Case Note & Summary
The case involves an appeal under Section 37 of the Arbitration and Conciliation Act, 1996, challenging a judgment of the District Judge, Pune, which dismissed the Appellant's petition under Section 34 to set aside an arbitral award. The Appellant, Thyssen Krupp Industries India Pvt. Limited, had awarded two Letters of Intent to the Respondent, M/s. S.D. Industries, for erection and fabrication work related to a boiler plant for Saurashtra Chemicals Ltd. The Letters of Intent contained an arbitration clause providing for two arbitrators, one to be nominated by each party. Disputes arose, and the Respondent invoked the arbitration clause, appointing its arbitrator. The Appellant failed to appoint its arbitrator despite notice, leading the Respondent to approach the Chief Justice or his designate under Section 11(4) of the Act, who appointed a third arbitrator. The arbitral tribunal, consisting of three arbitrators, passed an award in favor of the Respondent, directing the Appellant to pay certain amounts including retention money and interest. The Appellant challenged the award on two grounds: first, that the constitution of the tribunal was invalid because the third arbitrator should have been appointed by the two party-appointed arbitrators, not by the Appointing Authority; second, that the award on merits, particularly the interest rate of 18% per annum, was excessive and against public policy. The High Court rejected both contentions. On the constitution issue, the court held that the appointment by the Appointing Authority under Section 11(4) was valid as the Appellant failed to appoint its arbitrator, and the Appellant had participated in the proceedings without objection, thus waiving any challenge. On the merits, the court held that the arbitral tribunal's discretion on interest rate could not be interfered with under Section 34 unless it was contrary to the fundamental policy of Indian law or patently illegal, which was not the case. The court also upheld the award regarding retention money. The appeal was dismissed, and the award was upheld.
Headnote
A) Arbitration Law - Constitution of Arbitral Tribunal - Appointment of Third Arbitrator - Section 11(4) of the Arbitration and Conciliation Act, 1996 - The arbitration clause provided for two arbitrators, one to be nominated by each party. The Respondent appointed its arbitrator; the Appellant failed to appoint despite notice. The Appointing Authority (Chief Justice or designate) appointed a third arbitrator under Section 11(4). The Appellant challenged the constitution, arguing that the third arbitrator should have been appointed by the two party-appointed arbitrators. The court held that the appointment by the Appointing Authority was valid as the Appellant failed to appoint its arbitrator, and the authority was empowered to make the appointment under Section 11(4). The court also noted that the Appellant participated in the proceedings without objection, thus waiving any right to challenge the constitution. (Paras 2, 8-10) B) Arbitration Law - Award on Merits - Interest Award - Section 31(7) of the Arbitration and Conciliation Act, 1996 - The arbitral tribunal awarded interest at 18% per annum on the principal amount. The Appellant challenged the interest rate as excessive and against public policy. The court held that the rate of interest is a matter within the discretion of the arbitral tribunal, and unless the award is contrary to the fundamental policy of Indian law or patently illegal, the court cannot interfere under Section 34. The court found no such infirmity and upheld the interest award. (Paras 11-15) C) Arbitration Law - Award on Merits - Retention Money - The Appellant retained 10% of the amounts due under Running Bills, aggregating Rs.6,27,383. The arbitral tribunal directed the Appellant to pay this amount to the Respondent. The court upheld this part of the award, noting that the retention was not justified as the work was stopped on the Appellant's instructions. (Paras 7, 11)
Issue of Consideration
Whether the constitution of the arbitral tribunal consisting of three arbitrators was valid under the Arbitration and Conciliation Act, 1996, and whether the award on merits was liable to be set aside under Section 34 of the Act.
Final Decision
The appeal was dismissed. The judgment of the District Judge, Pune dated 2nd December 2008 was upheld. The arbitral award dated 18th December 2004 read with modification dated 15th September 2005 was upheld.
Law Points
- Arbitration and Conciliation Act
- 1996
- Section 11(4)
- Section 34
- Section 37
- Appointment of Arbitrator
- Constitution of Arbitral Tribunal
- Public Policy
- Interest Award
- Running Bills
- Retention Money
