(Prayer: Civil Miscellaneous Appeal is filed under Section 37 of the Arbitration and Conciliation Act, 1996, to set aside the impugned order dated 12.02.2021 passed by the respondent Sole Arbitrator in Arbitration O.P.No.11 of 2018 before the Principal District Judge, Tiruchirappalli.)
N. Anand Venkatesh, J.
1. This appeal has been filed under Section 37 of the “Arbitration and Conciliation Act, 1996” (for brevity hereinafter referred to as “the Act”), against the order dated 12.02.2021 passed by the Principal District Judge, Tiruchirappalli, in Arbitration O.P. No. 11 of 2018, dismissing the petition and confirming the award passed by the Sole Arbitrator dated 30.04.2018.
2. The respondent who is the claimant was a successful tenderer on a tender floated by the appellant for the construction of Phase-I of the Hospital Complex, Medical College Block and other ancillary blocks. Under Letter of Intent dated 02.07.2009, the work was allotted to the claimant at the cost of Rs.86.50 crores. The work was to be executed within a period of 12 months from the date of handing over of the site.
3. The further case of the claimant is that, by separate contracts, the appellant gave the electrical and plumbing works to the claimant under Letters of Intent dated 16.12.2009 and 19.03.2010, respectively. An architect was appointed for the purpose of providing the drawings and work had to be executed as per the approved drawings and the final bill that is submitted had to be certified by the architect.
4. There was no issue till the certification and payment of 17 running bills. Thereafter, the architect stopped certifying the bills and even for the additional works done by the claimant, the payment was not forthcoming. The work was completed as early as on 30.08.2011 and it was informed by the claimant to the appellant on 08.09.2011. The final bill was submitted on 15.12.2011. Since the payment was not made, a trigger notice under Section 21 of the Act was issued on 08.11.2012. Thereafter various negotiations took place but the appellant denied the claims made by the respondent. Hence, an application came to be filed under Section 11 of the Act before this Court in O.P. No. 645 of 2016 and by order dated 18.07.2016, the Arbitral Tribunal was constituted.
5. The respondent/claimant filed the claim petition and made the following claims:
| Sl.No | Claim | Amount | Remarks |
| 01 | Payment towards the running bills | 12,44,32,296/- | Certified and submitted bills enclosed. payment abstract The is enclosed as Annexure – B |
| 02 | Interest on payment towards running bills i.e. on 12,44,32,296/- | 13,70,04,738/- | The interest calculation is enclosed as Annexure – C |
| 03 | Retention Amount | 4,20,33,366/- | Please refer Annexure – B |
| 04 | 04 Interest @ 18& on Retention amount of Rs.4,17,16,701/- from 29/08/2012 to 25/02/2017 | 3,40,15,933/- | The interest calculation is enclosed as Annexure – C |
| 05 | Extra submitted Claims on 23/06/2011 | 5,68,53,476/- | Please refer Exhibit C.10 |
| 06 | Interest @ 18% on the extra claims i.e. from 23/06/2011 to 25/02/2017 | 5,81,49,424/- | The interest calculation is enclosed as Annexure – C |
| Total Amount in INR | 45,24,89,232/- | ||
The interest calculation is enclosed as Annexure – C It therefore prayed that this Hon'ble Tribunal may be pleased to pass an award directing the Respondent to pay a sum of Rs.45,24,89,232/- including the interest at 18% per annum on the principal sum of Rs.22,33,19,138/- along with cost and pass such other suitable order as this Hon'ble Tribunal may deem fit and proper on the facts and circumstances of the case.
6. The appellant filed the statement of defence and took a stand that it was a lumpsum contract for a total sum of Rs.77 crores and out of the same nearly Rs.70 crores was paid and if at all there was any balance amount due and payable, it is only Rs.7 crores. Certification was not done by the Architect since the work was not completed. The additional amount claimed by the respondent/claimant did not even form part of the final bill that was submitted and all of the sudden it was included in the claim statement without any basis. Accordingly, the appellant sought for the rejection of the claim petition.
7. The Sole Arbitrator on considering the pleadings, framed the following issues;
“a) Whether the contract awarded to the Claimant is a lump sum contract or Bill of Quantities on re-measureable contract?
b) Whether the Claimant's entitlement on payment is based on the final measurement of work executed?
c) Whether the Claimant had executed the job as per the instructions of the Respondent's architects as mandated under the contract?
d) Whether the claimant was deficient in performing any of the services that it was liable to perform under the Tender Document dated 20.05.2009 and the LOI dated 02.07.2009?
e) Whether the Claimant is entitled for amount duly certified by the architects as mandated under the contract which includes the Extra items?
f) Whether Respondent has made all the payments as per the Certification of the Architect?
g) Whether the Respondent is right in withholding the Retention amount?
h) Whether the letter of Invocation of Arbitration dated 08.11.2012 is within the Period Limitation as prescribed?
i) Whether the Claimant is entitled to the relief as prayed for in the claims statement?
j) What are the other reliefs the parties are entitled to?”
