U.P. COOPERATIVE FEDERATION LTD. v. M-S. THREE CIRCLES

Citation: [2009] 14 S.C.R. 310

Court: Supreme Court of India

Bench: TARUN CHATTERJEE, H.S. BEDI

Case summary

U.P. COOPERATIVE FEDERATION LTD. v. M-S. THREE CIRCLES.pdf

Judgment text

(2009] 14 (ADDL. ) S. C. R. 310 ~- U. P. COOPERATIVE FEDERATION LTD. + ..... v. M/S. THREE CIRCLES (Civil Appeal No. 2732 of 2001) SEPTEMBER 10, 2009 [TARUN CHATTERJEE AND HARJIT SINGH BEDI, JJ. ] ~ ·- ARBITRATION ACT, 1940: ,.

Award passed by arbitrator - Application for setting it aside - Employer claiming deduction of penal rates on the balance steel remaining with contractor and towards ' bad workmanship' - Claim rejected by arbitrator - High Court dismissing employer's application - Held: The findings of arbitrator that in the absence of evfdence regarding the "' • balance steel, payment was to be made at the issue rates and not at penal rates and that the bills presented by contractor for use of materials having been passed by architect of employer without any objection, employer was estopped from raising issue of inferior quality of workmanship, do not suffer from any infirmity - Besides, the relevant clauses of the agreement did not include within their purview ' bad -t workmanship' - High Court rightly rejected the argument that 'negligence or lack of proper care' was synonymous- to 'bad workmanship' - There is no·ground for setting aside the award under the Act - Interest.

Interest: Arbitration-Award - Interest for pre-reference period and pendente lite - Interest on interest - Interest on cost - Held: High Court rightly held that in the instant case, co·ntract being 1-silent as to awarding of interest, arbitrator had power to award · interest for pre-reference period, pendent elite interest , interest on cost and interest on interest - High Court rightly CIRCLES ' "" reduced interest on 'current rate' as per s. 3 of Interest Act - ~ However, keeping in view the long lapse of time from the date Ii of award, for the ends of justice, interest reduced to 15% by High court is further reduced to 7% in exercise ofjurisdiction under Article 142 of the Constitution - Interest Act, 1978 - Constitution of India, 1950 - Article 142. WORDS AND PHRASES: 41 ~ Expression 'wqrkmanship' - Connotation of in the context of construction contract. A contract was entered into between the appellant Co-operative Federation and the respondent for construction of a cold storage.

Disputes arose between the parties. in respect of claims made by the respondent- • concern, which filed a suit for appointment of arbitrator. Ultimately, the High Court, appointed an arbitrator, who passed an award directing the appellant to pay a sum of Rs. 32,68,805. 80 to the respondent along with interest till the date of final payment. The application of the appellant for setting aside the award was dismissed by the single E. Judge of the High Court. The appeal filed by the appellant was partly allowed by the Division Bench of the High ... , ~ Court limited to the rate of interest only.

In the instant appeal filed by the Co-operative Federation, it was, inter alia, contended for the appellant '• that there was an error apparent on the face of the award on the issue of 'balance steel recovery' as the respondent was having steel balance with it which was not consumed or returned and the respondent should, therefore, pay penal rates in terms of Clause 15 (2) (6) of the contract; that there was inferior quality of - t work_manship as a result of which the appellant was entitled to make deduction from the bills. " ~ Dismissing the appeal, the Court i ..... ::.. HELD: 1. The finding of the arbitrator was that there was no clear evidence put forward by either of the parties "' as to what happened to the balance steel; and, in the circumstances, the respondent-claimant was directed to pay at the issue rates and not at the penal rates.

However, though this was the observation in the body of the award, in Appendix 'C', the arbitrator had given certain i ~ deductions based on balance steel under three heads. The High Court rightly held that Appendix 'C' did not mean to be a positive finding by the arbitrator that such steel was unutilized and had been appropriated by the respondent. There is no infirmity either in the award of the arbitrator or in the findings of the Division Bench as well as of the Single Judge of the High Court on this y \ count. [Para 7] [323-B-D, G-H; 324-A] - 2. The arbitrator has held that all the bills presented by the responden~ for use of the materi - is a provision in this clause which does not permit or prohibit the imposition of interest on costs of arbitration. 18. The High Court has also observed in the impugned judgment that the principles in relation to payment of interest \ ....

- ~ on interest will apply in this context as well and that there is no principle or precedent prohibiting award of interest on cost. It may be noted that the Law Commission of India in its 55th Report submitted in 1973 discussed the rationale behind grant of interest on interest and on costs. Though the Commission found it fit not to disturb the position of law that emerged after the deletion of Section 35(3) of the Code of Civil Procedure, but Law Commission had expressed its opinion in favour of ) grant of interest on costs. The logic behind it was that the cost incurred in the litigation were actually and rightfully incurred by the successful litigant which he would have invested but for the lengthy litigation proceedings. Interest, which is damages for wrongful retention of money that rightfully belonged to one, thus can be paid on costs as well. This may also be considered that costs of arbitration are actually incurred by the respondent and ..

