If the arbitrator has no power to award interest pendente lite, the party claiming it would have to approach the Court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings.
| Case name: | M/S.J.K. Fenner (India) Limited vs M/S.Neyveli Lignite Corporation |
| Case number: | O.P.No.252 of 2014 |
| Court: | Madras High Court |
| Bench: | THE HONOURABLE Ms. JUSTICE P.T. ASHA |
| Decided on: | 20.05.2020 |
| Relevant Act/Sections: | The Arbitration and Conciliation Act, 1996 |
- BRIEF FACTS AND PROCEDURAL HISTORY:
- The claimant who is engaged in the business, amongst others, of material handling system involving designs, engineering, manufacturing, supply, erection, testing and commissioning on turn key basis catering to various infrastructure industries like coal, mines, chemical, thermal power projects, Petrochemicals, paper, airport and other sectors for over decades, had participated in the tender floated by the respondent for the design, supply and commissioning of a lignite handling and storage system. The claimant had submitted their bid for the above work on 11.04.1998. On 31.07.1998/12.08.1998, the respondent had issued the letter of Award accepting the claimants bid. Pursuant to this the claimant and the respondent had entered into two agreements both dated 16.07.1999, one was for the supplies (Contract I) and the other for the construction activities (Contract II). It was agreed that Contract I and Contract II constituted the entire agreement between the parties. They had further agreed to resolve their disputes using the machinery of Arbitration.
- The total contract price payable by the respondent under both Contract I and Contract II to the claimant was a sum of Rs.39,41,54,400/-. As per the terms of the Contract, the claimant was required to complete the whole works up to and including the successful completion of the trial. The LHS is an intermediary system for conveying the lignite received from the respondents feeding conveyors and transporting the same to the boiler bunkers located in the power house building. The claimant’s scope of work did not include the feeding conveyors or the boiler bunkers.
- By their letter dated 01.03.2004, the respondent had provisionally taken over the operation and normal maintenance of the LHS with effect from 01.03.2004. Prior to this take over by the respondent the claimant had operated the system for a period of 14 months i.e., from 01.01.2003 to 29.02.2004 under the instructions of the respondent. After the completion of the contract, disputes arose between the claimant and the respondent when the claimant sought payment for the work done under various heads.
- Meanwhile, the respondent had encashed the Bank guarantee of Rs.591.23 lakhs, this despite the claimant asking the respondent to discharge the bank guarantee as it was no longer necessary to keep it alive in view of the successful completion of the work. However, the respondent did not accept the claims of the claimant. In fact, the bank guarantee had been invoked by the respondent only after the respondent had received the notice dated 13.12.2006 from the claimant calling for the resolution of the disputes through arbitration. Despite sincere efforts being made by the claimant to settle the disputes through O.P.No.252 of 2014 discussion, the respondent did not come forward with any offer to settle. Therefore, the claimant had invoked the Arbitration clause of the contract and by their letter dated 11.01.2007 informed the respondent that they were appointing Justice K. Govindarajan, former Judge of this Court as an Arbitrator and calling upon the respondent to appoint the other arbitrator.
- By their letter dated 01.03.2007, the respondent had appointed Justice Jeevan Reddy, former Judge of the Supreme Court of India as Arbitrator and together the two learned Arbitrators had appointed Justice K. Venkatasami, former Judge of the Supreme Court as the Presiding Arbitrator. After the death of Justice K.Venkatasami, Justice S.Ranganathan former Judge of the Supreme Court of India was appointed as the Presiding Arbitrator. The Arbitral Tribunal has made the award on 05.10.2013 and modified the same on 05.01.2014. As stated supra, the challenge is only in respect of 4 claims of which Claim V and VII are interlinked.
- The Tribunal had rejected the claim of the claimant to refund the LD recovered by the respondent on the ground that there was a delay and the cause factors given for the delay were not proved. The Tribunal has extensively dealt with each one of the cause factors put forward by the claimant and rendered its finding. The contention of the claimant that the respondent had not suffered any loss as even when the claimant was ready for the trial operation the respondent was not ready and therefore LD cannot be levied has been rejected by the Tribunal with cogent reasons. The Tribunal has observed that the claimant has pushed back the agreed completion date by three years and it is only on account of their delay that the other delay had occurred and the recovery of LD was justified.
- The learned Senior Counsel appearing on behalf of the claimant has contended that the respondent had not suffered any loss on account of the delay and therefore, the levy of LD was contrary to provisions of Section 74 of the Contract Act. The above argument has been turned down by the Tribunal after taking into account the fact that the claimant without any reasonable cause has delayed the project by over 3 years. The Tribunal has also taken into account the fact the every extension starting from the first extension has been granted only subject to the levy of LD by the respondent. Therefore, from 01.01.2001, till the date of the LHS being made ready, the LHS was non utilizable. The parties have agreed to have LD levied at the maximum rate of 10% of the non-utilizable portions. The actual loss in the instant case cannot be proved. Further, the LHS was an important and integral system which had to be set in place to convey lignite to the boiler.
