2006 (1) TMI 679 - HC - Indian Laws

Objections u/ss 30 and 33 dismissed; arbitral award upheld with modified 12% interest and contract-based findings

HC dismissed respondent's objections under Sections 30 and 33 of the Arbitration Act, 1940 and upheld the arbitral award. It held that the arbitrator ... Nature of transaction - Objections under Sections 30 and 33 of the Arbitration Act, 1940 - error apparent on the face of the record - claims conversion of the award as against the exchange rate - HELD THAT:- The petitioner had made the first claim in respect of expenses in engaging personnel over a longer period and remaining idle and extra provisions to be made on account of delay and the same have been found in favour of the petitioner. Similarly price escalation claim No. 3 has been found in favour of the petitioner on the basis of working of the amounts, the details of which were given to the Arbitrator and filed in the proceedings. The objection of the respondent that there was no price escalation clause was rightly brushed aside by the Arbitrator on account of the fact that even in the offer letter of the petitioner dated 07.07.1982, it was clearly stipulated as per the parawise comments attached to the same that the price quoted would be subject to escalation and the formula for the same was given. Clause 4.1(c) of the contract stipulates that the offer and all correspondences and clarifications submitted prior to the contract shall form a part of the Contract. It was, thus, rightly held that the offer of 07.07.1982 formed part of the contract. The other claim awarded to the petitioner was on account of reimbursement of tax, etc. The claim towards excise duty was rejected in view of the clear stipulation in clause 6(b) of the contract that the excise duty was included in the price. The Arbitrator found on a reading of the contract that in terms of clause 3(a), the taxes were to be borne by the respondent against the demand on the presentation of supply of bills and the bills had to be paid as per actuals. The claim was, thus, allowed to that extent. The last claim allowed is in respect of interest. Interest has been allowed @ 18% p.a. on the total amount awarded from 01.09.1991, the date when the statement of claim was filed till the date of payment. This was with the condition that in case the payment was made within 4 months from the date of the award, the interest rate would be only 15%. The payment has not been made. Learned counsel for the petitioner very fairly confines his claim of interest to 12% p.a. from 01.09.1991 till the date of decree, which is also the prevailing market rate of interest at the relevant period of time and the interest rate, which has been so awarded by this Court in numerous matters. It has already been noticed above that the aforesaid can hardly be said to be grounds for interference under Section 30 of the Arbitration Act in view of various authoritative pronouncements discussed herein-above. A perusal of the record and of the reasoning of the Arbitrator shows that the present Award is not one which falls within the category-of a perverse award or where the Arbitrator has totally misconstrued the provisions of the Contract Act. The conclusions arrived at by the Arbitrator are certainly plausible conclusions even insofar as reading of the terms of the contract are concerned. Insofar as the application of the petitioner is concerned, it is not disputed that the claim was made by the petitioner both in Deutsche Mark and Indian Rupees and at the conversion rate of Rs.4.50. The same has been allowed by the Arbitrator as prayed by the petitioner. It is not a decree which has been passed in Deutsche Mark and that is why it is not the LIBOR rate of interest which has been granted to the petitioner, but the commercial rate of interest prevalent in our country. The objection applications are accordingly disposed of. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether, under Section 30 of the Arbitration Act, 1940, the Court could interfere with the arbitral award on the grounds urged in the objections, including alleged misappreciation of evidence and misinterpretation of contract terms. 1.2 Whether the arbitral finding that delay in handing over the site was attributable to the respondent, and that the petitioner was entitled to compensation under the law of reciprocal promises (Sections 51-55 of the Indian Contract Act, 1872), was legally sustainable. 1.3 Whether, on a proper construction of the contract, including incorporation of the pre-contract offer letter, the petitioner was entitled to escalation in price and reimbursement of certain taxes and charges as awarded by the Arbitrator. 1.4 Whether the Arbitrator was justified in preferring contemporaneous correspondence over oral testimony in determining responsibility for delay and related factual aspects. 1.5 Whether the rate of interest awarded by the Arbitrator required modification by the Court, and at what rates interest should be granted for pre-decree and post-decree periods. 1.6 Whether the petitioner was entitled, under Section 15 of the Arbitration Act, 1940, to modification of the award by altering the exchange rate for conversion of Deutsche Marks into Indian Rupees. