(Per : HONOURABLE MR.JUSTICE AKIL KURESHI) These appeals arise out of a common order passed by the learned Judge of the City Civil Court, Ahmedabad on 30.11.1988 passed in C.M.A. No.13/1988, 553/1987 and 884/1988. Such proceedings arose out of an award dated 27.8.1987.
Brief facts may be noted from First Appeal No.75/1990.
2.1 This appeal is filed by the State Government and the Executive Engineer, Ahmedabad Irrigation Department. Appellants and the respondents entered into a work contract dated 30.7.1984 for execution of work of part modernisation of Nani Fatewadi Canal. Item no.1 of the work entrusted to the contractors involved excavation. The agreement provided for payment of such work at the rate of Rs.4/- per cubic meter. The agreement also provided for escalation as may be agreed between the parties in case the quantity of such work specified in the agreement exceeded by a margin of more than 30%. Since admittedly the work of excavation specified in item no.1 exceeded by a margin beyond 30% over and above the originally agreed quantity, the contractors demanded the rate revision. Since the parties could not come to any settlement about such rate revision, in terms of arbitration clause contained in the contract, they resorted to the process of arbitration.
2.2 The Government therefore, issued a resolution dated 3.7.1986 appointing one Shri M.H. Vakharia, retired Chief Engineer, Irrigation Department, Government of Gujarat as a sole arbitrator to decide such disputes. We will advert to this resolution in detail at a later stage. The parties also entered into an arbitration agreement on 5.9.1986. Terms of this agreement also shall be seen minutely later on. The arbitrator vide his award dated 27.8.1987 provided for revised rate of Rs.13.50 per cubic meter of excavation inclusive of tender rate of Rs.4/- per cubic meter. He thus provided for extra rate for such work at Rs.9.50 per cubic meter on the final quantity of 42,228.51 cubic meters. He also provided for interest at the rate of 15% from the date of award till the date of payment or Court decree, whichever is earlier on the net amount of the award payable. In the award with respect to interest, he specified as under :
"C : Rate and amount awarded by me.
I award a rate of Rs. 13/50 (Rupees Thirteen & paise fifty only) in place of tender rate of Rs.
4/cm. I also award an amount of Rs. 5,70,084.88 (Rupees Five Lakh Seventy Thousand Eighty Four Only) inclusive of amount payable at tender rate less price adjustment amount if any paid for tender item No. 1. I also award interest @15% (Fifteen Per Cent) from date of award till date of payment of Court Decree whichever is earlier on net amount of the award now payable."
2.3 With respect to excavation, he observed as under :
"15 : Claimants originally filed a claim statement listing 12 claims. Of these claim items at serial no. 1A, 1B and 2 of the claim statement only fall within the scope of arbitration agreement. Hence, I have heard the parties only on these claims for purpose of adjudication of the dispute. I have not heard and decided other claim items at Serial no 3 to 12 inclusive of their sub items as they are not included in the arbitration reference or in parties' arbitration agreement and I make no award for the same. Rate of claim no. 1A is later on amended by the claimants on 13/3/1987 during arbitration proceedings to include cost of dewatering @ Rs. 3/67 per cm. in the claim. Finally, claimed rate is Rs. 25.67/cm for item no. 1A in place of first claimed rate of Rs. 22/cm. Description of claim no. 2 is later on amended and claim quantity is also reduced from 39,000 cm to 37,153 cm. Against original claim amount of Rs. 12,09,662.80 for claims 1A, 1B and 2, the claim amount as per latest amendments to rates and quantities comes to Rs. 10,40,709.43. This of course includes amount of Rs. 1,68,914.04 payable at original tender rate of Rs. 4/cm on final quantity of 42,228.51 cm. Net claim amount now comes to Rs. 8,71,795.39 (10,40,709.43-1,68,914.04).
: Claimants have given rate analysis of two extra item rates claimed by them for items 1A and 1B. Respondents have also given rate analysis for their revised rate for item 1 as a whole.