- The claimant is the petitioner in the above petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, hereinafter called the Act, challenging the Award of the Arbitral Tribunal dated 05.10.2013 and the modified Award dated 05.01.2014. For ease of reference the parties are referred to in the same ranking as before the Arbitral Tribunal. Although the claimant had made claims under 10 headings, the Arbitral Tribunal has partially allowed 4 claims and with reference to one claim made under two heads, the Tribunal has allowed the claim only with reference to one head and rejected the claim under the other head. The remaining 5 claims have been rejected in toto.
ISSUE BEFORE THE COURT:
The claimant filed a petition under Section 34 challenging the Award for selective claims thus whether it is maintainable or not.
RATIO OF THE COURT
- The court examined with regard to the grant of interest denied by the Arbitral Tribunal by the Court before which the petition to set aside the Award is pending:- The Constitution Bench in the Judgment reported in AIR 1992 SC 732 [Secretary Irrigation Department, Government of Orissa and others v. G.C. Roy] was considering the jurisdiction of the Arbitrator to award pendente lite interest in the absence of an agreement for the same. the Hon’ble Supreme Court and ultimately laid down the following principles:
(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, C.P.C., and there is no reason or principle to hold otherwise in the case of arbitrator.
(ii) an arbitrator is an alternative form for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. If the arbitrator has no power to award interest pendente lite, the party claiming it would have to approach the Court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings.
(iii) An arbitrator is the creature of an agreement It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to Section 41 and Section 3 of Arbitration Act illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement.
(iv) Over the years, the English and Indian Courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jena’s case almost all the Courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law.
(v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre- reference period). For doing complete justice between the parties, such power has always been inferred.
- The underlying principle conferring power on the arbitrator to grant interest for a pre-reference period in cases where there is no prohibition in the arbitration agreement is on account of the fact that the forum of arbitration is created by the consent of parties and is a substitute for a conventional civil court. Therefore, by implication the Arbitrator would have the same power to award interest in the same way and same manner as a court.
- In the given facts, the court examined that Admittedly in the case on hand the contract is silent about the grant of interest. The learned Arbitrators have refused to grant interest not only for the pre reference period but also the pendente lite interest as well as the post award interest on the ground that the claimant became entitled to the payment of the retention money only with effect from the date of the award. This finding lacks a legal basis since the amount falls due on the commissioning of the LHS.
- Considering the fact that this Court is exercising jurisdiction under Section 34 of the 1996 Act can the award be modified in the light of the discussions made supra and more particularly in the light of the judgment authored by me in Sterlite Technologies Limited vs BSNL [OP Nos.200 of 2011 and 774 of 2012 dated 11.12.2019].
- In the judgment in Sterlite Technologies I had, considered the various judgments pronounced by the Hon’ble Supreme Court regarding the scope of interference under Section 34 of the 1996 Act commencing from the judgment of the Hon’ble Supreme Court reported in 2006 (11) SCC 181, Mc Dermott International Inc vs. Burn Standard Co, Ltd wherein the Hon’ble Supreme Court had struck a note that the 1996 Act cast only a supervisory role where the court was only called upon to test the fairness of the award and was not called upon to correct the errors of the Arbitrator. This judgment had been followed in many of the later judgments. Thereafter the court had considered the judgments post the Amendment to the 1996 Act vide Act 3 of 2016 and relying on the judgment of the Hon’ble Supreme Court in Ssangyong Engineering vs. National Highways Authority, I had observed that in view of the language of the judgment in Ssangyong Engineering vs National Highways the Court exercising jurisdiction under Section 34 of the 1996 Act cannot interfere with the findings of the arbitral award.
- Further since modifying the award in that case would amount to re appreciating the evidence as vital evidence has been overlooked by the learned Arbitrator therein, the court had only set aside the award on the ground of patent illegality without reversing the same award.
- A Division Bench of this Court in Judgment reported in 2019 (5) L.W. 409 [ISG Novasoft Technologies Limited v. Gayathri Balusamy] held as follows:
“A reasonable interpretation to Section 34 would only lead to an irresistible conclusion that the Court can modify or vary the Award of the Arbitrator if it is contrary to the material evidence adduced by the parties.”
- DECISION HELD BY COURT:
- Taking into consideration the judgments of the Hon’ble Supreme Court in G.C. Roy, N.C. Budharaj, Indian Hume Pipe Co. Limited and Hyder Consulting (UK) Limited as also the division bench judgement of this Court in ISG Nova soft- Technologies Limited and applying the principles thereon to the case of hand the court was of the view that the claimant is entitled to interest @ 9 % p.a from 01.03.2004 ( the date on which the respondent had taken over the LHS till the date of award and from the date of award till date of payment at 18 % p.a. as held by the Hon’ble Supreme Court in Hyder Consulting (UK) Limited at paragraph 61, particularly in the light of the learned Arbitrators after examining the evidence on record coming to the conclusion that the retention was wrong. Therefore, this Court is not called upon to once again appreciate the evidence.
- In fine, the Original Petition is partly allowed with regards to Claim I, the Award denying interest is set aside and the respondent is directed to pay interest on the retention money awarded @9% per annum from 01.03.2004 till date of award and thereafter, @18% per annum till date of payment of the retention money. In all other respects, the Award of the Arbitral Tribunal stands confirmed.