M/s MECON Limited v. M/s Lotus Engineers a company incorporated under the Companies Act, having its

cropped up between the parties remained undissolved and the work could 2 Com. Appeal No. 10 of 2018 not be completed in time and finally the contract was terminated vide letter dated 18th May 2012.

3. Before the Arbitrator, the claimant raised claims for (i) extra supplies (ii) extra work (iii) escalation for extended stay (iv) damages due to delay (v) overhead (vi) under utilisation of machinery (vii) interest on bank guarantee (viii) demobilisation (ix) demurrages on delay in release of machinery and (x) compensation due to site closure. The claimant also raised miscellaneous claims for Rs. 82,65,559/- and interest @ 18% per annum. On the other hand, M/s MECON Limited raised counter-claims for (i) liquidated damages (ii) risk and cost (iii) cost for filter element (iv) claims of sub-agencies (v) loss of Cenvat credit (vi) ITDS recovered by RINL and (vii) interest @ 18% per annum.

4. In the Award dated 26th October 2015 the learned Arbitrator has recorded that he conducted site visits and heard arguments of both the parties between 19th February 2014 and 14th September 2014.

5. The learned Arbitrator has recorded the following findings: (i) Major part of the work assigned to the claimant was carried out; (ii) The claimant carried out large diameter erection work first; (iii) The work was in a shabby state; (iv) No painting was done; (v) Supports were missing at the number of locations; (vi) No proper alignment was made and grouting was incomplete and wanting; (vii) Cellars were not in a good condition, and; (viii) Most of the piping on equipment was not carried out as this was to be done as additional work.

6. On the issue of default on the part of the appellant the learned arbitrator has found as follows: (i) Specification drawing etc. were not provided in time; (ii) Permission for start up was not given in time due to non- planning and want of statutory permissions; (iii) The pipes and fittings, hardware etc. were not made available, and; (iv) There was delay in procurement of steel etc. 3 Com. Appeal No. 10 of 2018

7. The learned Arbitrator has taken note of the natural calamity which occurred in October 2010 on account of which there was huge flooding of cellars. The learned Arbitrator has also recorded that there was increase in volume of work and delay in releasing the payment.

8. The learned Arbitrator has made the Award dated 26th October 2015 allowing a part of the claim for extra supply and extra work, escalation charges for 20 months and interest at the rate of Prime Lending Rate of State Bank of India as on 2nd August 2013. The other claims such as escalation for 20 months, damages due to delay, extra overheads, under utilization of machinery, interest on bank guarantees, demobilization, damages on delay in release of machinery, compensation of site staff, labour on site closure, and, miscellaneous claims of Rs. 82,65,559/- have been disallowed by the Arbitrator.

9. The counter-claims raised by the appellant have been allowed on account of loss of cenvat credit, payment on account of accident and ITDS recovery by RINL.

10. The Award dated 26th October 2015, however, leaves the following aspects for reconciliation between the parties: “IX. Points needing reconciliation In the interim orders it was suggested that the Claimant and Respondent may sit and sort out the differences and the areas not agreed may be indicated separately. This exercise was not carried out and separate figures as mentioned have been submitted. The Tribunal hereby advises both the parties to sit and resolve the amounts within a period of one month from the date of this award. As per Claimant (Lotus Engineers) the amount paid by Respondent i.e. MECON to them has been indicated as Rs 2,17,15, 466. As per details provided by Respondent i.e. MECON an amount of Rs. 2,36,20,342 (including TDS- IT amounting to Rs 2,83,273) has been paid to Claimant (Lotus Engineers). Adhoc payments made – the same are to be divided under various heads by Respondent. Payments to agencies- Any payment made on this account by the Respondent is recoverable from the final dues of Claimant. This is to be justified with proper documentation and is to be towards work carried out before the date of termination of the Contract. The Tribunal was unable to give a final figure in award as Claimant and Respondent did not resolve the final figures. In view if above as mentioned previously the reconcilement as mentioned above is to be completed within one month from the date of award and payments released immediately thereafter.” 4 Com. Appeal No. 10 of 2018

11. Under section 34 of the Arbitration & Conciliation Act there are limited grounds to interfere with an arbitral Award and one of the grounds incorporated through the Arbitration Amendment Act, 2015 is patent illegality. The expression “patent illegality” has been expounded by the Hon'ble Supreme Court in “Ssangyong Engg. & Construction Co. Ltd. v. NHAI” (2019) 15 SCC 131 to mean an award rendered in ignorance of applicable laws of India. Mr. Rajiv Ranjan, the learned Senior counsel for the appellant has submitted that the arbitral Award in the present case was made on 26th October 2015 and the amendment by which sub-section (2-A) has been incorporated in section 34 of the Arbitration & Conciliation Act because effective on 23rd October 2015 and while so this ground of patent illegality is available to the aggrieved party to challenge the Award in a proceedings under section 34 of the Arbitration & Conciliation Act.

