The Municipal Corpn. Of Gr. Bombay vs Atul Raj Builders Pvt Ltd
- Court
- Bombay High Court
CNR No : HCBM020199591998
2026:BHC-OS:19760
Gitalaxmi 501-ARBP-264-1998-J.docx
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 264 OF 1998
THE MUNICIPAL CORPORATION OF GREATER
BOMBAY,
Represented by its chief Engineer (Roads &
HWD), having its office at Mahapalika Marg,
Mumbai-400 001.
...PETITIONER
Versus
M/S. ATUL RAJ BUILDERS PVT. LTD.,
a Company incorporated under the provisions of
the Companies Act No. I of 1956, having its office
at D-2/22, Bharat Nagar, Grant Road, Mumbai-
400 007.
...RESPONDENT
Ms. Madhavi Nallure a/w Ms. Pooja Yadav & Mr. Sunil
Khandagle i/b Ms. Komal Punjabi, Advocates for the
Petitioner-Corporation.
Mr. Mukesh Vashi, Senior Advocate a/w Ms. Aparna Devkar
i/b M. P. Vashi & Associates, Advocates for the Respondent.
CORAM : ARUN R. PEDNEKER, J.
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RESERVED ON : 17 AUGUST, 2026
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PRONOUNCED ON : 3 SEPTEMBER, 2026
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Judgment :
1. Heard Ms. Madhavi Nallure, learned counsel for the
Petitioner-Corporation and Mr. Mukesh Vashi, learned Senior
Advocate along with Ms. Aparna Devkar, learned Advocate for the
Respondent.
2. By the present Arbitration Petition, filed under Sections 30
and 33 of the Arbitration and Conciliation Act, 1940 (“the Act”), the
Petitioner-The Municipal Corporation of Greater Bombay
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(“Corporation”), challenges the Arbitral Award dated 28 March,
1996, passed by the Arbitrator in a reference made of the dispute
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arising between the parties in execution of the Work Order dated 27
March, 1991.
3. The facts giving rise to the present Arbitration Petition, in
brief, are that, in the month of March 1991, the Petitioner-
Corporation had invited tenders for construction of 27.43 meters of
(90 feet) D.P. Wadala-Ghatkopar Road from Wadal Bridge to Anik
Interchange-II to its junction with Eastern Freeway in F/North Ward.
The Respondent-Company was successful in bidding and getting the
contract for a period of 18 months for execution of the Work Order.
4. There was delay in carrying out the work, as such the
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original work awarded under the Work Order dated 27 March,
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1991, was revised. The revised Work Order dated 21 October, 1991
was issued by the Petitioner-Corporation in favour of the Respondent
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for additional work and the revised amount of Rs. 4,00,00,605/- was
raised from the initially awarded work of Rs. 1,87,11,183/- and the
time limit for completion of work was revised from 18 months to 24
months exclusive of monsoon period. On completion of 24 months,
the work covered by the Respondent was of Rs. 1,31,01,327.42. On
completion of 24 months, the Petitioner-Corporation did not grant
further extension to complete the contracted work. On expiry of the
contract period, the Respondent requested the Petitioner-Corporation
to release Bank Guarantee of Rs. 4,38,462/- out of Rs. 4,88,642/- by
retaining Rs. 50,000/- against the Bank Guarantee. The Petitioner-
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Corporation by letter dated 23 December, 1993 has recorded that
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the contract period had expired on 29 October, 1993 and the
Respondent had failed to complete the contract work during the
extended period and therefore, liable for damages and imposed
penalty of Rs. 500/- per day on the Respondent for committing
default.
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5. By letter dated 20 June, 1994, the Respondent gave notice
to the Municipal Commissioner under Clause 96 of the General
Conditions of Contract (“GCC”), thereby making claims and for
settlement of final account. Thereafter the Arbitrator was appointed
to adjudicate the dispute. The Respondent filed four claims and
claimed Rs. 65,83,645.60 towards the settlement of their final
accounts. On completion of arbitral proceedings, the Arbitrator has
passed the impugned Award.
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6. The summary of award is noted below :-
CLAIMED SUM AWARD SUM /
AMOUNT IN RS.
CLAIM-I 47,37,855.90 24,91,253.00
CLAIM-II 63,53,833.02 46,23,503.00
@18%
PAST INTEREST @21.25% p.a. 10,08,957.00
@18%
PENDENTE LITE INTEREST @21.25% p.a. 7,01,888.00
COST OF ARBITRATION 1,74,000.00 50,000.00
TOTAL 88,75,601.00
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7.
Challenging the Award dated 28 March, 1996, Ms.
Madhavi Nallure, learned counsel for the Petitioner-Corporation
submits that scope of Section 30 of the Act has been interpreted by
several decisions to include any arbitrary and capricious decision
made by an Arbitrator. Misconduct as given in Section 30 of the Act,
has been interpreted to mean ‘legal misconduct’. In the present case,
learned Arbitrator’s grant of Respondent’s Claim-II of loss of profit
amounts to legal misconduct. Similarly, learned Arbitrator’s finding
that “the contract had been virtually terminated” amounts to legal
misconduct as it is in violation of the terms of the contract which
clearly states that the contract is for a period of 24 months. This can
also be said to be an error apparent on the face of record. This
finding of virtual termination is the basis of grant of Claim-I. Also,
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granting exorbitant interest and interest on interest in the absence of
an enabling provision in the contract amounts to legal misconduct.
8. Ms. Madhavi Nallure, learned counsel for the Petitioner-
Corporation has made submissions as under :-
a. Claim-I-Extension of Time - At paragraph 29 of the Award,
the Arbitrator holds that the Corporation ought to have extended
time. The Arbitrator also holds that the contract was virtually
terminated and that the plea that the contract expired by efflux of
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time on 29 October, 1993, is unavailable given the contractual
provision for extension/liquidated damages, coupled with the finding
that extension was justified. In arriving at this conclusion the
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Arbitrator places reliance on letter dated 20 February, 1993 seeking
extension of time (Exhibit-D at page 82) and at the same time,
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completely disregards the Corporation’s reply dated 27 March, 1993
to Claimant refusing the extension (Exhibit-F at page 85).
. The Award holding the Respondent-Claimant entitled to
extension of time, is totally perverse and contrary to the terms of the
contract. At paragraph 42 of the Award, the Arbitrator holds that
depriving the Claimant of completing the work within the
agreed/extended period, the Corporation made itself liable to the
claim of compensation by the Claimant.
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. The Arbitrator’s grant of Claim-I and Claim-II based on the
above reasoning thus amounts to legal misconduct.
. In this regard, Ms. Madhavi Nallure, learned counsel for the
Petitioner-Corporation relies upon the following relevant judgments :
1
(a) Bharat Coking Coal Ltd. v/s. Annapurna Construction ;
(b) Associated Engineering Co. v/s. Government of Andhra Pradesh
2
and Another and
3
(c) Government of Kerala and Another v/s. V.P. Jolly .
b. Claim-II-Loss of Profit and Productivity, the Arbitrator at
paragraphs 40-42 of the Award holds that there is no conflict in the
claim for loss of profit and loss on account of reduced productivity.
