REPONDENT: SS M/ s Begraj Agrawal and anoer th ORDER FOR CONSIDERATIGN :7 f D I f Sd/ I; hirendr-a Mishra Judge HON’BLE MRJSTICE U D.R. DESHMUKH POST FOR ORDER 0N»,2 MARCH, 2009, Sd/- Dhirendra Mishla Judge Tm s4 b’ HIGH COURT OF CHHATTISGAm-I AT BILASFUR‘ Arbltrauon Appeal No 25 of 2007 APPELLANT: M/ s hadam Bmlders a partnershilp m duly Registered under the Partnership Act having 0$ce at Sant Shadanl Nagar Dhamtan Road Tahsal and D1stnct Ralpur C1 I 1 l Mjs Begrafj Agmwal’, a partnership» fixm with Head Of§ce at (3-51 MIG Sha11€ndra Nagar Ra1pur (CG) ‘ Justice Shri C.P. Sen (Retire, Senior Advocats, 2Q5,’, Congress Nagar, Nagpur, M.S. Versus RESPONDENTS: Prcsent $1311 S k Dubey, Sr Advocate w1th Dr Shallesh AhuJa, counsel for he appeHant. Shri B.P. Shanna wit Shri K. Shanna, counsol for rsspon No. h dent 1. Division Bench: Hon’ble Shri Dhiren‘dra Mishra & Hon’ble Shri D.R. Deshmukh JJ 0 R D E R. Passed on QdMarch; ”2009) ow p y a ( The flloing order of the Court wae assed b Dhirendr Mis‘hra, J 1. This arbitration appeal under Secu'on 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 iearned District Judge, Raipur has rejected the application of the appellant under Section’34 ,of the Act, 1996 for etting aside award dated 8-10-99 passed by the sole arbitrator. g , d) t . \ s « GE 1 . Ther‘case of the appellant, in brief, is tlliat The appellant is a firm t registered under the Partnership Act. Thei partners of the mm owned and possessed lands situated \at village Boriya Kala, Tehsil and Distm‘ct Raipur. ’I‘hok Kirana Vyaparia Sangh, Gudiyan', Raipur entered into an agreement to purchase shops to be constructed on the above described land on the individual agxeement. 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 r with interest in 60 monthly installments commencing fromvthe date of handing over possession. / . 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 consn‘uction ’of roadr The dispute arose between the petiu'oner 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 ofthe 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.25-196. The construction materials under attachment were handed over in the interim custody of one Lalit Kumar Singhania. . ’l‘wo separate criminal revisions preferred by the appellant as we'll as . one Ram Awatar Agrawal against the order of attachment and interim' / custody weredismissed by learned Sessions Judge vide'yorder dated ‘ 13’) 6—12-96‘ The petition under Sacu'on 482 of the Cr.?»C. pmferred by he partner ef the appellant m was alkéwved by the High Court of Madhya Pradesh vide order dated 17-7-9? and criminal proceedings nder Sections 145 and 146 of the Code were quashed with a iinding hat respondent No. 1’had no right to remain in possess’mn'and the proceedings were abuse of the process of the Court. ‘Qonsequently, the shops and the materials were releasedito the appellant. . The appellant served respondent No.1 with a notice demanding damages of Rs.2,08,12,43Q[—. Respondent No.1 denied liability. . Since agreement dated 19-12-94 prdvided for settlement of the dispute between the parties through arbiuation by 2 arbitrators, one to be appointed by each of the parties, the appellant served espondent No. 1 with a notice appointing Justice KL. 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 theHigh Court of Madhya Pradesh under Section 11 of the Act,‘ 1996 for appointment of Arbitrator. :p ‘tj 6. In the meanwhile, one Ram Awatar Agrawal filed SLP (Cr) No.2111/97 in the Supreme Court for quashin/g’of the proceedings under Section 146 of the Code. The Supréme 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 1 1 ofthe Act, 1996‘is pendingsin 4 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 t u t r @ ‘ } ‘ ‘ \ otdér dated 12-12-97 disposed of the _ petition with fo'llowing ciirection: - i ‘ x < K “We direct that such referaince be made to Mr. Justice C.P. Sen. The leasiined arbitrator would give his award as early as practicable, preferably within four weeks from the} date of enten‘rtg into reference. It will be open toi the arbitrator to give appropriate interim direction, The partieshave 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 inrespect 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 0E” 7. The record of the case was forwarded to the sole arbitrator who entered into reference and directed the parties to submit their resyective statements of claims. Accordingly, respondent No. 1 submitted claim for a sum of Rs.5,59,63,4’46/-iunder various heads, V as detailed. in'paragraph-10 of the memo of appeal. The appellant contested the claim of respondent No.1 and submitted that the aypellant 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, ds‘hetailed in paragraph-l2 of the memo of appeal. The sole arbitrator vide his older dated 9th May, 1998 directed the appellant to i’furnish bank 1 r guarantse for a sum of Rs.1 crore_ towérds sacun'ty for the sarisfaction of the claim and rsjected the prayer to release the shop. i 8. On the basis of pleadings of the respe‘lctive parties; statements of claims and counter chims put-forth by the parties, learned Arbitrator &amed various issues. 