TaxTMI 
TaxTMI 
2020 (8) TMI 955
X X X X Extracts X X X X
X X X X Extracts X X X X
....rtment for improvement of roads, construction of drains and embankments of road etc. An agreement was entered into between the parties in this respect. The work allotted was to be completed within nine months. It is the contention of the claimant that the progress of the work used to be interrupted because of land dispute, seasonal crops, heavy rain and lack of labourers. Because of the disturbances in the smooth progress of work, the work allotted was not likely to be completed within the stipulated period and the same was within the knowledge of the representatives of the appellant-department who were deputed at the work site to supervise the work. Upon the request of the claimant-respondent and on the recommendations of the Superintending Engineer of the appellant-department, extension of time of completion of the said work was allowed by the appellant-department. The claimant-respondent investing his own money, purchased required bitumen and completed the work allotted to him within the extended period. Though it is admitted by both the parties that the measurement of the work done by the claimant was taken and recorded in the measurement book by the concerned officer of the ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....formed by him. In respect of issue No.7, the arbitral tribunal, considering that the slackness of the officers of the appellant-department in not taking prompt decision regarding the dispute and the interruption which were created and also the delay in issuing requisition for purchase of bitumen, which were also the causes of the delay in execution of the work, held that the claimant's claim for compensation in respect of loss and damages suffered by him during the idle period is legitimate and in this respect, awarded a sum of Rs. 12,26,645/- as compensation amount paid by him to another contractor for hire and purchase of tools, machineries and equipment and a further sum of Rs. 17,13,673.71 towards the escalation of price of bitumen and further held that the claimant-respondent is entitled to refund of Rs. 3,41,252/-. In respect of issue No.9, which was regarding the entitlement of the claimant to receive interest on the total amount payable, the arbitral tribunal held that the claimant would be entitled to receive interest on the aforesaid amount under each head @ 12% per annum commencing from the date of his submission of the detailed claim statement on 20.05.2010 till the dat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the question as to the validity of the contract was also for the court to decide under Section 33 and not for the arbitrator. If there was no arbitration clause at the time of entry of the arbitrators on their duties, the whole proceedings would be without jurisdiction. In RenusagarPower Co. Ltd. v. General Electric Co. [(1984) 4 SCC 679 : AIR 1985 SC 1156, 1170 : (1985) 1 SCR 432] (AIR at p. 1170) it was stated that ordinarily, as a rule, an arbitrator had no authority to clothe himself with power to decide the question of his own jurisdiction unless parties expressly conferred such a power on him. 16. The interpretation put on Section 16 by the petitioner's counsel that only the Arbitral Tribunal can decide about the "existence" of the arbitration clause is not acceptable for other reasons also apart from the result flowing from the use of the word "may" in Section 16. The acceptance of the said contention will, as I shall presently show, create serious problems in practice. As Saville, L.J. stated in a speech at Middle Temple Hall on 8-7-1996: "Question of the jurisdiction of the Tribunal cannot be left (unless the parties agreed) to the Tribunal itself....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is a dispute raised at the stage of the application under Section 11 that there is no arbitration clause at all, then it will be absurd to refer the very issue to an arbitrator without deciding whether there is an arbitration clause at all between the parties to start with. In my view, in the present situation, the jurisdiction of the Chief Justice of India or his designate to decide the question as to the "existence" of the arbitration clause cannot be doubted and cannot be said to be excluded by Section 16." (Emphasis Supplied) 7. Mr. Banerjee further submitted that the Hon'ble Supreme Court of India referred to its own judgment in the case of Waverly Jute Mills Co. Ltd. v. Raymon & Co. (India) (P) Ltd. reported in AIR 1963 SC 90 wherein inter alia it was held that if there was no arbitration clause at the time of entry of arbitrators to their duties, the whole proceeding would be without jurisdiction. It is submitted that as in the instant case there was no arbitration clause, hence, the learned court below ought to have held that the whole arbitral proceeding before the arbitral tribunal was without jurisdiction. In this respect, Mr. Banerjee drew the attention of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ount of compensation under such heads were beyond the terms and conditions of the agreement entered into between the parties. Hence, it is submitted that the awarding of compensation under such heads amounts to passing an arbitral award beyond the terms and conditions of the agreement. 9. Mr. Banerjee also assailed the impugned order passed by the learned court below on the ground that the court below failed to come a conclusion that award of interest @ 12% per annum from 20.05.2010 to 14.10.2011 is on the higher side and for awarding pendentelite interest @ 6% per annum on the said interest @ 12% per annum from 20.05.2010 to 14.10.2011. The learned counsel made a assailed the impugned judgment by relying upon Section 3 of the Interest Act which reads as under:- 3. Power of court to allow interest.