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G.D Anklesaria And Co., Ratlam, M.P v. Airports Authority Of India, Mumbai .
Factual and Procedural Background
The Petitioner, originally the claimant, invoked section 34 of the Arbitration and Conciliation Act, 1996, challenging the arbitral award partially. The challenge primarily concerned the denial of interest at 18% per annum from the date of payment (18-4-2006) till 12-1-2009, along with claims related to service tax and levies. The Petitioner was awarded a contract by the Respondent for replacement of two DG Sets at Mumbai Airport. A dispute arose, leading to invocation of the arbitration clause on 26-7-2007. The statement of claim was submitted on 31-1-2008, and written submissions were filed by both parties by 20-9-2008. The sole Arbitrator passed the award on 27-11-2008, partly granting the Petitioner’s claim but denying the claimed interest. The Respondent paid the awarded amount but resisted the interest claim. Subsequently, the Petitioner filed the present petition on 24-2-2009 challenging the award.
Legal Issues Presented
- Whether the Petitioner is entitled to interest at the rate of 18% per annum from the date of payment under the terms of the contract and applicable law.
- Whether the arbitral award denying interest is sustainable in light of the specific contractual clauses and relevant provisions of the Arbitration and Interest Acts.
- Whether the arbitrator had jurisdiction and power under section 31(7) of the Arbitration Act to grant interest despite the contract clauses.
- Whether the award is liable to be modified or set aside partially under section 34 of the Arbitration Act.
Arguments of the Parties
Petitioner’s Arguments
- Relied on section 31(7) of the Arbitration Act empowering the arbitrator to grant interest in absence of any contrary agreement.
- Asserted entitlement to interest at 18% per annum from the date of payment, based on the Interest Act, 1978.
- Relied on Supreme Court precedent (Executive Engineer, Orissa v. N.C Budharaj) supporting the grant of interest by arbitrators.
Respondent’s Arguments
- Contended that the Petitioner is not entitled to interest on VAT awarded, as per Clause 25 of the contract.
- Asserted that the contract contained specific clauses (Clause 10(F)(1) and Clause 25) excluding interest on disputed claims and requiring approvals before payments.
- Argued that the penalty imposed and payment timelines were within contractual and legal framework, with no delay or intention to withhold payments.
- Maintained that the arbitrator correctly denied the interest claim consistent with the contract terms and applicable law.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Tata Hydro-Electric Power Supply Co. Ltd. v. Union of India, (2003) 4 SCC 172 | Principles under section 34 of the Arbitration Act regarding challenge to arbitral awards. | Referenced to support the framework within which awards can be challenged or modified. |
| Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445 | Clarification on partial challenge and modification of arbitral awards. | Used to affirm that partial challenges to awards are permissible. |
| Mcdermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181 | Application of section 34 and principles of arbitral award scrutiny. | Supported the court's approach to evaluating the arbitral award. |
| Krishna Bhagya Jala Nigam Ltd. v. Harischandra Reddy, (2007) AIR SCW 527 | Interpretation of arbitration clauses and award enforcement. | Referenced for guidance on award validity. |
| Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd., (2007) 8 SCC 466 | Legal standards for arbitration awards and interest claims. | Supported the court’s view on award consistency with contract terms. |
| Delhi Development Authority v. R.S Sharma and Co., (2008) 13 SCC 80 | Scope of arbitration and contractual obligations. | Applied to affirm the arbitrator’s decision within contractual limits. |
| Royal Education Society v. Lis (India) Construction Company Pvt. Ltd., (2009) 2 SCC 261 | Validity of arbitral awards and interest claims. | Referenced for the principle that awards must align with contract terms. |
| Executive Engineer, D.M.I Divn., Orissa v. N.C Budharaj, (2001) 2 SCC 721 | Arbitrator’s power to grant interest under section 31(7) of Arbitration Act and Interest Act. | Relied upon by Petitioner; court distinguished based on contract clauses. |