9. The parties to the proceedings filed ailiéiavit apart from filing other dimuments in support of their case alid also examined Wimesses i, x before the Tribunal. loiAfter elaborately dealing with various clauses of the on‘ginal agreement as well as subsequent3 agreements, it has been held that the agreements were executed in the presence of independent persons and it is dinicult to believe that the contractor was coerced in executing subsequent three agreements under economic duress. V 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 fortnighti , which was essence of the contract. The owner did not have suiiicient 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 yaying running bills immediately relating to stoppage of work intermittently. 1 1.’l‘he 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/— stowardsthe‘ unpaid bills of the works executed by it, Rs.64,886j— towards the road work executed and Rs.7,47,577.50]- towards interest on late V w @ @ It has been furflmr directsd that amount of ’ payment of the bills.’ Rs.50’88, 140/ - towards unpaid works shaPl carry interest @ 18% per annum from 4—6—1996 to 3—10—1999. The amount of Rs.5‘8,35,’7 17.50]— shall carry interest @ 180/0 per annum fmm 4—10- 1999 till the date of realization. Out of 15:0 Lshops under attachment as per the order of the Supreme Court, ”50 shops to lemain under attachment till ammult awarded is paid§in full by the owner. The a . a ‘ ‘ ‘zi owner sha]1 pay the following costs:— ’ (i) Towards arbitrators fees paid Joy‘the contractor ‘3 {ii} Towards arbitrators travelling expenses borne by the contractor Diet money of 2 witnesses of the contractor Rs.2,35,oooroo Rs.8,245.00 Rs. 10,000.00 ' Rs.5,00,000,oo ' Total Costs: Rs.7,48,245.00 {iv} Lawyer’s fees 12.The appellant Eled an application under Section 34 of the Act, 1996 ’befolre 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 prehmmary After hearing the parties, 1t was further duectef to pass judicial order With regard to strikmo on issue Nos 1 to 10 framed by ’ 1SS116 the trial Court and to flame other issu$s as pmposad by the respondent. 13. Learned District Jud ge by the impogned orde‘r dismissed the petition % of The appellant under Section 84Aread with Section 13 (5) of the Act, 1996 with a following findings:- l “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 1'11 the interest ofjustice under Article 1,42 of the Constitution of Inuia 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 Sech‘on 13 (5) of the Act, 1996 is rejected.” " ,t ‘x, 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. ChaHenging the composition of Arbitral Tribunal; it was argued that I though the appellant did not raise any. objection before the Arbitral Tribunal, but composition was challenged under Sech‘on 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, V where composition is not in accordance with law, the samecan be of 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, @ mom particularly against a party whic was not befom it thereby causing injustice to such palty; whers there is inherent lack of jurisdiction in composition of arbitral tm'bunal and objections, even if were not raised before the arbitrator and the pmties submitted to jurisdiction of arbitrator, the dispute can iberaised by way of petition i under Section 34 as it is well settled that ithere is no estoppel against the statute. Referring to paragraph 47; page 391 and 94 and further referring to page 108, end of para-49 of thegvaward, 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 biil 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'] -. .Challenging imposition of interest @ ‘18% dom 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 theabove 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‘alwarded excessiVe amount towards costs and a sum of R55 lakhs has been awarded towards counsel fee. q@ 18. On tha other han_d, 8111i B.P. Shanna, learned (:ounsal app6aring for respondént No 1 subnntted that &om perusal of the rscord of the ‘ D1s1nct Judge, 1t would be cv1d€nt that the matter was $(ed for final heanng The partles were glven suiiiuent opportumty to iile thelr wntten arguments. Though the appellant submltted wntten ' argument in part, however, the matter was argued at length on merits by counSel representing both the p§arties. In the‘Act of 1996, the Court’s power to interfere with the arbitratiou proceedings has been curtarled and the emphas1s 1s on mlmmlzmg the supervrsory * role of Courts 1n arbltral process Dunng the proceedmgs for setting aside arbitral award, it is not necessary to allow the parties to lead evidence after naming issues because the platter 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 'ofby 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 hnding of learned District Judge can be rectihed by exercise of power under Order 41 ., Rule 33 of the CPC. \ i Jr t} , h 19. Referring to Section 34, it was argued that the award can. be‘set aside a!“ r under Section 34 onlyin the contingency where the party'ixma‘kin’g‘ application furnishes proof of Conditions (i) 'to (v) of Section 34 (2)(a)u V : and secondly, when the Court hnds that (1) the subject matter of the L t, E; @ J I ‘ dispute is not capable of settlement by arlpitration under the léw for 1 the time being in force or (2) the arbitral ward is in conflict with the public policy of India. .F‘rom 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) ‘81; (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 interestgthe 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. l} .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 agreementprovided 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 w Madhya Pradesh passed in reference to p[1‘ocaedings under Section '145 and 146 of the Code, monetaly claimsiancl counter claims of the parties was not the subject matter in the SLP, however, the arbitrator i by the impugned award has adjudicated the monetaxy claims of the respective parties, which is wholly beyond ithe order of reference and outside the jurisdiction and is liable to b;e 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. i J 23.0n 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 .r ha-Tn“ .M V 12 Article 142 of the Constitution cannot e questioned bcfom this Court. ( > 24.The other ground taken by the appellanti to challenge the award is that the award 1s agamst the Pubhc Pohc‘y Referrmg to para-47 of the Award, 1t has been argued that after recordmg xecelpt of aggregate sum of Rs 05 762 37 00 by respondent No 1 deductlon 1 of only RS297 91,)31 was made on the basxs of last b1}1 and accordingly awarded a sum. yof Rs.50,13,204[— instead of Rs.42,28,204f—. It has been further argued that the arbitrator has awarded interest under the head of loss of profit @ 180/0 per armum on the amount of Rs.50,88,140/- towards the unpaid works from 4-6—96 to 3— 10—99 arid 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. Learned counsel for the appellant submitted that the rate of interest is highly excessive, as a long spell of’rime has expired since the date of award. Granting interest @ 18% per annum is burdensome for the \ company, therefore, intemst should be suitably reduced. Vlt 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 x that the arbitrator has meuculously exammed claims of the contractor under each separate head We also nnd that his claims against certain heads has been reJected whereas, under the other axiom“ . x heads it has hcen allowcd by a aniveti at ifs conclusion on the basis 6f detailed mérshaHing 6f pleadings and 'evidence adduced by £he respéctive pardies, .th'ough we fmd that there is some calculation mistake and discrepancy towards V the deduchon of the amount recewed by the respondent herem, however, the same could be brought to the} notlce of the arbltrator \3 J> ‘ hunself who could correct the sald m1stak;e 1n exerc1se of power Az under Sectlon 33 of the Act 1996 We dtlo not see any reasou to > mterfere on the quantum of award passed by the learned arb1trator 27 However, cons1dermg the fact that long spell of hme has expued smce * the date of award the appellant has been depnved of the possessmn of SO shops smce 1999 and also cons1denng that the rate of mterest prevailing in the country has substantially reduced, further taking V mto cons1deratlon the pecuhar facts and cucumstances of the case, we are of the opnnon that mterest awarded by the arbltrator @ 18% l 7' " g ‘ ' per annum for the post award period be reduced to 9%. ‘ 28. Accordingly, the appeal is allowed to the exten/t indicated above. L _ l / sd’). I Raosaheb Sd-/ Deshmukh I i“ Dhirendra Mishra D111p Judge L/ ; ‘ Judge l Judge