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Bombay High CourtIndian Cases

Maharashtra State Electricity Board … vs Maharashtra Conductors Association on 16 August 2002

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Bombay High Court
Maharashtra State Electricity Board, … vs Maharashtra Conductors Association on 16 August, 2002
Equivalent citations: 2003(1)BOMCR789
Author: D.Y. Chandrachud
Bench: D.Y. Chandrachud
JUDGMENT

D.Y. Chandrachud, J.

1. Admit. The learned Counsel for the respondents waives service. By consent taken up for hearing and final disposal forthwith.

2. In these proceedings under section 34 of the Arbitration and Conciliation Act, 1996, an Award of a sole arbitrator rendered on 8th April, 2002 is called into question. The respondent was the claimant in the arbitral proceedings and the claim before the arbitrator arose out of a reference which was made to arbitration, by consent in a writ petition filed under Article 226 of the Constitution of India. The members of the respondent on whose behalf a reference was made to arbitration supplied ACSR Conductors to the Maharashtra State Electricity Board (“the Board”). Payments had admittedly been made by the Board though beyond the stipulated dates prescribed in the contracts that were entered into by the Board with individual suppliers. In accordance with the provisions of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, a claim for interest was made before the Board. The claim was not accepted by the Board and this led to the filing of a writ petition under Article 226 of the Constitution of India. By an order dated 9th March, 2001, a Division Bench of this Court took on record consent terms which were signed by the parties and tendered before the Court by their Counsel. In accordance with those terms, the dispute between the parties relating to the claim of interest made by the members of the respondent, under the provisions of the Interest on Delayed Payments to Small Scale Industrial Undertakings Act, 1993 in respect of the delayed payment of the price of goods supplied to the Board under two contracts (details whereof are set out in the consent terms) was referred to the arbitration of Mr. Justice M.L. Pendse, former Chief Justice of the Karnataka High Court. The parties relied exclusively on documentary evidence before the arbitrator. The arbitrator has by an Award dated 18th April, 2002 held that the claim made by the respondent on behalf of its members must be accepted. The amounts which have been awarded are quantified in paragraph 15 of the Award. Future interest has been granted at the rate of 10% p.a. on the amounts thus awarded with effect from 1st July, 2001 which was the date on which the statement of claim was filed before the arbitrator.

3. The claim that was made by the respondents was in respect of two tenders, the first bearing No. SP/T/0802/0397 and the second bearing No. SP/T/0906/0698. Both the tenders were for the supply of ACSR conductors. Seven members of the respondent participated in the first tender, while in so far as the second is concerned, the claim that has been awarded is in respect of six members of the respondents. The dispute between the parties in the present case falls in a narrow compass, because the only point that has been urged in support of the challenge to the Award is in so far as the arbitrator awarded an amount of Rs. 15,00,117.36, in favour of a concern called Sri Tirupati Udyog (“STU”). The aforesaid concern had made a claim on the basis that it was a supplier under the second tender, bearing No. 906. In assailing the correctness of the Award of the learned arbitrator to this limited extent, the submission which has been urged on behalf of the petitioner is that the original contract that had been entered into by the Board was not with STU/as was claimed in the arbitration, but with an entity known by the name of Dashmesh Cables. Dashmesh Cables, it is urged, is not a member of the respondent and hence the submission was that the reference to arbitration is not maintainable to that extent.

4. In order to appreciate the submission which has been urged, it would be necessary to advert to three letters. The first dated 17th February, 1999 was addressed by Dashmesh Cables to whom the contract had been awarded to the board in which it was stated that it was facing difficulties in procuring raw material due to an abnormal delay on the part of the board in making payments. In the circumstances, the permission of the board was sought to supply conductors through STU, who was also a supplier of the board. In the letter, Dashmesh Cables undertook the contractual obligation of executing the order, but stated that supplies would be made by STU and payment may be made directly to STU. The second letter which was annexed to the letter of Dashmesh Cables dated 17th February, 1999 was a letter also of the same date by STU to the board by which it gave its consent to the supply of conductors contracted for and on behalf of Dashmesh Cables. STU also undertook the contractual liability to execute the order. In response to these letters, the board by its letter dated 23rd February, 1999 stated that the request by Dashmesh Cables for the supply of conductors through STU was accepted “on the same terms and conditions and prices and the delivery of supplies”. The board, however, clarified that all the contractual liabilities regarding performance of the contract will be those of Dashmesh Cables Bills, it was stated would be raised by STU and the payments would be made to them directly.