| Madnani Construction Corporation Pvt. Ltd. v. Union of India, (2010) 1 SCC 549 | Interpretation of interest claims and arbitration awards under contract terms. | Supported the award and court’s rejection of interest claim due to specific contract clauses. |
| Union of India v. Arctic India, 2007 (6) Bom. C.R 384 | Modification of arbitration awards in light of Supreme Court precedents. | Referenced as precedent where awards were modified consistent with legal principles. |
| Sai Enterprises v. Mahanagar Telephone Nigam Ltd., 2007 (6) Bom. C.R 390 | Modification and partial challenge of arbitral awards. | Used to demonstrate prior award modifications by the court. |
| Board of Trustees of the Port of Mumbai v. Mohinder Singh and Company, Arbitration Petition No. 494 of 2004 | Application of Supreme Court judgments for award modifications. | Illustrated court’s approach to partial modification of awards. |
Court's Reasoning and Analysis
The court examined the arbitral award challenged under section 34 of the Arbitration Act in the context of the specific contractual clauses agreed between the parties. Clause 10(F)(1) provided for reimbursement of taxes or levies imposed post-tender, subject to conditions, while Clause 25 explicitly provided that no interest was payable on disputed claims requiring certain approvals. The court noted that the arbitrator considered these terms and granted the award accordingly, denying the claimed interest. The Petitioner’s reliance on general principles empowering arbitrators to grant interest under section 31(7) and the Interest Act was found insufficient to override the clear contractual provisions excluding interest. The court also observed that payments were made timely and that penalties imposed were within contractual rights. Supreme Court precedents cited by the Petitioner were distinguished on the basis that the present contract contained specific clauses disallowing interest, which prevailed over general legal principles. The court concluded that the award was within the framework of law and free from perversity, and thus not liable to be set aside or modified.
Holding and Implications
The petition is dismissed with no order as to costs.
The direct effect of this decision is the upholding of the arbitral award denying the Petitioner’s claim for interest at 18% per annum, in accordance with the specific contractual terms agreed between the parties. No broader legal precedent was established beyond affirming that specific contract clauses excluding interest claims will prevail over general statutory provisions or principles empowering arbitrators to grant interest. The ruling reinforces the principle that arbitral awards must conform to the parties’ contract terms and that challenges under section 34 will not succeed where awards align with such terms and applicable law.
1. The original claimant the Petitioner, has invoked section 34 of the Arbitration and Conciliation Act, 1996 (for short, the Arbitration Act) and thereby, challenged the award partially, mainly on the ground of interest and claiming interest@ 18% p.a from the date of payment i.e from 18-4-2006 till 12-1-2009, and also service tax and levies liabilities.
2. I have already taken a view in Arbitration Petition No. 31 of 2009, Anupam Engineers… v. India Oil Corporation Ltd. & Anr.…, dated 10-12-2009 by referring to the following Supreme Court Judgments of section 34 of the Arbitration Act, that the award can be modified or the award can be challenged partly.
1. Tata Hydro-Electric Power Supply Co. Ltd. v. Union of India, (2003) 4 SCC 172. Hindustan Zinc Ltd. v. Friends Coal Carbonisation, 2006 (5) Mh.L.J (SC) 1 : (2006) 4 SCC 445. 3. Mcdermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181 4. Krishna Bhagya Jala Nigam Ltd. v. Harischandra Reddy, (2007) AIR SCW 527. 5. Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd., (2007) 8 SCC 466 6. Delhi Development Authority v. R.S Sharma and Co. New Delhi., (2008) 13 SCC 80 7. Royal Education Society v. Lis (India) Construction Company Private Limited, (2009) 2 SCC 261.
3. I have already modified the awards in the following cases, based upon the Supreme Court's Judgments. Some are as under:
(a) Union of India v. Arctic India, 2007 (6) Bom. C.R 384, (b) Sai Enterprises v. Mahanagar Telephone Nigam Ltd., 2007 (6) Bom. C.R 390, (c) Arbitration Petition No. 494 of 2004 in The Board of Trustees of the Port of Mumbai v. Mohinder Singh and Company.