8. The Sole Arbitrator on considering the facts and circumstances of the case and on appreciation of evidence passed an award dated 30.04.2018 by directing the appellant to pay a sum of Rs. 44,97,87854/- to the claimant and also awarded 18% interest from the date of award till the date of actual payment.
9. Aggrieved by the above award passed by the Sole Arbitrator, the appellant filed a petition under Section 34 of the Act before the Principal District Judge, Tiruchirappalli. The said petition came to be dismissed by an order dated 12.02.2021, on the ground that none of the grounds provided under Section 34 of the Act has been made out. Aggrieved by the same, the present appeal has been filed before this Court. 10. The learned Senior Counsel for the appellant submitted that the additional amount that was claimed by the claimant did not even form part of the final bill that was submitted on 15.12.2011 and for the first time, it was claimed in the claim statement and the same has been awarded along with interest and that it requires the interference of this Court. The other ground that was raised by the learned Senior Counsel for the appellant is that the Sole Arbitrator has awarded 18% interest towards additional amount as well as the retention money which is on the higher side. Even post-award 18% interest has been awarded which is on the higher side. Apart from that, the claimant took his own time to even issue the trigger notice and filed the statement of claim and therefore, for a period of more than four years, the delay is attributable to the claimant and interest ought not to have been granted for this period. It was submitted that the Court below did not appreciate any of these grounds and dismissed the petition without assigning any reasons and the same requires the interference of this Court.
11. Per contra, the learned counsel for the respondent submitted that the Arbitral Tribunal had properly appreciated the evidence and fixed the appropriate rate of interest and passed the award. Since the award did not suffer from any of the eventualities prescribed under Section 34 of the Act, the Court below had dismissed the petition and that the same does not require interference of this Court.
12. This Court has carefully considered the submissions made on either side and the materials available on record.
13. The learned Senior Counsel appearing for the appellant raised a preliminary issue regarding limitation on the ground that the claim itself is barred by limitation. It was submitted that the final bill was submitted on 15.12.2011 and the trigger notice was issued on 08.11.2012 and whereas the application under Section 11 of the Act was filed only in the year 2016 and the claim statement was filed only in the year 2017. The learned Senior Counsel submitted that even though the issue of limitation with respect to filing the application under Section 11 of the Act cannot be raised before the Sole Arbitrator, certainly the issue of the claim itself being barred by limitation can be raised before the Sole Arbitrator and the same has not been properly considered by the Sole Arbitrator.
14. The learned Senior Counsel submitted that an application was filed under Section 16 of the Act before the Sole Arbitrator raising the issue of limitation and the same was rejected. An application was filed before this Court in Application No.4714 of 2017 to recall the order passed under Section 11 of the Act. This application was dismissed by an order dated 13.09.2017. Even while dismissing the application, this Court made it clear that the challenge on the ground of limitation with regard to the claim can be considered and decided by the Tribunal. Therefore, there was no bar for the Tribunal to consider this issue.
15. The ground of limitation raised by the learned Senior Counsel is unsustainable since this issue was virtually given up before the Tribunal and the same is evident from paragraph 42 of the award which is extracted hereunder:
“42. On the question as to whether the letter of Invocation of Arbitration clause dated 08/11/2012 is within the period of limitation as prescribed, the said issue was already considered under a separate order dated 15.07.2017 and the same was challenged by the respondent herein before the Hon'ble High Court By order dated 13.09.2017 in App. No 4714/2017 in OP No 645 of 2016 the Hon'ble High Court dismissed the said application.. No serious issue is raised by the respondent as to whether the claim is barred by limitation and learned senior counsel submitted that the respondent is not making any issue on this.”
16. The next issue is regarding the non-payment of the bill which were even certified by the Architect. It was submitted that the contract was a lumpsum contract and whereas, the Tribunal applied Bill of Quantities (BOQ) and awarded the amount. The above issue was dealt with by the Tribunal in paragraphs 13 to 17 and on appreciation of evidence, the Tribunal found that the executed work was measured in terms of the drawings and with the rates applied as quoted in BOQ and accordingly answered issue No.1. Rightly this finding was not interfered by the Court below under Section 34 of the Act.
17. The next main issue that was raised is with respect to the additional amount that was claimed by the respondent/claimant.
18. In the claim statement itself, the additional amount has been explained at paragraphs 21 and 22. In the statement of defense, the appellant has not denied about the electrical and plumbing works that were done by the claimant as additional work and what has been raised is only the non-completion of the work within the stipulated time.
19. The above issue was considered in detail by the Sole Arbitrator in paragraphs 34 and 35 of the award. On appreciation of evidence, the Sole Arbitrator found that the work was actually performed by the claimant and the same was also quantified and therefore, there was no reason for the appellant to deny the said payment. This is a finding of fact and it cannot be certainly interfered in a petition filed under Section 34 of the Act.
