Union Of India & Anr v. Bakshi Steel Limited .

Swatanter Kumar, J.:— Union of India invited the tenders for manufacturing and supply of Malleable Cast Iron Inserts to IRS Specification T-32-1984. The tenders received upon this offer, were opened on 5.2.1991 and the order was placed on M/s. Bakshi Steel Limited, respondent herein vide letter dated 9th August, 1991. The terms and conditions of the contract were governed by Indian Railway Standard Conditions of the Contract. The awarded contract was for the supply of 56 lacs numbers of MCI Inserts which quantity was subsequently reduced to 42 lacs in terms of clause 10 of the contract. According to Union of India, the payment was to be made at the rate that would be finalized against the ensuing tenders by the Board or existing rates, whichever is lower. The counter offer given was accepted and order for the supply Was placed upon the respondent.

2. According to the respondent as well, the terms and conditions were accepted vide letter dated 14th September, 1992 issued by the respondent to the petitioner. However on 12.11.1992, the railways department wrote to the contractor in exercise of its power under Clause 10.1 for additional quantity of MCI Inserts equivalent to 25 per cent of the quantity ordered. Vide letter dated 14.11.1992, the respondent in response to the aforesaid letter once again unequivocally and without demur as done earlier, accepted the offer of the petitioner and the additional quantity was also directed to be supplied. The contractor respondent had accepted the conditions of letter dated 12.11.1992 The final bill was submitted and on 2.11.1995, the contractor demanded payment of additional sum money against the first tender on the ground that the price variation clause in the 2nd tender was more favourable. This demand of the respondent was reiterated in subsequent letters dated 5.2.1996 and 30.04.1996 On 30.04.1996, the contractor invoked the arbitration clause and demanded reference to arbitration.

3. In pursuance to the demand of the contractor respondent, Mr. J.D Kalla was appointed as an Arbitrator before whom the contractor filed the claims on 16th July, 1998. Mr. J.D Kalla, Arbitrator gave the award whereby he awarded a sum of Rs. 28,46,337/- along with 18 per cent interest from the date of the claim to the contractor. Objections against the said award were filed in OMP 252/1998 by the UOI before this court. The award was set aside by the High Court with the consent of the counsel for the parties vide its order dated 31st July, 2001 and the matter was referred to Sh. J.K Mehra (Retired Judge of this court) as a Sole Arbitrator. Sole Arbitrator again passed the award dated 30.01.2004 in favour of the contractor. Notice of award was issued and received by the railway board on 4.2.2004 resulting in filing of the present objections under Section 34 of the Arbitration & Conciliation Act, 1996.

4. Objecting to the award, the main objection by the petitioner is with regard to the award being without any evidence that the payment for the aforesaid quantities was to be made at the lower of the two rates. The Arbitrator has acted arbitrarily and the interest could not have been awarded at the rate as stated by the Arbitrator in the award. The computation arrived at by the Arbitrator is incorrect and the contractor has placed no evidence on record to substantiate its claim. On these grounds, it is prayed on behalf of the Ministry of Railways that the award of the Arbitrator dated 30.01.2004 be set aside.

5. Upon notice, reply to these objections was filed on behalf of the contractor wherein it has been stated that Sh. J.K Mehra was appointed as a Sole Arbitrator with the consent of the parties. The findings recorded by the Arbitrator are conclusive and binding on finding of facts. The award of the Arbitrator is not upon to challenge. The main dispute was regarding the price variation bills which were deliberately withheld by the Government. The department of railways could not have compelled the contractor to accept the price of ensuing tender when the terms of the order were materially altered and as such the contractor was entitled to receive the differential price.

6. Rejoinder to this reply was also filed on behalf of the UOI completely reiterating the stand taken in the objections. On the basis of the above pleadings, the court vide its order dated 18th January, 2005 framed the following issues:—

“1. Whether the learned arbitrator has committed any illegality in the interpretation of the terms of the Contract to determine the price payable by the petitioner to the respondent? OPP

2. Whether the learned Arbitrator erred in awarding the interest at the rates 18%, 16% and 12% for different periods? OPP

3. Whether any ground exists u/s 34 of the arbitration & conciliation act for the challenge of the award given by the learned arbitrator? OPP”

7. The counsel appearing for the parties on the same date stated before the court that as the issues are purely legal in character, parties do not wish to lead any evidence in support of the objections. Consequently, the matter was listed for final hearing.

