National Building Construction ... vs Decor India Pvt. Ltd.
2004 Latest Caselaw 335 Del

JUDGMENT

Mukundakam Sharma, J.

1.By filing the present petition under Section 34 of the Arbitration & Conciliation Act, 1996 the petitioner has challenged the legality and validity of the award dated 22nd October, 1999 passed by the sole arbitrator Sh.L.C.Sharma. Incidentally, it may be mentioned that the aforesaid arbitrator was appointed by this court by order dated 4th December, 1998 passed in C.P.No.106/1995. In order to appreciate the contentions of the counsel appearing for the parties, reference is required to be made to some background facts leading to filing of the present petition.

2.The petitioner invited tenders for doing interior work at the ground floor of its office at Lodhi Road, New Delhi. Pursuant to the Notice Inviting Tender, the defendant submitted its tender for an estimated cost of the work of Rs.14.64 lacs. The petitioner accepted the tender of the respondent and the work order was issued in favor of the respondent by order dated 1st July, 1989. The respondent completed its work and sent a final bill to the petitioner. However, the said bill was not passed and cleared . The matter was thereafter referred to the Architect, in terms of Clause 56 of the agreement between the parties. The architect submitted his report on the bills submitted by the respondent.

3.Clause 56 of the agreement between the parties provides that all the disputes and differences of any kind whatever arising out or or in connection with the contract or the carrying out of the works shall be referred to and settled by the Architect, who shall state his decision in writing and such decision may be in the form of a final certificate or otherwise. It is also provided therein that the decision of the Architect with respect of any of the excepted matters shall be final and without appeal. The said clause further provides the remedy which could be resorted to as against the decision of the Architect when it states that if either the owner or the contractor be dissatisfied with the decision of the Architect on any matter, question or dispute of any kind or as to withholding by the Architect of any certificate to which the Contractor may claim to be entitled, the same shall be referred to arbitration. Since in the present case, the Architect submitted his report in favor of the respondent, therefore, the respondent treated the same to be final and did not submit any request for referring any dispute arising out of or in connection with the agreement between the parties for adjudication through the process of arbitration. Instead the respondent treated the said report of the architect as a final certificate and since no payment was made by the petitioner to the respondent in terms of the aforesaid report, the respondent filed a petition before the Company Court under Section 433 & 434 of the Companies Act praying for winding up of the petitioner company on the ground that the petitioner is indebted to the respondent and that it has neglected and/or refused to make payment of the said debt in spite of notice served by the respondent.

4. During the pendency of the aforesaid petition before the Company Court both the parties agreed that the disputes inter se the parties could be referred to arbitration of an Architect. In view of the aforesaid position, the Company Court thought it fit that the disputes between the parties require consideration and adjudication by an arbitrator and those disputes were referred to the sole arbitrator Sh.L.C.Sharma, Architect. In the said order it was further mentioned that all the disputes and differences could be raised before the learned Arbitrator. In terms of the said order, the Arbitrator appointed by this court entered into the reference, received evidence adduced by the parties and thereafter passed his award on 22nd October, 1999. The petitioner being aggrieved by the said award passed by the learned Arbitrator, filed the present petition under Section 34 of the Arbitration & Conciliation Act, on which I heard the learned counsel appearing for the parties.

5.During the course of their arguments counsel appearing for the parties raised various pleas and in support of their contentions they also referred to certain documents and decisions to which reference shall be made during the course of my discussion in the present judgment and order. It was submitted by the counsel appearing for the petitioner that while passing the award dated 22nd October, 1999, the learned arbitrator not only exceeded his jurisdiction but also exceeded the terms of reference. According to the learned counsel the award passed by the learned arbitrator was also against the public policy. It was also submitted by the learned counsel appearing for the petitioner that the claims of the respondent are barred by limitation. In support of the said contention regarding limitation the counsel submitted that the respondent completed its work in the month of March, 1990 and the final bill was submitted by the respondent in 1991 whereas the disputes were referred to arbitration only on 4th December, 1998 and, therefore, the said claims are barred by limitation. The same plea was also raised before the learned Arbitrator, who considered and rejected the said plea by giving his reasons for the same.

