C.M.A. Nos. 1601 of 2000 and 585 of 2001. Case: Dhirubai D. and Company, Engineers and Contractors, rep. by its Partner, Mr. Amit Patel Vs Nizam Sugar Factory Limited, rep. by its General Manager (Personnel) and Ors.. High Court of Andhra Pradesh (India)
| Case Number | C.M.A. Nos. 1601 of 2000 and 585 of 2001 |
| Counsel | For Appellant: Bimal Bhaskar, Adv. And For Respondents: N. Vasudeva Reddy, Adv. |
| Judges | V.V.S. Rao and B.N. Rao Nalla, JJ. |
| Issue | Arbitration Act, 1940 - Sections 2, 3, 8, 17, 20, 41 and 85; Arbitration and Conciliation Act, 1996 - Sections 1(3), 21, 85(1) and 85(2); Arbitration (Protocol and Convention) Act, 1937; Foreign Awards (Recognition and Enforcement) Act, 1961; Contract Act, 1872 - Section 55; Civil Procedure Code (CPC) - Section 34; Arbitration Rules |
| Citation | 2010 (1) ALT 721 |
| Judgement Date | December 24, 2009 |
| Court | High Court of Andhra Pradesh (India) |
Judgment:
V.V.S. Rao, J., (At Hyderabad)
Introduction
1. These two miscellaneous appeals are against common order, dated 24.01.2000 in O.P. No. 1031 of 1998 (hereafter called, the first O.P.,) and O.P. No. 1052 of 1998 (hereafter called, the second O.P.,) filed by M/s. Dhirubhai D Thumer & Company, Engineers and Contractors (hereafter called, DDC). C.M.A. No. 585 of 2001 against first O.P., was heard and reserved by us on 18.11.2009. C.M.A. No. 1601 of 2000 against second O.P., was heard and reserved by us on 30.11.2009. It is, therefore, appropriate to dispose of both the appeals by common Judgment.
Facts in brief
2. Nizam Sugar Factory Limited (NSF) called for tenders for construction of machine foundations at Madhunagar, Zaheerabad in Medak District. DDC submitted their tender, which was accepted vide letter, dated 05.04.1991 of NSF. The parties entered into agreement on 26.04.1991 after negotiations in the presence of NSF's consultant M/s. C.R. Narayanan Private Limited, Bangalore. The contractor gave lumpsum rebate of Rs. 3,00,000/- (Rupees three lakhs only) reducing the contract value from Rs. 45,94,020/- to Rs. 42,94,020/-. Time was agreed to be the essence of contract, and work was to be completed by 14.10.1991 i.e., within a period of six months from the date of agreement. Nevertheless, clause 48 of General Conditions of Contract (GCC) provided for extension of time for completion of work by NSF on condition that no compensation would be payable. Clause 77 of GCC forming part of contract provides for resolution of dispute by arbitration.
3. DDC completed the work by 30.11.1992. Disputes arose with regard to payment of final bills and related matters. DDC invoked clause 77 of GCC and by letter dated 20.06.1995 appointed Sri Akela Sitaramam, Retired Superintending Engineer as arbitrator requesting to enter reference as soon as arbitrator is nominated by NSF. A copy thereof was sent to NSF. In response thereto, NSF informed that their arbitrator would be appointed within twenty days. They did not do so in twenty days. Long thereafter, vide their letter, dated 21.02.1997, NSF appointed Sri K. Yagnanarayana, Retired Chief Engineer as their arbitrator and both the arbitrators chose Sri K.C.S. Rao, Retired Additional Director General of Works as Umpire.
4. DDC raised eight claims. The arbitral tribunal partly allowed claim Nos. l, 2, 3, 4 and 8 (payment of interest) while rejecting claim Nos. 5, 6 and 7, which have had been accepted by DDC. They filed first O.P., on the file of the Court of the Additional Chief Judge for SPE & ACB Cases-cum-V Additional Chief Judge, City Civil Court, Hyderabad, under Section 17 of the Arbitration Act, 1940 (hereafter called, 1940 Act). NSF filed second O.P., seeking to set aside the award. By impugned order, dated 24.01.2000, the Court below dismissed case of DDC and allowed NSF's case. While doing so, learned Additional Chief Judge considered the question whether 1940 Act applies or the Arbitration and Conciliation Act, 1996 (hereafter called, 1996 Act) applies for resolution of dispute. On this, it was held that 1996 Act applies and the award passed by arbitral tribunal under 1940 Act is null and void. The Court below then considered claim Nos. l, 2, 3, 4 and 8, which were allowed by arbitral tribunal, and held that the contractor is not entitled for any extra amounts towards escalation charges or towards compensation. Arbitral award was accordingly set aside.
5. The particulars of claims, award of the arbitral tribunal and the findings of the Court below are as below.
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Claim No. Amount claimed Amount awarded Amount awarded
by arbitrator by civil Court
Rs. Rs. Rs.
