2024 (8) TMI 1141 - SC - Indian Laws

Arbitrator's 3% loss claim using Hudson's formula upheld, HC interference under Section 34 rejected

SC upheld arbitral award against HC's interference under Section 34 of Arbitration Act, 1996. Arbitrator's acceptance of 3% loss claim for on-site ... Challenge to award under Section 34 of the Arbitration and Conciliation Act, 1996 - Arbitrator accepted the claim of loss on the ground of on-site establishment ‘as permissible’ to the extent of 3% of the contract amount by the Hudson’s formula for expenses of engineers, supervisors, etc. - interest claim. HELD THAT:- The conclusion of the High Court, “that it appears that the bills were paid soon after they were prepared” or that, “in that case there could not have been any claim for interest” cannot qualify as grounds for interference under Section 37. Equally, the approach of the High Court in holding that the Arbitrator neither established nor discussed the questions posed by it is not a ground to set aside the Award. The reasoning of the Arbitrator is reflected in that portion of the Award extracted hereinabove and we see nothing perverse in it. Nor such conclusion is against our public policy. The scope of Section 37 is enunciated in many decisions of this Court, and we apply the principles laid down therein to the facts of the present case. The judgment of the High Court in relation to claim no. 4 is set aside - the Award is restored and thereby the judgment of the District Court upheld the Award. Interest claim - HELD THAT:- While pendente lite interest is a matter of procedural law, prereference interest is governed by substantive law. CENTRAL BANK OF INDIA VERSUS RAVINDRA [2001 (10) TMI 1065 - SUPREME COURT]. Therefore, the grant of pre-reference interest cannot be sourced solely in Section 31(7)(a) (which is a procedural law), but must be based on an agreement between the parties (express or implied), statutory provision (such as Section 3 of the Interest Act, 1978), or proof of mercantile usage - the High Court had no reason to interfere with the Arbitral Award with respect to grant of pre-reference interest, since the Contract between parties does not prohibit the same. Appeal disposed off. Issues Involved:1. Loss of business2. Uneconomic utilization of plant and machinery3. Labour charges for uneconomical stoppage of work4. Interest on delayed payment of running account bills and escalation bills5. Escalation bill6. Interest7. CostsDetailed Analysis:1. Loss of Business:The Arbitrator awarded Rs. 3,87,530 for loss of business. The District Judge set aside this award, stating it was beyond the Arbitrator's jurisdiction as it was never claimed by the appellant. The High Court affirmed the District Judge's decision. The Supreme Court upheld the High Court's decision, confirming that the claim was not permissible under the contract.2. Uneconomic Utilization of Plant and Machinery:The Arbitrator awarded Rs. 61,22,000 for uneconomic utilization of plant and machinery. The District Judge set aside this award, noting the Arbitrator did not account for the appellant's own delay of 135 days. The High Court reversed the District Judge's decision and restored the award. The Supreme Court upheld the High Court's decision, confirming the award for uneconomic utilization of plant and machinery.3. Labour Charges for Uneconomical Stoppage of Work:The Arbitrator awarded Rs. 5,80,500 using the Hudson's formula. The District Judge upheld this award, stating the Arbitrator's findings were not irrational or in conflict with public policy. However, the High Court set aside this award, citing that it was contrary to the Special Terms and Conditions of the Contract, which prohibited claims for idle labour. The Supreme Court upheld the High Court's decision, confirming the claim was impermissible under the contract.4. Interest on Delayed Payment of Running Account Bills and Escalation Bills:The Arbitrator awarded Rs. 54,84,024 for interest on delayed payments. The District Judge upheld this award, agreeing with the Arbitrator's reasoning. The High Court set aside this award, stating that the bills were paid promptly and no interest claim could arise. The Supreme Court found the High Court's reasoning insufficient and restored the Arbitrator's award and the District Judge's decision, confirming the entitlement to interest on delayed payments.5. Escalation Bill:The Arbitrator awarded Rs. 11,51,198 for escalation, which was upheld by the District Judge. The High Court affirmed this decision. The Supreme Court did not find any reason to interfere with these findings, thus confirming the award for the escalation bill.6. Interest:The Arbitrator awarded interest at 12% per annum from 12.04.2016 to 30.01.2018 and 9.25% per annum post-award. The District Judge upheld this award. The High Court modified the award, disallowing pre-reference interest. The Supreme Court reinstated the Arbitrator's award, stating the contract did not prohibit pre-reference interest and confirmed the award of interest as per the Arbitrator's decision.7. Costs:The Arbitrator awarded Rs. 4 lakhs towards legal and administrative expenses. There were no challenges to this award, and it was upheld throughout the judicial process.Conclusion:The Supreme Court upheld the High Court's decision to set aside the award for claim no. 3 (Labour Charges for Uneconomical Stoppage of Work). It restored the Arbitrator's award and the District Judge's decision for claim no. 4 (Interest on Delayed Payment of Running Account Bills and Escalation Bills) and claim no. 6 (Interest), including pre-reference interest. The Civil Appeal was allowed in part, and the parties were directed to bear their own costs.