: I have inspected site of work and made my own assessment of real effective lead lift and impact of dewatering involved. I have also inspected the strata excavated and soils of excavation deposited. I think there is no tenable basis of claim no. 2 and hence I award nil amount against latest impliedly claim amount of Rs. 1,85,755/- (37,153x5). For items 1A and 1B taken together I award a rate of Rs. 13/50 (Rs. Thirteen and paise Fifty only) per cm inclusive of tender rate of Rs. 4 per cm. Extra rate payable will be Rs. 9/50 (Rupees nine and paise Fifty) per cm on final quantity of 42,228.51 cm. Since new rate is awarded on overall considerations for item no 1 no price adjustment will be payable on work done under item no 1 and if already paid, further amount payable be reduced to that extent.
: Para 1 of the arbitration GR wants the rate to be decided. I have accordingly decided the rate. Para 12 of the GR also speaks of the awarded amount and without final quantity extra item rate cannot be finally worked out as per Government formula. Further for even working out award amount final quantity is needed. Both parties have given final quantity of item no 1 as 42,228.51 cm which gives net awarded amount of Rs. 4,01,170.84 (42,228.51x9.50) less prices escalation payment made for the particular item."
2.4 The Government as well as the contractors approached the Civil Court by filing separate applications. Prayer of the Government was that arbitral award be set aside. Prayer of the contractors was that the same be made rule of the Court.
2.5 Learned Judge in his impugned order provided that the award be made rule of the Court and directed that the present appellants shall pay the awarded principal amount to the contractor with interest at the rate of 10% from the date of decree till realisation. Application of the Government was dismissed. It is this order that the Government has challenged before this Court in this appeal.
Learned AGP Ms. Moxa Thakker for the appellants submitted that the arbitrator as well as the Court seriously erred in granting revised rates for the entire quantity of excavation carried out by the contractors. She submitted that in doing so, the arbitrator exceeded his jurisdiction. She further submitted that in any case as per clauses 31 and 32 of the contract, it was not open for the arbitrator to apply such revised rates for the entire quantity of work done.
In support of her contentions, learned AGP placed heavy reliance on the terms of reference to the arbitrator mentioned in Government Resolution dated 3.7.1986 and the agreement dated 30.7.1984 executed by the parties. She also placed reliance on clauses 31 and 32 of the works contract which pertains to price escalation clause for extra item of work done. Learned AGP also submitted that arbitrator committed serious error in awarding interest though as per the agreement between the parties, contractors were not to claim any such interest.
On the other hand learned counsel Shri Dayani appearing for the respondents submitted that the arbitrator committed no misconduct. This Court cannot examine the arbitral award as an appellate authority. In absence of any jurisdictional error, award of the arbitrator cannot be interfered with. Counsel submitted that arbitrator has given his interpretation to clauses 31 and 32 of the contract which is a plausible interpretation. Even if two views were possible, this Court would not interfere with the view of the arbitrator.
4.1 In this respect, counsel relied on decision of the Apex Court in case of H.P. Electricity Board v. R.J. Shah and Company reported in (1999) 4 Supreme Court Cases 214, wherein the Apex Court held and observed as under :
"26.
In order to determine whether the arbitrator has acted in excess of jurisdiction what has to be seen is whether the claimant could raise a particular dispute or claim before an arbitrator. If the answer is in the afirmative then it is clear that the arbitrator would have the jurisdiction to deal with such a claim. On the other hand is the arbitration clause or a specific term in the contract or the law does not permit or give the arbitrator the power to decide or to adjudicate on a dispute raised by the claimant or there is specific bar to the raising of a particular dispute or claim then any decision given by the arbitrator in respect thereof would clearly be in excess of jurisdiction. In order to find whether the arbitrator has acted in excess of jurisdiction the Court may have to look into some documents including the contract as well as the reference of the dispute made to the arbitrators limited for the purpose of seeing whether the arbitrator has the jurisdiction to decide the claim made in the arbitration proceedings.
27. In this case the arbitration clause is widely worded. The dispute which was referred to the arbitrators, inter alia, related to the construction of the contract. The contract did visualise the contractor raising a claim for revision of rates. The dispute was as to when such a claim could be raised. According to the appellant herein this being an item rate contract the revision of rates could take place only in accordance with Clause 12A when there was a deviation of more than 20 per cent with regard to individual items. On the other hand the terms of contract, according to the claimant, permitted a claim being made of revision in rates if there was an increase of 20 per cent of the total value of the contract. The dispute before the arbitrators, therefore, clearly related to the interpretation of the terms of the contract. The said contract was being read by the parties differenly. The arbitrators were therefore, clearly called upon to construe or interpret the terms of the contract. The decision thereon, even if it be erroneous, cannot be said to be without jurisdiction. It cannot be said that the award showed that there was an error of jurisdiction even though there may have been an error in the exercise of jurisdiction by the arbitrators.
