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IN THE HIGH COURT OF JAMMU & KASHMIR AND LADAKH AT SRINAGAR
SANJAY DHAR, J.
State of J.&K. & Anr. – Petitioners
Versus
C.R. Engineering Construction Pvt. Ltd. & Anr. – Respondents
M.A. No. 144 Of 2013
Decided On : 02-02-2023
ARBITRATION - AWARD - INTEREST - POWER OF ARBITRATOR - JURISDICTION - SCOPE OF INTERFERENCE BY COURT - CONTRACT - TERMINATION - LEGALITY - COMPENSATION - LOSS OF PROFIT - DAMAGES.
Fact of the Case:
The contractor was allotted work of construction of Water Conduction on Sumbal Link Channels and Power House Construction. The contractor was unable to complete the work within the scheduled time due to disturbances in the valley. The contractor requested the Project Authorities to foreclose the contract, but they refused. The Project Authorities terminated the contract and took over the possession of plant, machinery and material belonging to the contractor. The contractor filed a claim for compensation before the Arbitral Tribunal.
Finding of the Court:
The Arbitral Tribunal awarded compensation to the contractor for the illegal termination of the contract, idling charges of the machinery, and compensation for the illegal sale of the plant and machinery. The District Court upheld the award of the Arbitral Tribunal. The Project Authorities and the contractor challenged the judgment of the District Court.
Issues: 1. Whether the Arbitral Tribunal had jurisdiction to award interest for the pre-reference period? 2. Whether the Arbitral Tribunal had jurisdiction to award interest pendente lite? 3. Whether the Arbitral Tribunal had jurisdiction to award interest post award? 4. Whether the termination of the contract was legal? 5. Whether the contractor was entitled to compensation for loss of profit? 6. Whether the District Court was justified in reducing the rate of interest from 18% to 12% and further to 6% from April 2010?
Ratio Decidendi: 1. An Arbitrator has jurisdiction to award interest for the pre-reference period, pendente lite and post award in the absence of any specific stipulation or prohibition in the contract. 2. The termination of the contract was illegal as the Project Authorities did not issue a fresh cancellation notice in writing to the contractor under the hand of the Engineer-Incharge prior to finally deciding to call off the contract. 3. The contractor was entitled to compensation for the illegal termination of the contract, idling charges of the machinery, and compensation for the illegal sale of the plant and machinery. 4. The contractor was not entitled to compensation for loss of profit as he did not plead or prove that he had any other contracts in hand which he could not execute because of the illegal actions of the Project Authorities. 5. The District Court was justified in reducing the rate of interest from 18% to 12% and further to 6% from April 2010 as the award of interest after the filing of the award before the Court is purely within the discretion of the Court.
Final Decision: The appeals filed by the Project Authorities and the contractor were dismissed.
JUDGMENT :
1. By this common judgment, two appeals, one filed by the State of Jammu and Kashmir through Chief Engineer, Power Development Corporation (M.A No.144/2013) and the other filed by M/S C.R. Engineering Construction Pvt. Ltd., (AA No.9900001/2013) against the judgment and decree dated 11.06.2013 passed by the Court of Additional District Judge, Srinagar (hereinafter referred to as the ‘District Court’), are proposed to be disposed of.
2. The instant appeals owe their origin to an award dated 31.08.2005 passed by the Arbitral Tribunal that was challenged by both the parties by filing objections thereto before the Court below where the award was submitted by the Arbitral Tribunal for making it rule of the Court in terms of the provisions of Jammu and Kashmir Arbitration Act, Svt. 2002 (hereinafter referred to as the ‘Old Act’). Vide the impugned judgment and decree, the District Court, after modifying the award passed by the Arbitral Tribunal to a certain extent, made it rule of the Court.
3. The impugned judgment and decree of the District Court has been assailed by both the parties by filing instant appeals in terms of Section 39 of the Old Act. Before coming to the contentions raised in the appeals, let me give a brief backdrop of the facts leading to filing of these appeals.
4. Tenders were invited by the Government of Jammu and Kashmir for construction of Water Conduction on Sumbal Link Channels and Power House Construction as per the Tender Notice No.USHP-II/CE/3 of 1987 dated 30.11.1987. After invitation of the tenders, the following works under various orders were allotted to M/S C.R. Engineering Constructions Pvt. Ltd., Vishakhapatnam, Andhra Pradesh (hereinafter referred to as the ‘Contractor’):
| S. No. | Name of Contract by Govt./Chief Engineer Construction of water conductor on Sumbal Link Div.II | Reach No. | Value of contract with No. and date of Agreement | Date of completion |
| 1.Page No.429 | RD 6,690-7,000 m order USHP II/CE/4 works of 1988 dated 29.02.1988 | 1st Reach | Rs.46.50 lacs Agreement 26 of 88 dated 24.03.1988 Page 429 | 30.06.1989 |
| 2.Page 429 | RD 8,470-9,915 m Under order No. USHP-II/CE/6- works of 1988 dated 29.02.1988 | 2nd Reach | Rs.217.90 lacs Agreement 24 of 88 dated 24.03.88 Page 429 | 30.11.89 |
| 3.Page 429 | RD 10,575-11,250 m under Order No. USHPII/CE/5-works of 1988 dated 29.02.88 | 3rd Reach | Rs.188.00 lacs Agreement 25 of 88 dated 24.03.88 Page 429 | 30.11.89 |
| 4.Page 429 | RD 12,630-13,125 m under Order No. USHP- II/CE/9- works of 1988 dated 29.02.88 | 6th Reach | Rs.204.75 lacs Agreement 23 of 88 dated 24.03.88 Page 429 | 30.11.89 |
| 5.page 429 | Power House Division RD 14,000-14,610 m under Order No. USHP- II/CE/8- works of 1988 dated 29.02.88 | 8th Reach | Rs.118.60 lacs Agreement 6 of 88 dated 24.03.88 Page 429 | 30.11.89 |
5. Subsequently, the contractor was allotted another work of ‘Wangath Link’, namely WLD Reach RD 2000-3400 through negotiations under Agreement No. USHP-II/CE/19-Agri of 1988 dated 28.09.1988. The estimated cost of this work was Rs.113 lacs and the terms and conditions of this work were identical to those relating to other contracts. The work was to be completed by 31.08.1990. The mobilization advance of Rs.46,31,900/- was released in favour of the contractor for mobilizing the machinery, men and material. This was done against four Bank guarantees furnished by the contractor in favour of the Project Authorities/Government. Another sum of Rs. 88,79,000/- was released by the Project Authorities/Government in favour of the contractor on account of advance for machinery.
6. A dispute arose between the contractor and the Project Authorities/Government and the works aforesaid could not be completed by the contractor for different reasons which, according to the Project Authorities, are attributable to the
Claims in arbitration must be filed within the limitation period; time-barred claims render an arbitral award illegal and against public policy.
Setting aside arbitral award – Courts, while adjudging whether an arbitration award calls for interference has to be conscious that Arbitrator is sole Judge of facts – Unless an error of law is shown....
Judicial intervention in arbitration is limited, focusing on procedural irregularities rather than merit assessments.
Point of law : learned Arbitrator in his discretion can award pendentelite and future interest from the date of award till realization of the awarded amount because the terms of the contract did not ....
The court emphasized that arbitral awards should not be interfered with solely based on disagreements with findings, affirming the limited grounds for appeal under Section 34 of the Arbitration Act.
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