-(1) In any proceedings for the recovery of any debt or damages or in any proceedings in which a claim for interest in respect of any debt or damages already paid is made, the court may, if it thinks fit, allow interest to the person entitled to the debt or damages or to the person making such claim, as the case may be, at a rate not exceeding the current rate of interest, for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the interest component of Rs. 10,40,105/- which was the interest calculated for the period 20.05.2010 to 14.10.2011. 10. Mr. Banerjee relying upon the judgment of Hon'ble Supreme Court of India in the case of Patel Engineering Ltd. Vs. North Eastern Electric Power Corporation Ltd. (NEEPCO) reported in 2020 SCC Online SC 466 para-17 of which reads as under:- 17. "In the subsequent judgment of Associate Builders, this Court discussed the ground of patent illegality as a ground under public policy for setting aside a domestic award. The relevant extract of the judgment in Associate Builders case (supra) reads as follows: "40. Patent Illegality We now come to the fourth head of public policy namely, patent illegality. It must be remembered that under the explanation to Section 34(2)(b), an award is said to be in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption. This ground is perhaps the earliest ground on which courts in England set aside awards under English law. Added to this ground (in 1802) is the ground that an arbitral award would be set aside if there were an error of law by the ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y Watchdog v. CERC & others reported in (2017) 14 SCC 80 para-34 and 42 of which read as under:- 34. "Force majeure" is governed by the Contract Act, 1872. Insofar as it is relatable to an express or implied clause in a contract, such as the PPAs before us, it is governed by Chapter III dealing with the contingent contracts, and more particularly, Section 32 thereof. Insofar as a force majeure event occurs dehors the contract, it is dealt with by a rule of positive law under Section 56 of the Contract Act. Sections 32 and 56 are set out herein: "32. Enforcement of contracts contingent on an event happening.- Contingent contracts to do or not to do anything if an uncertain future event happens, cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void. *** 56. Agreement to do impossible act.-An agreement to do an act impossible in itself is void. Contract to do act afterwards becoming impossible or unlawful.-A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s payment of salary is rejected but contrary to the same the amount towards staff salary has been added in the arbitral award at item no.4 at page -77 of the arbitral award. 12. It is lastly submitted by Mr. Banerjee that the impugned judgment being not sustainable in law be set aside and also the arbitral award dated 16.02.2014 passed by the arbitral tribunal in Arbitration Application No.20 of 2010 be also set aside. 13. The preliminary objection regarding the failure on the part of the arbitral tribunal to rule about its jurisdiction and that impugned arbitral award be set aside for being without jurisdiction as there was no arbitration agreement between the parties, was vehemently opposed by Mr. Indrajit Sinha the learned counsel for the respondent. Relying upon the judgment of the seven judge Bench of Hon'ble Supreme Court of India in the case of SBP & Co. Vs. Patel Engg. Ltd. reported in (2005) 8 SCC 618 whose para-44 and 47 reads as under:- 44. "Once we arrive at the conclusion that the proceeding before the Chief Justice while entertaining an application under Section 11(6) of the Act is adjudicatory, then obviously, the outcome of that adjudication is a judi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....led to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the designated Judge. (v) Designation of a District Judge as the authority under Section 11(6) of the Act by the Chief Justice of the High Court is not warranted on the scheme of the Act. (vi) Once the matter reaches the Arbitral Tribunal or the sole arbitrator, the High Court would not interfere with the orders passed by the arbitrator or the Arbitral Tribunal during the course of the arbitration proceedings and the parties could approach the Court only in terms of Section 37 of the Act or in terms of Section 34 of the Act. (vii) Since an order passed by the Chief Justice of the High Court or by the designated Judge of that Court is a judicial order, an appeal will lie against that order only under Article 136 of the Constitution to the Supreme Court. (viii) There can be no appeal against an order of the Chief Justice of India or a Judge of the Supreme Court designated by him while entertaining an application under S....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... then submitted by Mr. Sinha that in its earlier judgment passed in the case of Konkan Railway Corpn. Ltd. v. Mehul Construction Co., reported in (2000) 7 SCC 201 the Hon'ble Supreme Court of India held that in view of conferment of power on the arbitral tribunal under Section 16 of the Act, the intention of the legislature and its anxiety to see that the arbitral power is set in motion at the earliest, it will be appropriate for the Chief Justice to appoint an arbitrator without wasting any time or without entertaining any contentious issue by a party objecting to the appointment of an arbitrator. This view was also approved by the constitution bench judgment of the Hon'ble Supreme Court of India in the case of Konkan Rly. Corpn. Ltd. v. Rani Construction (P) Ltd.&Another reported in (2002) 2 SCC 388 wherein the Supreme Court of India also considered the judgment of Wellington Associates Ltd. v. Kirit Mehta (supra). But the judgment in Konkan Rly. Corpn. Ltd. v. Rani Construction (P) Ltd. ((2002) 2 SCC 388) has been overruled by the Hon'ble Supreme Court of India in the case of SBP & Co. Vs. Patel Engg. Ltd.(supra). 