2000 JTR(SC) 418
2000 AIR(SC) 1294 ; 2000 AIR(SCW) 981 ; 2000 4 ALD(SC) 56 ; 2000 2 AllCJ 1387 ; 2000 AllLJ 869 ; 2000 39 AllLR 326 ; 2000 1 ArbLR 444 ; 2000 3 BomCR(SC) 499 ; 2000 2 CLT(SC) 29 ; 2000 1 CurLJ 462 ; 2000 DNJ 143 ; 2000 2 JT 465 ; 2000 2 PLR(SC) 763 ; 2000 2 RAJ 30 ; 2000 2 RCR(Civ) 509 ; 2000 2 Scale 124 ; 2000 3 SCC 27 ; 2000 2 SCJ 111 ; 2000 1 SCR 1136 ; 2000 1 UJ 613 ; 2000 WLC 164 ; 2000 KHC 1016 ; 2000 1 KLT(Online) 986 ; 2000 2 Supreme 119
2000(2) Supreme 119
SUPREME COURT OF INDIA
(From Orissa High Court)
Dr. A.S. Anand, CJI., D. Rajendra Babu & R.C. Lahoti, JJ.
State of Orissa -Appellant
versus
Sudhakar Das (dead) by LRs. -Respondent
Civil Appeal No. 2256 of 1984
Decided on 23-2-2000
Counsel for the Parties :
For the Appellant : Raj Kumar Mehta, Ms. Mana Chakraborty and Ms. M. Sarda, Advocates.
For the Respondent : J.K. Das, Advocate.
IMPORTANT POINTS
1. In the absence of any escalation clause in the arbitration agreement, an arbitrator cannot assume any jurisdiction to award any amount towards escalation.
2. Where the agreement between the parties does not prohibit grant of interest and the dispute referred to the arbitrator includes the claim of interest, arbitrator can award pendente lite interest.
Act Referred :ARBITRATION ACT : S.13, S.30, S.33
(A) The Arbitration Act provisions cited govern the scope and limitations of arbitral authority and post-award judicial scrutiny. Section 13 addresses the scope of arbitral jurisdiction, particularly where an arbitration agreement lacks an escalation clause, thereby precluding the arbitrator from assuming jurisdiction to award escalation charges. Section 30 relates to the enforcement of awards as decrees, while Section 33 governs the modification or setting aside of awards on specified grounds. In this case, the absence of an escalation clause in the arbitration agreement directly implicates Section 13, rendering any escalation award beyond the arbitrators jurisdiction and subject to setting aside under Section 33. The principles under Section 30 and relevant case law inform the enforceability of the awards other components, such as interest, as rule of court.
(B) Key legal principles include that an arbitrator lacks jurisdiction to award escalation charges in the absence of an express escalation clause; pendente lite interest is permissible where the agreement does not prohibit it and the dispute involves a claim for interest; and interest for the pre-reference period may be awarded with appropriate safeguards, such as a bank guarantee subject to constitutional review.
Facts of the case:
The dispute originated from an arbitration proceeding commenced in 1975, remaining pending for nearly one and a half decades. The arbitration agreement did not contain an escalation clause. The arbitrator made an award granting escalation charges, pendente lite interest, and interest for the pre-reference period. The High Court of Orissa dismissed an appeal against the order making the award a rule of court, leading to this special leave appeal challenging the award's components.
Findings of Court:
The court found that the escalation component of the award was unsustainable due to the absence of an escalation clause, constituting a patent error. The pendente lite interest award was sustained as the agreement did not prohibit interest and the dispute included a claim for interest. For the pre-reference interest, the court directed execution subject to furnishing a bank guarantee, conditioned on the outcome of a constitutional reference.
Issues:
1) Whether the arbitrator could award escalation charges in the absence of an escalation clause. 2) Whether the arbitrator could award pendente lite interest. 3) Whether the arbitrator could award interest for the pre-reference period.
Ratio Decidendi:
In the absence of an escalation clause, the arbitrator had no jurisdiction to award escalation charges. Pendente lite interest is permissible where the agreement does not prohibit it and the dispute involves a claim for interest. Pre-reference interest may be awarded with safeguards, such as a bank guarantee, pending constitutional determination.
Result:
The appeal is disposed of with the impugned judgment and decree modified accordingly; escalation charges are struck down, pendente lite interest is upheld, and pre-reference interest is directed to be executed upon furnishing a bank guarantee.
(A) The Arbitration Act provisions cited govern the scope and limitations of arbitral authority and post-award judicial scrutiny. Section 13 addresses the scope of arbitral jurisdiction, particularly where an arbitration agreement lacks an escalation clause, thereby precluding the arbitrator from assuming jurisdiction to award escalation charges. Section 30 relates to the enforcement of awards as decrees, while Section 33 governs the modification or setting aside of awards on specified grounds. In this case, the absence of an escalation clause in the arbitration agreement directly implicates Section 13, rendering any escalation award beyond the arbitrators jurisdiction and subject to setting aside under Section 33. The principles under Section 30 and relevant case law inform the enforceability of the awards other components, such as interest, as rule of court.
