Metallurigical Engineering Consultants vs SCIL

Vipin Sanghi, J.—The petitioner M/s. Metallurgical & Engineering Consultants (India) Ltd. (MECON) has filed the aforesaid petition u/s 30 of the Arbitration Act 1940 to impugn the majority award dated 19.11.1996 and the order dated 09.12.1997 modifying the said award made by the Arbitrators.

The petitioner was awarded the contract to install 7 Meter Tall Coke Oven Batteries Nos. 1, 2 & 3 and associated Coke Dry Cooling Plants Nos. 1, 2 & 3 by Rashtriya Ispat Nigam Limited at their Vishakapatnam Steel Project at Visakhapatnam. The petitioner, in turn, appointed the respondent M/s. SCIL India Ltd. as the sub contractor and placed an order on them for execution of the work of erection, testing start up, commissioning and post-commissioning services of the 7 Meter Tall Coke Oven Batteries No. 1 & 2 and associated Coke Dry Cooling Plants 1 & 2 of the Visakhapatnam Steel Project for a total estimated price of Rs. 8,03,76,680/- by a letter of Intent No. 11.83.0526 dated 6.10.1982. This was followed by a formal agreement being executed between the parties on 10.11.1983 containing the detailed terms and conditions for execution of the aforesaid works. Disputes arose between the parties on account of delay in the execution of the works. Since there was an arbitration agreement contained in the agreement dated 10.11.1983, disputes between the parties herein were referred to arbitration in accordance with the rules of the Indian Council of Arbitration. The arbitration panel consisted of Mr. Justice R.S. Pathak (retd. Chief Justice of India), who acted as the Chairman, Mr. Justice H.L. Anand (retd. Judge, Delhi High Court) and Mr. Justice S.N. Sapra (retd. Judge Delhi High Court). The petitioner was the claimant before the arbitrators. Petitioner made a claim of Rs. 9,52,61,788/- against the respondent. The respondent SCIL repudiated the petitioners claim and made a counter claim of Rs. 68,22,43,745.67/-. Mr. Justice H.L. Anand (Retd.) made a detailed reasoned award dated 04.10.1996. On the other hand, Mr. Justice S.N. Sapra (Retd.) made his award dated 30.09.1996 after having the benefit of perusing the award made by Mr. Justice H.L. Anand (Retd.). While substantially agreeing with the award made by Mr. Justice Anand (Retd.) on his findings on issue Nos. 1 to 10, 12 to 15, 17 to 23, 24 to 34 and 36 to 41 subject to his findings, he expressed his disagreement with the award made by Mr. Justice Anand (Retd.) on a few issues. The Chairman Mr. Justice R.S. Pathak (Retd.) after perusing the two awards made by Mr. Justice H.L. Anand (Retd.) and Mr. Justice S.N. Sapra (Retd.) and after giving his due consideration concurred with the award made by Mr. Justice H.L. Anand (Retd.). Consequently, the majority award as made by Mr. Justice H.L. Anand (Retd.) and concurred by Mr. Justice R.S. Pathak (Retd.) holds the field. On the applications of both the parties for modification of the majority award, the same was corrected on 09.12.1997. Mr. Justice S.N. Sapra (Retd.) agreed with these corrections.

The learned arbitrators by the majority award, as corrected, held the respondent SCIL accountable for the excess amount of Rs. 9.13 lacs paid to them, since it was held that they had directly or indirectly received a total sum of Rs. 1194.78 lacs as against the total value of work of phase I of Rs. 1185.65 lacs. The majority award also granted damages to the claimant to the tune of Rs. 1,59,27,000/- thereby rendering the respondent liable to the petitioner claimant in the sum of Rs. 1,68,40,000/-. The respondent''s counter claims were allowed to the tune of Rs. 56,96,231/- under item Nos. 1 and 2; to the extent of Rs. 8,27,600/- under item Nos. 11 and 12 and to the extent of Rs. 52,16,604.94 in respect of items under item "B" relating to miscellaneous claims. The total amount of counter claims allowed by the majority award, therefore, comes to Rs. 1,17,40,435.94. The liability of the respondent to the claim, therefore, stood reduced to Rs. 50,99,564.06 to which the claimant was held entitled. As against this, the claimant had received a sum of Rs. 2,53,97,261/- by encashment of bank guarantee. Consequently, the majority award, as corrected, directed refund of the excess amount received by the petitioner of Rs. 2,02,97,696.94. It was directed that if the amount is refunded within one month no interest would be payable. However, in case the same is not so paid, the respondent was entitled to interest on the outstanding amount @ 18% p.a. from the date of expiry of one month from the date of the award i.e. 09.12.1997 until payment.