15. It is further submitted by Mr. Sinha that the plea of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ported in (2007) 13 SCC 43 para-33 and 34 of which reads as under:- 33. "We have intentionally set out the background in which the arbitrator made his award in order to examine the genuineness and/or validity of the appellant's claim under those heads which had been allowed by the arbitrator. It is quite apparent that the appellant was prevented by unforeseen circumstances from completing the work within the stipulated period of eleven months and that such delay could have been prevented had the State Government stepped in to maintain the law and order problem which had been created at the worksite. It is also clear that the rubble and metal, which should have been available at the departmental quarry at Mannady, had to be obtained from quarries which were situated at double the distance, and even more, resulting in doubling of the transportation charges. Even the space for dumping of excess earth was not provided by the respondents which compelled the appellant to dump the excess earth at a place which was faraway from the worksite entailing extra costs for the same. 34. In the aforesaid circumstances, the arbitrator appears to have acted within his jurisdict....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of the High Court, rightly so in our opinion." (Emphasis supplied) 18. Mr. Sinha further relied upon the judgment of the Hon'ble Supreme Court of India in the case of Assam State Electricity Board & Others v. Buildworth Private Limited reported in (2017) 08 SCC 146 para-14, 16 to 18 and 21 of which read as under:- 14. "The view which has been adopted by the arbitrator is in fact in accord with the principles enunciated in the judgments of this Court. In P.M. Paul v. Union of India [P.M. Paul v. Union of India, 1989 Supp (1) SCC 368] , a Bench of two learned Judges of this Court has held that: (SCC p. 372, para 12) "12. ... Escalation is a normal incident arising out of gap of time in this inflationary age in performing any contract. The arbitrator has held that there was delay, and he has further referred to this aspect in his award. ... After discussing the evidence and the submissions the arbitrator found that it was evident that there was escalation and, therefore, he came to the conclusion that it was reasonable to allow 20% of the compensation under Claim I, he has accordingly allowed the same. This was a matter which was within the jurisdiction....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e face of the record insofar as the aspect of price escalation is concerned. 18. The High Court has also adverted to the decision of this Court in Northern Railway v. Sarvesh Chopra [Northern Railway v. Sarvesh Chopra, (2002) 4 SCC 45] in support of the principle that if a party to a contract does not rescind it by invoking Sections 55 and 56 of the Contract Act, 1872 and accepts the belated performance of reciprocal obligations, the other party would be entitled to make a claim for damages. 21. The next aspect of the matter relates to the award of interest for the period from 7-3-1986 to 31-12-1997. The arbitrator awarded a lump sum of Rs 20 lakhs for a period of 11 years. The High Court set aside the award of interest on the ground that Section 29 of the Arbitration Act, 1940 contemplates the award of interest only from the date of the decree. The issue as to whether interest could be awarded for the pre-reference period and pendente lite under the Act of 1940 is not res integra. In Irrigation Deptt., State of Orissa v. G.C. Roy [Irrigation Deptt., State of Orissa v. G.C. Roy, (1992) 1 SCC 508] , a Constitution Bench of this Court held that: (SCC pp. 533-34, par....
X X X X Extracts X X X X
X X X X Extracts X X X X
....prove the said claim. The said witness calculated the increased overheads and loss of profit on the basis of the formula laid down in a manual published by the Mechanical Contractors Association of America entitled 'Change Orders, Overtime, Productivity' commonly known as the Emden Formula. The said formula is said to be widely accepted in construction contracts for computing increased overheads and loss of profit. Mr D.J. Parson is said to have brought out the additional project management cost at US $1,109,500. We may at this juncture notice the different formulas applicable in this behalf. (a) Hudson Formula: In Hudson's Building and Engineering Contracts, Hudson Formula is stated in the following terms: Contract head office overhead and profit percentage X Contract sum Contract period X Period of delay' In the Hudson Formula, the head office overhead percentage is taken from the contract. Although the Hudson Formula has received judicial support in many cases, it has been criticised principally because it adopts the head office overhead percentage from the contract as the factor for calculating the costs, and this may bear little or no re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....multiplied by the weekly amount to give the total sum claimed. The Eichleay Formula is regarded by the Federal Circuit Courts of America as the exclusive means for compensating a contractor for overhead expenses. 105. Before us several American decisions have been referred to by Mr Dipankar Gupta in aid of his submission that the Emden Formula has since been widely accepted by the American courts being Nicon Inc. v. United States [331 F 3d 878 (Fed Cir 2003)] , Gladwynne Construction Co. v. Mayor and City Council of Baltimore [807 A 2d 1141 : 147 Md App 149 (2002)] and Charles G. Williams Construction Inc. v. White [271 F 3d 1055 (Fed Cir 2001)] . 106. We do not intend to delve deep into the matter as it is an accepted position that different formulae can be applied in different circumstances and the question as to whether damages should be computed by taking recourse to one or the other formula, having regard to the facts and circumstances of a particular case, would eminently fall within the domain of the arbitrator." 