There is no reasoning except to say that the claim is correct and there
is no contradiction. The Arbitrator does not refer to any evidence in
arriving at this finding.
. More importantly, there is no evidence of any actual loss
nor any evidence to show loss of productivity. There are important
parameters to determine what loss of profit and productivity, if any,
is suffered by a Claimant as held in the case of Unibros v/s. All India
4
Radio .
1
(2003)8 Supreme Court Cases 154.
2
(1991)4 Supreme Court Cases 93.
3
1991 SCC OnLine Ker 139.
4
2023 SCC OnLine SC 1366.
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. In the case of Municipal Corporation of Greater Bombay
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v/s. Bharat Construction , a Division Bench of this Court disallowed
the claim of loss of productivity/reduced productivity when loss of
profit’s claim was allowed.
. In this regard, Ms. Madhavi Nallure, learned counsel for the
Petitioner-Corporation relies upon the following relevant
judgments :-
(a) MCGM v/s. Bharat Construction ( supra );
6
(b) Bharat Coking Coal Ltd. v/s. L.K. Ahuja and
(c) Unibros v/s. All India Radio ( supra ).
c. Claim-III-Interest, the interest awarded at 18% is
exhorbitant. As noted by the Hon’ble Apex Court in Atlanta
Infrastructure Limited v/s. Municipal Corporation of Greater Mumbai
7
and Others , the interest rates are on a decreasing trend, the grant of
18% interest is unreasonable and perverse.
d. Interest on interest - While granting Claim-I, the Award
includes the interest of Rs. 10,08,957/- and therefore, the total
amount awarded for Claim-I is Rs. 35,00,210/-. In paragraph 44 of
the Award, while considering Claim-III, the Arbitrator allows interest
on the entire amount of Rs. 35,00,210/- of 18% amounting to Rs.
5
2017 SCC OnLine Bom 652.
6
(2004)5 Supreme Court Cases 109.
7
(2018)15 Supreme Court Cases 230.
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3,02,418/-, thereby allowing interest on interest. Such compounding
in absence of a term allowing the same in the contract is perverse
and beyond the provisions of the contract. This amounts to legal
misconduct.
. In this regard, Ms. Madhavi Nallure, learned counsel for the
Petitioner-Corporation relies upon the following relevant
judgments :-
8
(a) M/s. D. Khosla and Company v/s. Union of India (paragraphs
23-26);
9
(b) State of Maharashtra and Others v/s. Saifuddin Mujjaffarali Saifi
(paragraph 45) and
(c) Krishna Bhagya Jala Nigam Ltd. v/s. G. Harischandra Reddy and
10
Another (paragraph 11).
e. Personal Knowledge – In this regard Ms. Madhavi Nallure,
learned counsel for the Petitioner-Corporation submits that at
paragraph 28 of the Award, the Arbitrator notes that “After
considering the documentary evidence and having verified the fact
that hindrances are still continuing at the site of the work though not
to the extent alleged,...”. The Arbitrator bases the finding that the
contract was illegally terminated, which itself is perverse, on a
personal assessment of the situation on the ground. The Arbitrator’s
8
(2024)9 Supreme Court Cases 476.
9
1993 SCC OnLine Bom 203.
10
(2007)2 Supreme Court Cases 720.
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visit was in 1996 i.e. 3 years after the alleged events had taken place.
In any case, any such fact finding by the Arbitrator runs contrary to
the scheme of the Arbitration Act and the law itself. The same
amounts to misconduct on the part of the Arbitrator.
. In this regard, Ms. Madhavi Nallure, learned counsel for the
Petitioner-Corporation has placed reliance upon the judgment of the
Hon’ble Supreme Court in the case of P.R. Shah, Shares and Stock
Brokers Private Limited v/s. B.H.H. Securities Private Limited and
11
Others , wherein it is held in paragraphs 22 and 23 that
“ 22. The appellant contends that the Arbitral Tribunal had used
personal knowledge to decide the matter. Attention was drawn
to the following observation in the award by the majority:
"Also, it is known fact which is known to the arbitrators
that as per the market practice such kind of transactions
of one broker takes place with another broker either in
their own name or in their firm's name or in the name of
different entity which is also owned by the member.
Same way these transactions are done by Respondent 2
(the appellant herein) in the name of Respondent 1 (the
second respondent herein)."
23. An Arbitral Tribunal cannot of course make use of its
personal knowledge of the facts of the dispute, which is not a
part of the record, to decide the dispute. But an Arbitral
Tribunal can certainly use its expert or technical knowledge or
the general knowledge about the particular trade in deciding a
matter. In fact, that is why in many arbitrations, persons with
technical knowledge, are appointed as they will be well-versed
11
(2012)1 Supreme Court Cases 594.
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with the practices and customs in the respective fields. All that
the arbitrators have referred to is the market practice. That
cannot be considered as using some personal knowledge of facts
of a transaction to decide a dispute. ”
. Ms. Madhavi Nallure, learned counsel for the Petitioner-
Corporation submits that the Petition is filed within limitation and
opposes the submission of Respondent-Claimant that the Petition is
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barred by limitation because the same has been filed on 28 March,
1996, after 802 days of the publishing of the Award.
. Ms. Madhavi Nallure, learned counsel for the Petitioner-
Corporation submits that the Respondent has relied on paragraph 13
of the Award and paragraph 2 of the Affidavit-in-Reply to the
Petition to contend that Petitioner-Corporation had knowledge of the
Award. Neither paragraph 13 nor paragraph 2 are proof of service of
the Award on the Petitioner-Corporation. There is no document on
record to demonstrate that the Award was actually served upon the
Petitioner-Corporation. The Hon’ble Supreme Court in the case of
Oil & Natural Gas Corporation Ltd. v/s. Nippon Steel Corporation
12
Ltd. at paragraphs 30 and 31 has held that “even if the lawyer
representing the party in arbitration had filed the Award in Court on
behalf of the Arbitrator, it cannot be said to be constructive notice to
the party, nor can an intimation by one party to the other of filing of
the Award in Court be taken as notice under Section 14(2) of the
Act.”
12
(2007)2 SCC 382.
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. Ms. Madhavi Nallure, learned counsel for the Petitioner-
Corporation submits that Section 14(2) of the Act mandates notice of
the Award being filed in Court has to be served on the parties. The
limitation period under Article 119(b) of the Limitation Act, 1963
will start upon such service of notice by the Court in which the
Award is filed. Under the Bombay High Court Original Side Rules,
1980, Rule 786 requires service of notice of the filing of the Award
on the parties by the Prothonotary & Senior Master. In paragraph 45
of the Petition, the Petitioner-Corporation has made an averment
that the Award had not been served on the Petitioner-Corporation
until the filing of the Petition and therefore, it was not barred by
limitation.
. Ms. Madhavi Nallure, learned counsel for the Petitioner-
Corporation submits that in the present case, the Respondent has
failed to bring on record any proof of service of the Award, much less
by the Court. In such a situation, it cannot be said that the Award
had been served on the Petitioner-Corporation and/or that notice of
the Award being filed in Court, was given by the Court to the
Petitioner-Corporation.
