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2001 Supreme(Del) 528
High Court Of Delhi
DUGGAL CONSTRUCTION INDIA LIMITED - Appellant
Versus
INDIAN FARMERS FERTILISERS COOPERATIVE LIMITED - Respondent
Suit 1412A of 1997
Decided On : 04/25/2001
Akshay Makhija, Manoj Verma, Rajesh Lakhanpal, V.K.Makhija
The main legal point established in the judgment is that the interpretation of contract clauses, such as the escalation clause, must adhere to the specific terms and conditions, and claims for damages must align with the contractual provisions.
Headnote:
Arbitration Act - Construction Contracts - 1940 - Sections 30, 33 - Interest Act, 1978 - Lt. Col M. G. Kapoor Vs. Union of Indian and Ors. , 80 (1999) DLT 111 (DB ) - Oil and Natural Gas. Commission Vs. M. C. Clelland Engineers S. A. , 1999 ( 4 ) SCC 327 - New india Civil Erectors (p) Ltd. and Naturalgas Corporation, AIR 1997 SC 980 - Continental construction Co. Ltd. vs. State of Madhya Pradesh, AIR 1988 SC 1166 - Steel Authority of India j. C. Budharaja, (1999) 8 SCC 122 - M/s Sudarsan Trading Co. vs. The Govt. of kerala and another, AIR 1989 SC 890 - associated Engineering Co. vs. Government of Andhra pradesh and another, AIR 1992 SC 232 - Food Corporation of india vs. Joginderpal Mohinderpal and another, AIR 1989 SC 1263 - The Municipal Corporation of Greater Bombay vs. Thermal Engineering Corporation, Bombay and Others, 1997 (2) arb. LR 361 - rajasthan State Mines and Minerals Ltd. vs. Eastern engineering Enterprises and Anr. , 1999 9 SCC 283 - M/s. Salwan Constuction Company vs. Union of lndia, ILR 1997 (1) Delhi 748 - M/s. Metro Electric company vs. Delhi Develpment Authority, AIR 1980 Delhi 266 - P. M. vs. Union od India, AIR 1989 SC 1034 - State of Orissa vs. Sudhakar Das (dead) by L. Rs. , (2000) 3 SCC 27
Fact of the Case:
The Respondent challenged an Award dated 6th June, 1997 under Sections 30 and 33 of the Arbitration Act, 1940, related to construction contracts for quarters in Aonla, District Bareilly. The delay in completion led to disputes and arbitration, resulting in the Award.
Finding of the Court:
The Court rejected objections to the Award, including interest claims and violation of natural justice. The Court found that the escalation clause limited the Petitioner's entitlement to 5% of the contract value, and the claim for damages was not sustainable in law.
Issues: The issues included the entitlement to interest, violation of natural justice, and the interpretation of the escalation clause in the contracts.
Ratio Decidendi: The Court held that the demand for interest is an independent claim, and the violation of natural justice was not established. The Court interpreted the escalation clause to limit the Petitioner's entitlement to 5% of the contract value, rejecting the claim for damages.
Final Decision: The Court set aside the Award in respect of the conclusion that the Petitioner was entitled to claim compensation or damages for breach of contract for the period beyond the original contract period, as being without jurisdiction. The rest of the Award was made a rule of the Court.
( 1 ) THE Respondent has challenged an Award dated 6th june, 1997 by filing objections under Sections 30 and 33 of the Arbitration Act, 1940. The Award is in relation to two contracts being Contract Nos. 117 and 117-A dated 8th april, 1985 and 25th May, 1985 respectively. As per the contracts, the Petitioner was required to construct quarters for the Respondents Fertilizer township in Aonla, District Bareilly (U. P ). The contract period was 18 months, but there was a delay in completion of both the contracts. The delay was 16 months and 12 months respectively. Disputes having arisen between the parties, they were referred to two learned Arbitrators for being resolved. Hence the Award.
( 2 ) THE following issues were framed by a learned single Judge of this Court on 19th January, 1998 in respect of the objections filed by the Respondent:-
"1. whether the Award dated 6th June, 1997 is liable to be set aside on the basis of objections filed under Sections 30 and 33 of the Arbitration Act, 1940 on behalf of the Respondent?
2 Relief. Learned counsel for the parties made their submissions on 1st, 5th, 7th, 8th and 9th March, 2001 when judgement was reserved. Learned counsel for the Respondent raised three principal objections to the Award.
( 3 ) IT was firstly contended that the learned arbitrators had awarded interest upon interest. It was said that this is contrary to the provisions of Section 3 (3) (c) of the Interest Act, 1978. An objection was raised to the following conclusion:
"the Claimant is also entitled to interest at the rate of 18% per annum on this amount which works out approximately to rs. 1,87,20,000/ -. Thus the total claim to which the claimant is entitled to works out to Rs. 3,17,43,790/ -. The above interest has been calculated from the date we entered into the reference till the date of the award. In addition he will also be entitled to interest on the entire amount of Rs. 3,17,43,790/- from the date of the award till the date of payment". Reliance was placed on Lt. Col M. G. Kapoor Vs. Union of Indian and Ors. , 80 (1999) DLT 111 (DB ). This decision has no reference to proceedings under the arbitration Act, 1940 and is, therefore, inapposite. Learned counsel for the Petitioner relied upon the conclusions arrived at on Claim No. 13 (contract No. 117-A) and Claim No. 12 (in contract No. 117 ). This is what the learned Arbitrators held :-
"claim No. 13 (contract no. 117-A) interest has been claimed at the rate of 18% per annum for the claims found due. The claimant is entitled to interest from the date of reference to the arbitration i. e. 10. 5. 1989 till the date of the award, i. e. 6. 6. 1997, the rate of which will be determined at the time of granting relief. Claim No. 12 (contract No. 117) claimants have prayed that they may be allowed interest at the rate of 18% per annum on the amount actually found due and payable from the date these were in fact due and payable. We are of the view that the claimant is entitled to interest but the interest can only be allowed from the date when the arbitration proceedings were started i. e. 10. 5. 1989 and will be calculated upto the date of the award, i. e. 6. 6. 1997, and the rate of interest will be determined at the time of granting relief".
( 4 ) THE Supreme Court held in Oil and Natural Gas. Commission Vs. M. C. Clelland Engineers S. A. , 1999 ( 4 ) SCC 327 that in an arbitration, a claim for interest is an independent claim. Awarding of interest on such a claim is the same as awarding interest on a principal amount. Paragraph 4 of the Report is relevant and this reads as follows :
"there cannot be any doubt that the arbitrators have powers to grant interest akin to Section 34 of the Civil Procedure Code which is the power of the court in view of Section 29 of the Arbitration Act, 1940. It is clear that interest is not granted upon interest awarded but upon the claim made. The claim made in the proceedings is under two heads one is the balance of amount
