that pendente lite interest deserves to be granted

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 because the amounts, which are payable to the Contractor,
 have not been paid. Although, while considering this
 claim, the Tribunal was aware of the stipulations in the
 Contract, both majority and minority grant the claim for
 interest. It is the contention of Mr.Kamdar that the
 interest has not been awarded at the rate claimed by the
 contractor, but the same has been scaled down. It is a
 simple interest which has been awarded for the unpaid
 amount from the date of invocation of the arbitration till
 the decision of the award. He submits that this does not
 fall within the stipulation / prohibition under the
 Contract.

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 21. The clause is widely worded. It would not be fair
 and proper for the Tribunal to ignore the mandate of the
 clause inasmuch as there is a prohibition not to award
 interest. It is not payable on whole or any part of the
 money for any period till the date on which the award is
 made. When parties agree to an stipulation and
 prohibition that no interest is liable to be payable for
 any period till the date on which the award is made, then,
 it is difficult to agree with Mr.Kamdar’s submission that
 Section 31(7)(a) is permitting the Tribunal to award
 interest. The wording of the section is also very clear
 inasmuch as it opens with the words "unless otherwise

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 agreed by the parties". Here, a clear Agreement between
 parties has been placed before Arbitral Tribunal which
 does not permit grant of interest for any period till the
 date on which the Award is made. In such circumstances,
 grant of pendente lite interest is contrary to the
 stipulations and express terms of the contract. The award
 is, therefore, vitiated on that count and is, therefore,
 liable to be interfered with.

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 22. However, I am in agreement with Mr.Kamdar that the
 Award is separable and severable to the extent it directs
 payment of interest on the sums awarded. This part of the
 award and the claim being considered separately and even
 Mr.Suresh Kumar finding it difficult to meet the
 contention that the claim is not severable, I am of the
 view that this part of the award can be interfered with
 and considered separately. The entire award may not be
 set aside. The award can be modified and the claim for
 interest as awarded upto the date of the award, therefore,
 must be set aside. It is accordingly, set aside. The
 Union of India shall not be liable to pay any interest,
 pendente lite, i.e. till the date of the Arbitral Award.

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 23. However, the petitioner is liable to pay to the
 respondents interest as simple interest @10% as directed

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 in the Award from the date of Award till payment. That is
 a power which can be exercised by this Court under the
 said Act. Hence, Award of future interest is maintained.

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 24. With regard to the submission of Mr.Suresh Kumar
 that the costs of arbitration could not have been awarded
 as they are to be shared equally by the parties, I am of
 the view that the amount of costs towards arbitration have
 been awarded in the sum of Rs.40,000/-. In such
 circumstances, and when I have modified the award to the
 considerable extent, I am of the view that there is no
 violation of the terms and conditions by the Tribunal. In
 the facts of this case, reliance upon the decision of the
 Supreme Court reported in (1999) 7 SCC 339 (State of J&K &

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Anr. v/s.Dev Dutt Pandit) and that of the Calcutta High
Court reported in AIR 2005 CALCUTTA 305 (Steel Authority
of India Ltd. v/s. Shyam Sundar Choudhary) by Mr.Kumar
 is misplaced because in the facts of those cases, the
 Court found the award to be vitiated on quantum of costs.
 There, the claims of the contractor were highly inflated
 and were thus rejected. Here, atleast in some claims, the
 amount claimed has been found worthy of acceptance. In
 such circumstances, in the peculiar facts of this case,
 the award is not liable to be interfered with on the issue
 of payment of costs.

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 25. In the light of the above, the challenge to the

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 award insofar as it directs payment of the second running
 bill, refund of security deposit and costs fail. However,
 the challenge to the extent it directs payment of interest
 till the date of Award succeeds and the Award is modified
 as above.

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 26. The arbitration petition stands partly allowed.
 The Award stands modified as above. No order as to costs.

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(S.C.Dharmadhikari, J.)

Union of India v. M/S. Arora Associates

Case brief

What is this about?

What did the court decide?

Union of India v. M/S. Arora Associates

Case brief

What is this about?

What did the court decide?

What the court decided

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Cases cited

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