. In this regard, Ms. Madhavi Nallure, learned counsel for the
Petitioner-Corporation relies upon the judgment of Hon’ble Supreme
Court in the case of Bharat Coking Coal Ltd. v/s. L.K. Ahuja ( supra ),
which was followed in ONGC v/s. Nippon Steel Corporation Ltd.
( supra ). The Hon’ble Apex has held that notice of Court is
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mandatory for the limitation period to begin. The decision of the
Hon’ble Supreme Court in the case of Indian Rayon Corpn. Ltd. v/s.
13
Raunaq and Co. (P) Ltd. , relied upon by the Respondent is
considered by the Hon’ble Apex Court in the case of ONGC v/s.
Nippon Steel Corporation Ltd. ( supra ) and not affirmed. In so far as
the decision in the case of Krishna Devi alias Sabitri Devi (Rani)
( supra ), the same has been rendered in different facts, thus can be
distinguished and in any case, does not consider the two decisions of
Co-ordinate Benches prior to it i.e. Bharat Coking Coal Ltd. ( supra )
and ONGC v/s. Nippon Steel Corporation Ltd. ( supra ).
. It is submitted that the Arbitrator has not assigned any
justification for extension of time by the Respondent. For this
purpose, learned counsel for the Petitioner-Corporation has placed
reliance upon the judgment of the Hon’ble Supreme Court in the case
of Bharat Coking Coal Ltd. ( supra ), wherein it is held in paragraphs
19 to 22 that
“ 19. So far as these items are concerned, in our opinion, the
learned sole arbitrator should have taken into consideration the
relevant provisions contained in the agreement as also the
correspondences passed between the parties. The question as to
whether the work could not be completed within the period of
four months or the extension sought for on one condition or the
other was justifiable or not, are relevant facts which were
required to be taken into consideration by the arbitrator.
13
(1988)4 Supreme Court Cases 31.
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20. It is now well settled that the arbitrator cannot act
arbitrarily, irrationally, capriciously or independent of the
contract.
14
21. In Associated Engg. Co. v. Govt. of A.P. , this Court clearly
held that the arbitrators cannot travel beyond the parameters of
15
the contract. In Sudarsan Trading Co. v. Govt. of Kerala this
Court has observed that an award may be remitted or set aside
on the ground that the arbitrator in making it had exceeded his
jurisdiction and evidence of matters not appearing on the face of
it, will be admitted in order to establish whether the jurisdiction
had been exceeded or not, because the nature of the dispute is
something which has been determined outside the award,
whatever might be said about it in the award by the arbitrator.
This Court further observed that an arbitrator acting beyond his
jurisdiction is a different ground from the error apparent on the
face of the award.
22. There lies a clear distinction between an error within the
jurisdiction and error in excess of jurisdiction. Thus, the role of
the arbitrator is to arbitrate within the terms of the contract. He
has no power apart from what the parties have given him under
the contract. If he has travelled beyond the contract, he would
be acting without jurisdiction, whereas if he has remained inside
the parameters of the contract, his award cannot be questioned
on the ground that it contains an error apparent on the face of
the record. ”
. Ms. Madhavi Nallure, learned counsel for the Petitioner-
Corporation has placed reliance upon the judgment of the Hon’ble
14
(1991)4 Supreme Court Cases 93.
15
(1989)2 Supreme Court Cases 38.
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Supreme Court in the case of Food Corporation of India v/s. Chandu
16
Construction and Another .
. It is further submitted that the Award of Arbitrator holding
that in the facts and circumstances of the case, the Respondent was
justified in asking for extension of time under the terms of contract
are totally perverse and contrary to the provisions of the Act. It is
also submitted that the Arbitrator has used his personal knowledge in
rendering the finding that there was disturbance in the area and such
personal knowledge cannot be used by the Arbitrator.
. Ms. Madhavi Nallure, learned counsel has also submitted
that the Arbitrator erred in computing interest. She has submitted
that the interest @ 18% is very exorbitant. So also she has submitted
that the overlapping interest is awarded and thus, there is
computation of an interest on interest.
9. Per contra , Mr. Mukesh Vashi, learned Senior Advocate for
the Respondent submits that the scope of interference by this Court
under Section 30 of the Act in the Arbitral Award, is limited. The
grounds raised in the Petition as required under Section 30 of the Act
for interference by this Court in the Arbitral Award, are limited and
the Petition has to be examined as per the scope of Section 30 of the
Act. The Petitioner-Corporation has failed to make out any ground
in the Petition for interfering with the Arbitral Award.
16
(2007)4 Supreme Court Cases 697.
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10. In this regard, Mr. Mukesh Vashi, learned Senior Advocate
relies upon the judgment of the Hon’ble Supreme Court in the case of
Ispat Engineering & Foundry Works, B.S. City, Bokaro v/s. Steel
17
Authority of India Ltd., B.S. City, Bokaro (Paragraphs 3 to 6, 15 and
16).
11. Mr. Mukesh Vashi, learned Senior Advocate further submits
that the Petition is filed beyond limitation and there is delay of 802
days in filing the present Petition.
12. Mr. Mukesh Vashi, learned Senior Advocate further submits
about Claim-I in respect of Settlement of Final Accounts.
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Termination was recorded in the letter dated 23 December, 1993.
Claims have been awarded on the basis of actual work done,
measurement book and joint measurement by both parties. The
interest awarded was on the basis of production of proof of payment
to the bank @ 21.25% per annum. The Arbitral Tribunal has scaled
the interest down to 18% per annum. The interest claimed by the
Petitioner-Corporation in the counter-claim filed by them itself is @
24% per annum.
13. In this regard, Mr. Mukesh Vashi, learned Senior Advocate
for the Respondent submits that the interest awarded would be in
consonance with the law laid down by the Hon’ble Supreme Court in
17
(2001)6 Supreme Court Cases 347.
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the case of Hyder Consulting (UK) Limited v/s. Governor, State of
18
Orissa . The Hon’ble Supreme Court has observed that,
“ 11. At this juncture, it may be useful to refer to Section 34
CPC, also enacted by Parliament and conferring the same power
upon a court to award interest on an award i.e. post-award
interest. While enacting Section 34 CPC Parliament conferred
power on a court to order interest "on the principal sum
adjudged and not on merely the "sum" as provided in the
Arbitration Act. The departure from the language of Section 34
CPC in Section 31(7) of the 1996 Act is significant and shows
the intention of Parliament.
12. It is settled law that where different language is used by
Parliament, it is intended to have a different effect. In the
Arbitration Act, the word "sum" has deliberately not been
qualified by using the word "principal" before it. If it had been
so used, there would have been no scope for the contention that
the word "sum" may include "interest." In Section 31(7) of the
Act, Parliament has deliberately used the word "sum" to refer to
the aggregate of the amounts that may be directed to be paid by
the Arbitral Tribunal and not merely the "principal" sum without
interest.
13. Thus, it is apparent that vide clause (a) of sub-section (7) of
Section 31 of the Act, Parliament intended that an award for
payment of money may be inclusive of interest, and the "sum" of
the principal amount plus interest may be directed to be paid by
the Arbitral Tribunal for the pre-award period. Thereupon, the
Arbitral Tribunal may direct interest to be paid on such "sum"
for the post-award period vide clause (b) of sub-section (7) of
Section 31 of the Act, at which stage the amount would be the
18
(2015)2 Supreme Court Cases 189.