28. The decision in Associated Engineering Co. case relied upon by Sh. Maninder Singh does not in any way persuade us to take a view different than the view arrived at by the High Court. At page 103 Thommen, J. speaking for the Court observed as follows :
"The arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled outside the bounds of the contract, he has acted without jurisdiction. But if he has remained inside the parameters of the contract and has construed the provisions of the contract, his award cannot be interefered with unless he has given reasons for the award disclosing an error apparent on the face of it."
Applying the ratio to the present case it is not possible to say that the arbitrator in the present case travelled outside the bounds of the contract. Correspondence exchanged between the parties prior to the making of the reference shows that the arbitrators were called upon to construe the contract in order to determine whether the contractor was entitle to claim revision of rates and if so what should be the revised rates. The construction placed on the contract by the contractor cannot be said to an implausible one. Even if the arbitrators construed the terms of the contract incorrectly it cannot be said that the award was in excess of their jurisdiction. Their jurisdiction clearly was to construe the terms of the contract and their decision thereon is final and binding on the parties.
4.2 With respect to interest, counsel submitted that the arbitrator was well within his right to award interest after passing of the award. He relied on the decision of the Apex Court in case of Secretary, Irrigation Department, Government of Orissa and others v. G.C. Roy reported in AIR 1992 Supreme Court 732, wherein the Apex Court observed that the arbitrator has the power to grant interest pendente lite. It was observed that principles embodied in Section 34 of the Code of Civil Procedure can be relied upon. Counsel also relied on the decision in case of Hindustan Construction Co. Ltd v. State of Jammu & Kashmir reported in (1992) 4 Supreme Court Cases 217, for the same purpose.
Having thus heard learned counsel for the parties, only two questions arise for our consideration in these two appeals. First question is with respect to arbitrator's decision to apply revised rates for excavation of the entire quantity of work done under item no.1 as contrary to Government's contention that such rate revision would apply only to the quantity of work done in excess of 30% over and above the agreed quantity. The second question pertains to the directions of the arbitrator in his award to pay interest at the rate of 15% per annum from the date of award till realisation or till the decree of the Court, whichever is earlier.
We would deal with the first question first. At the outset, we may record that no serious dispute was raised before us with respect to the rate of Rs.13.50 per cubic meter applied by the arbitrator in the impugned award. In other words, the sole dispute of the appellants was with respect to applicability of such revised rates to the entire quantity of excavation under item no.1 carried out by the contractors.
It is not in dispute that under the original agreement under item no.1, the quantity of excavation work required to be undertaken by the contractor was 26348 cubic meters. It is also not in dispute that ultimately the contractors had to carry out a total work of 42,228.51 cubic meters. It is thus not in dispute that excavation work done under this item far exceeded 30% margin over and above the quantity agreed between the parties. When the contractors and the Government could not agree to revised rates, the Government in terms of arbitration clause contained in the contract, issued Government Resolution dated 3.7.1986 appointing Shri M.H. Vakharia as the sole arbitrator. In the said Government Resolution it was provided inter-alia as under :
"THIS AGREEMENT IS made on the September day of 1986. BETWEEN the Governor of Gujarat (hereinafter referred to as "the Government")., which expression shall, unless excluded by or repugnant to the context, include its successor-in-office or assignees, on the one part and the Company/Contractor namely M/s. B. M. Patel & Bros. having its registered office at 25 Rajanagar Society, Behind Vidhyut nagar Colony, Old Padara Road, Vadodara (herein after referred as "the Contractor"), which expression shall, unless otherwise excluded or repugnant to the context, include its successors and assignees, on the other part.
WHEREAS the Contractor entered into an agreement for the work of providing lining on Nani Fatewadi Canal Ch. 570 to 5550 mt. of Fatewadi Canal System, with the Executive Engineer, Ahmedabad Irrigation Division, Ahmedabad-15 for as on behalf of the Government.
