HIGH COURT OF CHATTISGARH AT BILASPUR
Arbitration Appeal No.25 of 2007
1. M/s Shadani Builders
...Petitioners
Versus
1. M/s Begraj Agrawal
2. Justice Shri C P Sen
...Respondents
! Shri S.K. Dubey, Sr. Advocate with Dr. Shailesh Ahuja,
counsel for the appellant.
^ Shri B.P. Sharma with Shri K. Sharma, counsel for
respondent No.1.
Honble Shri Dhirendra Mishra & Honble Shri D R Deshmukh JJ
Dated:02/03/2009
: Judgement
O R D E R
(Passed on 2nd March, 2009)
The following order of the Court was passed by
Dhirendra Mishra, J.
1. This arbitration appeal under Section 37 (1)(b) of the
Arbitration and Conciliation Act, 1996 (for short `the Act,
1996′) is directed against the order dated 30th June 2007
passed in Civil (Arbitration) Case No.9-A/2007 whereby learned
District Judge, Raipur has rejected the application of the
appellant under Section 34 of the Act, 1996 for setting aside
award dated 3-10-99 passed by the sole arbitrator.
2. The case of the appellant, in brief, is that the
appellant is a firm registered under the Partnership Act. The
partners of the firm owned and possessed lands situated at
village Boriya Kala, Tehsil and District Raipur. Thok Kirana
Vyapari Sangh, Gudiyari, Raipur entered into an agreement to
purchase shops to be constructed on the above described land
on the individual agreement. The rate of each shop was fixed
at Rs.2,50,000/-. A sum of Rs.50,000/- was payable during the
construction period and balance of Rs.2 lakhs with interest in
60 monthly installments commencing from the date of handing
over possession.
3. The appellant and respondent No.1 entered into an
agreement for construction of 500 shops at the rate of Rs.140
per sq. ft.. The shops were to be constructed within 18
months. They entered into another agreement for construction
of road. The dispute arose between the petitioner and the
construction agency regarding construction and payment.
Initially the dispute was resolved and accordingly, the terms
of agreement were modified, however, dispute persisted. On
the basis of report lodged by respondent No.1 proceedings
under Section 145 and 146 of the Code of Criminal Procedure
(for short `the Code’) were drawn and the Sub Divisional
Magistrate, vide order dated 24-10-96, attached 280 under
construction shops and construction materials in Criminal case
No.25/96. The construction materials under attachment were
handed over in the interim custody of one Lalit Kumar
Singhania.
4. Two separate criminal revisions preferred by the
appellant as well as one Ram Awatar Agrawal against the order
of attachment and interim custody were dismissed by learned
Sessions Judge vide order dated 6-12-96. The petition under
Section 482 of the Cr.P.C. preferred by the partner of the
appellant firm was allowed by the High Court of Madhya Pradesh
vide order dated 17-7-97 and criminal proceedings under
Sections 145 and 146 of the Code were quashed with a finding
that respondent No.1 had no right to remain in possession and
the proceedings were abuse of the process of the Court.
Consequently, the shops and the materials were released to the
appellant.
5. The appellant served respondent No.1 with a notice
demanding damages of Rs.2,08,12,430/-. Respondent No.1 denied
liability. Since agreement dated 19-12-94 provided for
settlement of the dispute between the parties through
arbitration by 2 arbitrators, one to be appointed by each of
the parties, the appellant served respondent No.1 with a
notice appointing Justice K.L. Israni, retired Judge of the
High Court of Madhya Pradesh as Arbitrator of the appellant
and called upon the respondent to appoint arbitrator. On
their failure, the appellant approached the High Court of
Madhya Pradesh under Section 11 of the Act, 1996 for
appointment of Arbitrator.
6. In the meanwhile, one Ram Awatar Agrawal filed SLP (Cr)
No.2111/97 in the Supreme Court for quashing of the
proceedings under Section 146 of the Code. The Supreme Court
vide order dated 4-8-97 directed the parties to maintain
status quo in respect of possession of subject property. The
Supreme Court was also apprised that petition under Section 11
of the Act, 1996 is pending in the High Court for appointment
of arbitrators. However, on the basis of consent of the
parties (Ram Awatar Agrawal and Yudhishtirlal) that they shall
abide by decision of arbitrator the Supreme Court vide order
dated 12-12-97 disposed of the petition with following
direction:-
“We direct that such reference be made
to Mr. Justice C.P. Sen. The learned
arbitrator would give his award as early
as practicable, preferably within four
weeks from the date of entering into
reference. It will be open to the
arbitrator to give appropriate interim
direction. The parties have agreed to
abide by such directions of the
arbitrator. Pending the arbitration
proceedings, the Shadani Builders who is
respondent No.2, will maintain status
quo in respect of 150 shops and will not
remove materials, plant, machinery and
equipments from the site. The impugned
judgment/order of the High Court stands
set-aside and the proceedings under
section 145 Cr.P.C. also stand disposed
of. The appeal is accordingly disposed
off.”
