2001 JTR(SC) 1621
2002 AIR(SC) 258 ; 2001 AIR(SCW) 4936 ; 2001 3 ArbLR 561 ; 2002 1 CivLJ 833 ; 2002 DNJ 42 ; 2002 1 ICC 417 ; 2002 1 JCR(SC) 227 ; 2001 10 JT 115 ; 2001 8 Scale 292 ; 2002 1 SCC 659 ; 2001 SCR 350 ; 2001 8 Supreme 481
2001(8) Supreme 481
SUPREME COURT OF INDIA
(From Rajasthan High Court)
M.B. Shah and B.N. Agrawal, JJ.
State of Rajasthan & Anr. -Appellant
versus
M/s. Nav Bharat Construction Co. -Respondents
Civil Appeal No. 8115 of 2001
(Arising out of SLP (C) No. 7192 of 2001)
With
Special Leave Petition (C) No. 6172 of 2001
Decided on 27-11-2001
Counsel for the Parties :
For the Appearing Parties : Javed Mahmud Rao and V. Krishna Murthy, Advocates.
For the Petitioner in S.L.P. (C) No. 6172 of 2001 : In person.
IMPORTANT POINT
Though the judgment and decree of High Court confirming the award is not illegal on ground that the arbitrator awarded interest despite the contrary condition in the agreement but the rate of interest awarded is reduced (as stated) considering the dispute involved and overall circumstances of the case.
Act
Referred
:ARBITRATION ACT : S.30
CIVIL PROCEDURE CODE : O.2 R.2
(A) The Arbitration Act (S.30) and the Civil Procedure Code (O.2 R.2) govern the present appeal concerning the legality of an arbitral award and its confirmation by the High Court. The appellant challenged the award on grounds of non-consideration of a counter-claim, improper maintainability of a second reference, and alleged error in awarding interest contrary to the agreement. The court applied the statutory framework for setting aside or modifying awards, evaluating whether such challenges fall within the limited scope of judicial review under the Arbitration Act. The interpretation of the clause on interest and the procedural bar of Order 2 Rule 2 CPC were examined in light of the parties conduct and the reasoned nature of the award.
(B) Key legal principles include: (i) an arbitral award may be set aside or modified only on grounds specified under the Arbitration Act; (ii) counter-claims or set-offs not pleaded or proved before the arbitrator are not revisitable on confirmation; (iii) the doctrine of waiver applies where a party fails to raise a specific objection before the arbitrator; (iv) courts exercise a limited supervisory role confined to the grounds under the Act; and (v) interest may be awarded by an arbitrator unless expressly prohibited, and its quantum may be modified by the court on appeal.
Facts of the case:
The dispute involved a contract between the parties where the respondent-contractor claimed payments including interest on delayed payments. The appellant raised contentions before the arbitral tribunal regarding set-off, the maintainability of a second reference, and the award of interest despite an alleged clause against it. These contentions were neither pleaded nor proved before the arbitrator. Subsequent appeals to the High Court and this Court challenged the legality of the award, particularly the interest provisions and procedural aspects.
Findings of Court:
The court held that the appellant failed to raise the counter-claim and set-off before the arbitrator, and the High Court correctly declined to examine such belated assertions. The contention regarding Order 2 Rule 2 CPC was not raised before the High Court and pertained to matters arising after the first reference. The clause on interest was not argued before the arbitrator or the lower courts, and the parties had acted in a manner indicating that interest was payable. Consequently, the court found no error apparent on the face of the record or misconduct by the arbitrator.
Issues:
Whether the arbitrator erred in not considering the counter-claim raised after the arbitration reference. Whether the second reference was barred by Order 2 Rule 2 CPC. Whether the arbitrator was entitled to award interest in view of the contractual clause. Whether the interest rate awarded was appropriate.
Ratio Decidendi:
The court distinguished between objections that must be raised before the arbitrator and those cognizable during confirmation proceedings. It held that un-raised objections, including the counter-claim and the alleged prohibition on interest, were not open for judicial review. The court further exercised its supervisory jurisdiction to correct the interest rate, modifying it to a reasonable 6% per annum, while dismissing other challenges as untenable.
