Arakonam Naval Station dispute: Supreme Court puts a stop to over 3 decades long commercial dispute

Supreme Court: While deciding an almost three decade long commercial dispute relating to Arakonam Naval Air Station, the 3-Judge Bench comprising of N. V. Ramana, CJ, and A. S. Bopanna and Hima Kohli*, JJ., set aside the impugned judgment passed by the Division Bench of Madras High Court. The Bench remarked,

“By going into the minute details of the evidence led before the learned Sole Arbitrator with a magnifying glass and the findings returned thereon, the Appellate Court has clearly transgressed the limitations placed on it.”

The appellant claimant, a construction company had entered into a contract with the respondent-Union of India for construction of a runway and allied works at the Naval Air Station, Arakonam for a total contract price of ₹19,58,94,190 on 16-11-1988. The case of the appellant was that the respondent had arbitrarily rejected its request for extension of time and without any warning had terminated the contract on 02-04-1992 with immediate which was otherwise to expire on 31-03-1992.

Arbitration Award

On 24-06-1999 the sole arbitrator pronounced a detailed Award wherein a sum of Rs.25,96,87,442.89p was awarded in favour of the appellant-claimant, inclusive of interest up to 31-05-1999. Further, future interest was directed to be paid by the respondent-Union of India from 01-06-1999 at the rate of 18% per annum on the principal amount of Rs. 14,12,50,907.55p till realization. As regards the counter-claim of the respondent, the Sole Arbitrator awarded a sum of Rs.1,42,255 in its favour along with future interest.

Accepting as many as twenty reasons cited by the counsel for the appellant-claimant that had caused a delay in completing the work that necessitated extension of time, ranging from water logged conditions at the site due to which, the work could not commence till 31-12-1988, increase in the quantity of the work required to be executed, orders issued by the respondent for procuring and deploying of sophisticated machinery and equipment that were not originally contemplated, non-availability of petroleum products due to the Gulf crisis, stoppage of work for inauguration of the runway, non-issue of entry passes to labourers and removal of operators and staff of the operators, etc., the arbitrator  held that the appellant-claimant could not be blamed for non-completion of the work within the stipulated time, including the extended time and that the respondent ought to have extended the date of completion of the contract up to 31-05-1993 and that the extension of time granted by the respondent up to 31-03-1992, was inadequate and not commensurate with the delays caused for the factors referred to hereinabove.

Findings of the High Court

The Division Bench of the High Court had, however, set aside the amount awarded by the Sole Arbitrator in favour of the appellant towards idle hire charges and value of the tools and machineries. Similarly, the findings returned in the Award relating to extension of time and illegal termination of the contract by the respondent were also set aside.

Observations and Analysis

Though the appellant-claimant had sought compensation under several heads, the Sole Arbitrator granted it an amount of ₹15,35,40,785 towards idle hire charges and for the value of the machinery, inclusive of interest upto 31st May, 1999 for arriving at that figure, reliance was placed by the arbitrator on the report of an Engineer appointed by the Division Bench of the High Court of Madras in a separate proceeding filed by the appellant-claimant to ascertain the availability of the different items and machineries and their value.

The Appellate Court had set aside the aforesaid claim by taking a view that the Sole Arbitrator had misconducted himself by observing that the claimant “may be correct” in not taking the machineries without an inventory when they were available at the site in spite of the High Court order granting permission to the appellant-claimant to remove the equipment and machineries from the site. The High Court held that the Sole Arbitrator had interpreted the clauses of the contract by taking a particular view and had gone to great length to analyse several reasons offered by the appellant-claimant to justify its plea that it was entitled for extension of time to execute the contract.

Disapproving the view taken by the High Court, the Bench stated that the Division Bench ought not to have sat over the said decision as an Appellate Court and seek to substitute its view for that of the Arbitrator.  Resultantly, accepting the findings returned by the Sole Arbitrator endorsed by the Single Judge, the Bench held that there was sufficient justification for the appellant-claimant to have sought extension of time for completing the work and that the decision of the respondent-Union of India to terminate the contract was not for legitimate reasons.

Verdict

In the backdrop of above, the Bench concluded that the conclusion drawn by the Appellate Court was manifestly erroneous and in the face of the settled legal position that the Arbitrator is the final arbiter of the disputes between the parties and it is not open to a party to challenge the Award on the ground that he has drawn his own conclusions or has failed to appreciate certain facts. The impugned judgment was set aside, while the judgment of the Single Judge and decree granted in favour of the appellant-claimant in terms of the Award along with interest was upheld and restored.

[Atlanta Ltd. v. Union of India, 2022 SCC OnLine SC 49, decided on 18-01-2022]


*Judgment by: Justice Hima Kohli


Appearance by:

For the Appellant/Claimant: Meenakshi Arora, Senior Advocate

For the Union of India: Sanjay Jain, Additional Solicitor General


Kamini Sharma, Editorial Assistant has put this report together

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