SC upholds arbitrators award, Acknowledges contractor site possession delay
Title: S.V SAMUDRAM V STATE OF KARNATAKA
Citation: CIVIL APPEAL NO. 8067 OF 2019
Dated on: 5.1.2024
Corum: HON’BLE JUSTICE SANJAY KAROL J.
Facts of the case
In the present case the Mr. SV Samudram filed a civil appeal in the SC of India against the state of Karnataka in a dispute matter between the contractor and the state public works department over construction of office and a residence for the chief conservator of Forest of Sirsi in Karnataka. On January 29, 1990, the department and the contractor, S.V. Samudram, signed a contract for Rs. 14.86 lakhs, subject to the condition that the work be finished in 18 months, excluding the monsoon season. Nevertheless, the contractor claimed that he was unable to finish the project on schedule for a number of department-related reasons, including late delivery of the supplies, working drawings, and designs, and site possession delays. In addition, he asserted that he should be paid more for tasks completed past the deadline because he had lost money on water procurement, machinery, and idle labour.
Invoking the arbitration clause in the contract, the contractor presented a claim to the retired chief engineer Mr. S.K. Angadi, the arbitrator, on May 31, 2002. Following hearing arguments from both parties, the arbitrator rendered a decision on February 18, 2003, favouring the contractor and awarding him Rs. 14,68,239 in total, with interest at the rate of 18% annually from March 9, 1994, to the date of payment1. The arbitrator determined that the contractor had incurred losses as a result of the department’s failure to deliver the supplies, drawings, and designs on time, and that the department was accountable for these delays. Additionally, based on the 1989–1990 tender notification, the arbitrator granted the request for revised rates.
Under Section 34 of the Arbitration and Conciliation Act, 1996, the department challenged the verdict before Senior Civil Judge Sirsi. Sirsi changed the award by lowering the sum to Rs. 3,71,564/-(25 percent of the tender amount) and the interest rate to 9% annually. The civil judge ruled that the award was arbitrary, irrational, and against public policy, and that it was not backed by good reasoning. The civil judge noted that the contractor had not provided an explanation for his delay in beginning construction on the office building, which was unaffected by the residence’s new location, and that the small revisions to the plans did not call for additional funding. Additionally, the civil judge ruled that the rising expenses claimed by the contractor was exaggerated and that the award of interest at 18% per annum was exorbitant.
Under Section 37 of the Arbitration and Conciliation Act, 1996, the contractor challenged the civil judge’s decision to the High Court of Karnataka (Dharwad Bench), which dismissed the case and upheld the award’s modification. In light of the fact that the arbitrator held the department exclusively accountable for the contract violation and that the claims were granted without sufficient evidence, the High Court concurred with the civil judge that the judgment (Of arbitration) was irrational and against public policy.
Issues
Whether the High Court was justified in confirming the order of the Senior Civil Judge, Sirsi, who modified the arbitration award and reduced the amount and interest awarded to the contractor?
Whether the arbitration award was in conflict with the public policy of India or was patently illegal, unreasonable, perverse, or induced by fraud or corruption?
Whether the arbitrator had applied the correct principles of law and evidence in assessing the claims of the contractor and the liability of the State?
Legal Provision
In the present case sec 34 and 37 of the arbitration and conciliation act plays a vital role in deciding the case. Section 34 of the Act provides for the setting aside of an arbitral award by a court. It lays down the grounds on which an arbitral award can be challenged, such as incapacity of a party, invalidity of the agreement, lack of proper notice, etc in the present case the Karnataka state before the civil judge, Sirsi challenged the arbitral award granted to the contractor in the arbitration and section 37 of the Act, on the other hand, deals with appeals against orders passed by the arbitral tribunal. It provides for appeals to the court against certain orders of the arbitral tribunal, such as orders granting or refusing interim relief, orders on jurisdiction, etc was invoked to challenge the verdict given by the civil Judge in Sirsi.
Court analysis and judgement
In the present contention the hon’ble Supreme court of India after reviewing the matter and referring to various precedents set forth came to the verdict of allowing the appeal of Mr. S.V Samudram and set aside the judgment given by the HC of Karnataka and the civil court and stated that they had overreached their authority in accordance with Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, and had replaced the arbitrator’s opinion with their own. The Supreme Court ruled that there was no basis to disagree with the arbitrator’s decision on the grounds of public policy or patent illegality because it was based on a reasonable interpretation of the evidence and the terms of the contract. Additionally, the Supreme Court ruled that the contractor was entitled to interest at the arbitrator’s awarded rate of 18% annually and ordered the department to promptly pay the sum.
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Written by- Namitha Ramesh