7. The record of the case was forwarded to the sole
arbitrator who entered into reference and directed the parties
to submit their respective statements of claims. Accordingly,
respondent No.1 submitted claim for a sum of Rs.5,59,63,446/-
under various heads, as detailed in paragraph-10 of the memo
of appeal. The appellant contested the claim of respondent
No.1 and submitted that the appellant is entitled to receive
damages due to breach of contract on the part of respondent
No.1. The claims are beyond the scope of reference and are
not arbitrable and the claims are highly exaggerated. The
appellant also claimed Rs.2,98,58,540/- and interest thereon
by way of damages under various heads, as detailed in
paragraph-12 of the memo of appeal. The sole arbitrator vide
his order dated 9th May, 1998 directed the appellant to
furnish bank guarantee for a sum of Rs.1 crore towards
security for the satisfaction of the claim and rejected the
prayer to release the shop.
8. On the basis of pleadings of the respective parties,
statements of claims and counter claims put-forth by the
parties, learned Arbitrator framed various issues.
9. The parties to the proceedings filed affidavit apart from
filing other documents in support of their case and also
examined witnesses before the Tribunal.
10. After elaborately dealing with various clauses of the
original agreement as well as subsequent 3 agreements, it has
been held that the agreements were executed in the presence of
independent persons and it is difficult to believe that the
contractor was coerced in executing subsequent three
agreements under economic duress. Contention of the owner
that subsequent agreement dated 3-10-1995 supersedes the
original contract dated 19-12-1994 has been negated. The
owner committed breach of trust of terms of agreement in not
clearing bills of the contractor fortnightly, which was
essence of the contract. The owner did not have sufficient
funds at all material time. It failed to provide lay out of
site. Accordingly, it has been held that the owner committed
breach of trust of contract by not paying running bills
immediately relating to stoppage of work intermittently.
11. The contractor’s claim towards loss in profit due to
reduction in work and towards overhead expenses has also been
rejected. Dismissing the claim of the owner, learned
Arbitrator held that `the claims of the contractor are allowed
to the extent of Rs.50,13,204/- towards the unpaid bills of
the works executed by it, Rs.64,836/- towards the road work
executed and Rs.7,47,577.50/- towards interest on late payment
of the bills.’ It has been further directed that amount of
Rs.50,88,140/- towards unpaid works shall carry interest @ 18%
per annum from 4-6-1996 to 3-10-1999. The amount of
Rs.58,35,717.50/- shall carry interest @ 18% per annum from 4-
10-1999 till the date of realization. Out of 150 shops under
attachment as per the order of the Supreme Court, 50 shops to
remain under attachment till amount awarded is paid in full by
the owner. The owner shall pay the following costs:-
(i) Towards arbitrators fees paid by the
contractor
Rs.2,35,000.00
(ii) Towards arbitrators travelling
expenses borne by the contractor Rs.8,245.00
(iii) Diet money of 2 witnesses of the
contractor Rs.10,000.00
(iv) Lawyer’s fees Rs.5,00,000.00
_________________
Total Costs:
Rs.7,48,245.00
12. The appellant filed an application under Section 34 of
the Act, 1996 before the District Judge. Respondent No.1
submitted their reply along with preliminary objections.
Learned trial Court on the basis of pleadings of the
respective parties framed 12 issues on 28th June, 2001.
Respondent No.1 also moved an application under Order 14 Rule
2 of the CPC to recast the issue No.11 and decide the same as
preliminary issue. However, prayer was rejected vide order
dated 25-1-2002. Respondent No.1 preferred civil revision
against the above order and the same was disposed of vide
order dated 13-2-2007 with a direction to the trial Court to
decide issue No.11 as preliminary issue. After hearing the
parties, it was further directed to pass judicial order with
regard to striking off issue Nos.1 to 10 framed by the trial
Court and to frame other issues as proposed by the respondent.
13. Learned District Judge by the impugned order dismissed
the petition of the appellant under Section 34 read with
Section 13 (5) of the Act, 1996 with a following findings:-
“The Supreme Court appointed sole arbitrator
for adjudication of the dispute between the
parties with their consent. The Supreme
Court is competent to pass any order for
adjudication of any dispute in the interest
of justice under Article 142 of the
Constitution of India and the award passed by
the arbitrator can be challenged on any of
the grounds mentioned in Section 34 of the
Act, 1996. Since the appellant has not shown
any ground under Section 34 for setting aside
award, their application under Section 34
read with Section 13 (5) of the Act, 1996 is
rejected.”
