2015 Supreme(Bom) 704

HIGH COURT OF JUDICATURE AT BOMBAY
R.D. DHANUKA, J.
Union of India, Through Dy. Chief Engineer (Con)/ Works – Petitioner
Versus
M/s. Vinay Agarwal – Respondent
Arbitration Petition No. 922 of 2012
Decided On : 06-05-2015

Headnote:

Arbitration - Award - Challenge - Grounds - Contractual Prohibition - Interest - Price Escalation - Material at Site - Arbitrator's Jurisdiction - Public Policy.

Fact of the Case:

Petitioner challenged the majority award dated 14th September, 2010 rendered by the arbitral tribunal thereby allowing five claims made by the respondents and rejecting the counter claims made by the petitioner. The petitioner had also made counter claims in the arbitral proceedings. The respondent had claimed a sum of Rs.13,12,974/- towards increase in cost of petroleum products and spare parts which was allowed by the learned arbitrators at Rs.13,12,974/-. The petitioner submitted that under clause 17 of the General Condition of Contract, 1956 even if there was any delay on the part of the petitioner in handing over to the contractor the possession of the lands necessary for execution of the work or for various other reasons mentioned therein or any other cause whatsoever, it would not affect or vitiate the contract or entitle the contractor to the damages or compensation therein but the petitioner could grant only extension of the completion date. The respondent had stopped the work w.e.f. 1st June, 2000 and had removed all men, materials, machinery and labour camp etc. from the site of work and had failed to resume the work. There was no material lying at the site belonging to the respondent. The learned arbitrators have allowed the said claim applying a thumb rule by allowing 60% of the claim. The learned arbitrators have awarded simple interest at the rate of 12% per annum from 3rd November, 2001.

Finding of the Court:

The court held that the impugned award insofar as claim no.5 i.e. 'increase in cost of petroleum products and spare parts' is concerned, the respondent had originally claimed a sum of Rs.13,12,974/- and revised the said claim before the learned arbitrators at Rs.13,18,293.44. The learned arbitrators have allowed the said claim at Rs.13,12,974/-. The court found that under clause 17(3) of the General Conditions of Contract, in the event of any failure or delay by the Railway to hand over to the Contractor possession of the lands necessary for the execution of the works or to give the necessary notice to commence the works or to provide the necessary drawings or instructions or any other delay caused by the Railway due to any other cause whatsoever, then such failure or delay shall in no way affect or vitiate the contract or alter the character thereof or entitle the Contractor to damages or compensation therefor but in any such case, the Railway may grant such extention or extentions of the completion date as may be considered reasonable. The court held that the learned arbitrators have exceeded their jurisdiction by allowing the said claim contrary to the said clause of the contract. The court also held that the impugned award insofar as claim no.7 i.e. for the 'cost of material at site' is concerned, the respondent had claimed 5,87,637/-. The learned arbitrators have allowed the said claim at Rs.2,30,520/-. The court found that the learned arbitrators have allowed the said claim based on no evidence and has applied the thumb rule by taking a imaginary figure of 60% of the claim and has awarded a sum of Rs.2,30,520/- without any basis, which is not permissible. The court also held that the impugned award insofar as claim no.13 i.e. claim for interest is concerned, in the majority award, the learned arbitrators have allowed simple interest at the rate of 12% per annum from 3rd November, 2001. The court found that though the learned arbitrators have referred to clause 16(2) of the General Conditions of Contract, however have allowed the said claim contrary to the said clause 16(2) of the General Conditions of Contract.

Issues: Whether the arbitral tribunal exceeded its jurisdiction by allowing the claim for increase in cost of petroleum products and spare parts contrary to the contractual prohibition under clause 17(3) of the General Conditions of Contract? Whether the arbitral tribunal erred in allowing the claim for cost of material at site based on no evidence and by applying a thumb rule? Whether the arbitral tribunal erred in allowing the claim for interest contrary to the contractual prohibition under clause 16(2) of the General Conditions of Contract?

Ratio Decidendi: The court held that the award of the learned arbitrators allowing the interest is contrary to the terms of the contract and contrary to section 31(7)(a) of the Arbitration and Conciliation Act, 1996 and deserves to be set aside. The court relied on the judgment of Supreme Court in case of Union of India vs. Concrete Products and Construction Company and others (2014) 4 SCC 416 and in particular paragraph (10) and would submit that the award of the learned arbitrators allowing the interest is contrary to the terms of the contract and contrary to section 31(7)(a) of the Arbitration and Conciliation Act, 1996 and deserves to be set aside.

Final Decision: The court set aside the impugned award insofar as claim nos. 5, 7 and 13. Rest of the award was upheld.