Mr. Mukherjee, learned Counsel for the petitioner has sought to raise a challenge to the majority award on four counts only. His first submission is that the award made by the learned arbitrators was not made in a single and common sitting. He submits that the arbitrators should have applied their minds at the same time in consultation with each other and then made the award. He submits that it was necessary and essential for the learned arbitrators to have made and signed the award at the same time on the same day for it to be a valid award. However, from a perusal of the award it is evident that Mr. Justice H.L. Anand (Retd.) prepared his award which was sent to Mr. Justice S.N. Sapra (Retd.). Mr. S.N. Sapra (Retd.) after perusing the same made his own award dated 30.09.1996. It appears that thereafter Mr. Justice H.L. Anand (Retd.) prepared the formal award dated 04.10.1986 and both these awards were forwarded to the Chairman Mr. Justice R.S. Pathak (Retd.) who thereafter made his award expressing his agreement with the award made by Mr. Justice H.L. Anand (Retd.).

The second submission of Mr. Mukherjee is that one of the issues raised before the arbitral tribunal was with regard to the legality of the invocation of bank guarantee Nos. BG375 and BG417 dated 6.6.85 and 17.7.87 by the claimant. The respondent had disputed the said invocation as being illegal and wrongful. Mr. Mukherjee submits that this issue was not gone into by the tribunal as is evident from the majority award. He submits that since the said issue was not gone into by the learned arbitrators, the amount recovered under the said bank guarantees could not be accounted for while making the award.

The third submission of Mr. Mukherjee is that the learned arbitrators while deciding issue No. 23 had wrongly computed the amount in para 173 of the majority award. As per para 173 of the majority award, the arbitrators had computed the total value of work of phase 1 at Rs. 1185.65 lacs and the amount received by the respondent as Rs. 1194.78 lacs. In the objections filed before this Court, the petitioner has computed the excess payment made at Rs. 2,07,4,398.00/-.

The last submission of Mr. Mukherjee is that the learned arbitrators were not justified in denying the claim for interest made by the claimant. He submits that the claim for interest has primarily been declined by taking into account the fact that the respondent had been declared as a sick industry and its case has been referred to the BIFR.

He submits that the sickness of the respondent was not a relevant consideration that could have been considered by the arbitrators to deny the claim of interest to the petitioner the transaction being a purely commercial one. The claimant, according to Mr. Mukherjee, was entitled to grant of interest on the amount due and payable by the respondent. No other submission has been made by Mr. Mukherjee.

Having heard learned Counsel for the petitioner and having perused the record including the majority award as corrected, I find no merit in the objections preferred by the petitioner and, in my view, the same deserves to be dismissed.

So far as the objection of Mr. Mukherjee to the manner in which the award has been made is concerned, I find no merit in the same. A perusal of the award shows that the same has been signed by the three arbitrators. The award is engrossed on stamp papers and bears the date 19th November, 1996 which is the date of the award. The award recites that after considering the pleadings and having heard oral evidence and submissions of the parties at length, the arbitrators give their award by majority of two to one with reasons pronounced by each arbitrator in Annexure (A) by Mr. Justice R.S. Pathak (Retd.) (B) by Mr. Justice H.L. Anand (Retd.) (C) by Mr. Justice S.N. Sapra (Retd.).