14. The appellant has impugned the order of the District
Judge on the ground that the lower Court did not follow
direction passed in revision. It did not decide issue No.11
by giving reasons. The application has been dismissed by a
cryptic and non speaking order.
15. Challenging the composition of Arbitral Tribunal, it was
argued that though the appellant did not raise any objection
before the Arbitral Tribunal, but composition was challenged
under Section 34 of the Act, 1996. Arbitral Tribunal derives
a jurisdiction from the arbitral agreement (Section 7 of the
Act). The appointment of arbitrator should be in consonance
with the provisions of Chapter-III of the Act, where
composition is not in accordance with law, the same can be
challenged under Section 34 of the Act, 1996. Relying on
various judgments of the Hon’ble Supreme Court, it was
vehemently argued that the arbitrator could not be appointed
contrary to the statute, more particularly against a party
which was not before it thereby causing injustice to such
party; where there is inherent lack of jurisdiction in
composition of arbitral tribunal and objections, even if were
not raised before the arbitrator and the parties submitted to
jurisdiction of arbitrator, the dispute can be raised by way
of petition under Section 34 as it is well settled that there
is no estoppel against the statute.
16. Referring to paragraph 47, page 91 and 94 and further
referring to page 108, end of para-49 of the award, it was
argued that the arbitrator after recording a finding that the
respondent received aggregate sum of Rs.3,05,762,37/- deducted
only Rs.2,97,91,231/- on the basis of last bill submitted and
awarded sum of Rs.50,13,204/-. By deducting the actual amount
already paid, the balance would be Rs.42,28,204/- and not
Rs.50,13,204/-.
17. Challenging imposition of interest @ 18% from the date of
dispute, it was argued that it is highly excessive and against
the terms of contract, the same is in violation of Section 31
of the Act, 1996. The Tribunal also ignored that due to
attachment of 150 shops, the appellant was deprived of rental
income, 50 shops are still attached and the appellant is
deprived of rental income from the attached shops. The
arbitrator has awarded interest under the head of loss of
profit and further awarded interest @ 18% from 4-10-99 on the
above amount and thereby awarded interest on interest which is
not permissible. There is no stipulation for charging of
interest at any stage in the agreement. Respondent No.1 has
also been awarded excessive amount towards costs and a sum of
Rs.5 lakhs has been awarded towards counsel fee.
18. On the other hand, Shri B.P. Sharma, learned counsel
appearing for respondent No.1 submitted that from perusal of
the record of the District Judge, it would be evident that the
matter was fixed for final hearing. The parties were given
sufficient opportunity to file their written arguments. Though
the appellant submitted written argument in part, however, the
matter was argued at length on merits by counsel representing
both the parties. In the Act of 1996, the Court’s power to
interfere with the arbitration proceedings has been curtailed
and the emphasis is on minimizing the supervisory role of
Courts in arbitral process. During the proceedings for
setting aside arbitral award, it is not necessary to allow the
parties to lead evidence after framing issues because the
matter is to be adjudicated on the basis of record of the
arbitrator. The respondent herein raised a preliminary
objection before the lower Court that the appellant has taken
benefits of the order passed by the arbitrator and out of 150
shops, which have been ordered to be attached as per the order
of the Hon’ble Supreme Court, 100 shops have been released by
the arbitrator and released shops have been disposed of by the
appellant. Thus, the appellant has taken benefit of award
and, therefore, he cannot be permitted to question validity of
the award. Though this issue has been answered by learned
District Judge against the respondent herein, but the error
apparent in the finding of learned District Judge can be
rectified by exercise of power under Order 41 Rule 33 of the
CPC.
19. Referring to Section 34, it was argued that the award can
be set aside under Section 34 only in the contingency where
the party making application furnishes proof of conditions (i)
to (v) of Section 34 (2)(a) and secondly, when the Court finds
that (1) the subject matter of the dispute is not capable of
settlement by arbitration under the law for the time being in
force or (2) the arbitral award is in conflict with the public
policy of India.
20. From perusal of the entire objection, it would be evident
that no such ground has been taken which comes within the
purview of Section 34 (2)(a) or (b). As per Section 31 (7)
(a) & (b), the arbitrator has jurisdiction to grant interest
as it deems reasonable. Section 7 (b) of the Act recognizes
grant of 18% per annum, therefore, even if the award does not
impose any interest, the person in whose favour the award is
passed shall be entitled to interest @ 18% per annum from the
date of award till the date of payment and thus, imposition of
interest @ 18% will not be against public policy.
