1970 (2) TMI 143 - SC - Indian Laws

Supreme Court upholds arbitration award in construction contract dispute.

The Supreme Court overturned the Deputy Commissioner's decision to set aside an arbitration award involving a construction contract. The Court found that ... Principles of natural justice - arbitrator's misconduct - excess of jurisdiction - scope of arbitration clause - interest as damages under contract - application of Limitation Act to arbitration - commencement of arbitration for limitationPrinciples of natural justice - arbitrator's misconduct - Whether the award was vitiated by breach of the principles of natural justice or misconduct by the arbitrator in closing the proceedings and making the award without further extension of time to the Union. - HELD THAT: - The arbitrator granted time to the Union's counsel to file written legal arguments and extended that time by five days. Counsel did not file the arguments nor requested further extension; a telegram sought time but no written submission was received by the extended date. The Deputy Commissioner treated the arbitrator's refusal to grant further indulgence as misconduct and violation of natural justice. The Court held that refusal to grant additional time in those circumstances did not amount to legal misconduct or breach of natural justice. The arbitrator's conduct was consonant with equitable discretion and fair procedure; the Deputy Commissioner's reasons reflect a misconception of what constitutes misconduct in arbitration. The High Court erred in declining to enquire into this question on the ground that it was merely one of fact, because the legal standard of misconduct and breach of natural justice was squarely involved and determinable on the record. [Paras 3, 4, 5]The award was not set aside for breach of natural justice or misconduct; the Deputy Commissioner's and High Court's reasoning on this ground was unsustainable.Excess of jurisdiction - scope of arbitration clause - interest as damages under contract - Whether the arbitrator exceeded his jurisdiction in awarding sums claimed by the appellants, specifically with reference to claims for damages/interest and 'depreciation for purchase value of money'. - HELD THAT: - The arbitration clause referred all questions and disputes arising out of or relating to the contract to the arbitrator. Although one head of claim ('depreciation for purchase value of money') was unjustifiable, the arbitrator awarded a sum materially less than the aggregate claimed. The terms of the arbitration agreement did not exclude the arbitrator's jurisdiction to entertain a claim for interest on amounts due under the contract; a claim for interest as compensation for detention of money falls within disputes referable under the clause. The arbitrator gave no indication of having based the award on the impermissible 'depreciation' head. Accordingly the award cannot be characterised as ultra vires the reference or invalid for excess of jurisdiction. [Paras 6, 7]The arbitrator did not exceed his jurisdiction; the award in respect of the sums allowed is valid.Application of Limitation Act to arbitration - commencement of arbitration for limitation - Whether the appellants' claim was barred by limitation under the Limitation Act as applied to arbitration proceedings. - HELD THAT: - Section 37 of the Arbitration Act applies the Limitation Act to arbitration, and an arbitration is deemed to commence when a party serves a notice requiring appointment of an arbitrator. The appellants completed work on October 12, 1957, the final bill was prepared March 20, 1958, and a request for reference was first made by letter dated October 29, 1960 and repeated on August 30, 1961. The first request cannot be negated by the second. No objection on limitation was taken when the arbitrator was appointed, nor before the High Court or this Court in the proceedings confirming appointment. Whether the claim is barred depends on factual proof and, on the record, three years had not elapsed from settlement to the first notice, so prima facie the claim was within limitation. [Paras 8]Limitation was not established as a bar to the claim; prima facie the claim was within time and the plea of limitation fails on the record.Final Conclusion: The appeals are allowed; the setting aside of the award is reversed and the arbitrator's award is upheld. Costs awarded to the appellants. Issues:1. Validity of the arbitration award set aside by the Deputy Commissioner.2. Allegations of misconduct by the arbitrator.3. Exceeding jurisdiction by the arbitrator in making the award.4. Bar of limitation to the claim of the appellants.Analysis:1. The Union of India challenged an arbitration award related to a construction contract. The Deputy Commissioner set aside the award citing violation of natural justice, exceeding jurisdiction, and limitation bar. The High Court concurred on the natural justice violation but did not address the jurisdiction or limitation issues.2. The Supreme Court found the Deputy Commissioner's judgment unsound. The arbitrator had given ample time for submissions and did not act unjustly. Misconduct allegations were unfounded, as the arbitrator followed fair practices. The High Court erred in dismissing the misconduct claim as a factual issue, as the reasons cited were irrelevant.3. The High Court failed to rule on the jurisdictional aspect of the arbitrator's award. The appellants' claim included various amounts, with one component deemed unjustifiable. However, the arbitrator's decision was within the contract's arbitration scope, allowing for interest claims, making the award valid.4. The High Court overlooked the limitation defense raised by the Union. The Arbitration Act's limitation provisions were deemed applicable, and the claim was found not time-barred. The Court noted the lack of objections earlier in the process and upheld the claim's validity. The appeal was allowed, with costs awarded to the appellants.