When an arbitral tribunal consists of more than one arbitrator, and each of the arbitrators decided to write their own opinions, it is but natural that the respective opinions would be written individually and once an opinion has been written by one of the arbitrators, it would be circulated to the others. It is only after circulation of the respective opinions that the final award emerges either as a unanimous award or as a majority award. That is exactly what has transpired in the present case. As noticed above, it is clear that Mr. Justice H.L. Anand (Retd.) firstly prepared his opinion which was circulated to Mr. Justice S.N. Sapra (Retd.). Mr. Justice S.N. Sapra (Retd.), on perusing the said opinion preferred to write his own opinion partially disagreeing with the findings of Mr. Justice H.L. Anand (Retd.). Mr. Justice S.N. Sapra (Retd.) wrote his opinion on 30.11.1996 thereafter the opinions of Mr. Justice H.L. Anand (Retd.) which was dated 04.10.1996, and the opinion of Mr. Justice S.N. Sapra (Retd.) dated 30.09.1996 were circulated to Mr. Justice R.S. Pathak (Retd.), the Chairman of the tribunal who concurred with the award made by Mr. Justice H.L. Anand (Retd.). Thereafter the learned arbitrators have made their formal award dated 19.11.1996 which has been duly signed by each one of them. The formal award by majority accepts the view penned down by Mr. Justice H.L. Anand (Retd.). It is evident that there was consultation and exchange of views between the learned arbitrators. There is no infirmity in the mechanism adopted by the learned arbitrators while making the majority award and Mr. Mukherjee has not been able to point out as to how the procedure adopted by the learned arbitrators is fallacious. This objection is, therefore, rejected.

Before I deal with the next objection, I may note that it is well settled that the arbitrators are the final arbiter of all factual disputes between the parties. It is not for this Court to re-appreciate the facts and to re-compute for itself the amounts as are claimed by one or the other party. The arbitrators have looked into the facts and figures relied upon by the parties and thereafter arrived on their own calculations. The Court cannot re-examine the correctness of the conclusions arrived at by the arbitrator. The jurisdiction of the Court while hearing objections to the award is not appellate in nature, and the award passed by an arbitrator cannot be set aside on the ground that it is erroneous. It is not open to the Court to interfere with the award merely because in the opinion of the Court another view is equally possible. It is only when the Court is satisfied that the arbitrator has misconducted himself or the proceedings, or that the award has been improperly procured or is otherwise invalid that the Court may set aside an award. Wrong or right, the decision is binding if it is reached fairly after giving adequate opportunity to the parties to place their grievance in the manner provided by the arbitration agreement [see Bhagawati Oxygen Ltd. Vs. Hindustan Copper Ltd., ].

The challenge raised to the computation of the amount due and payable to the petitioner claimant under Claim No. 23, in my view, is not sustainable. No error on the face of the award is discernible and none has been pointed out by the learned Counsel for the petitioner while contending that the learned arbitrators in their majority award have wrongly computed the excess payment due to the petitioner. It is not even the petitioner''s case that the learned arbitrators have travelled beyond the contract or that they have acted in excess of their jurisdiction. Paragraph 173 of the majority award reads as follows:

I would, therefore, accept the computation of the Claimant that, as against the total value of work of Phase I at Rs. 1185.65 lacs, respondent had received a sum of Rs. 1194.78 lacs as at the close of the contract. Issue No. 23 is decided accordingly.

The aforesaid shows that the majority award in fact accepted the computation of the claimant petitioner. It, therefore, does not lie in the mouth of the petitioner to contend before this Court that excess payment to the tune of Rs. 2,07,04,398/- had been made by the petitioner to the respondent. On what basis the aforesaid claim was made by the petitioner has not been shown to me. The aforesaid objection raised by the petitioner is, therefore, rejected.