5. On the basis of these letters, the submission which has been urged before the Court is that the claim before the arbitrator must be regarded as a claim which was made by STU on behalf of Dashmesh Cables. Dashmesh Cables is not a member of the respondent which is an association representing suppliers of conductors in the State of Maharashtra. It was urged that the reference to arbitration in terms of the order of the Division Bench was as regards the dispute relating to the claim for interest made by the members of the respondent in respect of the delayed payments of the price of goods supplied to the board under the two contracts in issue. The submission is that the claim which is essentially one of Dashmesh Cables was not arbitrable. In the circumstances, it was urged that the Award can be impugned under section 34(2)(a)(iv) of the Arbitration and Conciliation Act, 1996 on the ground that the Arbitral Tribunal dealt with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or on the ground it contains decisions on matters beyond the scope of the submission to arbitration.

6. In considering the correctness of the submission which has been urged, it would, at the outset, be necessary to record that there are certain basic facts upon which there is no dispute between the parties. These are: (i) the claim in arbitration was submitted in the present case by the respondent on behalf of several of its members and one of them admittedly was STU; (ii) STU is admittedly a members of the respondent; (iii) Though payments were made by the Board to each of the suppliers, the payments were admittedly beyond the dates stipulated in the agreements that were entered into by the Board; and (iv) The computation of the claim that was submitted before the arbitrator was not disputed on behalf of the board and the only question was whether the claim was otherwise admissible under the provisions of the Act. In so far as the claim by STU was concerned, the submission of the Board was that the claim could not be entertained.

7. The learned Arbitrator has construed the letters to which a reference has been made in the earlier part of this order. The arbitrator noted that on 17th February, 1999, Dashmesh Cables sought permission to make supplies through STU who was a regular supplier of the board. While Dashmesh Cables stated that it was undertaking the contractual obligation of executing the supply order, supplies would be directly made by STU and the payments should also be directly released to the latter. STU communicated its acceptance of these terms and conditions in a separate letter to the Board. The Board by its letter to Dashmesh Cables accepted the request for the supply of conductors through STU. The Board noted that bills will be raised by the new supplier to whom the payments would be made directly by the Board. On the basis of this correspondence, the arbitrator concluded that in view of the acceptance of the respondent that supplies would be made by STU and that payments would be released directly to it, “it is too late in the day to urge that Tirupati Udyog was not the supplier and consequently the claim of Tirupati Udyog should not be granted”. Similarly, the arbitrator rejected the contention that Dashmesh Cables is not entitled to make a claim, not being a member of the association. The arbitrator held that the claim was not made before him by Dashmesh Cables, but in fact by STU.

8. In assessing the correctness of the submission which has been made on behalf of the petitioner, it would at the outset, be necessary to emphasise that the reference to arbitration that took place was in view of the consent terms which were filed before this Court in the writ petition under Article 226 of the Constitution of India initiated by the respondent inter alia against the petitioner board. The consent terms provided thus:

“1. The petitioners and respondent No. 2 agree to refer to a sole arbitrator for arbitration, under the provisions of the Arbitration and Conciliation Act, 1996, the dispute relating to the claim of interest made by the members of the petitioner in respect of the delayed payment of price of goods supplied to respondent No. 2 under the two contracts viz., SP/581/T-0802/0397 and SP/648/T-906/0698, under the provisions of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993.
2. The parties agree with Mr. Justice M.L. Pendse, Former Chief Justice of Karnataka High Court be appointed as sole arbitrator.”
9. Now, there is no dispute about the fact that the claim before the arbitrator that was made by the respondent included claims on behalf of members of the respondent including STU. No claim was made on behalf of Dashmesh Cables. There is no dispute about the fact whatsoever that STU is a member of the respondent association. The arbitrator exercised his jurisdiction as a result of the reference that was made before him in terms of the consent terms that were agreed upon between the parties as recorded in the order of the Division Bench dated 9th March, 2001. That being the position, the claim which was submitted on behalf of STU was clearly a claim on behalf of a member of the respondent and was arbitrable. In the circumstances, there is no merit in the contention that the claim was beyond the submission to arbitration or beyond the jurisdiction of the learned arbitrator.