4. The preliminary object is rejected. Therefore, heard the parties finally.
5. The learned counsel appearing for the Petitioner has strongly relied on (2001) 2 SCC 721 : AIR 2001 SC 626, Executive Engineer, D.M.I Divn., Orissa v. N.C Budharaj, and thereby contended that in absence of any contra agreement the Arbitrator is empowered to grant interest under section 31(7) of the Arbitration Act, as well as, as per the provisions of Interest Act 1978.
6. The learned Arbitrator after considering the material, as well as, the concerned terms and conditions between the parties has granted award in favour of the Petitioner but not granted interest as claimed@ 18% p.a, basically from 21-6-2005. The Petitioner was awarded contract by the Respondent for replacement of existing 2 Nos. 166 KVA DG Sets at Airport Mumbai. The agreement was executed accordingly. As there was dispute, the Arbitration clause was invoked on 26-7-2007. The statement of claim was submitted before the Arbitrator on 31-1-2008. The parties have filed their written submissions on 20-9-2008. The sole Arbitrator therefore, passed the impugned award and partly awarded the claim on 27-11-2008.
7. Clause 10(F) (1), as relevant is as under —
“Tendered rates are inclusive of all taxes and levies payable under the respective State. However, pursuant to the Constitution (Forty Sixth Amendment) Act, 1982 if any further tax or levy is imposed by State, after the date of receipt of tenders, and the contractors thereupon necessarily and properly pays such taxes/levies the contractor shall be reimbursed the amount so paid, provided such payment, if any, is not, in the opinion of Executive Director Engineering/General Manager Engineering (whose decision shall be final and binding) attributable to delay in execution of work within the control of the contractor”.
8. The Respondent, considering above and in view of the award paid the amount of Rs. 4,33,470/- vide letter dated 13th January, 2009, though resisted by reply dated 18th August, 2009 as under—
“I further say that the Petitioners are not entitled to interest of Rs. 97,022/- on the VAT at the rate of 4% awarded in favour of the Petitioners as per Clause 25 of Agreement”.
9. The Petitioner has accepted the said amount but still filed this Petition on 24-2-2009 and challenged the award itself.
10. The time was the essence of the contract. The provisional extension was given to the Petitioner, that was without prejudice to the rights of the authority to liquidate damages. The notice for imposing the penalty on the Petitioner was served on 14-7-2006, and ultimately imposed the penalty of Rs. 22,140/- and the same was within the framework of law and specifically Clause 2 of the Agreement and was imposed after giving opportunity to the Petitioner. Even as per the clause 25 of the Agreement read with the clauses referred, no interest was payable on the claims, as approval was necessary from the Regional Inspectorial Organization, Central Electricity Authority, Government of India. The same was received on 3-7-2006, that was essential condition in view of the terms of the Agreement. Even otherwise, the RA Bill was of Rs. 70,59,200/- out of which sum of Rs. 50 lacs was paid on 13-12-2005. The remaining Rs. 20,59,200/- was cleared on 27-12-2005. The second RA Bill of Rs. 19,86,000/- was cleared on 15-2-2006. The amount was released after all receipts/instalments of material submitted along with final bills as required in terms of Agreement. There is no intention or delay on part of the Respondent.
11. Therefore, in view of the agreed clauses specially 25, between the parties, which provides that no interest is payable in such circumstances on disputed claim the submission relying upon the above Supreme Court Judgments,are of no assistance. In the present facts and circumstances and as there are specific agreed clauses of providing no interest on such payment, in my view, the Petitioner's case for the claim of interest is impermissible. It is a commercial contract with specific clause which debars the arbitrator to grant interest, should prevail over general submission of entitlement of interest. The Supreme Court Judgment so relied, they are of no assistance to the Petitioner, in view of specific clauses itself. On the contrary it supports the award. (2010) 1 SCC 549, Madnani Construction Corporation Pvt. Ltd. v. Union of India.
12. Considering the scope and purpose of section 34 of the Arbitration Act and the award so challenged, I see the award cannot be stated to be beyond the agreed terms and conditions and/or the law. It is well within the framework of law and the record. There is no perversity.
13. Resultantly, the Petition is dismissed with no order as to costs.
Petition dismissed.
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