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sum arrived at after the merging of interest with the principal;
the two components having lost their separate identities.
14. In fact this is a case where the language of sub-section (7)
clauses (a) and (b) is so plain and unambiguous that no
question of construction of a statutory provision arises. The
language itself provides that in the sum for which an award is
made, interest may be included for the pre-award period and
that for the post-award period interest up to the rate of eighteen
per cent per annum may be awarded on such sum directed to be
paid by the arbitral award.
25. The aforesaid question can be answered by a plain and
simple reading of Section 31(7) of the Act which reads as under:
"31. (7)(a) Unless otherwise agreed by the parties,
where and insofar as an arbitral award is for the
payment of money, the Arbitral Tribunal may include in
the sum for which the award is made interest, at such
rate as itdeems reasonable, on the whole or any part of
the money, for the whole or any part of the period
between the date on which the cause of action arose and
the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall,
unless the award otherwise directs, carry interest at the
rate of eighteen per centum per annum from the date of
the award to the date of payment."
26. Section 31(7)(a) of the Act deals with grant of pre-award
interest while clause (b) of Section 31(7) of the Act deals with
grant of post-award interest. Pre-award interest is to ensure that
arbitral proceedings are concluded without unnecessary delay.
Longer the proceedings, the longer would be the period
attracting interest. Similarly, post-award interest is to ensure
speedy payment in compliance with the award. Pre-award
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interest is at the discretion of the Arbitral Tribunal, while the
post-award interest on the awarded sum is mandate of the
statute the only difference being that of rate of interest to be
awarded by the Arbitral Tribunal. In other words, if the Arbitral
Tribunal has awarded post-award interest payable from the date
of award to the date of payment at a particular rate in its
discretion then it will prevail else the party will be entitled to
claim post-award interest on the awarded sum at the statutory
rate specified in clause (b) of Section 31(7) of the Act i.e. 18%.
Thus, there is a clear distinction in time period and the intended
purpose of grant of interest.
27. Section 31(7)(a) employs the words "... the Arbitral Tribunal
may include in the sum for which the award is made interest...".
The words "include in the sum" are of utmost importance. This
would mean that pre-award interest is not independent of the
"sum" awarded. If in case, the Arbitral Tribunal decides to award
interest at the time of making the award, the interest
component will not be awarded separately but it shall become
part and parcel of the award. An award is thus made in respect
of a "sum" which includes within the "sum" component of
interest, if awarded.
28. Therefore, for the purposes of an award, there is no
distinction between a "sum" with interest, and a "sum" without
interest. Once the interest is "included in the sum" for which the
award is made, the original sum and the interest component
cannot be segregated and be seen independent of each other.
The interest component then loses its character of an "interest"
and takes the colour of "sum" for which the award is made.
30. Therefore, I am inclined to hold that the amount award
under Section 31(7)(a) of the Act, whether with interest or
without interest, constitutes a "sum" for which the award is
made.
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31. Coming now to the post-award interest, Section 31(7)(b) of
the Act employs the words, "A sum directed to be paid by an
arbitral award...". Clause (b) uses the words "arbitral award"
and not the "Arbitral Tribunal". The arbitral award, as held
above, is made in respect of a "sum" which includes the interest.
It is, therefore, obvious that what carries under Section 31(7)(b)
of the Act is the "sum directed to be paid by an arbitral award"
and not any other amount much less by or under the name
"interest". In such situation, it cannot be said that what is being
granted under Section 31(7)(b) of the Act is "interest on
interest". Interest under clause (b) is granted on the "sum"
directed to be paid by an arbitral award wherein the "sum" is
nothing more than what is arrived at under clause (a).
32. Therefore, in my view, the expression "grant of interest on
interest" while exercising the power under Section 31(7) of the
Act does not arise and, therefore, the Arbitral Tribunal is well
empowered to grant interest even in the absence of clause in the
contract for grant of interest. ”
14. Mr. Mukesh Vashi, learned Senior Advocate further submits
about Claim-II in respect of loss suffered on account of extra
expenditure incurred by way of overheads and reduced productivity
from machinery and equipment as also loss of expected profit. The
loss claimed is as per the GCC Clause No. 73. The argument of
Corporation before the Arbitral Tribunal is contrary to the argument
raised in the Petition. The Arbitral Tribunal awarded the claim
under various heads i.e. cost of material, cost of labour, cost of
machinery & equipment, overhead and profit. As the delay was on
account of the Corporation and as there was no extension of time,
despite provision in the contract, the Arbitral Tribunal partially
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awarded the claim i.e. instead of 25%, awarded 22.5% towards
overheads and profits and instead of 5%, awarded 2.5% towards
machinery and equipment.
15. Mr. Mukesh Vashi, learned Senior Advocate has relied upon
the judgment of Hon’ble Supreme Court in the case of M/s. S.D.
19
Shinde Tr. Partner v/s. Govt. of Maharashtra & Ors. (paragraphs 22
to 25).
16. Mr. Mukesh Vashi, learned Senior Advocate further submits
that in paragraph 45 of the Petition, the Petitioner-Corporation has
contended that since the Petitioner-Corporation did not receive any
notice from the Prothonotary & Senior Master as regards “the filing
of Award”, the Petition is filed within time; to which the Respondent
has filed an Affidavit-in-Reply, wherein the date of filing of the
Award, the month in which the notice was issued by the
Prothonotary & Senior Master and the receipt of the notice by the
Respondent, etc. have been mentioned and the Petitioner-
Corporation has chosen not to file an Affidavit-in-Rejoinder to the
Affidavit-in-Reply. It is also submitted that after publishing the
Award, the sole Arbitrator had informed the Petitioner-Corporation
and the Respondent of making and publishing of the Award and a
signed copy of the Award has also been enclosed along with it. It is
19
Civil Appeal No(s). 6107-6108 of 2017 with Civil Appeal No(s). 6109 of 2017
decided on 22.08.2023.
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further submitted that even oral intimation to the party constitutes
sufficient notice under Section 14(2) of the Act.
17. Mr. Mukesh Vashi, learned Senior Advocate further submits
that the matter remains pending for a long period in this Court, as an
objection was raised by the Petitioner-Corporation that the work
contract was not executed in accordance with Sections 69 to 71 of
the Mumbai Municipal Corporation Act, 1888 (“MMC Act”). The Full
Bench of this Court had answered the issue. The preliminary issue
th
was referred by this Court vide its order dated 18 August, 2005 to
the Larger Bench for consideration. The Full Bench of this Court has
decided the reference by observing that an execution of a formal
contract as contemplated under Sections 69 to 71 of the MMC Act, is
not mandatory prerequisite for a party to seek invocation of the
arbitration clause contained in the contract/tender, where such
arbitration clause is contained; moreso, if the parties have acted
upon the contract.