) ' it is only that it becomes payable only with the award in its favour. Accordingly, we do not find any infirmity in the judgment of the Division Bench except in that we are of the view that the rate of interest from 15% should be reduced to 7%. In McDermott International vs. Bum Standards (supra), it had summarized the practice of this Court on this issue in the following words :- .. "The 1996 Act provides for award of 18% interest. The arbitrator in his wisdom has granted 10% interest both for the principal amount as also for the interim. By reason of the award, interest was awarded on the principal amount. An interest thereon was upto the date of award as also the future interest at the rate of 18% per annum. However, in some cases, this Court was resorted to exercise its jurisdiction under Article 142 in order to do complete justice between the parties. ·- .. In pure Helium India (P) Ltd.

(2003 8 SCC 593] this Court upheld the arbitration award for payment of money with interest at the rate of 18% p. a. by the respondent to appellant. However, having regard to long lapse of time, if ... award is satisfied in entirety, respondent would have to pay a huge amount by way of interest. With a view· to do complete justice to the parties, in exercise of jurisdiction under Article 142 of the Constitution of India, it was directed that award shall carry interest at the rate of 6% p. a. instead and in place of 18% p. a. Similarly in Mukand Ltd. vs. Hindustan Petroleum Corpn. ~- [2006 (4) SCALE 453], while this Court confirmed the decision of the division bench upholding the modified award made by the learned single Judge, the court reduced the interest awarded by the learned single judge subsequent to the decree from 11% per annum to 7% per annum observing that 7% per annum would be the reasonable rate of interest that could be directed to be f ,..

paid by the appellant to the respondent for the period subsequent to the decree. I In this case, given the long lapse of time, it will be in furtherance of justice to reduce the rate of interest to 7%. " 19. Following the aforesaid decision and considering the fact that there was a long lapse of time and for the ends of justice, we are, therefore, of the view that the judgment of the • Division Bench can be modified only to the extent that the rate of interest should be reduced from 15% to 7%. As we also find in this case that such reduction of interest is warranted because the award was passed on 20th of October, 1989, now .. 20 years have passed since then. 20. This Comt in Mcdermott International Inc. vs. Burn Standard Co. Ltd. & Ors. (supra) S. B. Sinha,J. , (as His Lordship then was), following the two earlier decisions of this Court in )- -· the case of Pure Helium India (P) Ltd. vs. ONGC [(2003) 8 SCC 593]_and Mukand Ltd. vs. Hindustan Petroleum Corpn. Ltd.

[(2006) 9 sec 383] and considering the fact that due to long lapse of time if the entire award is satisfied, the appellant would have to pay a huge sum of money by way of interest. \. ... Therefore, in that decision, this court directed reduction of rate of interest in order to do complete justice between the parties in the exercise of its jurisdiction under Article 142 of the Constitution of India and that is the reason we also reduce the rate of interest from 15% to 7%. 21. Before parting with this judgment, we may refer to two decisions of this Court which were cited at the bar in the case . J of T. N. Electricity Board vs. Bridge Tunnel Constructions & -( I Ors. [1997 4 SCC 121) and Trustees of the Port of Madras vs. Engineering Constructions Corpn. Ltd. [1995 5 SCC 531). So far as the case of T. N. Electricity Board is concerned, we have no quarrel with the principle laid down in the aforesaid decision.

In that decision, it was held that one of the question that was decided was that the Arbitrator cannot clothe himself ~ ) conclusively with the jurisdiction to decide or omit to decide the arbitrability of a particular item or the claim made by the parties. It was held that when a specific reference has been made to the Arbitrator and the parties raise the dispute of arbitrability, with the leave of the court/by a direction of the court in a proceeding under Section 33, hejs to decide the arbitrability of the dispute and make a decision while giving reasons in support thereof. It was further held that the decision of the ~ Arbitrator in granting a particular sum by a non-speaking award, therefore, hinges upon the arbitrability of a dispute arising under the contract or upon a particular item claimed thereunder. It was further observed that he was required to give the decision thereon.

Therefore, it was held that the question of decision by implication does not arise since his jurisdiction to decide the dispute on merits hinges upon his jurisdiction to decide the arbitrability of the dispute. '-.. .. 22. The aforesaid decision of this Court, therefore, in our view cannot come to help the appellant. ... 23. So far as the decision in the case of Trustees of the Port of Madras vs. Engineering Constructions Corpn. Ltd. (supra) is concerned, this case also has no application in the • facts of this case. In that case, the principles have been laid down in the case of a reasoned award and the court can interfere if the award is passed upon a proposition of law which is unsound in law. The error apparent on the face of the award contemplated by Section 16(1)( c) as well as Section 30 (c) of the Arbitration Act is an error of law apparent on the face of the award and not an error of fact. Therefore, this decision, in our view, is also of no help.

The Arbitrator has passed his award on the basis of the conditions of the clauses in the agreement and passed an award and nothing could be shown from which it could be held that the court could interfere with the award if the same was passed upon the proposition of law which is unsound in law. 24. For the reasons aforesaid and subject to the modification as noted herefnabove, this appeal has no merit . r , and the same is hereby dismissed. There will be no order as to costs. R. P. Appeal dismissed. r -