2. AND WHEREAS disputes and differences in relation to the said contract have arisen between the Government and the Contractor.
3. AND WHEREAS the Government and the Contractor do not admit the respective claims put forth by each one of them.
4. NOW, THEREFORE, IT IS HEREBY AGREED between the Government and the Contractor mutually that the items mentioned below which are under dispute and which arise out of the aforesaid contract, be referred to the sole arbitration of the person of the rank not below the rank of Superintending Engineer, to be appointed or nominated by the Government, who shall always be deemed to have been appointed by both the parties hereto.
(1) Rate of excavation of Qty. increased by 30%"
Subsequently, the parties also entered into arbitration agreement which provided that :
"After careful consideration the Govt. is pleased to appoint Shri. M.H. Vakharia, retired C.E. Irri. Deptt., Gujarat State, as a Sole Arbitrator to decide the dispute of the both parties regarding rule of excavation of quantity increased by 30% . This appointment is made according to the existing rules by regulations as prescribed by the Govt.
2/-
The terms, conditions and fees in connection with the appointment of the arbitrator shall be as laid down in Govt. in P.W.D. Resolution No. TNC-5074/158/C dtd. 8-3-1977.
3/-
No claim for interest shall be entertained.
4/-
The arbitrator shall give speaking award giving reason for acceptance of the rates."
We may notice that clauses 31 and 32 of the works contract provided as under :
"31.
Schedule of quantities:
Variation in the quantities of work in Schedule 'B' shall not vitiate the contract. The rates quoted for the individual items shall apply for the quantities of work increased or decreased by not more than thirty per cent for each of the items, should the quantities of work actually involved under any item vary by more than thirty per cent, the rate for such item of work shall be revised in accordance with the procedures indicated under clause "Extra items." The payment for the items will, however, continue to be made at the original rate till the revised rate is decided.
32. Extra Items :
Extra items of work shall not vitiate the contract. The contractor shall be bound to execute extra items of work as directed by the Executive Engineer. The rates for extra items are to be mutually agreed."
From the above materials on record, it can be seen that the Government Resolution itself which referred the dispute for adjudication to a sole arbitrator, in clear terms provided that such arbitrator was appointed "to decide the dispute of both the parties regarding rule of excavation of quantity increased by 30%."
Clause 4 of the agreement also clearly stipulated that the arbitrator shall decide the rate of excavation of quantity increased by 30%.
Terms of reference to the arbitrator were thus sufficiently clear. They pertained to deciding the revised rates for excavation work which increased by 30% over and above the agreed quantity. The terms of reference of the arbitration thus provided no further flexibility to the arbitrator to decide to apply such rates for the entire quantity of the work done. In that view of the matter, we are of the opinion that the arbitrator exceeded his jurisdiction in applying the rates to the total quantity of work done. In our opinion the reference before the arbitrator clearly specified that the arbitrator shall decide the revised rates which should be made applicable to the quantity of work done in excess of 30% over and above the agreed quantity. On this count alone, we find that arbitrator lacked jurisdiction to apply such rates to the entire quantity of work done.
We have also perused clauses 31 and 32 of the contract. Clause 31 provided that mere variation in the quantity of work shall not vitiate the contract and that rates quoted for the individual items shall apply for the quantities of work increased or decreased by not more than 30% for each of the items. However, if the quantity of work actually involved vary by more than 30%, the rate for such item of work shall be revised in accordance with the procedures indicated under clause "Extra items." Clause 32 in turn provided that extra items of work shall not vitiate the contract and the contractor shall be bound to execute the extra item of work as directed by the Executive Engineer. The rates for extra items shall be as mutually agreed.
Clause 31 of the contract thus clearly envisages applicability of contract rates to the work that contractor may do as long as the quantity of work does not deviate beyond 30% on either side. In case of deviation beyond 30%, the question of payment of revised rates for extra items would arise. Clause 32 principally, only provided that rates of extra item would be as may be mutually agreed between the parties.
In our opinion therefore, true interpretation of combined reading of clauses 31 and 32 would be that as long as there is no deviation in the agreed quantity of work beyond 30% on either side, the rates originally agreed for such item would prevail. In case such deviation exceeded 30%, the revised rates as may be agreed between the parties for such extra work done would be applicable. Under no circumstances, such clauses can be read as to apply such revised rates to the entire quantity of work done, the moment there was either increase or decrease in work beyond 30% of the originally agreed quantity.