18. It is also submitted that the Petitioner-Corporation had
th
issued a work order dated 27 March, 1991 to the Respondent and
directed the Respondent to take up the work in hand and commence
th
the work from 5 April, 1991. It is submitted that the Petitioner-
Corporation has got the work done from the Respondent for the
original contract price, amounting to Rs. 1,82,11,583/-, which was
later on increased to Rs. 4,00,00,605/-.
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Consideration :-
19. Perused the records with the assistance of learned
Advocates for the parties.
20. Having considered the rival submissions, the first issue that
arises for consideration is “Whether the Arbitration Petition is filed
within limitation?”.
21. In this regard, the following facts are necessary to be
noticed :-
. The Arbitrator in his Award at paragraph 13 has observed
that with the consent of both the parties, the time for signing and
th
publication of Award was extended upto 5 April, 1996. The
Petitioner-Corporation has stated that they have not received the
notice of Award being filed in the Court under Section 14(2) of the
Act. The Respondent has stated that the Arbitral Award was filed in
the Court and the notice of the Prothonotary & Senior Master has
been received by the Respondent in August 1996. It is submitted
that notice was issued to the parties as can be seen from the notice.
th
The present Petition is filed on 8 June, 1998 with a delay of 802
days. The dates and events leading to filing of Petition are noted
below :-
Sr. No. Dates Events
th
1 26 March, 1996 Covering letter by the Arbitral Tribunal informing of the
Award being published and copy enclosed.
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th
2 28 March, 1996 Award published
th
3 5 April, 1996 Time to publish the Award was extended by consent of
both the parties till the date
th
4 10 May, 1996 The sole Arbitrator filed the Arbitral Award in this Court
th
5 10 May, 1996 Objection in paragraph 2 of the Affidavit-in-Reply –
th
Dates, Award published on 28 March, 1996, filed in the
Court by the Arbitral Tribunal.
6 August1996 The Respondent received a notice from the Prothonotary
& Senior Master regarding filing of Petition Award
th th
7 8 June, 1998 The present Arbitration Petition was filed on 8 June,
1998 i.e. after a delay of 802 days.
Thus, the Petitioner-Corporation has not stated as to how
they became aware of the Award and how they have obtained the
copy of Award and how they have challenged the same in this Court.
22. Article 119(b) of the Limitation Act prescribes the period of
limitation of 30 days in challenging the Award from the date of
notice under Section 14(2) of the Act. It is relevant to refer to the
law declared by the Hon’ble Supreme Court as regards the
commencement of period of limitation in challenging the Award with
reference to Section 14(2) of the Act.
23. The Hon’ble Supreme Court in the case of ONGC v/s.
Nippon Steel Corporation Ltd. ( supra ), has considered the question
at paragraph 11 as under :-
“ Whether the High Court was justified in extending the principle
of constructive notice to the facts of the present case ignoring
the express stipulations of Section 14(2) of the Act? ”
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24. In this regard, the Hon’ble Supreme Court has observed in
paragraph 30 that
“ 30. This Court has expressly laid down that the notice
regarding filing of the award must be given to the parties by
some act of court. The letter of Prothonotary & Senior Master
cannot be regarded as an act of court. This Court also
conclusively laid down in the aforesaid case that mere
intimation from one party to the other of the filing of the award
cannot be construed as notice in terms of Section 14(2) of the
Act. Hence, in our view, the intimation from the Prothonotary
seeking address of the parties for the purpose of issuance of
notice cannot be characterised as notice in terms of Section
14(2).
”
25. So also, in the case of Bharat Coking Coal Ltd. ( supra ) the
Hon’ble Supreme Court has held that mere knowledge of passing of
the Award is not enough and that the notice regarding filing of the
Award must be given to a party by the Court. The letter of
Prothonotary & Senior Master cannot be regarded as an act of the
Court. The Hon’ble Supreme Court in the case of Bharat Coking Coal
Ltd. ( supra ) has also discussed the judgment in the case of ONGC
v/s. Nippon Steel Corporation Ltd. ( supra ) and has observed that,
“ The mere intimation of one party to the other of filing of the
Award in the Court, cannot be considered as notice in terms of
provisions of Section 14(2) of the Act. An intimation of the
Prothonotary & Senior Master seeking addresses of the parties
for the purpose of issuance of notice, cannot be characterized as
the notice under Section 14(2) of the Act.
”
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26. The Hon’ble Supreme Court has also observed in the case of
Bharat Coking Coal Ltd. ( supra ) as under :-
“ If there is no material to show that a notice of filing of the
Award has ever been given to the parties, any period of
limitation as prescribed in Article 119(b) of the Limitation Act,
1963 loses its significance. The law is clear to the effect that
mere knowledge of passing of an award is not enough. The
period of limitation will commence as provided in Article 119(b)
only upon notice as to filing of the Award in the Court being
given on the parties concerned. ”
27. However, recently, the Hon’ble Supreme Court while
considering the issue of limitation under Section 14(2) of the 1940
Act, in the case of Krishna Devi alias Sabitri Devi (Rani) ( supra ) has
held in paragraphs 15 to 18 as noted below :-
“ 15. From a plain reading of the provisions, it appears that the
parties need to be notified of the filing of award. While Art.
119(b) of the Limitation Act requires that there be a 'service of
notice' for the limitation to start running, Section 14(2) of the
1940 Act merely states that court 'give notice' to the parties. The
precise form of what constitutes as a 'notice' of filing the award
is unspecified. However, interpreted reasonably, what must be
required is that the parties come to know about the existence of
the award so that any objections to it may be filed. What
appears from the usage of the word 'notice' is that the parties
merely reach a state of awareness about the award and plan
their next steps accordingly, and not the imposition of another
procedural step.
16. In our view, the appellant's submissions are correct insofar
as they rely on this court's decision in Nilkantha Sidramappa
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Ningashetti (supra). Therein, while a partition suit was
underway between the parties, an arbitral award came to decide
the disputes partly. The suit was adjourned asking the parties to
apprise themselves of the award, and this was taken as a
sufficient compliance of Section 14(2) of the 1940 Act. It was
held that the term 'notice' in this provision nowhere excluded its
informal expressions. Furthermore, if the literal interpretation is
taken and limitation is paused until a formal notice is issued, the
Court held, would allow a party otherwise aware of the award to
sit over it and delay filing objections. This would undercut the
speedy intent governing arbitration. Similarly, the decision in
Ramalinga Reddy (supra) allowed the mere receipt of
information by the award-debtor's pleader as valid compliance
with the text of Section 14(2). As is discernible from the texts of
sub-sections (1) and (2) of Section 14, the notice is under sub-
section (2) need not be a written one.
17. Apart from the authorities cited by the appellant, this Court
has otherwise clarified that Section 14(2) merely functions to
apprise the parties about the existence of the award. In Food
Corporation of India v. E. Kuttappan, the communication of the
filing of an award to the parties' pleaders was taken to be
sufficient notice for Section 14(2). It was reasoned that what is
required is that the party comes to know about the decision
for/against it, and there was no insistence of a specific form in
the 1940 Act. The pleader acts as an agent of the party and his
awareness is sufficient for the parties to access and scrutinise the
contents of the award. Even if a formal notice is issued
thereafter, it is at best an act of court which cannot disturb rights
accrued in law. This is squarely applicable to the case before us,
wherein the order dated 21.09.2022 precisely laid out that the
award is available, and the only formality withholding the
respondent's access to it is clearance of the arbitrator's fees.