Result:
The appeal is dismissed with respect to the main contentions. The arbitral award is confirmed, subject to a reduction of the interest rate to 6% per annum. The SLP for enhancement of interest is dismissed. Costs are borne by the respective parties.
(A) The Arbitration Act (S.30) and the Civil Procedure Code (O.2 R.2) govern the present appeal concerning the legality of an arbitral award and its confirmation by the High Court. The appellant challenged the award on grounds of non-consideration of a counter-claim, improper maintainability of a second reference, and alleged error in awarding interest contrary to the agreement. The court applied the statutory framework for setting aside or modifying awards, evaluating whether such challenges fall within the limited scope of judicial review under the Arbitration Act. The interpretation of the clause on interest and the procedural bar of Order 2 Rule 2 CPC were examined in light of the parties conduct and the reasoned nature of the award.
(B) Key legal principles include: (i) an arbitral award may be set aside or modified only on grounds specified under the Arbitration Act; (ii) counter-claims or set-offs not pleaded or proved before the arbitrator are not revisitable on confirmation; (iii) the doctrine of waiver applies where a party fails to raise a specific objection before the arbitrator; (iv) courts exercise a limited supervisory role confined to the grounds under the Act; and (v) interest may be awarded by an arbitrator unless expressly prohibited, and its quantum may be modified by the court on appeal.
Facts of the case:
The dispute involved a contract between the parties where the respondent-contractor claimed payments including interest on delayed payments. The appellant raised contentions before the arbitral tribunal regarding set-off, the maintainability of a second reference, and the award of interest despite an alleged clause against it. These contentions were neither pleaded nor proved before the arbitrator. Subsequent appeals to the High Court and this Court challenged the legality of the award, particularly the interest provisions and procedural aspects.
Findings of Court:
The court held that the appellant failed to raise the counter-claim and set-off before the arbitrator, and the High Court correctly declined to examine such belated assertions. The contention regarding Order 2 Rule 2 CPC was not raised before the High Court and pertained to matters arising after the first reference. The clause on interest was not argued before the arbitrator or the lower courts, and the parties had acted in a manner indicating that interest was payable. Consequently, the court found no error apparent on the face of the record or misconduct by the arbitrator.
Issues:
Whether the arbitrator erred in not considering the counter-claim raised after the arbitration reference. Whether the second reference was barred by Order 2 Rule 2 CPC. Whether the arbitrator was entitled to award interest in view of the contractual clause. Whether the interest rate awarded was appropriate.
Ratio Decidendi:
The court distinguished between objections that must be raised before the arbitrator and those cognizable during confirmation proceedings. It held that un-raised objections, including the counter-claim and the alleged prohibition on interest, were not open for judicial review. The court further exercised its supervisory jurisdiction to correct the interest rate, modifying it to a reasonable 6% per annum, while dismissing other challenges as untenable.
Result:
The appeal is dismissed with respect to the main contentions. The arbitral award is confirmed, subject to a reduction of the interest rate to 6% per annum. The SLP for enhancement of interest is dismissed. Costs are borne by the respective parties.
JUDGMENT
Shah, J.-
C.A.No. 8115 of 2001 @ S.L.P. (C) No. 7192 of 2001
Leave granted.
2. Learned Senior Counsel Mr. Ashwani Kumar appearing for the appellant contended that the judgment and decree passed by the High Court confirming the award made by the arbitrator is on the face of it illegal because:
(a) arbitrator has failed to consider counter-claim
(b) second reference to arbitrator was not maintainable under Order 2 Rule 2 CPC, and
(c) the arbitrator has awarded interest despite the contrary condition in the agreement.