60. Also, so far as Clause 22 is concerned, the DDA did not raise any argument based on this clause before the learned arbitrator. Howeve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct. The findings are on appreciation of evidence considering the relevant provisions and material on record as well as on interpretation of the relevant provisions of the contract, which are neither perverse nor contrary to the evidence in record. Therefore, as such, the first appellate court and the High Court have rightly not interfered with such findings of fact recorded by the learned Arbitral Tribunal. 7.2. Once it is held that the termination was illegal and thereafter when the learned Arbitral Tribunal has considered the claims on merits, which basically were with respect to the unpaid amount in respect of the work executed under the contract and loss of profit. Cogent reasons have been given by the learned Arbitral Tribunal while allowing/partly allowing the respective claims. It is required to be noted that the learned Arbitral Tribunal has partly allowed some of the claims and even disallowed also some of the claims. There is a proper application of mind by the learned Arbitral Tribunal on the respective claims. Therefore, the same is not required to be interfered with, more particularly, when in the proceedings under Sections 34 and 37 of the Arbitration Act, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of law settled by the Hon'ble Supreme Court of India in the case of S.B.P. & Co v. Patel Engg. Ltd. (supra) decided by a seven judge bench of the Hon'ble court holds the field. It has inter alia been decided therein that the Chief Justice or the designated Judge will have the right to decide the preliminary aspects as to his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power. In this case undisputedly the objections of the appellant against the prayer for appointment of arbitrator in the matter of the application under section 11(6) of the Arbitration and Conciliation Act, 1996 were not accepted by the designated judge of this court. The appellant even remained unsuccessful in the review application filed by it challenging the said order of the designated judge appointing the present arbitrator. For reasons best known to the appellant the said order appointing the arbitrator was not challenged before the Hon'ble Supreme Court of India. In this backdrop certainly it was not open to the arbitral tribunal to rule that he has no jurisdiction....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Another v. Sarvesh Chopra, (2002) 4 SCC 45 it has been held by the Hon'ble Supreme Court of India that if a party to a contract does not rescind it by invoking Sections 55 and 56 of the Contract Act, 1872 and accepts the belated performance of reciprocal obligations, the other party would be entitled to make a claim for damages. 27. Now coming to the facts of this case the arbitral tribunal in respect of issue No.1 concluded that the work was halted for a total period of about 347 days and the work suffered apparently on account of lack of promptness on the part of the concerned officers of the respondent to resolve the dispute, hence, the claimant cannot be held to have committed breach of contract since the performance on his part of the contract was entirely dependent on the performance of the contract by the respondent before him who is the appellant of this appeal, on their part. 28. So far as the contention of the appellant regarding the failure of the arbitral tribunal to frame specific issue that the government authorities before it were negligent is concerned it is a settled principle of law that where in spite of the omission to frame issue the parties have produced....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. (b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment." NOTE: By the amendment vide section 16 of Act 3 of 2016 w.r.e.f 23.10.2015 the words "eighteen per centum per annum" in section 31(7)(b) of the Arbitration and Conciliation Act, 1996 have been substituted by the words "two per cent higher than the current rate of interest prevalent from the date of the award," The plain reading of the said section reveals that Clause (a) of sub-section (7) provides that where an award is made for the payment of money, the Arbitral Tribunal may include interest in the sum for which the award is made. So this provision confers the power upon the Arbitral Tribunal while making an award for payment of money, to include interest in the sum for which the award is made on either the whole or any part of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....apre, is his separate judgment concurring with Hon'ble Mr. Justice S.A. Bobde (as His Lordship then was) held as under "31. Coming now to the post-award interest, Section 31(7)(b) of the Act employs the words, "A sum directed to be paid by an arbitral award...". Clause (b) uses the words "arbitral award" and not the "Arbitral Tribunal". The arbitral award, as held above, is made in respect of a "sum" which includes the interest. It is, therefore, obvious that what carries under Section 31(7)(b) of the Act is the "sum directed to be paid by an arbitral award" and not any other amount much less by or under the name "interest". In such situation, it cannot be said that what is being granted under Section 31(7)(b) of the Act is "interest on interest". Interest under clause (b) is granted on the "sum" directed to be paid by an arbitral award wherein the "sum" is nothing more than what is arrived at under clause (a)."(Emphasis Supplied) In view of the principle of law discussed above this court has no hesitation in holding that there is no merit in the submission of the appellant in respect of the interest that has been awarded upon the interest component of Rs. 10,40,105/- w....