While a formal notice of filing of the award was only issued on
18.11.2022, applying this decision to the facts this case, it does
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not take away from the fact that the respondents were well
aware of the award's filing on 21.09.2022 itself. Similarly, the
decision in Indian Rayon Corporation Ltd. v. Raunaq and Co. (P)
Ltd clarifies that the only objective of Section 14(2) is that the
parties are aware of the award's existence and suggests that this
a substantive compliance. If this were to be a procedural
stipulation, the party intending to file objections can insist of
technicalities like the mode of notice, and use those unfairly to
gain time.
18. As far as the respondents' contention of taking the date of
receiving the copy of the award is concerned, it is taken to be an
impermissible departure from Section 14(2)'s text. This Court in
Bharat Coking Coal Ltd. v. L.K. Ahuja has laid down that what
this provision requires is that parties simply become aware of the
filing of the award. In the said case, the Supreme Court had
referred a dispute to arbitration and its registry had issued a
notice to both parties about the filing of the award. The award-
holder, however, relied on the much later. date of a formal
notice to calculate limitation for filing objections to the award.
Relying on the authorities discussed above, it was held that the
date of receiving a copy of the award is not the requirement of
Section 14(2), but merely awareness that it is available to the
parties. This holding signifies that the parties have to take steps
to scrutinise the award themselves as soon as it becomes
accessible and they are aware of its accessibility. We find that
the interpretation in this decision is in line with the intent of the
1940 Act, which is designed to resolve disputes at a quick pace.
Any contrary interpretation will give a licence to the award-
debtor to delay the arbitration by insisting on procedural
nuances despite of being aware that an award exists and that its
contents are accessible to it. ”
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28. In the case of Krishna Devi alias Sabitri Devi (Rani) ( supra ),
the Hon’ble Supreme Court has observed that from a plain reading of
the provisions, it appears that the parties need to be notified of the
filing of Award. The limitation period for challenging/filing
objections in the Arbitral Award commences when the concerned
party becomes aware of the existence of Award. While Art. 119(b) of
the Limitation Act requires that there be a ‘service of notice’ for the
limitation to start running, Section 14(2) of the 1940 Act merely
states that the Court ‘give notice’ to the parties. The precise form of
what constitutes as a ‘notice’ of filing the Award is unspecified.
However, interpreted reasonably, what must be required is that the
parties come to know about the existence of the Award so that any
objections to it may be filed. What appears from the usage of the
word ‘notice’ is that the parties merely reach a state of awareness
about the Award and plan their next steps accordingly, and not the
imposition of another procedural step. If the literal interpretation is
taken and limitation is paused until a formal notice is issued by the
Court, it would allow a party otherwise aware of the Award to sit
over the Award and delay filing objections. This would undercut the
speedy intent governing arbitration.
29. The Hon’ble Supreme Court in the case of Krishna Devi
alias Sabitri Devi (Rani) ( supra ), has made reference and relied upon
the earlier judgment of the Hon’ble Supreme Court in the cases of
Nilkantha Sidramappa Ningashetti v/s. Kashinath Somanna
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20 21
Nigashetti , Deo Narain Choudhury v/s. Shree Narain Choudhury ,
22
Ch. Ramalinga Reddy v/s. Superintending Engineer and Food
23
Corporation of India v/s. E. Kuttappan . In the case of Jaydeo s/o.
24
Mahadeo Parate v/s. State of Maharashtra and Others , the Division
Bench of this Court has observed at paragraph 24, as noted below :-
“ 24. While dealing with a question as to what course has to be
followed by the High Court when confronted with contrary
decisions of the Supreme Court emanating from Benches of
coequal strength, has held that the High Court is not necessarily
bound to follow the decision later in point of time, but must
follow the one which in its view is better in point of law. ”
30. Considering the conflict in the judgment of the Hon’ble
Supreme Court in the case of Krishna Devi alias Sabitri Devi (Rani)
( supra ) with the judgment in the cases of ONGC v/s. Nippon Steel
Corporation Ltd. ( supra ) and Bharat Coking Coal Ltd. ( supra ), this
Court would apply the judgment in the case of Krishna Devi alias
Sabitri Devi (Rani) ( supra ), as the same is in line with the purpose of
the Arbitration Act that the disputes are to be resolved expeditiously
and there cannot be a pause on limitation till a notice is issued by the
Court if parties are otherwise aware of the Award.
31. Considering the judgment of Hon’ble Supreme Court in the
case of Krishna Devi alias Sabitri Devi (Rani) ( supra ), wherein the
20
1961 SCC OnLine SC 75.
21
(2000)8 SCC 626.
22
(1999)9 SCC 610.
23
(1993)3 SCC 445.
24
2006(2) Mh.L.J. 497.
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Court has relied upon various earlier judgments prior to the
judgment in the cases of ONGC v/s. Nippon Steel Corporation Ltd.
( supra ) of the Hon’ble Supreme Court and keeping in tune with the
line of reasoning that the intent of the Act is to resolve disputes at a
quick pace, I proceed to apply the latter judgment of the Hon’ble
Supreme Court in the case of Krishna Devi alias Sabitri Devi (Rani)
( supra ). The Petitioner-Corporation was aware of the Award as the
Arbitrator himself has notified in the Award that with the consent of
th
both parties, the time to decide Award is extended upto 5 April,
1996. The Prothonotary & Senior Master has also given notice to the
parties and the Petitioner-Corporation has not clearly stated as to the
date they became aware of the Award. The Petitioner-Corporation
has merely stated that it has not received notice from the
Prothonotary & Senior Master of this Court of the filing of the Award
although the notice indicates that it is sent to both the parties. The
delay caused is substantial and as such, the Petition is barred by
limitation. Article 119(b) of the Limitation Act provides for 30 days
period for filing of the Application for setting aside an Award.
32. For the purpose of completeness, I have proceeded with the
examination of challenge under Section 30 of the 1940 Act to other
claims of the Claimant. Section 30 of the 1940 Act is quoted below
for ready reference :-
“ 30. Grounds for setting aside award.-An award shall not be set
aside except on one or more of the following grounds, namely:-
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(a) that an arbitrator or umpire has misconducted himself or
the proceedings;
(b) that an award has been made after the issue of an order by
the Court superseding the arbitration or after arbitration
proceedings have become invalid under section 35;
(c) that an award has been improperly procured or is otherwise
invalid. ”
33. The law on the scope of interference under Section 30 of
the 1940 Act are as noted in the judgment of the Hon’ble Supreme
Court in the case of M/s. S.D. Shinde Tr. Partner ( supra ), wherein at
paragraph 24 it has observed that,
“ 24. It is also noteworthy that the scope of jurisdiction of a
court, under Section 30/33 of the Act, never extended beyond
discerning if the award disclosed an "error apparent on the face
of the award" which is an "error of law apparent on the face of
the award and not an error of fact. The error of law can be
discovered from the award itself or from a document actually
incorporated therein." (Refer to Trustees of Port of Madras v
Engineering Constructions"). In the facts of the present case,
the award did not, facially disclose any error of law; damages
were awarded in accordance with principles embodied in law,
and the findings were based on the evidence placed before the
tribunal. The ruling of the trial courts and the High Court is
nothing short of intense appellate review, which is
impermissible in law and beyond the courts' jurisdiction. ”
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34. The Hon’ble Supreme Court in the case of Associated Engg.