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Claim No. 1 11,10,782 2,14,700 Rejected
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Claim No. 2 10,01,000 6,06,000 Rejected
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Claim No. 3 5,03,000 3,76,000/- Rejected
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Claim No. 4 5,89,500 1,86,000 Rejected
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Claim No. 5 1,75,000 Rejected -
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Claim No. 6 1,03,563 Rejected -
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Claim No. 7 Not specified Parties to bear -
their own costs
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Claim No. 8 Interest claimed a)Awarded interest 18% Rejected
at 18% p.a., p.a., from 30.04.1994 to
From 12/1991 26.8.1998 Rs. 10,75,000
to 12/1994 b) Awarded at 18% from
date of award to date or
decree or actual payment
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Submissions of counsel
6. Learned Counsel for DDC submits that notice of arbitration was issued on 20.06.1995 before coming into force of Ordinance which preceded 1996 Act and therefore, 1940 Act alone is applicable. He placed reliance on Milk Food Limited v. GMC Ice Cream (Private) Limited (1) (2004) 7 SCC 288 and Fuerst Day Lawson Limited v. Jindal Exports Limited (2) (2001) 6 SCC 356. In an effort to sustain the arbitration award insofar as the claims that were allowed, counsel made the following submissions. The arbitral tribunal found that the delay in completion of the contract work was due to breach of contract and default on the part of NSF in handing over possession, in supplying steel and in furnishing designs and drawings. It was also found that the work of construction of machine foundations was stopped during the crushing season in 1991-1992 as the deposit of bagasse on the foundations would have weakened the structures. In view of these, learned Counsel would submit that clause 48 does not disentitle DDC from claiming escalation charges. According to learned Counsel, entire agreement has to be read and clause 48 cannot be read in isolation. He relies on correspondence between the parties to support his contention that the delay was only due to NSF, and therefore, it would be improper and illogical to deny compensation by way of escalation of costs. Counsel relied on P.M. Paul v. Union of India (3) AIR 1989 SC 1034: 1989 Supp. (1) SCC 368, Ramachandra Reddy and Company v. Superintending Engineer (4) 2002 (1) ALT 14 (SC), K.N. Sathyapalan v. State of Kerala (5) 2007 (3) SCJ 573: 2007 (1) R.A.J. 211 (SC): 2007 (5) ALT 17.1 (DN SC), Food Corporation of India v. A.M. Ahmed & Company (6) 2007 (1) SCJ 333: (2006) 13 SCC 779: 2007 (3) ALT 17.2 (DN SC) and Ambica Construction v. Union of India (7) 2007 (1) ALT 29 (SC): (2006) 13 SCC 475.
7. Learned standing counsel for NSF submits that arbitral award is null and void as it was passed under 1940 Act which had no application. He would rely on the reasoning of the Court below in support of the contention. Secondly, he submits that DDC having received the final bill without protest is estopped from raising any claim before the arbitral tribunal. In the absence of any arbitral dispute, the constitution of the arbitral tribunal itself is illegal. He relies on clause 77 of GCC and the letters written by NSF rejecting the request of the DDC for enhancement of rates. He placed reliance on Union of India v. Omkarnath Bhalla (8) (2009) 7 SCC 350. Thirdly, he contends that in view of the specific bar created by clause 48 of GCC, the contractor is not entitled to claim any compensation except extension of time. He relies on State of Andhra Pradesh v. Associated Engineering Enterprises (9) AIR 1990 A.P. 294, New India Civil Erectors (Private) Limited v. Oil and Natural Gas Corporation (10) (1997) 11 SC 75: AIR 1997 SC 980: 1997 (2) ALT 20 (DN), Ch. Ramalinga Reddy v. Superintending Engineer (11) (1999) 9 SCC 610 and Ramachandra Reddy v. State of Andhra Pradesh (12) (2001) 4 SCC 241: AIR 2001 SC 1523. Lastly, relying on State of Rajasthan v. Ferro Concrete Construction Private Limited (13) 2009 (7) SCJ 380: 2009 (3) Arb.L.R. 140 (SC) and Rajasthan State Road Transport Corporation v. Indag Rubber Limited (14) 206 (8) SCJ 777: (2006) 7 SCC 700, learned standing counsel submits that in view of the bar under clause 7 of Special Conditions of Contract (SCC), interest cannot be allowed.
Which law applies?
8. At the outset, we need to consider this question. As noticed supra, the Court below declared arbitral award, dated 26.08.1998 null and void only on the ground that the proceedings were conducted by arbitral tribunal as per 1940 Act. If this Court agrees with the Court below, there may not be any necessity for further consideration of the appeals.
9. Arbitration and Conciliation Ordinance was promulgated by President of India on 16.01.1994. It came into force with effect from 25.01.1996. This was replaced by second Ordinance on 26.03.1996 and yet again by third Ordinance on 26.06.1996 to continue the operation of new law. The Central Act No. 26 of 1996 received the assent of the President on 16.08.1996. In exercise of their powers under Section 1(3), Central Government issued Gazette Notification on 22.08.1996 appointing the said date as the date on which 1996 Act came into force. 1996 Act thus repealed (by reason of Section 85 thereof), Arbitration Act, 1940 with effect from 22.08.1996. The repeal Section reads as under.
85. Repeal and saving:
(1) The Arbitration (Protocol and Convention) Act, 1937 (6 of 1937), the Arbitration Act, 1940 (10 of 1940) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of 1961) are hereby repealed.
(2) Notwithstanding such repeal,-
(a) the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force;
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