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Scope of interference under Section 30 of the Arbitration Act, 1940 Legal framework 2.1 The Court examined the restrictive scope of interference with arbitral awards under Section 30 of the Arbitration Act, 1940, as elucidated by decisions of the Supreme Court and a Division Bench of the same Court. It noted that an Arbitrator is a judge chosen by the parties, and his decision is final; the award can be set aside only if it falls within the limited grounds specified in Section 30. 2.2 The Court referred to the principles that: (i) it does not sit as a court of appeal over the award; (ii) it cannot re-appreciate evidence; (iii) reasonableness of the award is not to be examined unless the award is absurd or perverse; (iv) so long as the view taken by the Arbitrator is a plausible one, the award cannot be interfered with; and (v) an error apparent on the face of the record does not justify closer scrutiny of the merits of the material on record. Interpretation and reasoning 2.3 The objections of the respondent essentially contended that the Arbitrator misappreciated documents, wrongly attributed delay to the respondent, and did not correctly construe certain contractual clauses. The Court held that such contentions, even if assumed, did not by themselves constitute valid grounds under Section 30. 2.4 On perusal of the award, the objections and the written submissions, the Court found that the Arbitrator had considered the terms of the contract, the provisions of the Contract Act regarding reciprocal promises, and the factual material, and had arrived at conclusions that were at least plausible on the material and contract language. Conclusions 2.5 The Court held that the award was not perverse, did not disclose any total misconstruction of the Contract Act, and did not warrant interference under Section 30. The objections seeking to set aside the award were rejected on this basis. Issue 2: Attribution of delay and operation of reciprocal promises (Sections 51-55 of the Contract Act) Legal framework 2.6 The Court noted that the Arbitrator had relied on Sections 51 to 55 of the Contract Act, 1872, which govern reciprocal promises: the obligation to perform depends on readiness and willingness of the other side (Section 51), the order of performance where fixed by contract or by nature of transaction (Section 52), liability where one party prevents performance by the other (Section 53), and entitlement to compensation where performance is prevented or delayed (Sections 54 and 55). Interpretation and reasoning 2.7 The Arbitrator distinguished between 'hindrance in execution of work' and 'handing over of site at the inception of the contract.' The Arbitrator held, and the Court accepted, that the petitioner could not be expected to complete the work within the stipulated time if the respondent did not timely hand over the site or provide agreed alternate storage space. 2.8 The Arbitrator found, on facts, that although the 15-month completion period commenced on 31.03.1984, the alternate storage space envisaged by clause 3.1.3(b)(i) was given only on 27.08.1984, further space only on 20.11.1984, and the actual installation site was partly handed over in February 1985 and the remaining incomplete site in April 1985. The supply of steel structures was completed by December 1984, showing readiness of the petitioner vis-à-vis delay in site availability. 2.9 On this basis, the Arbitrator applied Sections 52, 54 and 55 of the Contract Act to hold that the respondent, having failed to perform its reciprocal promise of timely site/space handover, could not insist upon strict adherence to the original completion schedule and was liable to compensate the petitioner for losses caused by such delay. The Arbitrator also took into account written notices and letters by the petitioner informing the respondent of its intention to claim losses due to delayed handing over of the site. Conclusions 2.10 The Court endorsed the Arbitrator's application of Sections 51-55, holding that the conclusion that the respondent was responsible for delay and liable for consequential compensation was a correct and, in any event, a clearly plausible view on the contract and facts. No ground for interference was made out. Issue 3: Contractual entitlement to price escalation and tax-related reimbursements Legal framework 2.11 The Court noted that the Arbitrator had construed specific contractual clauses, in particular clause 4.1(c) and clause 3(a), as well as the pre-contract offer letter dated 07.07.1982, and clause 6(b) regarding excise duty. Interpretation and reasoning - Price escalation 2.12 The respondent objected that there was no express price escalation clause in the contract. The Arbitrator, however, relied on the petitioner's offer letter dated 07.07.1982, which clearly stated that the price quoted would be subject to escalation and set out a formula for such escalation. 2.13 Clause 4.1(c) of the contract provided that the offer and all correspondence and clarifications submitted prior to the contract would form part of the contract. On this basis, the Arbitrator held that the said offer, including the escalation stipulation, stood incorporated into the contract. 