Facts of the Case:
On 16th November, 1988, the appellant, Atlanta Ltd., a construction company got in contract with the Union of India for constructing a runway and allied works at the Naval Air Station, Arakonam. The contract said that the work has to be completed in 21 months i.e. by 23rd August, 1990. But the company stated that they could begin to start the work only from 1st January, 1989, since the site was heavily waterlogged due to the rainy season. The Union of India granted three times extensions to the company till the last deadline set as 31st March, 1992. But the President visited the place on 11th March which led to the stoppage of work for some time as the contractors and labourers were not permitted in the area due to security reasons. As a consequence, the work was not finished on 31st March and when company sought for extension the Chief Engineer terminated the contract via issuing a vide letter dated 2nd April.
Aggrieved by this, the company invoked Arbitration clause mentioned in the contract and the Sole Arbitrator was appointed to adjudicate the disputes between the parties. The arbitrator pronounced the reward wherein the Union of India has to pay a certain amount inclusive of interest up to 31st May, 1999. Further, future interest was directed to be paid by the Union of India from 1st June, 1999 at the rate of 18% per annum on the principal amount till realization.
The Union of India move a petition under Section 30 read with Section 33 of the Arbitration Act, 1940. However, the petition was dismissed by the Single Judge and the award was affirmed. The Union of India challenged the judgment dated 19th January, 2009 in an intracourt and an appeal was filed. The Division Bench look into the matter and set aside the amount awarded in favour of the company towards idle hire charges and the value of the tools and machineries. Further, the Award in respect of the extension of time and illegal termination of the contract on the part of the Union of India, were also set aside.
Issues before the Court:
(i) Whether the extension of time and validity of the termination of the contract on the part of the Union of India reasonable?
(ii) Whether the company is entitled to the claim granted in its favour in respect of idle hire charges at the site from 02nd April, 1992 to 23rd December, 1995, with interest from 24th December, 1995 to 31st December, 1999 and the value of the tools and machineries?
Judgement:
The court sit over the appeal only on the grounds mentioned in Section 30 and 33 of the Arbitration Act which stated that the arbitral award can be challenged only when there is an error on the face of the Award or when the learned Arbitrator has mis-conducted himself or the proceedings. The court observed that the sufficient time was not extended by the Union of India considering all the 20 reasons cited by the company being accepted as reasonable.
The court in regarding the issue of idle charges and machinery cost found that the even though the Madras High Court allowed to collect the equipments lying on the site, when the Union of India was approached for inspection of the machineries and to verify tampering/missing parts, the latter had refused to prepare any inventory and had stated that the machineries and equipments will be released on a “as is where is basis”. The court observed that the Union of India failed in mitigating the damages to the company by not returning the tools and machineries lied there and held that the company is entitled is to idle hire charges from 2nd April, 1992, the date of termination of the contract, till 23rd December, 1995, the date of completion of the balance contract work by the BRO with 18% interest payable.
The court concluded that the Appellate Court wrongfully interfered in the well settled legal proposition that the Arbitrator is the final arbiter of the disputes between the parties and it is not open to a party to challenge the Award on the ground that he has drawn his own conclusions or has failed to appreciate certain facts. The Appellate Court has no jurisdiction in deciding the reasonableness of the reasons due to which the Sole Arbitrator pronounces the Award. Also, the submissions made by the Union of India that the Sole Arbitrator has misconducted himself is also unjustified. The court found that the conclusions are consistent with his findings and the records reveal that material documents were thoroughly examined by the learned Sole Arbitrator in the correct perspective.
Court Order:
The impugned judgment dated 20th July, 2010 passed by the Division Bench of the High Court cannot be sustained and is quashed and set aside, while restoring the judgment dated 19th June, 2009 passed by the learned Single Judge and upholding the decree granted in favour of the appellant-claimant in terms of the Award along with interest.
This article is written by Naman Aggarwal of Dr. Ram Manohar Lohiya National Law University.
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