Under the circumstances, we are of the opinion that the arbitrator seriously erred in his interpretation of such terms of the contract. On this count also, the award of the arbitrator was vulnerable.
It is undoubtedly true that the arbitral award can be interfered with by the Courts of law on very limited grounds. Merely because two views are possible, a Court would not substitute its view with that of an arbitrator as long as the arbitrator has examined the materials on record and come to a view which is other-wise plausible. However, if arbitrator commits serious legal error or travels beyond the scope of arbitration and thereby exceeds his jurisdiction, Court can and would certainly interfere.
In case of Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises and another reported in (1999) 9 Supreme Court Cases 283, the Apex Court observed that where fundamental terms of agreement between the parties are ignored by the arbitrator, such arbitrator exceeds his jurisdiction.
In case of Grid Corporation of Orissa Ltd. and another v. Balasore Technical School reported in AIR 1999 Supreme Court 2262, the Apex Court set aside the arbitral award on the ground that same was rendered in disregard of the contract.
In case of Oil and Natural Gas Corporation Ltd. v. SAW Pipes Ltd. reported in AIR 2003 Supreme Court 2629, the Apex Court elaborated on what can be stated to be an award opposed to the public policy and held that an award which is contrary to the provisions of substantive law or of statute or terms of contract, is liable to be set aside.
Therefore, though the power of the Court to set aside arbitral award is limited as held by series of decision of the Apex Court including in case of U.P. State Electricity Board v. M/s. Searsole Chemicals Ltd. reported in AIR 2001 Supreme Court Cases 1171, it is undoubtedly a well established legal principle that such award can be struck down if arbitrator had exceeded his jurisdiction or had rendered an award in disregard of the terms of the contract between the parties.
In the present case, we have already found that the terms of the reference to the arbitrator did not permit him to apply revised rates to the entire quantity of excavation carried out by the contractor under item no.1. His authority flows from the contract between the parties and such contract permitted him to decide revised rates to be applied to the excess work done, over and above 30% of the agreed quantity. In short, the arbitrator had to decide the rate which would apply to the work done by the contractor on such quantity of work which deviated beyond 30% of the originally agreed quantity. He had no authority to apply such revised rates so decided by him to the entire quantity of work done by the contractor even if his interpretation of clauses 31 and 32 was correct. On this basic ground itself we are inclined to interfere with the arbitral award. Therefore, even if one were to discard our interpretation of clauses 31 and 32 of the contract and favour the interpretation which the arbitrator has adopted, to our mind, his role was limited to within the terms of reference which permitted him to apply the revised rates only to the quantity of work done in addition to 30% over and above the originally agreed quantity of work.
Counsel for the contractors had submitted before us that the question of applicability of the revised rates was not raised either before the arbitrator or before the Civil Court. We are unable to accept such a contention. As rightly pointed out by the learned AGP, before the arbitrator in reply filed by the Government, such issue was specifically and elaborately taken up. In the proceedings before the Civil Court also, the Government filed its CMA No.13/1988 praying that arbitrator's award be set aside in which it was contended as under :
"(4) The opponent no.2 Arbitrator has pronounced his award on 27-8-1987 and was submitted to the Honourable Court and the same is numbered as Misc. Petition No.553/1987 and the notice was served upon. Applicant being dis-satisfied and aggrieved the decision of opponent no.2 Arbitrator Shri M.H.Vakharia, prefer this petition for setting aside award on the following amongst the other grounds.
xxx (B) The opponent no.2 has acted and published his award and has exceeded his jurisdiction and therefore requires to be set aside.
(C) The opponent no.2 has exceeded his jurisdiction beyond the the terms of reference and thereby award requires to be set aside.
xxx xxx (5) The opponent no.2 has ignored the submissions and the documentary evidence adduced by Applicant and has ignored the Govt. Resolution for deciding the Rate of EXTRA item. The Applicant submits that the Opp. no.2 has grossly erred and committed error and the Award published is bad in law and requires to be set aside."
Thus all issues were presented before the arbitrator as well as before the Civil Court. In any case, the question of jurisdiction of the arbitrator goes to the root of the matter and is based on facts emerging from the record.