8. At the very outset, the learned counsel appearing for the UOI stated that she was not seriously raising any objection to the principal sum awarded to the contractor but vehemently contended that the interest and the rate of interest awarded by the Arbitrator is based on no facts, material and is even opposed to law. In support of her contention, the counsel appearing for the petitioner relied upon the judgment of the Supreme Court in Pure Helium India (P) Ltd. v. Oil & Natural Gas Commission (2003) 8 SCC 593 to contend that the interest should not be paid to the contractor and in any case, not in excess of 6 per cent. She also relied upon the judgments of the Supreme Court in Union of India v. Prince Muffakam Jah and others (1) 1995 Supp (1) SCC 686, Union of India v. Prince Muffakam Jah and others AIR 1995 SC 498 and the judgment of this court in Sharma & Associates Contractors Pvt. Ltd. v. Progressive Construction Ltd. 2004 (3) Arb. LR 485 (Delhi.)

9. On the other hand, the learned counsel appearing for the contractor submitted that the award does not call for any interference and even the interest and the rate of interest awarded by the Arbitrator is fully in consonance with the provisions of Section 34 of the Act and the law enunciated by the courts in different judgments. It was argued that the court could not substitute its own view in place of that of the Arbitrator and also that the court would not interfere with the contents of the award where it has to re-appreciate the evidence and then alone interfere with the quantum awarded. Reliance was placed in this regard upon the judgments of the Supreme Court in the case of B.V Radha Krishna v. Sponge Iron India Ltd. (1997) 4 SCC 693 and Army Welfare Housing Organisation v. Gautam Construction & Fisheries Ltd (1998) 7 SCC 290 and it was further contended while relying upon the judgment of the Supreme Court in the case of Pure Helium India (P) Ltd. (supra) that the Supreme Court has stated in the judgment that it should not be treated as precedent.

10. It is a settled principle of law that the court while dealing with the petition under Section 34 of the Act would not sit as a court of appeal over the finding of facts recorded in the award, as an Arbitrator is the final Judge of facts. If the award is contrary to the terms of the agreement and suffers from erroneous mistakes of law or mixed fact and law, the award is not amenable to correction by the court.

11. The Legislature in its wisdom has now spelled out the grounds on which the court can set aside an arbitral award under Section 34(2) of the Act. It cannot and in fact has not been argued that the arbitral forum has dealt with the dispute which is not contemplated or is within the terms of submission to the arbitrator.

12. It may also be noticed that even on an earlier occasion, the arbitrator appointed by the department itself had also accepted the claim of the contractor and on 16th July, 1998 had passed the award of Rs. 28,46,337/- in favour of the claimant. This award of course with the consent of the counsel for the parties, was set aside and matter was referred afresh to the sole arbitration of Sh. J.K Mehra (Retd. Judge of this court).

13. The Sole Arbitrator has passed a detailed award referring to the arbitration records and the evidence produced by the contractor. The arbitrator also noticed in the award that terms of the new tender although appeared to be providing for lower price, are in fact more advantageous to the new tenderers. The benefit thereof has not been extended to the claimant. In this view, it cannot be said that other terms were the same or that real price under the new tender was in fact lower that the price payable under the contract in question. Further it has been specifically noticed in the award that “Original papers send for by me were not produced by Respondents on the plea that those were not traceable.” This finding of the arbitral tribunal shows that the department of railways has even failed to produce summoned documents, despite opportunity. In view of the settled position of law, in my opinion, the learned counsel appearing for the UOI seriously did not contest the award of the principal sum to the contractor and rightly so. The award on this ground does not call for any interference.

