Arbitral tribunal's jurisdiction upheld despite no arbitration clause, compensation for delay awarded under Section 37

The Jharkhand HC dismissed an appeal challenging an arbitral award under Section 37 of the Arbitration and Conciliation Act, 1996. The court held that the arbitral tribunal had jurisdiction despite appellant's objection regarding absence of arbitration clause, as the designated judge had previously rejected this objection during arbitrator appointment proceedings. The tribunal was authorized to award compensation for delay, idling charges, and hire charges even without specific contractual provisions, given the delay was attributable to government authorities' negligence. However, the court reduced the interest rate from 12% to 9% per annum for the period 2010-2011, finding 12% excessive without proper justification. The court upheld awarding interest on interest components as legally permissible under Section 31(7)(b) of the Act.

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Issues Involved:

1. Jurisdiction of the arbitral tribunal in the absence of an arbitration clause.
2. Awarding compensation for delay, idling charges, and hire charges without specific contractual clauses.
3. Legality of the interest rate awarded.
4. Awarding interest on the interest component.

Detailed Analysis:

1. Jurisdiction of the Arbitral Tribunal:

The appellant raised a preliminary objection regarding the arbitral tribunal's jurisdiction, arguing that there was no arbitration clause in the agreement. The court referred to the Supreme Court's decision in SBP & Co. v. Patel Engg. Ltd., which established that the Chief Justice or designated Judge has the authority to decide on the existence of a valid arbitration agreement. In this case, the designated judge had already ruled on the existence of the arbitration clause, and the appellant did not challenge this decision in the Supreme Court. Therefore, the arbitral tribunal had jurisdiction, and the award could not be set aside on this ground.

2. Compensation for Delay, Idling Charges, and Hire Charges:

The appellant contended that the arbitral tribunal awarded compensation beyond the terms of the contract, as there were no clauses for price escalation or compensation for delay. The court cited precedents, including K.N. Sathyapalan v. State of Kerala, which allow compensation for extra costs incurred due to one party's failure to fulfill contractual obligations, even in the absence of specific clauses. The tribunal found that the delay was due to the appellant's lack of promptness, justifying the compensation awarded. The court upheld the tribunal's decision, stating that it was within its jurisdiction to award such compensation.

3. Legality of the Interest Rate Awarded:

The arbitral tribunal awarded interest at 12% per annum from 20.05.2010 to 14.10.2011. The appellant argued that this rate was excessive. The court noted that the tribunal did not provide reasons for this rate, and compared it to statutory amendments and other judicial precedents, suggesting that 12% was indeed high. Consequently, the court reduced the interest rate to 9% per annum for the specified period.

4. Awarding Interest on the Interest Component:

The appellant challenged the legality of awarding interest on the interest component of Rs. 10,40,105/-. The court referred to Section 31(7) of the Arbitration and Conciliation Act, which allows interest on the total sum awarded, including interest. The Supreme Court's decision in Hyder Consulting (UK) Ltd. v. Governor, State of Orissa supported this interpretation. Thus, the court found no illegality in awarding interest on the interest component.

Conclusion:

The court modified the arbitral award by reducing the interest rate from 12% to 9% per annum for the period from 20.05.2010 to 14.10.2011, adjusting the interest component accordingly. The appeal was disposed of with each party bearing its own litigation costs. The court directed that a copy of the judgment be sent to the lower court.

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