20. The last issue is regarding the interest amount fixed by the arbitral Tribunal and the interest that was given for the period between 2012 and 2026. Insofar as the period between 2012 and 2016, it is seen from records that the parties were negotiating and the same was sufficiently pleaded by the claimant in paragraphs 27 to 30 of the claim petition. The last of the communication was received from the appellant on 06.05.2014 (Ex.C22) and even for this letter, the claimant addressed letter dated 16.05.2014. Since the payment was not forthcoming in spite of the best efforts made by the claimant, the claimant proceeded to file the petition under Section 11 of the Act in the year 2016 within the period of limitation. The amount that has been awarded by the arbitral Tribunal is payable to the claimant as early as in the year 2011 itself. If this amount is not paid on time, obviously, the claimant will be entitled for interest for the entire period it remained unpaid. Therefore, there is nothing wrong in the award passed by the Sole Arbitrator directing payment of interest for the entire period.
21. The last issue pertains to the rate of interest at 18% awarded by the Sole Arbitrator and which was confirmed by the Court below.
22. Section 31(7)(a) and 37(7)(b) deals with award of interest till the date of passing of the award and post-award.
23. In the case in hand, it is admittedly a commercial transaction and the pre-award interest at the rate of 18% was awarded on the principal sum and the aggregate of the principal and the pre-award is the sum on which the post-award interest must be granted. The law on this issue has been settled by the Apex Court in Morgan Securities and Credits Private Limited v. Videocon Industries Limited, reported in (2023) 1 SCC 602.
24. Section 31(7)(a) confers the arbitrator with the discretion to determine the rate of interest, the period for which the interest is to be paid and the quantum on which the interest is to be awarded and this discretionary power is subject to the contract between the parties. In the instant case, while calculating the interest, the Sole Arbitrator took into consideration the fact that the contract between the parties is a commercial contract. The Sole Arbitrator also carefully considered the period for which the interest has to be granted. Insofar as the retention amount is concerned, the Sole Arbitrator took into consideration the default period of one year which expired at the end of 23.11.2012 and granted interest only from that date till the date of claim petition.
25. Insofar as the interest on the additional amount, it was an amount which was payable on the completion of the work and therefore, interest was imposed for the entire period. Granting 18% interest is certainly not on the higher side and it does not require the interference of this Court.
26. Insofar as the post-award interest at the rate of 18% is concerned, the Apex Court in the case of Morgan Securities (referred supra) held as follows:
“28. In view of the discussion above, we summarise our findings below:
28.1. The judgment of the two-Judge Bench in SL Arora (supra) was referred to a three-Judge Bench in Hyder Consulting (supra) on the question of whether post award interest could be granted on the aggregate of the principal and the pre-award interest arrived at under Section 31(7)(a) of the Act;
28.2. Bobde, J.’s opinion in Hyder Consulting held that the arbitrator may grant post-award interest on the aggregate of the principal and the pre-award interest. The opinion did not discuss the issue of whether the arbitrator could use their discretion to award post-award interest on a part of the ‘sum’ awarded under Section 31(7)(a);
28.3. The phrase ‘unless the award otherwise directs’ in Section 31(7)(b) only qualifies the rate of interest;
28.4. According to Section 31(7)(b), if the arbitrator does not grant post-award interest, the award holder is entitled to post-award interest at eighteen percent;
28.5. Section 31(7)(b) does not fetter or restrict the discretion that the arbitrator holds in granting post award interest. The arbitrator has the discretion to award post-award interest on a part of the sum;
28.6. The arbitrator must exercise the discretionary power to grant post-award interest reasonably and in good faith, taking into account all relevant circumstances.
28.7. By the arbitral award dated 29.04.2013, a post-award interest of eighteen percent was awarded on the principal amount in view of the judgment of this Court in SL Arora (supra). In view of the above discussion, the arbitrator has the discretion to award post-award interest on a part of the ‘sum’; the ‘sum’ as interpreted in Hyder Consulting (supra). Thus, the award of the arbitrator granting post award interest on the principal amount does not suffer from an error apparent.”
27. The Apex Court in the above judgment dealt with the scope of Section 31(7)(b) in particular and held that the award holder will be entitled to post-award interest at 18%. This interest will be payable on the aggregate of the principal and the pre-award interest arrived at under Section 31(7)(a) of the Act.
28. In the light of the above discussion, this Court does not find any ground to interfere with the interest awarded by the Sole Arbitrator and which was confirmed by the Court below.
29. The Court below while dealing with the petition under Section 34 of the Act considered the grounds raised by the appellant and came to the conclusion that those grounds do not qualify for interference with the award, since it did not fall within any of the eight pigeon holes available under Section 34 of the Act. While this Court exercises its appellate jurisdiction under Section 37 of the Act, the test is even more stringent and the appellate Court will not interfere unless a patent illegality is pointed out in the order passed by the Court below.
30. In the result, the appeal fails and accordingly, CMA(MD) No.85 of 2022 is dismissed. Parties shall bear their own costs.