Case Note & Summary
The petitioner, Union of India, acting through the Chief Electrical Engineer (Construction), Central Railway, awarded a contract to the respondent, M/s Bright Power Project (I) Pvt. Ltd., on 15 July 1997 for design, supply, and erection of OHE in Koparkhairane-Turbhe-Vashi-Nerul at a total cost of Rs.2,32,28,205/-. The original contractual period was 18 months, ending on 14 January 1999. Due to various reasons, the work could not be completed within the stipulated period and was ultimately completed in August 2004. The respondent applied for extensions of time from time to time, which were granted by the petitioner through several letters without any protest or reservation of the right to claim liquidated damages. On 14 July 2004, the respondent invoked the arbitration agreement, and the matter was referred to arbitration. The arbitral tribunal passed an award on 1 July 2008, allowing some of the respondent's claims, including interest on delayed payments, and rejecting the petitioner's counterclaim for liquidated damages. The petitioner challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, primarily on the grounds that the arbitrator had erred in allowing interest and in rejecting the counterclaim for liquidated damages. The court held that the scope of interference under Section 34 is limited and that the arbitrator's findings were not perverse or patently illegal. The court noted that the petitioner had granted extensions of time without protest, which amounted to a waiver of the right to claim liquidated damages. Regarding interest, the court held that the arbitrator was empowered to award interest under the Interest Act, 1978, and that the rate of 12% per annum was reasonable. The court dismissed the petition, upholding the arbitral award.
Headnote
A) Arbitration - Section 34 of Arbitration and Conciliation Act, 1996 - Scope of Interference - Court held that the scope of interference under Section 34 is limited to grounds of public policy, patent illegality, or perversity. The court cannot re-appreciate evidence or substitute its own view. (Paras 1-10) B) Contract - Extension of Time - Waiver of Liquidated Damages - Where the employer grants extension of time without protest or reservation of right to claim liquidated damages, it amounts to waiver of the right to claim such damages. The arbitrator's finding that the petitioner had waived its right to claim liquidated damages was upheld. (Paras 11-20) C) Interest - Interest Act, 1978 - Applicability to Arbitral Awards - The arbitrator is empowered to award interest for the pre-reference, pendente lite, and post-award periods. The award of interest at 12% per annum from the date of the award till payment was held to be in accordance with law. (Paras 21-30)
Issue of Consideration
Whether the arbitral award granting claims for interest on delayed payments and rejecting the petitioner's counterclaim for liquidated damages is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996.
Final Decision
The High Court dismissed the petition and upheld the arbitral award dated 1 July 2008.
Law Points
- Extension of time granted without protest amounts to waiver of right to claim liquidated damages
- Interest Act
- 1978 applies to arbitral awards
- Section 34 of Arbitration and Conciliation Act
- 1996 has limited scope of interference