I also find no merit in the submission of Mr. Mukherjee that because the arbitrators did not go into the issue of legality of invocation of the bank guarantees, adjustment of the amount received by encashment of the said guarantees could not have been made in the award. The issue with regard to the legality or otherwise of the invocation of bank guarantee was an issue which was raised at the instance of the respondent since it is the respondent who was aggrieved by the said invocation. The learned arbitrators initially did not go into the said issue as it was pending before the Supreme Court at the relevant time. Later on, while dealing with the applications filed by the parties they have noticed the fact that the SLP filed by the respondent questioning the legality of the invocation of the Bank Guarantees has been dismissed. Therefore, the learned arbitrators have proceeded on the basis that the invocation of the Bank Guarantees was legal when made. However, that does not mean that the arbitrators could not have taken into account the fact that the claimant petitioner had already pocketed the aforesaid amount upon invocation of the said bank guarantee. The learned arbitrators in view of the aforesaid development, in the correction order held as follows:

The position, as at present, therefore, is that as against its entitlement of Rs. 50,99,564.06, Claimant has received a sum of Rs. 2,53,97,261.00, being in excess of the amount to which it was entitled by Rs. 2,02,97,696.94. The Claimant would refund the aforesaid excess amount to the Respondent, within one month without interest. In case the payment is delayed Respondent would be entitled to interest, on the outstanding amount at 18% per annum, from the date of the expiry of one month from the date of the Award, until payment.

I also find no merit in the submission of Mr. Mukherjee that the arbitrators erred in denying the interest to the petitioner on the amount of Rs. 9.13 Lakhs awarded on issue No. 23. The arbitrators have given two reasons, and not one, for denying the claim of interest in favour of the petitioner. Firstly, the arbitrators have noted that under the contract there is no express provision with regard to grant of interest. Consequently, there is no contractual obligation towards the payment of interest on outstanding amounts. Secondly, the arbitrators have also taken into consideration the poor financial condition of the respondent SCIL and the fact that it was a sick company whose case was proceeding before the BIFR. Mr. Mukherjee submits that the petitioner claimant was entitled to interest by virtue of Interest Act 1978. He submits that "Court" includes a tribunal and an arbitrator. He further submits that in any proceeding for recovery of damages, or in any other proceedings in which the claim of interest or damages already paid is made, the court may, if it thinks fit, allow the interest to the person entitled to damage or to the person making such claim.

A perusal of Section 3 of the Interest Act 1978 shows that the same is an enabling provision. However, it does not mandate that in every case it is incumbent either for the court or for the arbitrator or the tribunal to grant interest. It is for the court to consider the facts and circumstances of each case and thereupon exercise its discretion judiciously to grant or deny the claim for interest. Since the arbitrators have, after considering the respective claims and counter claims of the parties exercised their discretion to deny interest to the claimant, in my view, it is not for this Court while hearing these objections to the award to interfere with the award and grant interest to the petitioner. It cannot be said that the factum of the respondent being a sick company was not a relevant consideration. I may also note that the amount found by the arbitrators to be due to the petitioner on account of excess payment, upon the taking of accounts, was to the extent of Rs. 9.13 lacs only which was a small fraction as compared to the total value of the contract. This figure was arrived at by the arbitrators upon adjudication. Prior to that the actual amount due was not even known to either of the parties. In fact, the respondent had substantial counter claims as is evident from the fact that their counter claim to the extent of Rs. 1.17 Crores were allowed by the arbitrators. It was, therefore, not a case where the respondent had withheld a payment of an amount which it was aware of as being its liability. Moreover, the arbitrators did not even grant interest to the respondent on the excess amount recovered by the petitioner by invoking the Bank Guarantees from the time the petitioner received the said amount till one month after the date of the award. In my view, these are germane reasons why the petitioners claim towards interest could not have been sustained.

For all the aforesaid reasons, I see no merit in this petition and the same stands dismissed. The majority award made by the learned arbitrators is made rule of the court. In case the petitioner has not refunded the amount of Rs. 2,02,97,696.94 within the period of one month from the date of the correction order dated 09.10.1997, the petitioner shall be liable to bear interest on the said amount @ 18% p.a. from 09.01.1998 upto date, and further interest on the said amount of Rs. 2,02,97,696.94 @ 9% p.a. from today till payment or realization, as the case may be.