10. Even apart from the aforesaid consideration, which is sufficient in itself to lead to a rejection of the arbitration petition, it would also be necessary to note that this is a case where the learned Arbitrator has for the purpose of considering the scope of his jurisdiction under section 16 of the Arbitration and Conciliation Act, 1996 construed the correspondence that was exchanged between the parties. The arbitrator has held that the correspondence clearly indicated that the petitioner herein had accepted that the supply would be made by STU and the payment would be released directly to it by the Board. The arbitrator was consequently, of the view that it is too late to contend that it was not STU which was the supplier. Besides the aforesaid finding which is contained in paragraph 8 of the Award, the learned Arbitrator while discussing Issue No. 4 has recorded that the amount which was paid by the Board was to STU and that consequently, the right to recover interest thereon would have to be that of STU and not of Dashmesh Cables. The view which has been taken by the learned Arbitrator, is in the opinion of the Court, the correct view in the facts and circumstances of the case. But the Court need not go as far as to hold that the view which has been formed by the learned Arbitrator on the basis of the correspondence is the only correct view in order to sustain the Award. The arbitrator was entitled to rule on his own jurisdiction under sub-section (1) of section 16 of the Arbitration and Conciliation Act, 1996. Undoubtedly, the decision of the arbitrator on a question relating to his jurisdiction cannot be conclusive for, section 32(2)(a)(iv) contemplates a challenge to an Arbitral Award inter alia if the Award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration or on the ground that it contains decisions on matters beyond the scope of the submission to arbitration. However, where in a case such as the present, the decision on the question of jurisdiction turns upon the construction to be placed on the correspondence exchanged between the parties and the view which has been taken by the arbitrator can by no means be regarded as perverse or contrary to the weight of the correspondence, the Court would not be justified in interfering with the Arbitral Award under section 34 of the Act.

11. In the present case, there is absolutely no dispute about the fact that supplies were effected to the Board by STU and that payments were released to the aforesaid supplier by the Board. Similarly liquidated damages were in fact deducted from the bills which were payable and which were paid to STU. The liability in the present case has arisen under the provisions of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. Section 2(f) defines the expression “supplier” to mean an ancillary industrial undertaking or a small scale industrial undertaking holding a permanent registration certificate issued by the Directorate of Industries of a State or Union territory. The expression also includes the National Small Industries Corporation and the Small Industries Development Corporation of a State. Under section 3 of the Act, it has been laid down that where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day. By virtue of the provisions of section 4 it is provided that where any buyer fails to make payment of the amount to the supplier, as required under section 3, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay interest to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon at one-and-a-half times the prime lending rate charged by the State Bank of India. Under section 5, notwithstanding anything contained in any agreement between a supplier and a buyer or in any law for the time being in force, the buyer shall be liable to pay compound interest with monthly rests at the rate mentioned in section 4. The expression “appointed day” is defined by section 2(b) to mean the day following immediately after the expiry of the period of 30 days from the date of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier. In the present case, there is no dispute about the fact that though the payments were made, they were made beyond the time which has been stipulated in section 3 of the Act. Consequently, the liability to pay interest under section 4 was squarely attracted. As noted earlier, the only question that was raised in these proceedings was as to whether the claim which has been made on behalf of STU was arbitrable. For the reasons already indicated, I have come to the conclusion that the claim was within the jurisdiction of the arbitrator and was arbitrable.

12. The second point which has been urged before the Court for consideration is in regard to the Award of interest at the rate of 10% p.a., from 1st July, 2001 until the date of payment. The statement of claim before the arbitrator was filed on 30th June, 2001 and consequently, interest at 10% has been awarded with effect from 1st July, 2001. The learned arbitrator has directed in para 15-D that in case, the petitioner fails to pay the amount awarded along with interest on or before 1st July, 2002, then the petitioner would be liable to pay compound interest with monthly rests at one and a half times the prime lending rate charged by the State Bank of India from 1st July, 2002 till realisation.

13. When this arbitration petition came up for admission, a learned Single Judge by an order dated 28th June, 2002 granted a stay of the Award only in so far as it related to payment to be made to STU. There is no dispute between the parties that the entire amount including the amount which is payable to STU has been deposited in this Court. In the circumstances, the abovementioned eventuality which has been contemplated in paragraph 15(D) of the Award of the arbitrator has admittedly not come into existence. Hence, interest at the rate of 10% is payable with effect from 1st July, 2001.

14. In so far as the rate of interest is concerned, the learned Arbitrator has furnished cogent reasons for not allowing the entire claim for further interest which was for the payment of interest at one and half times the prime lending rate of the State Bank of India from the date of the filing of the claim until payment. In so far as the statutory rate of interest payable under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 was concerned that has been granted by the arbitrator for the period during which it was payable viz., between the appointed date and the date on which the payment was eventually made by the Board to each of the suppliers. However, the learned Arbitrator was of the view that there were sufficient circumstances to warrant the payment of interest at the reduced rate of 10% from the date of the filing of the statement of claim until payment. The learned Arbitrator has relied upon the following observations contained in the judgment of the Supreme Court in Central Bank of India v. Ravindra and others, :