14. The Arbitrator has the jurisdiction to award interest pre-reference, pendente lite and future at such rates as the Arbitrator may feel fit and proper in the circumstances of the case. In this regard, reference can be made to the recent judgment of this court in the case of MCD v. Satish Chand Rajesh Kumar P. Ltd. (OMP 219/2005) decided on 07th July, 2005 where the court held as under:—

“5. The contractor had claimed 18% interest on all claims which was not accepted and after giving its reasons the Arbitral Forum allowed 12% interest on the claimed amounts, which in fact, were not even contested by the Corporation, as is clear from the award as well as the objections taken by the Corporation in the present petition. The objection of the Corporation that the arbitral forum had no jurisdiction to award interest is without any basis. The Supreme Court in the case of T.P George v. State of Kerala & Anr. JT 2001 (2) SC 438 as well as Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa etc. etc. v. N.C Budharaj (Dead) by LRs etc. etc. JT 2001 (1) SC 486 has clearly enunciated the law that the arbitral forum has jurisdiction to award pre-reference, pendente lite future interest and even interest from the date of the award till date of the realisation. In face of these settled positions of law, the objection of the Corporation is liable to the rejected. To say that the respondent-corporation was not put at notice in regard to the claim of interest being raised by the petitioner, the objection at the face of the award is factually incorrect, because in the claim petition the contractor has specifically made a prayer with regard to grant of interest @ 18% per annum on all claims. This aspect of the matter can hardly be controverted before this Court in face of the admitted pleadings of the parties and the award itself.”

15. In the cases relied upon by the learned counsel for the petitioner, the Supreme Court had reduced the rate of interest with the aid of Article 142 of the Constitution of India as well as otherwise. In the case of Pure Helium India (P) Limited (supra), the Supreme Court had observed that the interest was being reduced to do complete justice between the parties under Article 142 of the Constitution of India and may not be read as a precedent. However in other cases, the court had reduced the rate of interest on merits of the case. In the case of Prince Muffakam Jah & others (1) (supra), the court had held that it would be just and fair to award 6 per cent interest p.a while referring to the provisions of 1940 Act.

16. The Arbitrator while allowing the claim for interest of the petitioner granted interest as follows:—

“On the question of interest I find that at the relevant times the rates of interest being charged by the banks were quite high. However, I think it should not exceed 18 % simple nor should it be uniform rate of interest for the entire period but be fixed at the rates banks were charging generally. I award simple interest 18% p.a on the aforesaid amount upto 30th June, 1997 and thereafter @ 16% p.a Upto 31st March, 1999 and thereafter till the date of payment @ 12% is awarded. On the basis of the calculation, the same is as follows:—

From December, 1993 to June @ 18% Rs. 18.35,887,36 July, 97 to March, 99 @ 16% Rs. 7,96,689.72 From April, 99 till the date of award @ 12% Rs. 16,42,999.29 Total Rs. 42,75,576,37 Plus principal sum Rs. 28,46,337,00 Total of principal and interest Rs. 71,21,913,37

17. The above finding is challenged by the objector on the ground that the arbitrator has no jurisdiction to award interest and in any case the rate of interest awarded is unreasonably excessive as it was for the bonafide conduct of the parties that amounts if at all were payable to the claimant based on reasonable construction of the terms of the contract. As far as jurisdiction of the Arbitrator to award interest is concerned, the same can hardly be questioned in fact of Section 31(7) of the Act and the various judgments of the Supreme Court afore-referred. The provisions of Section 31(7) are not mandatory and have vested a discretion in the arbitral tribunal to award interest at such rate as it deems reasonable on the whole or any part of the money payable under the Award for the whole or any part of the period between the date on which cause of action arose and the date on which the award was made. Clause (b) of sub-section 7 to Section 31 gives an outer limit which could be awarded by the arbitral forum i.e at the rate of 18 per cent p.a It does not appear to be scope of this provision that it will be absolutely essential or mandatory for an arbitral forum to award interest for the entire period at the rate of 18 per cent p.a Finding in this regard would obviously depend upon the facts and circumstances of the each case, conduct of the parties, the terms of the agreement and conduct of the parties during the pendency of the arbitration proceedings. In the present case, the Arbitrator himself has awarded the interest at different rates for different periods. There appears to be no justification for awarding such varied rate of interest without any specific reasons which would justify variation of rate of interest of 6 per cent. The cumulative effect and after taking into consideration the records before the court, I am of the considered view that it will be just, fair and equitable to award 12 per cent simple interest for the entire interest. Such direction would meet the ends of justice and would also secure the interest of the claimant. Consequently, the objections filed by the objector are partially accepted to the limited extent afore-referred and the petition is accordingly disposed of while leaving the parties to bear their own costs.