As correctly pointed out by counsel for the contractors, despite such conclusion that we have arrived, the arbitral award is severable. Revised rates are not under challenge. Only the quantity of work to which such rates would apply is disputed before us. Resultantly, therefore, the revised rate of Rs.13.50 inclusive of original rate of Rs.4 i.e. net rate of Rs.9.50 over and above the contractual rate, would apply to quantity of work done by the contractor in excess of the basic agreed quantity plus 30% thereof. The contractor agreed to execute 26,348 cubic meters of excavation work. 30% excess thereof would come to 7904.40 cubic meters. The total would therefore, come to 34,252.40 cubic meters. Total quantity of work carried out was 42,228.51. The difference on which the revised rate would apply comes to 7976.11 cubic meters (i.e. 42,228.51 - 34,252.40). The contractor would therefore, be entitled to additional payment of Rs.75,773 (7976.11x9.50). It is clarified that this is exclusive of tender rate of Rs.4/- per cubic meter.
This brings us to the question of interest awarded by the arbitrator. We may notice two facts at this stage. Firstly, the Government Resolution provided that no claim for interest shall be entertained. The other fact is that the arbitrator has awarded no interest before the reference or interest pendente lite. Arbitrator has awarded interest only for the post award period. He has specified that the contractor shall pay interest at the rate of 15% per annum from the date of award till realisation of the amount or till the passing of the decree whichever is earlier.
In this respect, we may refer to some of the decisions of the Apex Court. In case of Executive Engineer (Irrigation) Balimela and others v. Abhaduta Jena and others reported in (1988) 1 Supreme Court Cases 418, the Apex Court had held that the interest during the pendency of the arbitral proceedings cannot be awarded in a case where the arbitration proceeding arose out of a reference made without the intervention of the Court.
Ratio of this decision was doubted before the Apex Court. In a subsequent decision of the Constitution Bench in case of by G.C. Roy(supra), wherein five Judge Bench of Supreme Court was considering the power of arbitrator appointed through process outside of the Court to award interest pendente lite, the Apex Court held as under :
"43.
The question still remains whether arbitrator has the power to award interest pendente lite, and if so on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge:
(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference.This is the principle of S.34,C.P.C., and there is no reason or principle to hold otherwise in the case of arbitrator.
(ii) An arbitrator is an alternative form for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. if the arbitrator has no power to award interest pendente lite, the party claiming it would have to approach the Court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings.
(iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to S.41 and S.3 of Arbitration Act illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the generallaw of the land and the agreement.
(iv) Over the years, the English and Indian Courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas (AIR 1955 SC
468) has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jena's case (AIR 1988 SC 1520) almost all the courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law.
(v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred.
44. Having regard to the above considerations, we think that the following is the correct principle which should be followed in this behalf:
45. Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes - or refer the dispute as to interest as such to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view."
In doing so, the Apex Court impliedly overruled the decision in case of Abhaduta Jena and others (supra).
Question of power of arbitrator to award interest for pre-reference period came up for consideration before the Five Judge Bench of Apex Court in case of Executive Engineer, Dhenkanal Minor irrigation Division, Orrisa, etc., v. N.C. Budharaj (Dead) by L.Rs. etc. etc. reported in AIR 2001 Supreme Court 626. Referring to and relying upon decision in case of G.C. Roy(supra), by majority the Apex Court held and observed as under :
"46.
It is not in dispute that an arbitrator appointed in a pending suit or with the intervention of the Court, will have all the powers of the Court, in deciding the dispute and the dispute is only in respect of an arbitrator to whom the reference has been made by the parties, under the agreement without the intervention of the Court. It would then mean that the parties have to be driven to vexatious litigation before Courts by passing an agreement of arbitration, to be ultimately told to abide by it and have the matter formally referred by staying such proceedings before Civil Court to secure to the arbitrator power to award interest also. In G. C. Roy's case (1992 AIR SCW 389 : AIR 1992 SC 732) while emphasising the importance and need for availing arbitration process, it has been observed as follows (Para 4 of AIR SCW and AIR) :
"4.
