Full Judgment Text
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PETITIONER:
HIND BUILDERS ETC.
Vs.
RESPONDENT:
UNION OF INDIA AND VICE-VERSA
DATE OF JUDGMENT24/04/1990
BENCH:
RANGNATHAN, S.
BENCH:
RANGNATHAN, S.
AHMADI, A.M. (J)
CITATION:
1990 AIR 1340 1990 SCR (2) 638
1990 SCC (3) 338 JT 1990 (2) 186
1990 SCALE (1)788
ACT:
Arbitration: Award--Error on the face of the
award--Clause in the contract open to two equally plausible
interpretations--Legitimate for Arbitrators to accept one or
the other of the available interpretations and even if the
court may think that the other view is preferable, the court
will not and should not interfere.
Award--Error on the face of award Annexure setting out
the award as against various items of claim--Mere fact that
statement of claim refers to various items in the schedule
to the contract does not result in the contract itself being
incorporated in the award--No error can be found in the
award.
Pendente Lite Interest: Power of Arbitrator--Not enti-
tled to grant pendente lite interest unless reference is
made in the course of a suit--Same powers to grant interest
pendente lite as the courts when matter is referred by the
Court.
HEADNOTE:
Certain disputes having arisen between the Union of
India and the Contractors in respect of the Contract awarded
to the letter for the execution of certain civil works
pertaining to the Metro Railway Project in Calcutta, the
same were referred for decision to two Arbitrators appointed
by the High Court of Calcutta. The Contractors filed their
itemised claim before the Arbitrators for a total sum of
Rs.2,05,67,554. The Arbitrators awarded a sum of
Rs.57.47,198 to the contractors in full and final settlement
of all their claims which included a sum of Rs.6.76,540 as
interest vide item (1). They directed that the award shall
be complied with within sixty days of its publication fail-
ing which simple interest @ 11 percent per annum shall
accrue thereon (excluding interest amount of Rs.6.76,540)
till the date of payment or decree upon award which ever is
earlier. On an application being made to the High Court for
making the Award a rule of the Court. the learned single
judge confirmed the award except that the principal sum
awarded was reduced by Rs.5,20,000 with the direction that
the amount so awarded will carry interest @ 11% per annum
from the date of reference till the date of the award.
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639
The Union of India preferred an appeal to the Division
Bench, which reduced the amount awarded under item (c)(xii)
from Rs.23.96.000 to Rs.2.39,000. Thus the principal amount
to be awarded to the contractors was finally put at
Rs.30.70,798 and this amount was directed to carry interest
@ 11% per annum from the date of the reference till the date
of the award.
Aggrieved by the order of the Division Bench reducing
the amount awarded under item (c)(xii) from Rs.23,96,000 to
239,600 the contractors preferred an appeal to this Court.
The Union of Indian on the other hand preferred a cross-
appeal praying (i) that interest should not be payable on
the amount of Rs.30,70,798 fixed by the High Court but only
on Rs.23,94,258 left after deducting therefrom the amount of
Rs.6,76,540 awarded by the Arbitrators in respect of item
No. (L) and (ii) that. though the arbitrators had also
awarded interest on the principal sum till the date of
payment or decree on award in case payment was not done
within sixty days of the publication of the award. the
contractors should be held entitled to interest upto the
date of the award only and not beyond it because both the
learned single judge and the Division Bench have held so and
the contractors have preferred no appeal therefrom.
Taking up the contractor’s appeal first, this Court came
to the conclusion that the Division Bench had exceeded its
jurisdiction in interfering with this part of the award and
restored the amount awarded by the arbitrators under item
(c)(xii).
Dealing with the appeal of the Union of India this Court
ruled that there was really no dispute left about Union of
India’s first contention as to what was the correct amount
on which interest was payable to the contractors after its
findings in the contractor’s appeal and placed the figure at
Rs.45,50,658.
Dealing with the second contention as to what was the
period with reference to which interest would be payable to
the contractors on the above amount it was noticed that the
arbitrators had allowed interest from 5.10.82 (date of
termination of contract) to 26.3.84 (date of award) under
item (L) and had also allowed interest from the date of the
award till the date of payment or decree whichever is earli-
er.The learned single judge had deleted the interest for the
period 5.10.82 to 6.5.83 (date of reference) but held that
the arbitrators had jurisdiction to award interest from the
date of the reference till the date of award and also post-
award interest. As the objection of the Union of India
640
before the Division Bench in the LPA on the question of
interest was only that the arbitrators had erred in awarding
interest from 6.5.1983 to 26.3.1984 the High Court had not
decided that the contractors were not entitled to interest
beyond the date of award and therefore this contention of
the Union of India failed and was rejected. The Court.
