Case: S.A.I.L. Ltd Vs. J.C. Budharaja Govt. &amp; Mining Contractor

This appeal is filed against the judgment and order dated 11th September, 1991 passed by the Patna High Court, Ranchi Bench in Miscellaneous Appeal No. 621 of 1990 under Section 39(1)(vi) ofthe Arbitration Act, 1940 (hereinafter referred to as "the Act"). The High Court dismissed the appeal filed by the appellant and confirmed the order dated 2nd April, 1990 passed by the Subordinate Judge, Ist Court, Chas in Arbitration Suit No. 28 of 1988 by which award is made rule of Court with 8% per annum interest from the date of the decree.2. It is undisputed that the National Mineral Development Corporation, predecessor of the Steel Authority of India Limited on 1.8.1977 executed a contract with the respondent for construction of tailing-cum-storage reservoir at Kundi for Megha Taburu Iron Ore Project. As per the terms of the contract, the work was to be completed within a period of two years. During this period, Public Sector Iron and Steel Companies (Restructuring and Miscellaneous Provisions) Act, 1978 was passed and Steel Authority of India Limited became the employer in place of National Mineral Development Corporation. Further, the contractor, N.C. Budharaja also died and was succeeded by the present respondent.3. After two years of contract period, on 29th August, 1979, respondent raised the claim of about 18 lakhs as damages for delay in handing over work sites and allied reasons. On 20th December, 1980, a supplementary agreement was executed between the appellant and the respondent for the same work at an increased rate. The relevant part of the said agreement is an underSupplementary agreement made this twentieth day of December, 1980 between Steel Authority of India Limited having its registered office at Hindustan Times House, 18/20, Kasturba Gandhi Marg, New Delhi-110 001 and having one of fits units at Bokaro Steel Plant at Bokaro Steel City (hereinafter referred to as the (Employer) which expression shall include its successors and assigns) of the one part and M/s N.C. Budhraja Govt. and Mining Contractor, at Jharpada, P.O. Budheswari Colony, Bhubaneswar (hereinafter referred to as the "Contractor") which expression shall include its successors and assigns of the other part.Whereas the contractor entered into an agreement dated 1st August 1977 with M/s. National Mineral Development Corporation Limited in regard to the work of "Constructions of Tailing-cum-Storage Reservoir" at Meghahatuburu Iron Ore Project relating to their Meghahatuburu Iron Ore Project.And Whereas the said unit of the National Mineral Development Corporation Limited after the coming into force of the Public Sector Iron and Steel Companies (Restricting and Miscellaneous Provisions) Act, 1978 was transferred to Steel Authority of India Limited and declared as a captive unit for the Bokaro Steel Plant of Steel Authority of India Limited.And Whereas pursuant to the provisions of Section 23 of the Restructuring Act aforesaid, the agreement entered into by and between M/s. National Mineral Development Corporation Limited in respect of Meghahatuburu unit of M/s. National Mineral Development Authority Limited became fully enforceable and effective against or in favour of Steel Authority of India Limited.And Whereas the Constructor is yet to execute a considerable portion of the work more particularly described in the schedule to this agreement.And Whereas the contractor has agreed to complete the said balance work as on 12.3.1980 the estimated quantity of which is set out in document specified at 2(d) on the terms and conditions hereinafterclauses 3 and 4 of the said agreement read as underIn consideration of the payments to be made by the employer to the Contractor as hereinafter mentioned the contractor hereby covenants with the employer to construct, complete and maintain the works in conformity with the provisions of contract in all respect.4. The employer hereby covenants to pay to the contractor in consideration of the construction completion and maintenance of the works the contract price at the time and in the manner prescribed by thethe aforesaid fact that the supplementary agreement was executed for the same work at an increased rate, it is stated that the appellant wrote letter dated 3.9.1983 repudiating claim of Rs. 18 lakhs on account of damages for any loss sustained by the contractor as claimed by him by his letter dated 29th August, 1979.4. Thereafter, dispute arose, in the year 1985 for the work with regard to second agreement dated 20th December, 1980 and the matter was referred to arbitration. In that Reference, respondent raised certain claims relating to the work done under the first agreement. On 2nd December, 1985, the appellant raised an objection that the claim could not be decided by the Arbitrators as the same was pertaining to previous agreement. Thereafter respondent gave notice dated 2nd December, 1985 to the appellant to appoint sole arbitrator as provided for under the first