2.14 The Arbitrator thus allowed the petitioner's price escalation claim (Claim No. 3) on the basis of detailed workings and figures presented during the arbitration, treating the escalation provisions as contractually binding. The Court found this interpretation to be correct and at least fully sustainable, rejecting the respondents' argument that escalation was contractually impermissible. Interpretation and reasoning - Tax and duty claims 2.15 The Arbitrator differentiated between excise duty and other taxes/charges. The claim relating to excise duty was rejected because clause 6(b) of the contract clearly stipulated that excise duty was included in the price. 2.16 As to other taxes and levies, the Arbitrator read clause 3(a) to provide that such taxes were to be borne by the respondent upon presentation of bills, which were to be reimbursed on actuals. The Arbitrator, therefore, allowed the petitioner's claim for reimbursement of certain taxes and related amounts to that extent. Conclusions 2.17 The Court upheld the Arbitrator's conclusions on both escalation and tax-related claims, affirming that the pre-contract offer formed part of the contract and that the contractual clauses had been correctly construed. The objections on these heads were rejected. Issue 4: Preference for contemporaneous correspondence over oral testimony Interpretation and reasoning 2.18 The respondent had relied on oral testimony to dispute delay and its attribution. The Arbitrator, however, preferred contemporaneous correspondence and documents between the parties over such oral evidence, reasoning that oral testimony recorded after a long interval could be tailored to suit a party's case, whereas contemporaneous letters and communications more accurately reflected the actual position at the relevant time. 2.19 The Court approved this approach as both legal and valid, noting that reliance on contemporaneous documentary evidence rather than later oral assertions was a proper evidentiary assessment by the Arbitrator and did not amount to any misconduct or legal error. Conclusions 2.20 The Court held that the Arbitrator's preference for contemporaneous correspondence in determining responsibility for delay and related factual issues was a legitimate exercise of fact-finding and could not be interfered with under Section 30. Issue 5: Rate of interest - modification by the Court Interpretation and reasoning 2.21 The Arbitrator had awarded interest at 18% per annum on the total awarded amount from 01.09.1991 (date of filing of the statement of claim) until payment, with a stipulation that if payment was made within four months from the date of award, the interest rate would stand reduced to 15% per annum. Payment had not been made within this period. 2.22 Before the Court, counsel for the petitioner voluntarily confined the claim for pre-decree interest to 12% per annum from 01.09.1991 till the date of decree, stating that this was the prevailing commercial rate and in line with rates awarded by the Court in similar matters. Conclusions 2.23 The Court modified the award to the extent of interest, holding that: (a) The petitioner would be entitled to simple interest at 12% per annum on the awarded sum from 01.09.1991 till the date of decree; and (b) The petitioner would further be entitled to simple interest at 9% per annum from the date of decree till the date of realisation. Issue 6: Request to modify the award regarding exchange rate/conversion (Section 15 of the Arbitration Act) Interpretation and reasoning 2.24 The petitioner sought modification of the award under Section 15 of the Arbitration Act on the limited ground that the Arbitrator had allowed amounts in Deutsche Marks at the exchange rate of Rs.4.50 per Deutsche Mark, and the petitioner wanted this converted at Rs.20 per Deutsche Mark. 2.25 The Court noted that the claim before the Arbitrator had been made in both Deutsche Marks and Indian Rupees using the exchange rate of Rs.4.50, and the Arbitrator had allowed the claim on that basis as prayed. The decree was thus in Indian Rupees, not in foreign currency, and the interest awarded was accordingly the domestic commercial rate, not LIBOR-based. 2.26 Counsel for the petitioner submitted that, since Deutsche Mark was no longer in existence, any remittance would now have to be in EURO. The Court held that once the decree was passed in Indian Rupees, issues of subsequent currency conversion for transmission (e.g., into EURO at the prevailing rate) were matters for the petitioner to address at execution/remittance stage, and did not justify modification of the exchange rate applied in the award itself. Conclusions 2.27 The Court declined to modify the award under Section 15 in respect of the exchange rate and conversion. The award as to currency computation in Indian Rupees at Rs.4.50 per Deutsche Mark was maintained, leaving post-decree currency conversion to be managed separately. Final Disposition (linked to the issues above) 2.28 The objections to the award under Sections 30 and 33 were dismissed on merits after examination within the limited scope of interference. The award was made rule of the Court, subject only to the modification of the rate of interest as specified, and the suit was disposed of accordingly with costs awarded to the petitioner.