12. There is no dispute and both the parties agreed and signed the settlement on 24th November 2015 that the principle amount payable to the claimant in terms of Award dated 26th October 2015 shall be Rs. 91,77,496/-. Now this is an admitted position that the claims/counter-claims awarded to the parties by the Arbitrator have been accepted by them and while so no challenge on merits of the Award could have been laid before the Commercial Court at Ranchi. However, it is the rate of interest awarded by the Arbitrator which has become the bone of contention between the parties.

13. On 23rd March 2023 this Court has passed the following order: “On instructions from Mr. Rohan Rajarshi, Manager (Legal), Mecon Limited, Mr. Rajiv Ranjan, the learned Advocate General has made statement in the Court that as per the award, an amount of Rs.91.77 lacs is payable to the respondent. The learned Advocate General has drawn our attention to Clause-6 of the award appearing at internal page no.17 and Clause-3 of the counter-claim appearing at page no.18 of the award dated 26th October 2015. The submission made on behalf of the appellant is that the award is completely vague and cannot be executed. To demonstrate that the learned Arbitrator has not adjudicated the dispute and left the parties to reconcile the amount, the learned Advocate General has referred to the “Points Needing Reconciliation” in the award, which read as under: “In the interim orders it was suggested that the claimant and respondent may sit and sort out the differences and the areas not agreed may be indicated separately. This exercise was not carried out and separate figures as mentioned have been submitted. The Tribunal hereby advises both the parties to sit and resolve the amounts within a period of one month from the date of this award. As per claimant (Lotus Engineers) the amount paid by 5 Com. Appeal No. 10 of 2018 respondent i.e. Mecon to them has been indicated as Rs.2,17,15,466. As per details provided by respondent i.e. Mecon an amount of Rs.2,36,20,342 (including TDS – IT amounting to Rs.2,83,273) has been paid to claimant (Lotus Engineers). Adhoc payments made – the same are to be divided under various heads by respondent. Payments to agencies- Any payment made on this account by the respondent is recoverable from the final dues of claimant. This is to be justified with proper documentation and is to be towards work carried out before the date of termination of the contract. The Tribunal was unable to give a final figure in award as Claimant and Respondent did not resolve the final figures. In view of above as mentioned previously the reconcilement as mentioned above is to be completed within one month from the date of award and payments released immediately thereafter.” Mr. Amit Kr. Das, the learned counsel for the respondent has, however, submitted that the only exercise to be done by the parties was with respect to reconciliation for an amount of less than Rs.17 lacs. On the request of the learned counsel for the respondent hearing of this Commercial Appeal is adjourned for 13th April 2023.”

14. Pursuant to the above order, in its affidavit dated 28th June 2023 the appellant-M/s MECON has stated as under: “6. That never the less, in order to achieve an amicable settlement, MECON shall be willing to settled the matter by paying the principal amount as given in the Arbitral Award provided the contractor is also willing to settle on these terms and shall not claim any interest on the awarded amount.”

15. In the reply to affidavit dated 28th June 2023, the claimant has filed the affidavit dated 12th July 2023 stating as under: “7. That it is stated that however, the respondent by way of good gesture is agreeable to settle the dispute by foregoing interest for last two years if the appellant agrees to the said proposal.”

16. No doubt sub-section (7) to section 31 of the Arbitration & Conciliation Act provides that the Arbitrator may award interest at the rate he deems fit unless otherwise agreed by the parties. Before the amendment in section 34 of the Arbitration & Conciliation Act also the Arbitrator had powers to award interest on the sum payable under the Award and there was no fetters on the powers of the Arbitrator in this regard. But then, this aspect of the matter has not been dealt with by the Commercial Court in Commercial (REVOC) Case No. 02 of 2016. As noticed above, before the Arbitrator the claimant has claimed interest @ 18% per annum and sub- section 7 to section 31 refers to the current rate of interest but there is no 6 Com. Appeal No. 10 of 2018 reason given by the Arbitrator for award of interest @ 18% per annum on the basis of SBI's Prime Lending Rate.

17. Having regard to the findings recorded by the Arbitrator that there were instances of default by both the parties, we are inclined to interfere with the award of interest @ 18% per annum and the same is reduced to 7% per annum. Commercial Appeal No. 10 of 2018 is disposed of in the above

18. terms. (Shree Chandrashekhar, J.) (Ratnaker Bhengra, J.) Jharkhand High Court, Ranchi Dated-18th July 2023 Soumya/Nibha-NAFR