TaxTMI 
TaxTMI 
2020 (8) TMI 955
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....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 appellant-department but the appellant-departmen....
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....itral 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 date of reference made by the High Court on 14.10.2....
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....o 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, for that would be a classic case of pulling oneself up by one's o....
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....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 this court to para-15 of the judgment of Wellington Associates Ltd. v. Kirit Mehta (supra) w....
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....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 the whole or part of the following period, that is to say, (a) if the proceedings relate to a debt payable by virtue o....
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....he 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 arbitrator...." "42. In the 1996 Act, this principle is substituted by the 'patent illegality' principle which, in turn, contains three sub heads- 42.1(a) a contravention of the substantive law of India would result in....
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....hapter 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 void when the act becomes impossible or unlawful. Compensation for loss through non-performance of act known to be impossible or unlawful.-Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or un....
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.....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 judicial order. Once it is a judicial order, the same, as far as the High Court is concerned would be final and the only avenue open to a party feeling aggrieved by the order of the Chief Justice would be to approach the Supreme Court under Article 136 of the Constitution. If it were an order by the Chief Justice of India, the party wil....
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....f 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 Section 11(6) of the Act. (ix) In a case where an Arbitral Tribunal has been constituted by the parties without having recourse to Section 11(6) of the Act, the Arbitral Tribunal will have the jurisdiction to decide all matters as contemplated by Section 16 of the Act. (x) [Ed.: Paras 47(x) & (xii) corrected vide Official Corrigendum No. F.3/Ed.B.J./103/2005 dated 9-11-2005.] Sinc....
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....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 appellant about non-existence of the Arbitration Clause in the agreement between the parties to this appeal, has already been decided by this Court in the application under Section 11 (6) of the Arbitration and Conciliation Act,1996 as well as the review petition filed by the appellant herein challenging the appointment of the said arbitrator and the same having been decided by this Court itself, the same is final....
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....tipulated 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 jurisdiction in allowing some of the claims on account of escalation of costs which was referable to the execution of the work during the extended period. In our judgment, the view taken by the High Court was on a rigid interpretation of the terms of contract and the supplemental agreement executed between the parties, which was not warranted by the turn of events." (Emphasis supplied) And submitted that in this case also the delay....
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.... 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 of the arbitrator and, hence, the arbitrator had not misconducted himself in awarding the amount as he has done." This Court held that the contractor was justified in seeking price escalation on account of an extension of time for the completion of work. Once the arbitrator was held to have the jurisdiction to determine whether there was a delay in the execution of the contract due to the respondent, the latter was liable for the consequence of the delay, namely, an increase in....
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.... 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, para 44) "44. ... Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes - or refer the dispute as to interest ....
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....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 relation to the actual head office costs of the contractor. (b) Emden Formula: In Emden's Building Contracts and Practice, the Emden Formula is stated in the following terms: 'Head office overhead and profit 100 X Contract sum Contract period X Period of delay' Using the Emden Formula, the head office overhead percentage is arrived at by dividing the total overhead cost and profit of the contractor's organisation as a whole by the total turnover. This formula has the advantage of using the contractor's actual head office overhead and profit perce....
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.... (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. However, it must in fairness be stated that it was argued before the learned Single Judge. In para 15 of his judgment, the learned Judge sets the clause out and then follows a judgment of the High Court of Delhi in Kochhar Construction Works v. DDA [(1998) 2 Arb LR 209 : (1998) 74 DLT 118] . Apart from the fact that a learned Single Judge of the same Court is bound by a previous judgment of a Single Judge, the conclusion of the learned Single Judge that if the appellant is at fault and the contract is prolonged for an inordinate period of time, it cannot be said that the respondents cannot be compensated for the same, is correct. Besides, this point was no....
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....ofit. 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, the petitioners have failed." (Emphasis Supplied) And submitted that as in this case in the interim award, which is of course not the subject matter of this arbitral award, the categorical findings arrived at by the arbitral tribunal is that the rescinding of the contract by the Superintending Engineer is not proper and as a consequence thereof, the claimant's amount of security deposit and advance payment would not be forfeited and the rescinding is not binding on the claimant and the arbitral tribunal has considered the claims of the claimant on merit and cogent reasons have been given by the learned arbitral tribunal while partly allowing the respective claims and the....
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.... 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 to proceed with the arbitration. Thus there is no merit in the preliminary objection of the appellant and the impugned arbitral award cannot be set aside on the ground of non-existence of the arbitration clause in the agreement between the parties. The first point for determination is answered accordingly in the negative against the appellant. 24. So far as the second point for determination is concerned, it is a settled principle of law as has been held in the case of K.N. Sathyapalan (Dead) By LRs v. State of Kerala and Another (supra) that though ordinarily, the parties would be bound by the terms agreed upon in the contract, but in the event one of the parties to the contract is unable to fulfill its oblig....
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....ance 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 evidence without any objection and from the evidence it is clear that the parties knew what case they had to meet no injustice is caused by non- framing of the issue. In the case of Kunju Kesavan v. M. M. Philip and others (AIR 1964 SC 164) the Hon'ble Supreme Court of India held as under in paragraph -17 "17.Xxxxxxxxxx The parties went to trial, fully understanding the central fact whether the succession as laid down in the Ezhava Act applied to Bhagavathi Valli or not. The absence of an issue, therefore, did not lead to a mis-trial sufficient to vitiate the decision. Xxxxxxxxx." Coming to the facts of this case it is crystal clear from the pleading of the parties and the evidence produced that the appellant herein ....
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....d," 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 money and for the whole or any part of the period for the entire pre- award period between the date on which the cause of action arose and the date on which the award is made. The "sum" awarded may be the principal amount and such interest as the Arbitral Tribunal deems fit. It is crystal clear that the expression "the sum for which the award is made" occurring in clause (a) of sub-section (7) of Section 31 of the Act refers to the total amount or sum for the payment for which the award is made, that is if no interest is awarded the 'sum' is only the principal. If both principal and interest is allowed then 'sum' is the principal plus interest and if in any case only interest is allowed, 'sum' is the interest. Section 31(7)(b)of the Arbitration and Con....
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....der 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/- which was the interest calculated for the period 20.05.2010 to 14.10.2011 is illegal, as the Parliament itself mandates the same. Accordingly the fourth point for determination is also answered in the negative against the appellant. 31. So far as the third point for determination as to whether award of interest @ 12% per annum from 20.05.2010 to 14.10.2011 is on the higher side is concerned, the arbitral tribunal has not assigned any reason for awarding the said interest. The pendentelite interest awarded by the arbitral tribunal is at the rate of 6% per annum. By the amendment vide section 16 of Act 3 of 2016 w.r.e.f 23.10.2015 the future interest in case the award does not otherwise direct which was earlier at eighteen per centum per annum as provided for in section ....