6. The respondent completed the work and sent its final bill to the petitioner for payment. However, the payment was not made. There is no letter placed on record by the petitioner indicating that the aforesaid claim made by the respondent was finally determined by the petitioner and that it finally rejected the said bill as not payable. The matter was referred to the Architect in terms of Clause 56 of the agreement between the parties. According to the said clause, the decision given by the Architect could be in the form of a final certificate or otherwise. When the Architect gave report in favor of the respondent, the petitioner could have treated the same as final report accepting that the amount in terms of the report is payable to the respondent. However, no such payment was made by the petitioner. The respondent preferred a petition before the Company Court praying for winding up of the petitioner company on the ground that the petitioner is indebted to the respondent. The Company Court while dealing with the aforesaid matter found that disputes arise between the parties in respect of the aforesaid claims and, therefore, on the basis of the agreement between the parties referred the said disputes for arbitration. It is undoubtedly true that this court directed that all the disputes and pleas could be raised before the Arbitrator but the aforesaid reference was made also upon consent and agreement given by the petitioner that the disputes raised between the parties could be referred to, adjudicated upon and decided by the arbitrator. In my considered opinion the petitioner, therefore, cannot take up a plea that the claims of the respondent are barred by limitation as it agreed to refer all the disputes to be resolved through the process of arbitration. The petitioner took up a definite plea before the Company Court whereupon with the consent and agreement the disputes have been referred. Such a plea ,if accepted, would not only amount to resiling from the earlier stand that disputes arise between the parties in respect of such claim but it would also amount to defeating the petition filed by the respondent praying for winding up of the petitioner company. Besides, the petitioner never repudiated the claims of the respondent in clear terms at any stage. Bills were submitted by the respondent. The architect also submitted his report accepting the claim. The documentary evidence placed on record do not indicate any clear rejection of the claims by the petitioner. Instead the petitioner agreed for reference of all the disputes including the claims of the respondent to be adjudicated upon and decided by the arbitrator. Therefore, the plea raised by the petitioner is without any merit and it is held that the claims of the respondent made in this petition are not barred by limitation.

7.The second point raised by the petitioner was that the learned arbitrator has solely relied upon the Architect's certificate and passed his award abdicating his function and jurisdiction. It was submitted that the arbitrator has abdicated his judicial function and has ceased to exercise his discretion in a judicious manner as it is clear and apparent of the award that the learned arbitrator relied wholly on the report of the Architect and has construed it to be final and binding and has passed the award wholly based on the same. I have perused the award passed by the arbitrator minutely and on perusal of the same I am of the considered opinion that the learned arbitrator has examined every claim minutely on the basis of the entire records including the report of the architect and thereafter only has given his own reasoning and interpretation to every issue. It is no doubt true that since the report of the Architect was relied upon by the respondent, the arbitrator has referred to the same in his award as against each of the claims. But the learned Arbitrator has also independently considered other evidence on record as would be clear on a bare reading of the said award passed by the learned arbitrator. He has time and again, while deciding the claims, referred to the independent evidence available on record and based his findings on the entire records as available. Therefore, the said contention of the learned counsel for the petitioner is also found to be without any merit.

8.The next challenge that was made by the petitioner is in respect of the award given by the learned arbitrator against Claim No.3. It was submitted by the counsel appearing for the petitioner that the tender documents and agreement between the parties did not contain any escalation clause. It was pointed out that rather Clause 18 & 32 of the agreement clearly stipulated that no escalation should be given. It was submitted that even in spite of the said stipulation in the agreement, the learned arbitrator in the award passed by him as against Claim No.3, allowed escalation in rates. The learned counsel also drew my attention to the award made by the learned arbitrator as against the said Claim No.3 relying on the letter dated 25th May, 1989. Referring to the said letter, the learned arbitrator held that escalation is permitted. It was submitted that the aforesaid finding is wholly misconceived. It was submitted that the said letter of offer did not and could not have changed the tender documents. In support of the said contention, counsel relied upon the decision of the Supreme Court in STATE OF ORISSA VS. SUDHAKAR DAS wherein the Supreme Court has held that in the absence of an escalation clause, the arbitrator cannot assume any jurisdiction to pass an award allowing escalation.

