2009 (4) TMI 899 - HC - Companies Law

Arbitral Tribunal Legality Confirmed, Petition Dismissed, Interest Rate Modified

NTPC Limited Versus Wig Brothers Builders & Engineers Limited

The court upheld the legality and constitution of the Arbitral Tribunal, dismissing challenges raised by the petitioner. It found in favor of the ... Settlement of dispute - Arbitral proceeding - Held that:- The Arbitral Tribunal correctly held that the petitioner produced no evidence to establish that they had appointed an Engineer in writing under clause 3 of the Contract. The only reference to an Engineer is in the letter dated 29th December, 2007 averring for the first time that the letter dated 16th August, 1996 was, in fact, an Engineer's letter as per clauses 26 and 27. Significantly, this was well after the invocation of arbitration by the respondent on 11th November, 2007 and thus, is of no avail to the petitioner. The petitioner's challenge to the award under Sections 11 and 16 of the Act must fail. No specific instances has been given, in the petitioner, as to which submission of the petitioner was not noted and in which manner the Arbitral Tribunal acted in a partial manner towards the respondent. Also uphold the decision of the Arbitral Tribunal dismissing the petitioner's application under Section 12 and 13 of the Arbitration Act. No restriction on or order of the court by which the Arbitral Tribunal was precluded from adjudicating and deciding the dispute in respect of the bank guarantees. Since, the bank guarantees were given under the contract, which contained an arbitration agreement that applied, even as per the petitioner, to the bank guarantees, there is no error of jurisdiction in adjudication of disputes in respect of the Bank Guarantees by the Arbitral Tribunal. The Arbitral Tribunal has rightly held that once it stood admitted by the petitioner that the material issued by it was used for its project and that there was no theft or pilferage, the petitioner could not make any claim against the respondent for excess consumption or deny the claim of the respondent for additional works which were necessitated due to site conditions and the, change in design. Arbitral Tribunal in the present case comprised of Engineers, two of whom were appointed by the President, Institution of Engineers. Their decision to apply the Hudson Formula for calculating the damages and expenses cannot be faulted merely because they choose to apply the said formula. This objection of the petitioner thus has no merit and is therefore, rejected. The Arbitral Tribunal directed the petitioner to pay only 50% of the amount of losses and damages suffered by the respondent on account of the prolongation of the work. The objection raised by the petitioner, namely that the Arbitral Tribunal despite holding that the respondent was liable for 50% of the delay granted the entire claim, is therefore, clearly misconceived and is rejected. In the present case, the petitioner has not been able to set out any ground on merits on which the Arbitral award merits interference from this Court except in the case of the butterfly valve and the award is modified and respondent held liable to pay ₹ 3,45,000/- instead of ₹ 2,00,000/- ordered by the Arbitral Tribunal on this claim. This amount of ₹ 3,45,000/- instead of ₹ 2,00,000/- shall be adjusted from the amount payable by the petitioner to the respondent. However, thus also allow the plea of the learned counsel for the petitioner Shri Bhat that in light of the current interest rates levy of 18% interest per annum was excessive and consequently reduce the rate of interest awarded by the Arbitral Tribunal to 12% uniformly. The present petition is accordingly dismissed with the above modifications with costs of ₹ 20,000/- in favour of the respondent. Issues Involved:1. Legality of the appointment and constitution of the Arbitral Tribunal.2. Validity of the Performance Guarantee (PG) Test and the associated deductions.3. Submission and adjudication of claims forming part of the pre-final and final bills.4. Allegations of bias and improper conduct by the Arbitral Tribunal.5. Adjudication of disputes regarding bank guarantees.6. Awarding of Exchange Rate Variation (ERV).7. Awarding of interest on delayed payments and future interest.8. Rejection of claims for excess consumption of cement and steel, and other claims.9. Rejection of the petitioner's claim for liquidated damages.Analysis of the Judgment:1. Legality of the Appointment and Constitution of the Arbitral Tribunal:The petitioner challenged the constitution of the Arbitral Tribunal, asserting that it was not in accordance with the agreement between the parties. The court held that the petitioner had failed to appoint an Engineer as required by the contract, and thus the respondent was justified in directly invoking arbitration. The court found no infirmity in the reasoning of the Arbitral Tribunal and upheld its decision, stating that the composition of the Arbitral Tribunal was legal and valid.2. Validity of the Performance Guarantee (PG) Test and the Associated Deductions:The petitioner argued that the PG Test was not conducted, entitling them to deduct Rs.65,00,000/-. The Arbitral Tribunal concluded that the petitioner had prevented the respondent from conducting the PG Tests and thus, the respondent was not liable for the non-conductance. The Tribunal awarded a price adjustment of Rs.6,00,000/- instead. The court upheld this finding, noting that the petitioner had not provided any evidence to support their claim for a higher deduction.3. Submission and Adjudication of Claims Forming Part of the Pre-final and Final Bills:The petitioner contended that the submission of a final bill by the respondent implied abandonment of the pre-final bill claims. The court rejected this argument, stating that the bill dated 25th July, 1996, was split into two parts for convenience and there was no abandonment of claims. The Tribunal's decision to adjudicate these claims was upheld.4. Allegations of Bias and Improper Conduct by the Arbitral Tribunal:The petitioner alleged bias and improper conduct by the Tribunal. The court found these allegations to be general and unsubstantiated. It emphasized that arbitral awards cannot be challenged on vague allegations and that the petitioner had failed to provide specific instances of bias or improper conduct. The court upheld the Tribunal's decision, finding no evidence of bias.5. Adjudication of Disputes Regarding Bank Guarantees:The petitioner argued that the dispute over bank guarantees was sub-judice and should not have been adjudicated by the Tribunal. The court rejected this argument, noting that the petitioner had itself admitted in earlier proceedings that the dispute over bank guarantees was arbitrable. The court found no error in the Tribunal's decision to adjudicate this dispute.6. Awarding of Exchange Rate Variation (ERV):The petitioner objected to the award of ERV, arguing that no liability had arisen. The court clarified that the award was declaratory and conditional upon the respondent making payments to its foreign collaborators. The court upheld this aspect of the award, finding no merit in the petitioner's objection.7. Awarding of Interest on Delayed Payments and Future Interest:The petitioner challenged the awarding of interest at 18%. The court agreed that the interest rate was excessive given current rates and reduced it to 12%. However, the court upheld the Tribunal's authority to award interest under Section 31(7) of the Arbitration Act.8. Rejection of Claims for Excess Consumption of Cement and Steel, and Other Claims:The petitioner argued that their claims for excess consumption of cement and steel were wrongly rejected. The court upheld the Tribunal's finding that the petitioner had accepted the work and the materials were used for the project. The court found no error in the Tribunal's decision to award compensation for additional work done by the respondent.9. Rejection of the Petitioner's Claim for Liquidated Damages:The petitioner contended that their claim for liquidated damages was wrongly rejected. The court upheld the Tribunal's decision, noting that the petitioner had failed to provide notice of intention to claim compensation for delay, furnish details of the claim, or produce evidence of damage suffered. The court found the Tribunal's reasons for rejecting the claim to be germane and relevant.Conclusion:The court dismissed the petition with modifications, reducing the interest rate from 18% to 12% and increasing the amount payable by the respondent for the butterfly valve from Rs.2,00,000/- to Rs.3,45,000/-. The court also awarded costs of Rs.20,000/- in favor of the respondent.