2007 (1) TMI 498 - SC - Companies Law

Contract Clause Validity Upheld After Appellant's Arbitration Participation

KRISHNA BHAGYA JALA NIGAM LTD. Versus G. HARISCHANDRA REDDY & ANR.

The court held that despite the appellant's argument that Clause 29 of the Contract did not constitute an arbitration agreement, they could not dispute ... Whether Jala Nigam could be allowed to raise the contention, on the facts and circumstances of this case, that Clause 29 of the Contract(Agreement) is not an arbitration clause and due to want of jurisdiction of the arbitral tribunal to adjudicate upon the claims made by the contractor (respondent no.1), Award dated 25.6.2000 published on 14.11.2000 was a nullity? Held that:- The plea of 'no arbitration clause' was not raised in the written statement filed by Jala Nigam before the Arbitrator. The said plea was not advanced before the civil court in Arbitration Case No.1 of 2001. On the contrary, both the courts below on facts have found that Jala Nigam had consented to the arbitration of the disputes by the Chief Engineer. Jala Nigam had participated in the arbitration proceedings. It submitted itself to the authority of the Arbitrator. The Arbitrator has awarded Rs.42,000/- per day for the period 1.2.94 to 17.12.94 and from 1.6.95 to 31.12.95 excluding the period 18.12.94 to 31.5.95 and from 1.1.96 to 12.11.96. On this basis the idling charges awarded by the Arbitrator was arrived at Rs.1.47 crores. It is contended that the contractor has not led any evidence to show the existence of the machinery at site and, therefore, he was not entitled to idling charges. We are of the view that the Award of the Arbitrator is fair and equitable. He has excluded certain periods from calculations, as indicated above. We have examined the records. The delay took place on account of non-supply of Drawings and Designs and in the meantime the establishment of the contractor stood standstill. We suggested to the learned counsel for the respondent (contractor) for reduction of the awarded amount under this Head from Rs.1.47 crores to Rs.1 crore. Learned counsel for the respondent fairly accepted our suggestion. We suggested the aforestated figure keeping in mind the longstanding dispute between the parties. Therefore, the amount awarded under this Head shall stand reduced from Rs.1.47 crores to Rs.1 crore. Appeal stands allowed to the extent indicated above Issues:1. Whether Clause 29 of the Contract constitutes an arbitration clause and the validity of the arbitral tribunal's jurisdiction.2. The merits of the claims made by the contractor.Analysis:1. Issue 1 - Arbitration Clause Validity:The first issue revolved around the validity of Clause 29 of the Contract as an arbitration clause and the jurisdiction of the arbitral tribunal. The appellant, Jala Nigam, argued that the proceedings before the Arbitrator were void due to the lack of an arbitration agreement. However, it was found that Jala Nigam had consented to arbitration by participating in the proceedings, submitting to the Arbitrator's authority, and not challenging the tribunal's competence. Despite the appellant's claim that Clause 29 did not constitute an arbitration agreement, the courts held that Jala Nigam could not now dispute its validity after having accepted the arbitration process.2. Issue 2 - Merits of Contractor's Claims:Regarding the second issue, the court examined the merits of the claims made by the contractor. The Arbitrator's Award meticulously analyzed the contractor's claims under various heads. The court decided not to interfere with most aspects of the Award except for adjusting the rates of interest due to changes in the economic landscape. The court also reviewed the idling charges awarded by the Arbitrator, where it was argued that the contractor had not provided evidence of machinery existence. After examination, the court found the Arbitrator's decision fair but suggested a reduction in the awarded amount under idling charges, which was accepted by the contractor's counsel.In conclusion, the civil appeal was allowed with modifications in the interest rates and reduction in the idling charges awarded, emphasizing the acceptance of the suggested adjustments by the contractor's counsel.