9.The aforesaid contention of the counsel appearing for the petitioner was, however, refuted by the counsel appearing for the respondent on the ground that the respondent only sought price revision with regard to one item, which was a imported proprietary item. Counsel strongly relied upon the letter dated 25th May, 1989 in support of the said contention. Reliance was placed on Clause 6 of the said letter wherein it is provided that the rates are valid for a period of 30 days only , after which the respondent reserves its right to revise them according to the market condition. I have perused the contents of the said letter. By the said letter the respondent submitted their tender by offering a particular rate which was, however, subject to the terms and conditions as mentioned therein including Clause 6. However, the parties thereafter signed an agreement between them which stipulates the rates, which are accepted by the parties. It is also necessary to mention here that the said Clause 6, which is contained in the letter dated 25th May, 1989 was not a part of the agreement, which was entered into between the parties. Therefore, the aforesaid offer was not made a part of the agreement entered into between the parties. Thus, the aforesaid clause cannot be relied upon either for claiming or for allowing an increased rate in favor of the respondent. The parties are bound by the terms and conditions of the agreement and the arbitrator has no jurisdiction to travel beyond the scope of the terms and conditions of the agreement as not only the parties are bounds by the terms and conditions of the agreement but the arbitrator is also required to decide the disputes within the parameters of the terms and conditions of the agreement between the parties. He has no jurisdiction to go beyond the terms of reference, which is limited to the agreement as he could decide the disputes only arising out of or in connection with the agreement and could not adjudicate upon and decide the matter which falls outside the aforesaid agreement. The decision, which is relied upon by the counsel appearing for the petitioner, in my considered opinion, applies to the facts and circumstances of this case with full force. In Steel Authority of India vs. J.C.Budhiraja the Supreme Court has observed that the arbitrator derives his authority from the contract and if he acts in manifest disregard of the contract, the award given by him would be an arbitrary one. The aforesaid legal proposition laid down by the Supreme Court in respect of the powers and jurisdiction of the arbitrator would be more apposite when one looks into the provisions of Sub-section (3) of Section 28 of the Arbitration and Conciliation Act, which provides that the arbitral tribunal was bound by the terms of the agreement. It is a settled law that where there is no escalation clause in the arbitration agreement, the arbitrator cannot assume jurisdiction to award an increased rate. Accordingly, the aforesaid part of the award, which granted increased rate by the arbitrator, cannot be sustained as it suffers from a patent error and, therefore, the said part of the award is set aside and quashed.

10.The next contention, as raised by the counsel appearing for the petitioner, was that the learned arbitrator has awarded an exorbitant and excessive interest. It was submitted that the learned arbitrator has awarded interest under the Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (hereinafter referred to as the Act) by awarding compound interest of 18% p.a at monthly rests, which according to the learned counsel is clearly and patently illegal. I have considered the said submission of the counsel appearing for the petitioner also.

11.Counsel appearing for the respondent , however, submitted that the respondent being a registered small scale industry is entitled to interest in terms of the Act and that the provisions of the said Act would have an overriding effect over any other law. It was submitted that once the learned arbitrator has held that the petitioner had wrongfully withheld the payments due and payable to the respondent and interest was payable on the same, therefore, he was bound to award interest in terms of the said Act. I have considered the provisions of the said Act, which was enacted in 1993. The contract in the present case was entered into between the parties on 1st July, 1989 and the work contract was completed in 1990. The said Act came into force on 23rd Day of September, 1992. The day of deemed acceptance is defined under the provision of Section 2(b)(ii) of the Act, which means where no objection is made in writing by the buyer regarding the acceptance of goods or service within 30 days of the delivery of goods or rendering of service, the day on which such objection is removed by the supplier. I have perused the said award passed by the learned arbitrator granting interest. The learned arbitrator has stated that he had ascertained that the prime landing rates of SBI is 12% p.a and basing on that enquiry made by him and information received consequent thereto, he had ordered for payment of interest at the rate of 18% compound interest with monthly rests. Apparently, the learned arbitrator made enquiries from a third source behind the back of the parties and relied upon certain material, which is not disclosed to the parties. On that short ground itself, the said award is vitiated . However, I am not inclined to refer back the matter to the learned arbitrator for deciding the aforesaid issue as this court has also the power and jurisdiction to levy interest on the amount which is found due and payable and not paid. Considering the entire facts and circumstances of the case, I am of the considered opinion that the interest of justice would be served if the petitioner is directed to pay simple interest at the rate of 12% p.a from 8th December, 1993 to the date of actual payment.

13. With the aforesaid modifications in the award passed by the learned arbitrator in respect of Claim No.7 and setting aside of the award passed by the learned arbitrator in respect of Claim No.3, the remaining part of the award is upheld. The petition stands disposed of in terms of the aforesaid order.