Co. ( supra ) has also dealt with the ground of challenge under
Section 30 of the 1940 Act in the following paragraphs :-
“ 24. 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 con-tract, he has acted
without jurisdiction. But if he has remained inside the
parameters of the contract and has construed the provisions of
the con-tract, his award cannot be interfered with unless he has
given reasons for the award disclosing an error apparent on the
face of it.
25. An arbitrator who acts in manifest disregard of the contract
acts without jurisdiction. His authority is derived from the
contract and is governed by the Arbitration Act which embodies
principles derived from a specialised branch of the law of
agency (see Mustill and Boyd's Commercial Arbitration, 2nd
edn., p. 641). He commits misconduct if by his award he decides
matters excluded by the agreement (see Halsbury's Laws of
England, Volume II, 4th edn., para 622). A deliberate departure
from contract amounts to not only manifest disregard of his
authority or a misconduct on his part, but it may tantamount to
a mala fide action. A conscious disregard of the law or the
provisions of the contract from which he has derived his
authority vitiates the award.
27. If the arbitrator commits an error in the construction of the
contract, that is an error within his jurisdiction. But if he
wanders outside the contract and deals with matters not allotted
to him, he commits a jurisdictional error. Such error going to
his jurisdiction can be established by looking into material
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outside the award. Extrinsic evidence is admissible in such cases
because the dispute is not something which arises under or in
relation to the contract or dependent on the construction of the
con-tract or to be determined within the award. The dispute as
to jurisdiction is a matter which is outside the award or outside
whatever may be said about it in the award. The ambiguity of
the award can, in such cases, be resolved by admitting extrinsic
evidence. The rationale of this rule is that the nature of the
dispute is something which has to be determined out-side and
independent of what appears in the award. Such jurisdictional
error needs to be proved by evidence extrinsic to the award.
[See Alopi Parshad & Sons, Ltd. v. Union of India"; Bunge & Co.
v. Dewar & Webb'; Christopher Brown Ltd. v. Genossenschaft
Oesterreichischer'; Rex v. Fulham, Falkingham v. Victorian
Railways Commission'; Rex v. All Saints, Southampton, Laing
(James), Son & Co. (MIC) Ltd. v. Eastcheap Dried Fruit Co.;
Dalmia Dairy Industries Ltd. v. National Bank of Pakistan,
Heyman v. Darwins Ltd."; Union of India v. Kishorilal Gupta &
Bros., Renusagar Power Co. Ltd. v. General Electric Company";
Jivarajbhai v. Chintamanrao; Gobardhan Das v. Lachhmi Ram,
Thawardas Pherumal v. Union of India"; Omanhene Kobina Foli
v. Chief Obeng Akessee"; F.R. Absalom, Ltd. v. Great Western
25
(London) Garden Village Society, Limited and M. Golodetz v.
26
Schrier . ”
35. Considering the above legal position about the scope of
interference by this Court under Section 30 of the 1940 Act, this
Court would examine the claims granted by the Arbitrator.
36. With respect to the objection raised by the Petitioner-
Corporation as regards the Bank Guarantee, the Arbitral Tribunal has
25
(1933) AC 592 : 1933 All ER Rep 616.
26
(1947)80 LIL Rep 647.
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observed that the incorrect name on the Bank Guarantee was an
honest mistake, which was rectified before the Bank Guarantee was
accepted. It was also observed that since the Bank Guarantee was
rectified and since no monies have exchanged hands, the allegation
of fraud would not survive.
Claim-I :-
37. As regards Claim-I, the Arbitral Tribunal held that the
amount claimed by the Respondent was as per the measurement
book, recording, joint measurement by both parties. Thus, the claim
was made on the basis of actual work done. The measurement book
was made available to the Respondent only after the direction of
Arbitral Tribunal. The working was on the basis of rates, which were
mutually agreed by the between the parties.
38. The Arbitrator held that the delay in completion of the
project work was not attributable to the Respondent, as the increase
in the width of the road to 120' had not been finalized; nearly 40%
of the length of the road work in Anik-I and II was not handed over
after removal of the encroachments until after 20th February, 1993;
and part of the site providing access to the remaining portion could
not be made available as it was in the possession of the Salt
Commissioner, who had in turn leased the same to a private party.
The Arbitrator also noted that a bill amounting to Rs. 25,00,000/- for
the work done remained unpaid. The contention of the Petitioner
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that the delay was attributable to the Respondent was negated by the
Arbitral Tribunal on the basis of documentary evidence.
39. The Hon’ble Supreme Court in the case of Ispat Engineering
& Foundry Works, B.S. City, Bokaro ( supra ) has observed that in case
of specialized technical experts as Arbitrator only in a speaking
award, the Court can look into the reasoning of the Award and it is
not open to the Court to probe the mental process of the Arbitrator
and speculate, where no reasons are given by the Arbitrator as to
what impelled the Arbitrator to arrive at his conclusion. The Court
has also observed the similar view in the case of Associated Engg.
Co. ( supra ) and has held that if the Arbitrator has remained inside
the parameters of the contract and has construed the provisions of
the contract, his Award cannot be interfered with unless he has given
reasons for the Award disclosing an error apparent on the face of it.
Arbitrator has no authority or jurisdiction beyond that defined by the
terms of the contract or what the parties desire under the contract
and not beyond the same.
40. Insofar as Claim-I is concerned, the Arbitrator, on the basis
of the material on record and joint measurements, held that certain
amounts towards the work actually done, remained unpaid in the
final bills and accordingly awarded Rs. 15,72,650/- towards the
value of the work done but not paid. The Arbitrator further awarded
Rs. 4,30,141/- towards the cost of overtime, being the escalation in
the cost of the work done due and payable under the terms of the
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Agreement but not paid. The Petitioner, by way of the present
Petition, is essentially seeking re-appreciation of the evidence
considered by the Arbitral Tribunal. The scope of inquiry under
Section 30 of the 1940 Act being limited, this Court would not re-
appreciate the evidence and rejects the challenge to Claim-I.
Claim-II :-
41. As regard Claim-II with respect to compensation for loss of
profit allowed due to extra expenditure, the Arbitral Tribunal held
that the Respondent suffered losses on account of rise in cost of
material, labour, machinery and equipment, overhead and profit.
The Arbitral Tribunal further held that if the work is not completed
in time, the cost is incurred accordingly and the profits are affected
adversely. The Arbitral Tribunal has observed that as per the
provisions of Agreement if the value of work is more than Rs. 1 crore,
if there is any extra work, the overheads and profits for such extra
work would be paid at 25%.
“ GCC Clause 73 :
(b) Rates for Extra (Contd.)
