1990 Supreme(Mad) 890

High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE A. R. LAKSHMANAN
P. Shanmugha Sundaram, Proprietor, K. Paramasiva Mudaliar
Versus
Bharat Petroleum Corporation Limited & Another
O.P. No. 15 of 1984 and O.P. No. 307 of 1984
Decided On :Decided on : 15-10-1990

Headnote:

ARBITRATION - EXTENSION OF TIME - JURISDICTION - ESCALATION COSTS - INTEREST - CONTRACT - FULL AND FINAL SETTLEMENT - ARBITRATION CLAUSE - AWARD - DISPUTE - CONTRACTOR - CORPORATION - ARBITRATOR - SECTION 28(1), 14(2), 17, 30 OF ARBITRATION ACT 1940 - SECTION 3(1)(A) OF INTEREST ACT 1978 - SECTION 29 OF ARBITRATION ACT 1940 - SECTION 34 OF CIVIL PROCEDURE CODE - O.P. NO. 15 OF 1984 - O.P. NO. 307 OF 1984 - CLAUSE 16 OF THE AGREEMENT - SECTION 9(B) OF THE INDIAN ARBITRATION ACT 1940 - SECTION 5 OF HUDSONS BUILDING AND ENGINEERING CONTRACTS - SECTION 33 OF THE ARBITRATION ACT - CLAUSE 8(C) OF THE CONTRACT - CENTRAL WAREHOUSING CORPORATION V. P. GUNASEKARAN AND OTHERS - EXECUTIVE ENGINEER, IRRIGATION, (GALIMALA V. ABNADUTA JENA) - HYDERABAD MUNICIPAL CORPORATION V. N. KRISHNASWAMI - P.M. PAUL V. UNION OF INDIA - METRO ELECTRIC COMPANY V. DELHI DEVELOPMENT AUTHORITY, NEW DELHI - DAMODAR VALLEY CORPORATION V. K.K. KAR - ASIA ENGINEERING COMPANY, MADURAI V. LIFE INSURANCE CORPORATION OF INDIA, BOMBAY - UNION OF INDIA V. M/S. AJIT MEHTA AND ASSOCIATES, PUNE AND OTHERS - M/S. AMAR NATH CHAND PRAKASH V. M/S. BHARAT HEAVY ELECTRICALS LIMITATED -

Fact of the Case:

Bharat Petroleum Corporation Limited (Corporation) called for tenders for the fabrication and erection of storage tanks and fabrication, welding, and laying pipelines at Warangal in Andhra Pradesh. P. Shanmugha Sundaram (Contractor) was granted the contract. The Corporation made a payment of Rs. 24,400/- on 26.2.1982 purely on sympathetic grounds. The Contractor started to raise further claims which were not covered by the agreement. The Corporation appointed an Arbitrator and sought to have the question of escalation costs referred to the decision of an Arbitrator. The Contractor appointed an Arbitrator and sought to have the question of escalation costs referred to the decision of an Arbitrator. The Arbitrator passed an Award against the Corporation for the payment of a sum of Rs. 2,28,203/- together with costs. The Corporation filed O.P. No. 307 of 1984 under Section 30 of the Indian Arbitration Act to set aside the award dated 1.11.1983 passed by the Arbitrator and for costs. The Contractor filed O.P. No. 15 of 1984 under Sections 28(1), 14(2), and 17 of the Arbitration Act of 1940 to grant extension of time with retrospective effect so as to validate the award, to direct the second respondent Arbitrator to file the award dated 1.11.1983, and to pass a decree in terms of the award together with further interest on the award amount.

Finding of the Court:

The Arbitrator had jurisdiction to entertain the reference after the payment of the final bill and the dispute was referable to arbitration. The Contractor was entitled to escalation costs. The Corporation was liable for the consequences of the delay, namely, increase in prices. The Arbitrator had jurisdiction to go into this question and in fact, the arbitrator in the said case gone into that question and has awarded as he did. The Arbitration Clause survives and even though it was brought to the notice of the Corporation, the Corporation has only sent a cryptic reply informing that the Arbitration Clause cannot be invoked. The Contractor is entitled to the interest awarded by the Arbitrator. Prior to the commencement of the Arbitration proceedings and from the date of the award to the date of the decree, interest at 16 1/2% on the amount awarded by the Arbitrator. The principal amount awarded by the Arbitrator is confirmed. But, however, the Court deleted the interest awarded by the Arbitrator for the period pendente lite and confined the interest on the principal sum awarded by the Arbitrator at 16% per annum for the period prior to the commencement of the Arbitration proceedings and from the date of the award to the date of decree and from the date of decree till realization.

Issues: 1. Whether the Contractor is entitled to escalation costs? 2. Whether the Arbitrator has jurisdiction to entertain the reference after the payment of the final bill and whether the dispute is not referable to arbitration as contended by the Corporation.

Ratio Decidendi: 1. The Arbitration Clause survives as rightly contended by the learned counsel for the contractor. As per Clause-16 of the Agreement, it contemplates the appointment of two arbitrators, one to be appointed by each party. In spite of repeated requests, the Corporation had not appointed its own arbitrator. Hence, invoking the provisions of the Indian Arbitration Act, the second respondent was declared to be the sole arbitrator after complying with the formalities as required under the Law. 2. The Arbitrator has passed the reasoned award. It is seen from the award that the Arbitrator has given ample opportunity to both parties, viz., the Contractor and the Corporation. The Arbitrator has also referred to the various claims made by the Contractor and also referred to the various letters and correspondence exchanged between the parties. In considering the question of escalation of costs, the Arbitrator has considered the justification and the reasonableness of the claims made by the Contractor and has passed the reasoned award.

Final Decision: O.P. No. 15 of 1984 is disposed of on the above terms and O.P. No. 307 of 1984 is dismissed. The matter was argued by the respective counsel in an able and effective manner. The Court placed on record its appreciation for the manner in which both the counsel have argued this case. The O.Ps. are disposed of with the cost of the Contractor/Claimant in these two O.Ps. The Court fixed the Counsel Fee for Mr. Bijai Sundar, learned Counsel for the Contractor at Rs. 2,500/-, payable by the Bharat Petroleum Corporation Limited.