HELD: The grant of pendente lite interest would be
justified only when reference to arbitration is made in the
course of a suit. The principle indicated is that since a
court has. under S. 34 of
power to grant pendente lite interest in a suit. an arbitra-
tor to Whom a reference to arbitration is made in the course
of the suit would be clothed with all the powers of the
court including one to grant such interest. Generally speak-
ing. it would only seem reasonable that the power to grant
interest pendente lite should be treated as ancillary to the
award of damages or compensation which. but for the delay in
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the litigation (Whether in court or by way of arbitration).
the claimant should have received much earlier. However.
though pendente
interest has been made available in court proceedings. its
extension to arbitration law appears to have acquired some
technical limitations resulting in denial of pendente lite
interest in most arbitration cases. Pendent lite interest
cannot still be awarded by an Arbitrator appointed by the
parties under a private agreement for which there may be no
justification in equity. Anomalies have arisen because
formerly an Arbitrator could not be treated as a court to
which the code of civil procedure applied and because now
the Interest act, 1978, while including arbitration proceed-
ings within its ambit, has, apart from a reference to S. 34
omitted to provide specifically for pendente lite interest.
This has been clearly brought out by Chinnappa Reddy, J., in
Abhaduta Jena which outline the principle the learned judge
had in mind for permitting pendente lite interest by arbi-
trator. Abhaduta Jena has been followed in later cases also
and its scope has been recently explained in Sharma’s Case
(1988-4 SCC 353), and the Gujarat Water Supply case (1989-1
SCC 532) where pendente lite interest was denied. [655H;
656A-F]
Gujarat Water Supply & Sewage Board v. Unique Erectors,
[1989] 1 S.C.C. 532; Firm Madan Lal Roshan Lal Mahajan v.
Hukumchand Mills Ltd., lndore, [1967] 1 S.C.R. 105; Allen
Berry & Co. Pvt. Ltd v. Union of India, [1971] 3 S.C.R. 287;
N. Chellappan v. Secretary, Kerala State Electricity Board &
Anr., [1975] 1 S.C.C. 289; Hindustan Tea Co. v.K. Shashi
Kant Co. & Anr., [1986] Suppl. S.C.C. 506; Hindustan Steel
Works Construction Ltd. v. C. Rajasekhar Rao, [1987] 4
S.C.C. 93; Sudarsan Trading Co. v. Government off Kerala &
Anr.. [1989] 2 S.C.C. 38: M/s. Alppi Prashad & Sons, Ltd. v.
641
Union of India, [1960] 2 S.C.R. 793; Bhagat Trading Co. v.
Union of India, AIR 1984 Delhi 358; Union of India v. Bakshi
Ram, [1957] LIX P.L.R. 572; Executive Engineer v. Abhaduta
Jena, [1988] 1 S.C.C. 418; Nachiappa v. Subramaniam, [1960]
2 S.C.R. 290; Satinder v. Amrao, [1961] 3 S.C.R. 676; Union
v. Bungo Steel Furniture P. Ltd., [1967] 1 S.C.R. 324; Ashok
Construction Co. Ltd. v. Union, [1971] 3 S.C.C. 66; State v.
Saith & Skelton P. Ltd., [1972] 3 S.C.R. 233; Food Corpora-
tion of India v. Surendra, Devendra & Mohendra Tansport Co.,
[1988] 1 S.C.C. 547 and State of Rajasthan v. Sharma & Co.,
[1988] 4 S.C.C. 353, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1280 &
1281 of 1988.
From the Judgment and Order dated 21.4.1987 of the
Calcutta High Court in Appeal from Original Order No. 128 of
1985, Award Case No. 151 of 1987.
A.K. Sen, Dr. Shankar Ghosh, Ajay K. Jain, Praveen Kumar
and Pramod Dayal for the Appellant.
M.K. Banerjee and G.S. Chatterjee for the Respondent.
The Judgment of the Court was delivered by
RANGANATHAN, J. These are cross appeals by M/s. Hind
Builders (hereinafter referred to as ’the contractors’) and
the Union of India. from an order of Division Bench of the
Calcutta High Court in an arbitration matter.
The contractors had been awarded a contract for the
execution of certain civil works in connection with the
Metro Railway Project in Calcutta. Certain disputes arose
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between the Union and the contractors. These disputes were
referred for decision to two arbitrators appointed by the
High Court of Calcutta. The arbitrators entered upon the
reference on 27th June. 1983. The contractors had filed a
claim before the arbitrators for a sum of Rs.2,05,67,554. On
26.3.1984 the arbitrators awarded a sum of Rs.57,47,198 to
the contractors.