(B) Key legal principles include that an arbitrator lacks jurisdiction to award escalation charges in the absence of an express escalation clause; pendente lite interest is permissible where the agreement does not prohibit it and the dispute involves a claim for interest; and interest for the pre-reference period may be awarded with appropriate safeguards, such as a bank guarantee subject to constitutional review.
Facts of the case:
The dispute originated from an arbitration proceeding commenced in 1975, remaining pending for nearly one and a half decades. The arbitration agreement did not contain an escalation clause. The arbitrator made an award granting escalation charges, pendente lite interest, and interest for the pre-reference period. The High Court of Orissa dismissed an appeal against the order making the award a rule of court, leading to this special leave appeal challenging the award's components.
Findings of Court:
The court found that the escalation component of the award was unsustainable due to the absence of an escalation clause, constituting a patent error. The pendente lite interest award was sustained as the agreement did not prohibit interest and the dispute included a claim for interest. For the pre-reference interest, the court directed execution subject to furnishing a bank guarantee, conditioned on the outcome of a constitutional reference.
Issues:
1) Whether the arbitrator could award escalation charges in the absence of an escalation clause. 2) Whether the arbitrator could award pendente lite interest. 3) Whether the arbitrator could award interest for the pre-reference period.
Ratio Decidendi:
In the absence of an escalation clause, the arbitrator had no jurisdiction to award escalation charges. Pendente lite interest is permissible where the agreement does not prohibit it and the dispute involves a claim for interest. Pre-reference interest may be awarded with safeguards, such as a bank guarantee, pending constitutional determination.
Result:
The appeal is disposed of with the impugned judgment and decree modified accordingly; escalation charges are struck down, pendente lite interest is upheld, and pre-reference interest is directed to be executed upon furnishing a bank guarantee.
ORDER
This appeal by special leave arises out of arbitration proceedings. The High Court of Orissa dismissed an appeal filed by the appellant against the order of Subordinate Judge, Bhubaneshwar making an award made by the Arbitrator a rule of the Court. The three main issues with which we are concerned in this appeal are :
"1. Whether the Arbitrator could have granted an award for escalation in favour of the contractor?
2. Whether the Arbitrator could have awarded pendente lite interest in favour of the contractor? and
3. Whether the Arbitrator could have granted interest for the pre-reference period?"
2. It is not disputed that the arbitration agreement contained no escalation clause. In the absence of any escalation clause, an Arbitrator cannot assume any jurisdiction to award any amount towards escalation. That part of the Award which grants escalation charges is clearly not sustainable and suffers from a patent error. The decree, insofar as the award of escalation charges is concerned, cannot, therefore, be sustained.
3. It is conceded by Ms. Mana Chakraborty, learned counsel for the State that the issue relating to the power of the Arbitrator to grant interest pendente lite where the agreement between the parties, as in the present case, did not prohibit grant of interest and the dispute referred to the Arbitrator included the claim of interest, is no longer res-integra and stands settled in favour of the claimant and against the State in Secretary, Irrigation Department, Government of Orissa v. G.C. Roy1 overruling the view to the contrary as expressed in Executive Engineer (Irrigation) Balimela & Others v. Abhaduta Jena & Others2. The decree to the extent, it awards pendente lite interest in favour of the respondents, therefore, is sustained and the challenge to it fails.
4. So far as the award of interest for pre-reference period is concerned, it appears appropriate to us, keeping in view the fact that the proceedings in this case have remained pending for almost one and a half decade and the arbitration started as early as in 1975, to direct that the respondent shall execute the decree relating to the award of pre-reference interest only on furnishing a bank guarantee to the extent of that amount together with an undertaking that in the event the Constitution Bench, to which this issue has been referred to in Executive Engineer, Dhankanal Minor Irrigation Division, Orissa v. N.C. Budhiraj (Dead) by L.Rs.3 decides against the decreeholder-respondents, the State shall be entitled to encash the bank guarantee. The respondents shall keep the bank guarantee alive during the pendency of the matter before the Constitution Bench and on furnishing the bank guarantee and the undertaking the respondents can execute the decree in that behalf.
5. Thus, the appeal is disposed of in above terms. The impugned judgment and decree shall stand modified accordingly. No costs.
(C.R.) Appeal disposed of accordingly.
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Parallel Citations of other Journals :
State of Orissa v. Sudhakar Das (dead) by LRs. , 2000(2) Supreme 119 : 2000(2) JT 465 : 2000 (1) Cur. C.C. 284 : 2000 (1) Arbi. L.R. 444 : (2000) 3 SCC 27 : AIR 2000 SC 1294
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