(i) If rate for additional, altered or substituted item of work is
specified in the bill of quantities and rates, the contractor shall
carry out the additional, altered or substituted item at the same
rate. Subject to 73(a) above.
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(ii) If rate for any additional, altered or substituted item of work
is not included in the bill of quantities and rates, such item of
work shall be carried out at the relevant corporation's fair
market schedule rates prevailing at the time of submission Tof
the tender (subject to the addition or deduction at the same
percentage quoted by the contractors). This sub-conditon viz.,
73(b) ii will not apply to item rate tenderers /contracts.
(iii) if the rate for any additional, altered or substituted item of
work cannot be determined in the manner specified in (i) and (i
(ii) above, or the rate so determined is found to be
unreasonable, then the contractor will be paid at such fair and
reasonable rates as worked out by the Engineer on the basis of
material, labour and operation of plant and machinery etc.
required to execute the item and allowing following percentage
to cover profits and overhead charges.
(i) For contracts originally valued at Rs. 5 lakhs or less 12
percent
(ii) For contracts originally valued at over Rs. 5 lakhs upto Rs.
50 lakhs 15 percent
(iii) For contracts originally valued at over. Rs. 50 lakhs and
upto Rs. 1 crore. 20 percent
iv) For contracts originally valued at over Rs. 1 crore. 25
percent ”
42. The Arbitral Tribunal held that the Claimant had applied for
completion of work and the Petitioner-Corporation had refused to
give extension and thus, granted 25% towards the overhead and
profits for such extra work.
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43. Claim-II covers overheads of machinery and workforce
deployed over the extended period of contract. The execution of
work was stalled on account of disturbance and consequent non-
availability of site. Claim-II also covers loss of profit and the same
relates to profit for non-completion of contractual work although the
Claimant has sought extension for completion of work. Claim-II also
covers loss on account of overheads (labour + machinery), as the
overheads were deployed over the extended period of time. Claim-II
in its entirety is granted of 22.5% for non-completed work plus loss
on account of the overheads. Although, both the aspects of claim
should have been separately dealt with, but the Award cannot be
interfered with. Claim-II represents both the aspects (i) Profit for
non-completed work and (ii) Overheads stretched over the entire
contract period.
44.
As regards Claim-II is concerned, it was demonstrated that
the work completed is merely half of the allotted work and 50%
balance work remained to be executed, on which 25% cost of
machinery and equipment, as also loss of expected profit were
claimed.
45. The Arbitral Tribunal has observed that if the work is not
completed within the stipulated period, but the euipment and
machinery is continuously deployed or earmarked by the contractor
for the said work, there is bound to be loss on account of reduced
productivity from the machinery and equipment. Similarly, the
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overheads deployed for the extended period will also have direct
effect on its estimate of receipts and expenses. The Arbitral Tribunal
has also observed that these are not contradictory claims and
accordingly has directed that the Petitioner-Corporation to pay to the
Claimant 25% of the balance cost, i.e. 22.5% for overheads and
profit and 2.5% for machinery and equipment for the balance
amount of work, which the Respondent was entitled to complete.
46. The Arbitrator has come to the conclusion that in view of
the disturbance in the area, work could not be completed. That, the
Claimant was not at fault for not completing the work. This is not a
direct personal knowledge of facts of the case but on site inspection
the Arbitrator has noticed the facts. The parties were present for site
inspection.
Claim-III :-
47. As regards interest part is concerned, the Arbitrator has
taken into consideration that the Claimant has produced evidence in
support of the fact that interest of the bank @ 25% per annum was
paid. The awarded interest is @ 18% per annum. The Petitioner-
Corporation in their counter-claim has also made a claim of interest
@ 25% per annum.
48. As regards Claim-III is concerned, Mr. Mukesh Vashi,
learned Senior Advocate for the Respondent has relied upon the
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judgment of Hyder Consulting (UK) Limited ( supra ). This Court is of
the view that the said judgment is related to the Arbitration Act of
1966 and thus cannot be relied upon in the instant case, which
relates to Arbitration Act of 1940. This Court is of the view that the
judgment of Hon’ble Supreme Court in the case of M/s. D. Khosla
and Company ( supra ) can be relied upon as it deals with the powers
of an Arbitrator to grant interest under the Arbitration Act of 1940
and which has held as under :
“ 21. In Hyder Consulting (UK) Limited v. Governor, State of
Orissa MANU/SC/1078/2014: 2014:INSC:807: (2015) 2 SCC
189, this Court was dealing with Section 31(7) of the
Arbitration and Conciliation Act, 1996, wherein for the purposes
of payment of post-award interest, the phrase 'sum directed to
be paid by award was used and it was held that it includes the
pre-award interest and, therefore, post-award interest is payable
on the sum awarded which includes pre-award interest.
However, a distinction was made between Section 31(7) which
simply uses the word 'sum' and Section 34 Code of Civil
Procedure wherein the phrase 'on principal sum adjudged' has
been used. The departure in the use of the language in the two
provisions was held to be of great significance which clearly
showed that the term 'sum' Under Section refers to aggregate
amount of the award and the pre-award interest whereas
'principal sum adjudged' Under Section 34 Code of Civil
Procedure refers only to the amount awarded.
23. In the light of the above legal provisions and the case law
on the subject, it is evident that ordinarily courts are not
supposed to grant interest on interest except where it has been
specifically provided under the statute or where there is specific
stipulation to that effect under the terms and conditions of the
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contract. There is no dispute as to the power of the courts to
award interest on interest or compound interest in a given case
subject to the power conferred under the statutes or under the
terms and conditions of the contract but where no such power is
conferred ordinarily, the courts do not award interest on
interest. ”
49. As regards the pendente lite interest on the full amount
awarded under Claim Nos. I and II is concerned, interest @ 18% per
th
annum from the date of entering on the reference, i.e. 5 October,
th
1995 till the date of Award i.e. 28 March 1996 and thereafter in the
st
final Award, on the outstanding sum of Rs. 24,91,253/- from 1 July,
th
1993 to 4 October, 1995, the interest @ 18% per annum i.e. Rs.
10,08,957/- is granted.
50. The judgment in the case of Hyder Consulting (UK) Limited
( supra ) relates to the interest on Award under the 1996 Act. Instant
case is covered under the 1940 Act, which has no parallel provision
as similar to Section 31(7) of 1996 Act. Thus the submission of the
Petitioner-Corporation that the Award grants interest on interest with
regard to Claim-I is acceptable. Claim-III, i.e., interest part needs to
be interfered with. However, this Court has held that the Petition is
barred by limitation.
51. In the result, Arbitration Petition No. 264 of 1998 stands
dismissed and disposed of accordingly.
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52. Ms. Madhavi Nallure, learned counsel for the Petitioner-
Corporation seeks stay to the order passed.
53. Considering that this is an Arbitration Petition and huge
delay has already been caused in passing the order, the prayer for
stay of the order, is rejected.
[ ARUN R. PEDNEKER, J. ]
Digitally signed
by GITALAXMI
KRISHNA
KOTAWADEKAR
Date:
2026.09.05
13:12:30 +0530
GITALAXMI
KRISHNA
KOTAWADEKAR
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