3. As against this, Mr. G.L.Sanghi learned senior counsel for the respondent as well as the respondent who is appearing in person submitted that in the written statement counter-claim or set off was neither pleaded nor proved by the appellant before the arbitrator. He also contended that in case of claims raised by the respondent after preparation of final bill, there is no question of application of Order 2 Rule 2 CPC as rightly held by the arbitrator and the Courts below. For the contention based on clause 23 of the Agreement, it is submitted that the appellant never contended before the arbitrator that clause 23 provides for non-payment of interest in such cases. It is pointed out that neither before the arbitrator nor before the courts below, it was contended that arbitrator had no authority to grant interest in view of clause 23. Only contention which was raised was with regard to grant of interest pendente lite for which reliance was placed on various decisions of this Court.
4. We would state that the respondent who is appearing in person has in the alternative referred to the decision rendered by this Court in State of U.P. v. Harish Chandra & Co. [(1999) 1 SCC 63] and submitted that similar clause is interpreted by this Court and it is held that there is no such prohibition on granting interest. He further pointed out that if such plea was raised, he would have produced the necessary documentary evidence or the letters written by the concerned officers and proved that interest was payable for wrongfully withholding the amount due and payable.
5. In our view, it has been rightly pointed out that in the written statement, appellants have not claimed any set off or filed counter claim for the alleged amount due and payable by the contractor on the alleged ground that Accountant General s Office has raised objection for payment of labour charges at accelerated rate. In our view as no such set off or claim nor any counter claim was filed by the appellant, arbitrator has rightly not considered the same which was sought to be raised after lapse of 4 years of reference. Further the High Court has noted that the learned Additional Advocate General was unable to point out any legal basis to support the contention that arbitration was required to go into the counter-claim in the circumstances of the present case.
6. There is also no substance in the contention raised by Mr. Ashwani Kumar, learned senior counsel for the appellant that the second reference was barred by Order 2 Rule 2 CPC. As such, the contention was not raised before the High Court. In any case, the dispute with regard to the subsequent claims arose after the first reference, that is, after the final bill was prepared and this aspect is rightly dealt with by the Additional District Judge.
7. Lastly, in the present case, the award passed by the arbitrator is reasoned one. The contention raised by the learned counsel for the appellant that under Clause 23 of the Agreement between the parties, contractor was not entitled to recover any interest on delayed payment was neither raised before the arbitrator, the District Court or before the High Court. This question depends upon the evidence which may be led by the parties as well as interpretation of clause 23 by the parties and the arbitrator. The parties have understood that there is no bar on granting interest on delayed payments. It appears that no such contention was raised on behalf of the State of Rajasthan. In this view of the matter, it cannot be held that arbitrator has committed any error apparent on the face of the record or has misconducted himself in passing the impugned award. It is settled law that scope for setting aside the award is limited to the grounds available under the Arbitration Act which have been well defined by long line of decided cases. In this view of the matter, it is not necessary for us to consider the contention of the contractor that similar clause is interpreted by this Court in Harish Chandra and Company s case (supra) and it is held that there is no bar on granting interest. In our view as the contention was not raised before the arbitrator or at any stage thereafter, it is not necessary for us to deal with or decide the same in this appeal.
8. However, considering the dispute involved and overall circumstances of the case, we modify the award qua the rate of interest and reduce the same at the rate of 6% per annum. The arbitrator in paragraph 21.8.1 of the award has granted interest on the principal amount of claims No. 1 to 8 from 1.7.1990 to 30.4.1998 and 10 to 18 from 29.4.1991 to 30.4.1998 at the rate of 18% and the District Court has awarded interest at the rate of 15% from the date of decree. That part of the award and decree is modified and it is held that respondent-claimant is entitled to recover the said amount with interest at the rate of 6% only. The appeal is disposed of accordingly. Parties to bear their own costs of litigation all throughout.
S.L.P. (C) No. 6172 of 2001 :
9. In view of the aforesaid order, the S.L.P. filed by the contractor for enhancement of interest rate from 15% to 18% would not survive and is dismissed.
(N.K.R.) Appeal disposed of accordingly. SLP dismissed.
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