“Award of interest pendente lite and post decree is discretionary with the Court, as it is essentially governed by section 34 of the Code of Civil Procedure. In a given case if the Court finds that in the principal sum adjudged on the date of the suit the component of interest is disproportionate with the component of the principal sum actually advanced, the Court may exercise its discretion in awarding interest pendente lite and the post decree interest at a lower rate or may even decline awarding such interest. The discretion shall be exercised fairly, judiciously and for reasons and not arbitrarily or in fanciful manner.”
15. Having adverted to the law laid down by the Supreme Court, the arbitrator held that in the present case, the suppliers had received their payments for the supplies of conductors, though belatedly, and had also enjoyed the benefit of price variation. The Board has also waived the right to claim liquidated damages. The learned Arbitrator then referred to the fact that the suppliers seemed to have formed a cartel or consortium and held that it was not difficult to imagine why a cartel or consortium was formed. The suppliers were desirous of enjoying benefits of being small scale undertakings and though the suppliers were entitled to receive benefits under the statutory provisions contained in the Act of 1993, it could not be overlooked that the petitioner herein is a public Corporation. The financial burden placed on the board could be discharged only out of the tax payers’ amount. There was also some delay on the part of the claimant in adopting proceedings to recover the benefits payable under the Act. In the circumstances, the arbitrator was of the view that it would be appropriate to grant interest pendente lite and for the post Award period only at the rate of 10% p.a. and that too, simple interest and not compound interest. The arbitrator, in the circumstances, exercised his discretion in favour of the Board on these grounds.

16. Section 31(7) of the Arbitration and Conciliation Act, 1996 provides as follows:

“31(7)(a) Unless otherwise agreed by the parties, where and in so far as an Arbitral Award is for the payment of money, the arbitral Tribunal may include in the sum for which the Award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the Award is made.
(b) A sum directed to be paid by an Arbitral Award shall, unless the Award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the Award to the date of payment.”
17. In the present case, the arbitrator has furnished sufficient reasons why in his view interest from the date of the institution of the statement of claim should be awarded at the rate of 10%. Having regard to the scheme of the Arbitration and Conciliation Act, 1996, it would not be appropriate for this Court to interfere. On behalf of the petitioner reliance was placed upon sub-section (1) of section 34 of the Code of Civil Procedure which provides that where and in so far as a decree is for the payment of money, the Court may, in the decree, order interest at such rate as the Court deems reasonable to be paid on the principal sum adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, with further interest at such rate not exceeding 6% p.a. as the Court deems reasonable on such principal sum from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit. The proviso lays down that where the liability in relation to the sum so adjudged has arisen out of a commercial transaction, the rate of further interest may exceed six per cent per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by Nationalised Banks in relation to commercial transactions. An attempt was made to urge that the Award in so far as it grants interest in excess of 6% is contrary to section 34 of the Code of Civil Procedure, 1908 and, therefore, contrary to the public policy.

18. There is no merit in the submission. Under section 31(7)(a), the Arbitral Tribunal is empowered to Award interest at such rate as it deems reasonable for the whole or any part of the period between the date on which the cause of action arose and the date on which the Award is made. In sofar as the aforesaid period is concerned, the Act in fact provides that the amount awarded shall carry interest at the rate of 18% p.a. unless the Award otherwise directs. The arbitrator has exercised his discretion in a manner which is specifically provided in sub-section (7) of section 31. The post Award rate of 10% is also proper. In so far as the public policy defence is concerned, it has been elaborately dealt with in the judgment of the Division Bench of this Court in Vijaya Bank v. Maker Development Services Pvt. Limited, 2001(3) Bom.C.R. 652. This Court has held that having regard to the express language of section 5 of the Act under which no judicial authority shall intervene with respect to those matters which are provided for in Part I except where so provided in that part and having regard to sub-section (2) of section 34 which stipulates that an arbitral Award may be set aside by the Court only if one of the grounds specified in sub-clauses (a)(i),(ii), (iii), (iv), (v) and (b)(i) and (b)(ii) is established, Parliament has restricted the scope of judicial interference in arbitral awards. This Court has also relied upon the judgment of the Supreme Court in Olympus Superstructures Pvt. Ltd. v. Meena Vijay Ketan, 1999(4) Bom.C.R. 355. The Division Bench held that a mere contravention of law would not necessarily involve a contravention of public policy. Having regard to these judgments which are binding upon me, I am of the view that no case for interference has been made out even in so far as the Award of interest is concerned. The learned Arbitrator has exercised his discretion in the matter of awarding interest, for reasons which are both cogent and germane to the exercise of his jurisdiction. No case for interference is made out. The arbitration petition is accordingly dismissed. The amounts which are lying in this Court will now accordingly be permitted to be withdrawn by the respondent for and on behalf of STU since it is stated that the other amounts have already been withdrawn.

Arbitration petition dismissed.