Case: Assam State Electricity Board &amp; Others Vs. Buildworth Pvt. Ltd

1. An arbitral award was rendered on 31 December 1998 by a sole arbitrator under the Arbitration Act, 1940. By the award an amount of Rs. 30,73,916/was awarded to Buildworth Pvt Ltdthe claimant in the proceedings together with future interest at 18 per cent per annum.2. The arbitrator filed his award. Assam State Electricity Board, against whom the claim was awarded, filed its objections. On 22 December 2000 the Civil Judge, Senior Division, Kamrup made the award a Rule of the Court pursuant to the legislative regime which prevailed at the material time. An appeal was filed against the judgment of the Civil Judge. A Division Bench of the Gauhati High Court by its judgment dated 21 November 2006 upheld the award except for the award of interest by the arbitrator between 7 March 1986 and 31 December 1997. The High Court found no ground to interfere with the merits of the award on the claim for idling charges and escalation. However, the Division Bench opined that Section 29 of the Arbitration Act, 1940 did not confer jurisdiction on the arbitrator to award interest prior to the date of the reference.3. Assam State Electricity Board as well as Buildworth Pvt Ltd are before this Court.Pursuant to a purchase order dated 6 September 1982 an agreement was entered into between the Board and the claimant for the supply and installation of a circulating Water Piping System for the Bongaigaon Thermal Power Station. The purchase order contains provisions inter alia for the consideration payable, delivery, escalation, period for commissioning, penalty, disputes, terms of payment and arbitration. The total value of the contract was determined at Rs. 86.82 lacs and the period for completion was 12 months from 25 June 1983, the date of the issue of the indent. The date for the completion of the work was subsequently extended until 6 September 1983. The actual work was completed on 28 May 1985 while one portion of the work ofwas completed on 31 January 1986.6. During the course of the arbitration the claimant raised several claims amounting to Rs. 77.16 lacs including those on account of (i) price variation; (ii) idling charges of supervisory staff and labour; (iii) idling charges for machines, tools and tackles; (iv) compensation for extended stay for civil work; (v) interest from 7 March 1986 (i.e. the date of submission of bills) to 31 December 1997 at 18 per cent; (vi) escalation on account of gas; (vii) price variation of electrodes; (viii) legal expenses; and (ix) future interest at 18 per cent.7. The sole arbitrator awarded a sum of Rs. 10,73,969/on account of idling charges of labour and machinery and towards price escalation. In addition, a lumpsum of Rs. 20 lacs as interest was awarded between 7 March 1986 and 31 December 1997. Future interest was awarded at the rate of 18 per cent per annum on the sum awarded, after a period of three months from the date of the award.8. The award was made a Rule of the Court on 22 December 2000 by the Civil Judge, Senior Division. The High Court partially allowed the appeal filed by the Board by setting aside the award of interest of Rs. 20 lacs by the arbitrator.

Court's reasoning:
12. The arbitrator has taken the view that the provision for price escalation would not bind the claimant beyond the scheduled date of completion. This view of the arbitrator is based on a construction of the provisions of the contract, the correspondence between the parties and the conduct of the Board in allowing the completion of the contract even beyond the formal extended date of 6 September 1983 up to 31 January 1986. Matters relating to the construction of a contract lie within the province of the arbitral tribunal. Moreover, in the present case the view which has been adopted by the arbitrator is based on evidentiary material which was relevant to the decision. There is no error apparent on the face of the record which could have warranted the interference of the court within the parameters available under the Arbitration Act, 1940. The arbitrator has neither misconducted himself in the proceedings nor is the award otherwise invalid.The award comports with principles of law governing price escalation firmly established by decisions of this Court. For these reasons, we find merit in the contention of learned counsel appearing on behalf of the claimant that the award does not suffer from any error apparent on the face of the record insofar as the aspect of price escalation ispoint of the matter is that the arbitrator has duly borne in mind the circumstance that "the claimant also contributed to a certain extent and must share responsibility for causing delay in completion of the project". The award does indicate that the contributory delay on the part of the claimant was present to the mind of the arbitrator and has been duly taken into consideration in computing the extent of the claim under the award. This is not a case where the arbitrator has failed to take into account a relevant consideration or has taken into account extraneous material or consideration. Once the aspect of contributory delay was present to the mind of the arbitrator, as is reflected in the reasons in the award, and this has been taken into consideration in the assessment of damages, the award does not fall forview of the High Court does not warrant interference.The basis on which the High Court set aside the award of interest is hence contrary to the decisions of the Constitutionthis aspect of the matter is, in our view, no longer res integra. The arbitrator has power to grant interest on damages under Section 3(1)(b) of the Interest Act, 1978, from the date mentioned in this regard in a written notice claiming such interest. The position which prevailed prior to the Interest Act, 1978 (to the effect that interest on damages would be payable only after ascertainment of damages) has undergone a change after the enactment of the Act. Interest on damages could be claimed from the date of the written notice as contemplated in the law.The contract in the present case contains no bar or prohibition against the award of interest. However, it has been submitted on behalf of the Board that the claimant was paid a sum of Rs. 9,16,825/towards escalation, which was the amount contemplated under Clause 2.3.1 of the Contract. However, as we have noted, this provision in the contract was correctly held by the arbitrator to apply only during the scheduled term of the contract and not in respect of the extended period. The respondent in its initial demands dated 7 March 1986 and 23 April 1986 made claims on account of price escalation and submitted a consolidated bill on 9 June 1986. On 20 April 1987 the claimant addressed a legal notice, claiming a sum of Rs. 10,73,416/together with interest at the rate of 18 per cent per annum. In the circumstances upon the issuance of the above notice, the claimant was clearly entitled to claim interest with effect from 20 April 1987. The High Court was hence in error in setting aside the award of interest.