agreement. On 10th December, 1985, the appellant appointed sole arbitrator "with reservation regarding the tenability, maintainability and validity of the Reference as also on further grounds that the claim was barred by the period of limitation and that it pertained to excepted matters of general conditions of the contract."5. On 11th July, 1986, the arbitrators gave an award pertaining to the dispute under the agreement dated 20.12.1980. Against the claim of Item No. 1 of Rs. 17 lakhs and odd pertaining to first agreement, the arbitrators awarded `Nil; this award has been made rule of the Court by the High Court of Delhi.6. Meanwhile, the appellant challenged the jurisdiction of the sole arbitrator by filing Miscellaneous Case No. 22 of 1987. Finally, the High Court dismissed the Revision Application on 22nd August, 1988. Thereafter on 18th November, 1988, the sole arbitrator made an award granting damages to the tune of Rs. 11,26,296/- as principal sum (unliquidated damages) and a further sum of Rs. 12,06,000/- as interest on the above principal amount from 29th August, 1979 till the date of the Reference, i.e. 15th December, 1985. The arbitrator also awarded future interest at the rate of 17 per cent from the date of the award to the date of payment or the date or decree whichever is earlier. By order dated 2nd April, 1990, the learned Sub-Judge made the award rule of the court with a modification for the payment of interest from the date of the decree at the rate of 8 per cent on the principal amount or unpaid part till the date of actual payment. The appeal filed before the High Court against the said judgment and decree was also dismissed. Hence this appeal. Â?3<Â?3  Å7. At the time of hearing, the learned Counsel for the appellant submitted that the award passed by the arbitratorwithout jurisdiction,(b) The claim made by the respondent was on the face of it barred by the period of limitation, and(c) Award of interest is wholly unjustified and illegal.The learned Counsel for the respondent supported the order passed by the High Court. He submitted that :-(1) The award is non-speaking. Hence, courts below rightly refused to interfere with.(2) The question, whether claim made by the contractor was within period of limitation or not, was required to be decided by the arbitrator, and(3) There is no prohibition for awarding interest from the date of the claim till the date of reference and thereafter.For deciding the controversy, it would be necessary to refer to the material part of the award dated 18th November, 1988 which is as underclaimant has put forth a claim amounting to Rs. 18,10,014.48 plus interest on the same amount at 30% per annum from 29.8.1979 till date of payment.The amount of interest at the above rate on the claim amount from 29.8.1979 till 18.11.1988, i.e. date of "Award" worked out to Rs. 33,39,351.00 (Rupees Thirty three lacs thirty nine thousand three hundred one fifty only).Thus the total amount of claims including interest up to the date of "AWARD" works out to Rs. 51,49,365.48 (Rupees fifty one lacs forty nine thousand three hundred sixty five and paise forty eight only).On perusal of all documents filed by both parties and relied upon by the parties and keeping in view oral and written submissions and chain of arguments of both parties relating to factual and legal. I am convinced that the claimant sustained losses on account of the following reasons :-(a) The work site is located in the wild-life sanctuary of Saranda Reserve forest. The project authorities issued work order without completing the departmental formalities in obtaining permission of the Forest Department for executing the work inside wild-life sanctuary.(b) The project authorities could not obtain permission of Forest Department to take men and machinery to the work site as and when necessary for executing the work.(c) The project authorities could not obtain permission of Forest Department in time for making hutments at work site and could not hand over the site in time.(d) The project authority could not remove forest growths from the working area before issue or work order.(e) The project authorities could not obtain permission of Forest Department for transporting the required machinery and materials for blasting operation and executing drilling and blasting work inside the wild-life sanctuary till March 1979.(f) Delay in payment of legitimate dues of the claimant for more than nine years.After recording the aforesaid reasons, the arbitrator, held that in consideration of the documents, submissions and arguments of both the parties, contractor was entitled to be paid by the Steel Authority of India Limited a sum of Rs. 11,26,296/- as principal amount and a sum of Rs. 12,06,000/- as interest from 29th August, 1979 till 15th August, 1985, in all Rs. 23,32,296/-. The Arbitrator also awarded future interest at the rate of 17% on the principal sum of Rs. 11,26,296/- from the date of award till the date of payment or the date of decree whichever is earlier.