A dispute between two parties may be determined by Court through judicial process or by arbitrator through a non-judicial process. The resolution of dispute by Court, through judicial process is costly and time consuming. Therefore, generally the parties with a view to avoid delay and cost, prefer alternative method of settlement of dispute through arbitration proceedings. In addition to these two known process of settlement of dispute there is another alternative method of settlement of dispute through statutory arbitration. Statutory arbitrations are regulated by the statutory provisions while the parties entering into agreement for the resolution of their dispute through the process of arbitration are free to enter into agreement regarding the method, mode and procedure of the resolution of their dispute provided the same are not opposed to any provision of law. Many a time while suit is pending for adjudication before a Court, the Court with the consent of the parties, refers the dispute to arbitration. On account of the growth in the international trade and commerce and also on account of long delays occurring in the disposal of suits and appeals in Courts, there has been tremendous movement towards the resolution of disputes through alternative forum of arbitrators. The alternative method of settlement of dispute through arbitration is a speedy and convenient process, which is being followed throughout the world. In India since ancient days settlement of disputes by Panches has been a common process for resolution of disputes in an informal manner. But now arbitration is regulated by statutory provisions."
47. If that be the position, Courts which of late encourage litigants to opt for and avail of the alternative method of resolution of disputes, would be penalising or placing those who avail of the same in a serious disadvantage. Both logic and reason should counsel Courts to lean more in favour of the arbitrator holding to possess all the powers as are necessary to do complete and full justice between the parties in the same manner in which the Civil Court seized of the same dispute could have done. By agreeing to settle all the disputes and claims arising out of or relating to the contract between the parties through arbitration instead of having recourse to Civil Court to vindicate their rights the party concerned cannot be considered to have frittered away and given up any claim which otherwise he could have successfully asserted before Courts and obtained relief. By agreeing to have settlement of disputes through arbitration, the party concerned must be understood to have only opted for a different forum of adjudication with less cumbersome procedure, delay and expense and not to abandon all or any of his substantive rights under the various laws in force, according to which only even the arbitrator is obliged to adjudicate the claims referred to him. As long as there is nothing in the arbitration agreement to exclude the jurisdiction of the arbitrator to entertain a claim for interest on the amounts due under the contract, or any prohibition to claim interest on the amounts due and become payable under the contract, the jurisdiction of the arbitrator to consider and award interest in respect of all periods subject only to Section 29 of the Arbitration Act, 1940 and that too the powers of the Court thereunder, has to be upheld. The submission that the arbitrator cannot have jurisdiction to award interest for the period prior to the date of his appointment or entering into reference which alone confers him power is too stale and technical to be countenanced in our hands, for the simple reason that in every case the appointment of an arbitrator or even resort to Court to vindicate rights could be only after disputes have cropped up between the parties and continue to subsist unresolved and that if the arbitrator has the power to deal with and decide disputes which cropped up at a point of time and for the period prior to the appointment of an arbitrator, it is beyond comprehension as to why and for what reason and with what justification the arbitrator should be denied only the power to award interest for the pre-reference period when such interest becomes payable and has to be awarded as an accessory or incidental to the sum awarded as due and payable, taking into account the deprivation of the use of such sum to the person lawfully entitled to the same.
48. For all the reasons stated above, we answer the reference by holding that the arbitrator appointed with or without the intervention of the Court, has jurisdiction to award interest, on the sums found due and payable, for the pre-reference period, in the absence of any specific stipulation or prohibition in the contract to claim or grant any such interest. The decision in Jena's case (1998) 1 SCC 418 : (AIR 1988 SC 1520) taking a contra view does not lay down the correct position and stands overruled, prospectively, which means that this decision shall not entitle any party nor shall it empower any Court to reopen proceedings which have already become final, and apply only to any pending proceedings. No costs. Order accordingly."
While doing so the Apex Court expressly overruled the decision in case of Abhaduta Jena and others (supra).
From the above decisions, it emerges that in absence of any contract to the contrary, an arbitrator has the power to award interest pendente lite or even prior to the reference of-course as per law. Our case however, is somewhat peculiar. Case involves grant of interest for the post award period and arises out of the agreement which provided that no interest claim shall be entertained. Insofar as the interest on post award period is concerned, the Apex Court in case of Hindustan Construction Co. Ltd. v. State of Jammu and Kashmir reported in AIR 1992 Supreme Court 1292 provided as under :
"5.
