Union of India v. M/s M.G. Contractors Pvt. Ltd

Mr. Zangpo Sherpa, Mr. Bhaichung Bhutia and Mr. Mohan Sharma, Advocates for the appellant. Ms Sangita Pradhan, Deputy Solicitor General of India with Ms Purnima Subba and Ms Natasha Pradhan, Advocates for the respondents. ------------------------------------------------------------------------------- Date of hearing : 3rd May, 2024 Date of judgment : 28th May, 2024 ------------------------------------------------------------------------------- J U D G M E N T Bhaskar Raj Pradhan, J.

1. We propose to dispose the above two connected appeals under Section 37 of the Arbitration and Conciliation Act, 1996 assailing the final judgment dated 27.12.2021, one filed by the Union of India and the other by M/s M.G. Contractors Pvt. Ltd. The Union of India is aggrieved by the finding and grant of Claim no.7; associate interest under Claim No.13 and associate GST under Claim No.14, by the learned Sole Arbitrator and the challenge to it as being barred by limitation which has been rejected by the Learned Commercial Court, North Sikkim at Mangan. M/s M.G. Contractors Pvt. Ltd. assails the impugned judgment to the extent that the Arb. A. No.1 of 2022 3 Union of India vs. M/s M.G. Contractors Pvt. Ltd. Arb. A. No.2 of 2022 M/s M.G. Contractors Pvt. Ltd. vs. Union of India & learned Commercial Court suo motu modified the Award dated

23.03.2021 passed by the learned Arbitrator.

2. Before we deal with the issues raised in the two connected appeals, a brief summary of facts is necessary. Tender was invited by CPWD, Chungthang, for construction of ITBP road sometime in the year 2010. In response, M/s M.G. Contractors Pvt. Ltd. submitted its tender which was found to be lowest, accepted and awarded in its favour. The value of work awarded under the contract was Rs.70,65,65,490/- (Rupees seventy crores, sixty-five lakhs, sixty-five thousand, four hundred and ninety only) which was

24.55% above the estimated cost put tender of Rs.56,72,94,653/- (Rupees fifty-six crores, seventy-two lakhs, ninety-four thousand, six hundred and fifty-three only). Twenty-four months to be reckoned from 22nd day after the date of issue of acceptance letter dated 10.09.2010 was the time allowed for carrying out the work. The stipulated date of start of work was

02.10.2010 and the date of completion was 01.10.2012. The Agreement was executed in the year 2011. The work was delayed due to various reasons and finally completed on 30.06.2015. Certain disputes arose between the parties and M/s M.G. Contractors Pvt. Ltd. invoked Arbitration Clause 25 of the Agreement. The Sole Arbitrator was appointed who entered reference vide letter dated

14.03.2020. M/s M.G. Contractors Pvt. Ltd. made 15(fifteen) claims by filing their Statement of Claims. The Union of India did not prefer any counter-claim. The total claim made by M/s M.G. Contractors Pvt. Ltd. was Rs.29,11,26,419/- (Rupees twenty-nine crores, eleven Arb. A. No.1 of 2022 4 Union of India vs. M/s M.G. Contractors Pvt. Ltd. Arb. A. No.2 of 2022 M/s M.G. Contractors Pvt. Ltd. vs. Union of India & lakhs, twenty-six thousand, four hundred and nineteen only) along with interest, GST and cost as actual.

3. Claim No.7 was for an amount of Rs.8,16,41,135/- (Rupees eight crores, sixteen lakhs, fourty-one thousand, one hundred and thirty-five only) claimed as due and payable for escalation compensation for period October 2012 to June 2015.

4. Claim No.13 was for interest at the rate of 18% from due date to date of payment.

5. Claim No. 14 was the claim for GST at applicable rate as per actual on the claim amounts.

6. The learned Sole Arbitrator vide his Award dated

23.3.2021, awarded a sum of Rs.12,80,94,368/- (Rupees twelve crores, eighty lakhs, ninety-four thousand, three hundred and sixty- eight only) along with interest and GST under Claim No.13 and Claim No.14 in favour of M/s M.G. Contractors Pvt. Ltd. The Sole Arbitrator did not grant Claim Nos. 2, 4, 5, 8, 10, 11 and 12.

7. The Union of India filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 before the learned Commercial Court, being Arbitration Case No. 1 of 2021, in the matter of Union of India vs. M/s M.G. Contractors Pvt. Ltd. The Union of India prayed for setting aside Claim No.7 and associate interest under Claim No. 13 and associate GST under Claim No.14 Arb. A. No.1 of 2022 5 Union of India vs. M/s M.G. Contractors Pvt. Ltd. Arb. A. No.2 of 2022 M/s M.G. Contractors Pvt. Ltd. vs. Union of India & granted in favour of M/s M.G. Contractors Pvt. Ltd on the ground that it was barred by limitation. The Union of India categorically asserted “That applicant had accepted No.1,2,3,4,5,6,8,9,10,11,12,15 and associated interest under claim 13 and associated GST amount under claim 14.”

8. By the impugned judgment dated 27.12.2021, the learned Commercial Court concluded that the Award delivered by the learned Sole Arbitrator under Claim No.7 and associate interest under Claim No.13 and associate GST under Claim No.14 are not barred by law of limitation. We shall refer to this part of the impugned judgment as its first part.

9. The learned Commercial Court, however, was of the opinion that the decision given under Claim No.13, awarding interest at the rate of 8% per annum to the claimant under Claim No.1, 3, 6, 7 and 9 with effect from 17.02.2020 till the date of Award, i.e.,

23.03.2021, is contrary to the provisions of Section 31(7)(b) of the Arbitration and Conciliation Act, 1996. Accordingly, the learned Commercial Court modified the Award to the extent that M/s M.G. Contractors Pvt. Ltd. is entitled for interest under Claim No. 1,3,6,7 and 9 at the rate of 8% per annum with effect from 23.03.2021 till payment of Award as per Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 barring the time period consumed during proceedings of the case before the learned Commercial Court. The learned Commercial Court, however, did not find any illegality in awarding Claim No.14. Thus, the Application under Section 34 of the Arb. A. No.1 of 2022 6 Union of India vs. M/s M.G. Contractors Pvt. Ltd. Arb. A. No.2 of 2022 M/s M.G. Contractors Pvt. Ltd. vs. Union of India & Arbitration and Conciliation Act, 1996 was partly allowed. We shall refer to this part of the impugned judgment as the second part.

10. The pivotal ground on which the Union of India challenges the impugned judgment is that since the learned Sole Arbitrator had himself considered Claim No.7 as a damage claim, as such, cause of action ought to have been reckoned from the last day of hindrance, i.e., the last day of breach of contract on 30.03.2015 instead of last day of bill on 09.03.2017 as per Article 55 of the Schedule to the Limitation Act, 1963. Although, the Union of India in its statement in defence had not taken the plea of limitation, it is submitted that the Sole Arbitrator had himself held that it was a duty cast upon him to examine whether the claims were barred by limitation and further he would be examining whether each of the claims was barred by limitation. However, the Sole Arbitrator failed to examine whether Claim No.7 was barred by limitation.

11. We are of the considered view that both these appeals can be disposed of in terms of the judgment of the Hon’ble Supreme Court in Project Director, National Highways No.45E and 220, National Highways Authorities of India vs. M. Hakeem and another1 and S.V. Samudram vs. State of Karnataka and Another2. In both these judgments, the Hon’ble Supreme Court has held that Section 34 does not empower the Court to modify the award passed by the Arbitrator.