21. We have heard learned counsel for the parties. We have
perused the material available on record including the award
passed by the Arbitral Tribunal. We have also perused grounds
taken by the appellant in application under Section 34,
preliminary objections taken by the respondent herein against
the maintainability of the application; the order passed by
this Court in civil revision preferred by the respondent
herein as also the impugned judgment.
22. Learned counsel for the appellant has mainly challenged
the composition of the Arbitral Tribunal. Relying upon
various judgments of the Hon’ble Supreme Court, it was
vehemently argued that the arbitration agreement provided for
reference of dispute to 2 arbitrators, one to be appointed by
each of the parties and, therefore, reference of dispute to
the sole arbitrator is contrary to the arbitration agreement.
By the Special Leave Petition before the Supreme Court,
challenge was made to the order of the High Court of Madhya
Pradesh passed in reference to proceedings under Section 145
and 146 of the Code, monetary claims and counter claims of the
parties was not the subject matter in the SLP, however, the
arbitrator by the impugned award has adjudicated the monetary
claims of the respective parties, which is wholly beyond the
order of reference and outside the jurisdiction and is liable
to be set aside. The parties before the Supreme Court had no
authority to agree upon an arbitrator or to refer the matter
or dispute between the firms to arbitration.
23. On due consideration of the above arguments, we are of
the considered opinion that learned District Judge has rightly
rejected the objection regarding composition of the Arbitral
Tribunal, as the Supreme Court after recording the consent of
the respective parties has referred the dispute to sole
arbitrator for adjudication of the dispute. The appellant at
no point of time challenged the composition of the Arbitral
Tribunal either before the Hon’ble Supreme Court or before the
Arbitral Tribunal during arbitral proceedings. On the
contrary, they participated in the proceedings, denied claims
of respondent No.1 and also submitted counter claim. The
objection in this regard was taken for the first time in
application under Section 34 of the Act, 1996 before the
District Judge, we are of the considered opinion that neither
the District Judge nor this Court can entertain and consider
any objection/challenge to the constitution of Arbitral
Tribunal by the Hon’ble Supreme Court. It is settled law that
Article 142 of the Constitution confers undefined, un-
catalogued and extraordinary power unrestricted by ordinary
laws. The legality, validity and correctness in exercise of
power under Article 142 of the Constitution cannot be
questioned before this Court.
24. The other ground taken by the appellant to challenge the
award is that the award is against the Public Policy.
Referring to para-47 of the Award, it has been argued that
after recording receipt of aggregate sum of Rs.3,05,762,37.00
by respondent No.1, deduction of only Rs.2,97,91,231 was made
on the basis of last bill and accordingly awarded a sum of
Rs.50,13,204/- instead of Rs.42,28,204/-. It has been further
argued that the arbitrator has awarded interest under the head
of loss of profit @ 18% per annum on the amount of
Rs.50,88,140/- towards the unpaid works from 4-6-96 to 3-
10-99 and it has been further directed that the amount so
calculated to carry interest @ 18% per annum from 4-10-99 and
thereby awarded interest on interest, which is not
permissible.
25. Learned counsel for the appellant submitted that the rate
of interest is highly excessive, as a long spell of time has
expired since the date of award. Granting interest @ 18% per
annum is burdensome for the company, therefore, interest
should be suitably reduced.
26. It is true that learned District Judge has not literally
complied with the direction issued by this Court in civil
revision, the suit has been dismissed without adverting to the
objections raised by the appellant against the award even
after deciding issue No.11 against the respondent herein,
however, on the merits of the claim made by the contractor, we
find from the impugned award dated 3rd October, 1999 that the
arbitrator has meticulously examined claims of the contractor
under each separate head. We also find that his claim against
certain heads has been rejected whereas, under the other heads
it has been allowed by a reasoned order. The arbitrator has
arrived at its conclusion on the basis of detailed marshalling
of pleadings and evidence adduced by the respective parties,
though we find that there is some calculation mistake and
discrepancy towards the deduction of the amount received by
the respondent herein, however, the same could be brought to
the notice of the arbitrator himself, who could correct the
said mistake in exercise of power under Section 33 of the Act,
1996. We do not see any reason to interfere on the quantum of
award passed by the learned arbitrator.
27. However, considering the fact that long spell of time has
expired since the date of award, the appellant has been
deprived of the possession of 50 shops since 1999 and also
considering that the rate of interest prevailing in the
country has substantially reduced, further taking into
consideration the peculiar facts and circumstances of the
case, we are of the opinion that interest awarded by the
arbitrator @ 18% per annum for the post award period be
reduced to 9%.
28. Accordingly, the appeal is allowed to the extent
indicated above.
J U D G E J U D G E