Arbitral Tribunal Legality Confirmed, Petition Dismissed, Interest Rate Modified

The court upheld the legality and constitution of the Arbitral Tribunal, dismissing challenges raised by the petitioner. It found in favor of the respondent on issues related to the Performance Guarantee Test, claims submission, bias allegations, bank guarantees, Exchange Rate Variation, interest rates, excess consumption claims, and liquidated damages. The court modified the interest rate, increased payment for a butterfly valve, and awarded costs to the respondent, ultimately dismissing the petition with these adjustments.

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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.

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