Sikkim High Court: Commercial Court exceeds it’s Lakshman Rekha by examining and modifying Arbitral Award
CASE TITLE – Union of India vs. M/s M.G. Contractors Pvt. Ltd. & M/s M.G. Contractors Pvt. Ltd. vs. Union of India
CASE NUMBER – Arb. A. No.1 of 2022 and Arb. A. No.2 of 2022
DATED ON – 03.05.2024
QUORUM – The Hon’ble Justice Biswanath Somadder & The Hon’ble Chief Justice Bhaskar Raj Pradhan
FACTS OF THE CASE
Tender was invited by CPWD, Chungthang, for construction of ITBP road sometime in the year 2010. In response, M/s M.G. Contractors Pvt. Ltd. submitted its tender which was found to be lowest, accepted and awarded in its favour. The value of work awarded under the contract was Rs.70,65,65,490/- which was 24.55% above the estimated cost put to tender of Rs.56,72,94,653/- Twenty-four months to be reckoned from 22nd day after the date of issue of acceptance letter dated 10.09.2010 was the time allowed for carrying out the work. The stipulated date of start of work was 02.10.2010 and the date of completion was 01.10.2012. The Agreement was executed in the year 2011. The work was delayed due to various reasons and finally completed on 30.06.2015. Certain disputes arose between the parties and M/s M.G. Contractors Pvt. Ltd. invoked Arbitration Clause 25 of the Agreement. The Sole Arbitrator was appointed who entered reference vide letter dated 14.03.2020. M/s M.G. Contractors Pvt. Ltd. made 15 claims by filing their Statement of Claims. The Union of India did not prefer any counter-claim. The total claim made by M/s M.G. Contractors Pvt. Ltd. was Rs.29,11,26,419/- along with interest, GST and cost as actual. Claim No.7 was for an amount of Rs.8,16,41,135/- claimed as due and payable for escalation compensation for period October 2012 to June 2015. Claim No.13 was for interest at the rate of 18% from due date to date of payment. Claim No. 14 was the claim for GST at applicable rate as per actual on the claim amounts. The learned Sole Arbitrator vide his Award dated 23.3.2021, awarded a sum of Rs.12,80,94,368/- along with interest and GST under Claim No.13 and Claim No.14 in favour of M/s M.G. Contractors Pvt. Ltd. The Sole Arbitrator did not grant Claim Nos. 2, 4, 5, 8, 10, 11 and 12. 7. The Union of India filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 before the learned Commercial Court, being Arbitration Case No. 1 of 2021, in the matter of Union of India vs. M/s M.G. Contractors Pvt. Ltd. The Union of India prayed for setting aside Claim No.7 and associate interest under Claim No. 13 and associate GST under Claim No.14 granted in favour of M/s M.G. Contractors Pvt. Ltd on the ground that it was barred by limitation. By the impugned judgment dated 27.12.2021, the learned Commercial Court concluded that the Award delivered by the learned Sole Arbitrator under Claim No.7 and associate interest under Claim No.13 and associate GST under Claim No.14 are not barred by law of limitation. This is herein refereed to this part of the impugned judgment as its first part.
The learned Commercial Court, however, was of the opinion that the decision given under Claim No.13, awarding interest at the rate of 8% per annum to the claimant under Claim No.1, 3, 6, 7 and 9 with effect from 17.02.2020 till the date of Award, i.e., 23.03.2021, is contrary to the provisions of Section 31(7) (b) of the Arbitration and Conciliation Act, 1996. Accordingly, the learned Commercial Court modified the Award to the extent that M/s M.G. Contractors Pvt. Ltd. is entitled for interest under Claim No. 1,3,6,7 and 9 at the rate of 8% per annum with effect from 23.03.2021 till payment of Award as per Section 31(7) (b) of the Arbitration and Conciliation Act, 1996 barring the time period consumed during proceedings of the case before the learned Commercial Court. The learned Commercial Court, however, did not find any illegality in awarding Claim No.14. Thus, the Application under Section 34 of the Arbitration and Conciliation Act, 1996 was partly allowed. We shall refer to this part of the impugned judgment as the second part.
ISSUE
- Whether the arbitrator erred in determining the start date for the limitation period for Claim No. 7?
- Whether the interest awarded by the Sole Arbitrator from February 17, 2020, is not consistent with the provisions of Section 31(7)(b).
LEGAL PROVISIONS
Section 31(7)(b) of the Arbitration and Conciliation Act, 1996, specifies that if the arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at a rate it deems reasonable, 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.
COURT ANALYSIS AND JUDGEMENT
The Hon’ble High Court of Sikkim stated that in Arbitration Case No. 1 of 2021, The Union of India cannot effectively seek to modify parts of the Award that they had previously accepted and that the learned Commercial Court does not have the power to modify the Award in such a manner. After referring to judgment of the Hon’ble Supreme Court in Project Director, National Highways No.45E and 220, National Highways Authorities of India vs. M. Hakeem and another and S.V. Samudram vs. State of Karnataka and Another, modifying the Award would be outside the purview of the powers granted under Section 34, which allows for setting aside an arbitral award on specific grounds but does not extend to modifications of an accepted Award. The Commercial Court can review and set aside an arbitral award if it falls within the grounds specified under Section 34. However, since the Union of India had accepted most of the claims, including the interest and GST components, their request to set aside or modify specific parts of the Award, such as Claim No. 7 and the related interest and GST, was beyond the court’s power. This means that the Union of India is bound by the terms of the Award as accepted and cannot seek further modification or setting aside of specific parts. The Hon’ble High Court in Arbitration Case No. 1 of 2021, was of the opinion that in a proceeding under Section 37 of the Arbitration and Conciliation Act, 1996, they are not authorised to disturb concurrent findings of facts and law by the learned Sole Arbitrator and the learned Commercial Court. The learned Sole Arbitrator concluded that the work was completed on 30.06.2015, bill was finalised on 9.03.2017 and arbitration was sought before the Chief Engineer of the Union of India on 17.02.2020 and thus, the arbitration was invoked within limitation period of three years from the date of finalisation of the bill. The learned Commercial Court once again examined the issue raised by the Union of India, the relevant clauses and concluded that M/s M.G. Contractors Pvt. Ltd. completed its work on 30.06.2015 and finalised the bill on 09.03.2017. Accordingly, the learned Commercial Court was also of the opinion that the Award under Claim No.7 and its associate interest under Claim No.13 and associate GST under Claim No.14 was not barred by the law of limitation. In the circumstances, the court noticed that the Union of India has failed to make out a case for interference either under Section 34 or under Section 37 of the Arbitration and Conciliation Act, 1996. The Hon’ble High Court concluded that the first part of the impugned judgment of the learned Commercial Court, vis-à-vis, the challenge of the Union of India in its application under Section 34 of the Arbitration and Conciliation Act, 1996 need not be interfered with and accordingly, dismissed Arb. A. No. 1 of 2022. Whereas for the second part of the impugned judgment, the court learned that the Commercial Court on its own examined the Award minutely and modified the Award, vis-à-vis, Claim No.13 and while doing so the learned Commercial Court exceeded its jurisdiction. Hence allowing, Arb. A. No. 2 of 2022.
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Judgement Reviewed by – Gnaneswarran Beemarao