The question of interest can be easily disposed of as it is covered by recent decisions of this Court. It is sufficient to refer to the latest decision of a five-Judge Bench of this Court in Secretary, Irrigation Department of Orissa v. G. C. Roy, (1991) 6 JT 349: (AIR 1992 SC 732). Though the said decision deals with the power of the Arbitrator to award interest pendente lite, the principle of the decision makes it clear that the arbitrator is competent to award interest for the period commencing with the date of award to the date of decree or date of realisation, whichever is earlier. This is also quite logical for,while award of interest for the period prior to a arbitrator entering upon the reference is a matter of substantive law, the grant of interest for the post-award period is a matter of procedure. Section 34 of Code of Civil Procedure provides both for awarding of interest pendente lite as well as for the Postdecree period and the principle of S. 34 has been held applicable to proceedings before the arbitrator, though the section as such may not apply. In this connection, the decision in Union of India v. Bango Steel Furniture (P) Ltd., (1967) 1 SCR 324/329: (AIR 1967 SC 1032 at p. 1035) may be seen as also the decision in Gujarat Water Supply and Sewage Board v. Unique Erectors, (1 989) 1 SCR 318: (AIR 1989 SC 973) which upholds the said power though on a some what different reasoning. We, therefore, think that the award on item No. 8 should have been upheld."
It can thus be seen that the arbitrator had powers to grant interest for the post award period. In the present case, when the Government Resolution provided that no claim for interest shall be entertained, such clause must be appreciated and interpreted as to include interest upto the period when arbitral award is passed. If such award is accepted by the parties, no question of interest liability would arise. However, if the losing party wished to question the legality of such award and approached the Court of law in this respect, for the period during which such amount covered under arbitral award remained unpaid, on the principle of restitution and on the basis of principles contained in section 34 of Code of Civil Procedure, interest should follow. It is only in this respect that the clause dis-entitling the succeeding party to claim interest must be appreciated. Such condition in our view would not apply to any post arbitral award period. In that view of the matter in our view, the arbitrator committed no error in granting interest at the reasonable rate for the period starting after the passing of the award. We may recall that for entire pre-arbitration period till passing of the award, no interest was awarded. Such interest was to apply for the period from the date of award till payment or till the decree is passed by the Court, whichever is earlier. In other words, if parties accepted the award, responsibility to pay interest would cease the moment liability is discharged. If on the other hand, the parties approached the Court of law, such liability would enure till the Court passes the decree and thereafter, as may be provided by the Court. In the present case, Civil Court has also provided interest at the rate of 10% from the date of decree. Meaning the Court did not alter the direction for payment of interest from the date of award till the decree as provided by the arbitrator.
We may notice that the present case arose out of the old arbitration Act of 1940. In this regard Apex Court in case of State of Haryana and others v. S.L. Arora and Company reported in (2010) 3 Supreme Court Cases 690 had observed as under :
"16.
In the Arbitration Act, 1940 (`old Act' for short) there was no provision dealing with the power of arbitral tribunals to award interest. Section 29 of the old Act merely provided for post-decree interest and authorized the court to direct in the decree, where the award was for payment of money, payment of interest from the date of decree at such rate as the court deemed reasonable, to be paid on the principal sum as adjudged by the award and confirmed by the decree. The power of arbitral tribunals to award interest was governed by the provisions of Interest Act, 1978 and the law enunciated by courts."
We are not oblivion to the decision of the Apex Court in case of Union of India v. Krafters Engineering and Leasing Private Limited reported in (2011) 7 Supreme Court Cases 279, wherein in view of the prohibition in the agreement to claim interest, the Apex Court held that arbitrator did not have powers to award interest pendente lite. We may notice that issue therein was with respect to interest pendente lite and not for post award period with which question we are concerned.
We do not find any error having been committed by the arbitrator in this respect. In that view of the matter, we uphold the direction for payment of interest for the post award period. In the result appeal is allowed in part. The decree passed by the Civil Court stands substituted by providing that the appellants contractors shall receive a sum of Rs.75,773/- with interest as provided by the arbitrator and the Civil Court respectively.
All the appeals are disposed of in above terms.
(Akil Kureshi,J.) (C.L Soni,J.) (raghu) Top