Court's reasoning:
In the present case, it is apparent that awarding of damages of Rs. 11 lacs and more for the alleged lapses or delay in handing over work site is, on the face of it, against the terms of the contract.13. Further, the Arbitration Act does not give any power to the arbitrator to act arbitrarily or capriciously. His existence depends upon the agreement and his function is to act within the limits of the said agreement. In Continental Construction Co. Ltd. v. State of Madhya Pradesh, 1988(3) SCC 82, this Court considered the clauses of the contract which stipulated that contractor had to complete the work in spite of rise in the prices of materials and also rise in labour charges at the rates stipulated in the contract. Despite this, the arbitrator partly allowed contractors claim. That was set aside by the court and the appeal filed against that was dismissed by this Court by holding that it was not open to the contractor to claim extra costs towards rise in prices of material and labour and that arbitrator misconducted himself in not deciding the specific objection regarding the legality of extra claim.In view of the aforesaid settled law, the award passed by the arbitrator is against the conditions agreed by the contracting parties and is in conscious disregard of stipulations of the contract from which the arbitrator derives his authority. His appointment as a sole arbitrator itself was conditional one and he was informed that the same was "with reservation regarding the tenability, maintainability and validity of the Reference as also on further grounds that the claim was barred by the period of limitation and that it pertained to excepted matters of general conditions of the contract". Despite this he has ignored the stipulations and conditions between parties. Hence, the said award is, on the face of it, illegal.In the present case, as stated above, on 29th August, 1979, the contractor wrote letter making certain claims. Thereafter, the supplementary, agreement was executed on 20th December, 1980. In that agreement it is nowhere stated that contractors alleged right of getting damages or losses suffered by him was kept alive. On the contrary, he has agreed to complete the work within the time stipulated in the second agreement by charging some higher rate. Contractor has not sought any reference within three years from the date when cause of action arose, i.e., from 29th August, 1979. Only in 1985 when dispute arose with regard to the second agreement, respondent gave notice on 2nd December, 1985 to appoint sole arbitrator. The sole arbitrator was appointed with a specific reservation regarding the tenability, maintainability and validity of reference as also on the ground that claim was barred by the period of limitation and it pertained to excepted matters in terms of general conditions of the contract. From these facts, it apparent that claim before the arbitrator in November-December 1985 was apparently barred by period of limitation. Letter dated 3rd September, 1983 written by the appellant repudiating the respondents claim on account of damages or losses sustained by him would not give fresh cause of action. On that date cause of action for recovering the said amount was barred by the period of three years prescribed under Article 137 ofthe Limitation Act, 1963. Under Section 3 of the Limitation Act, it was the duty of the arbitrator to reject the claim as it was on the face of it, barred by the period of limitation.26. In the present case, in view of the aforesaid findings, it is not necessary to discuss the contention with regard to the award of interest prior to coming into force ofthe Interest Act, 1978 or that no interest could be awarded on the unliquidatd damages. It is also not necessary to discuss whether arbitration agreement provided in first agreement executed in 1977 would survive after execution of the second agreement in December, 1980.