22 July 2019


Judgments

Supreme Court

Chittaranjan Maity Vs. Union of India (UOI)

MANU/SC/1235/2017

03.10.2017

Arbitration

Intervention of the Court is envisaged only in few circumstances like fraud or bias by the Arbitrators or violation of natural justice

The Appellant, in present appeals, has challenged the legality and correctness of the judgment and order passed by High Court of Calcutta. Appellant submits that, the Division Bench failed to appreciate the question that, issuance of 'No Claims Certificate' by the Appellant was not urged before the Chief Justice in the proceedings under Section 11(6) of Arbitration and Conciliation Act, 1996. The said plea was not even urged before the Arbitral Tribunal or before the learned Single Judge. The issue relating to existence of any live claim or the arbitrability of the dispute ought to have been urged in the proceedings under Section 11(6) of the 1996 Act or at least before the Arbitral Tribunal. The question as to whether there was any arbitral dispute or not, could not have been entertained by the Division Bench for the first time. It is further submitted that, the Tribunal has rightly passed an award and granted pre-award and pendente lite interest from 17th July, 1992 till the realization of the award amount. Whether the Division Bench was justified in considering the arbitrability of the dispute for the first time in the appeal and that whether the Arbitral Tribunal was justified in awarding interest on the delayed payments in favour of the Appellant.

It is evident from the materials on record that, the dispute had arisen between the parties in relation to the contract in question. Therefore, the Appellant filed an application before the Chief Justice of the High Court of Calcutta under Section 11(6) of the 1996 Act, for appointment of an Arbitrator in terms of the contract which was allowed and an Arbitral Tribunal was constituted for adjudication of the dispute. The Arbitrator after giving the parties opportunities of hearing and after considering the materials placed on record made and published the award.

Learned Single Judge had dismissed the application filed by the Respondent for setting aside the said award. The issue relating to arbitrability of the dispute was not raised in the proceeding under Section 11(6) of the 1996 Act. One of the issues which can be considered by the Chief Justice under this provision is whether the claim is a live claim. This issue can also be kept open to be decided by the Arbitral Tribunal provided the said plea is urged before the Chief Justice. The Respondent had not raised the said plea before the Chief Justice. Be that as it may, the Respondent has not urged the said plea either before the Arbitral Tribunal or before the learned Single Judge in the proceedings under Section 34 of the 1996 Act.

This Court, in Mcdermott International Inc. v. Burn Standard Co. Ltd. and Ors., has held that, the party questioning the jurisdiction of the Arbitrator has an obligation to raise the said question before the Arbitrator. It has been held that, after the 1996 Act came into force, under Section 16 of the 1996 Act the party questioning the jurisdiction of the arbitrator has an obligation to raise the said question before the arbitrator. Such a question of jurisdiction could be raised if it is beyond the scope of his authority. It was required to be raised during arbitration proceedings or soon after initiation thereof. The jurisdictional question is required to be determined as a preliminary ground. A decision taken thereupon by the arbitrator would be the subject-matter of challenge under Section 34 of 1996 Act. In the event the arbitrator opined that he had no jurisdiction in relation thereto an appeal there against was provided for under Section 37 of 1996 Act.

Intervention of the Court is envisaged only in few circumstances like fraud or bias by the Arbitrators, violation of natural justice. The Court cannot correct the errors of the Arbitrators. Therefore, the Division Bench was not justified while considering the arbitrability of the disputes for the first time, particularly, when the Respondent has not urged the issue relating to 'No Claims Certificate' before the Chief Justice, Arbitral Tribunal or before the learned Single Judge.

The total interest awarded by the Arbitral Tribunal is Rs. 12,44,546/- which includes interest for the pre-reference period and also pendente lite interest. Section 31(7)(a) of the 1996 Act provides that,unless otherwise agreed by the parties, where and insofar as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. In this Section, a specific provision has been created, whereby if the agreement prohibits award of interest for the pre-award period (i.e. pre-reference and pendente lite period), the Arbitrator cannot award interest for the said period.

Admittedly, the GCC, governing the contract between the parties, contains a Clause which bars the payment of interest, which provides that, no interest will be payable upon the earnest money or the security deposit or amounts payable to the contractor under the contract, but government securities deposit in terms of Sub-clause (1) of this Clause will be repayable (with) interest accrued thereon.

In Union of India v. Bright Power Projects (India) Private Limited, a three-Judge Bench of this Court, after referring to the provisions of Section 31(7)(a) of the 1996 Act, held that when the terms of the agreement had prohibited award of interest, the Arbitrator could not award interest for the pendente lite period. When parties to the contract had agreed to the fact that interest would not be awarded on the amount payable to the contractor under the contract, they were bound by their understanding.

The Arbitral Tribunal had determined the amount payable to the Appellant in a sum of Rs. 11,13,136/- and interest of Rs. 12,44,546/-. A sum of Rs. 38,82,150/- was deposited by the Respondent which includes the award amount, interest for the pre-reference period, pendente lite and post-award interest. The Appellant is not entitled for any interest. The Appellant has already withdrawn 50% of the amount deposited by the Respondent, which is in excess of the award amount exclusive of interest. Respondent is directed not to recover the excess amount withdrawn by the Appellant. The appeals are partly allowed.

Relevant

Mcdermott International Inc. v. Burn Standard Co. Ltd. and Ors. MANU/SC/8177/2006
: (2006) 11 SCC 181, Union of India v. Bright Power Projects (India) Private Limited MANU/SC/0712/2015
: (2015) 9 SCC 695

Tags : Dispute Arbitrability Award Interest

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