The claim of the contractors filed before the arbitra-
tors was an itemised claim in respect of various items of
works executed by them. The body of the award made by the
arbitrators reads as follows:
"We ..... make and publish our Award, as below:
642
(i) That the Respondent .......... shall pay .....
the Contractors a sum of Rs.57,47,198 .....
only in full and final settlement of all their claims and
dues under the above mentioned contract agreement. In addi-
tion, the three Bank Guarantees .......... issued by
Vijaya Bank, Cuttack, on behalf of the contractors, in
favour of Metro Railway, Cuttack, shall be released by the
Respondent Railway, as detailed in the Annexure to this
Award.
XXX XXX
XXX
The Award shall be complied with within 60 (Sixty) days from
the date of publication of this Award, failing which simple
interest @ 11 per cent per annum on the amount of the Award
(excluding interest vide item (1) of the Annexure i.e.
Rs.6,76,540) shall accrue till the date of payment or decree
upon Award whichever is earlier."
In the annexure to the award, the arbitrators tabulated the
various items of the claim before them, the amount claimed
against each item and the amount awarded against each item.
Under item (1) in the annexure, the arbitrators had awarded
an interest of Rs.6,76,540 and that is why the direction
regarding interest by the arbitrators excluded this amount
from the principal amount which was to bear interest. As
stated earlier, the total amount awarded was Rs.57,47,198 in
respect of items (a) to (q) of the award as against the
claim of Rs.2,05,67,554 made by the contractors.
On an application being made to the High Court of Cal-
cutta on the Original Side for making the award a rule of
court, the learned single Judge sitting on the Original Side
confirmed the award except to the extent of Rs.5,20,000.
This is no longer in issue. The learned Judge. however,
concluded his judgment with the following words:
"The principal sum awarded stands reduced by Rs.5,20,000 as
mentioned above. The respondent will be entitled to interest
at the rate of 11 per cent per annum from the date of refer-
ence till the date of the award."
The Union of India preferred an appeal from the order of
the learned single Judge. The Division Bench was of the
opinion that the arbitrators were not justified in awarding
a sum of Rs.23,96,000 to the contractors (as against a claim
of Rs.42,65,957 made by them) in respect of item (c)(xii)
viz. "cost towards consolidation of earth by ramming and
rolling" and that they could have awarded under the
643
contract only a sum of Rs.2,39,600 in respect of this item.
The amount awarded to the contractors was thus further
reduced by the Division Bench by a sum of Rs.21,56,400
(Rs.23,96,000--Rs.2.39,600). The Bench then observed that
the principal sum to be awarded to the contractors would now
stand at Rs.30,70,798 and directed that the respondent
contractor should be entitled to interest at the rate of 11
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per cent per annum on the said amount from the date of the
reference till the date of the award.
The contractors have appealed from the order of the
Division Bench being aggrieved by the reduction of the
amount awarded under item (c)(xii) to Rs.2,39,600 from
Rs.23,96,000. The Union of India has preferred an appeal
contending principally that, since the principal amount on
which the arbitrator awarded interest was not Rs.57,47,198
but only Rs.50,70,658 (i.e. Rs.57,47,198--Rs.6,76,540), the
contractors would be entitled to interest, after the judg-
ment of the Division Bench, not on Rs.30,70,798 as held by
the Division Bench but only on Rs.23,94,258. In addition, at
the tune of the hearing before us, counsel for the Union of
India raised two further points:
(1) that the Division Bench erred in awarding inter-
est to the contractors from the date of the reference till
the date of the award.
(2) That though the arbitrators had also awarded
interest on the principal sum till the date of payment, the
contractors should now be held entitled to interest only
upto the date of the award because the learned single Judge
and the Division Bench have held so and the contractors have
preferred no appeal therefrom.
Taking up the contractor’s appeal first, the point
raised falls within a very narrow compass and turns on the
interpretation of item No. -.09 of the annexure to the
contract containing the schedule of rates. This item reads
as follows.
Item Brief description Approx- Unit of Rate of
No. of work imate payment payment in
Qty. "words" &
"figures"
Rs. P.
1 2 3 4 5
644
4.09 (a)Earthwork in open excava 235000 10 Rs.180
tion for forming garbage cubic cubic (Rupees
tanks in all kinds and metres metres one
conditions of soils upto hundred
depth varying from 0 to 3 eighty
3 metres from the existing only)
ground level and disposing
of the spoils so as to
raise land required for
piling work, to fill up the
existing low lying areas
and ponds, to form embank-
ments for roads, etc of the
Car Depot complex includ-
ing spreading in layers,
breaking clods, levelling,
dressing, all lifts/descents
and all leads etc. complete
Note:
No extra payments will be
made if wet excavation is
met with or for baling/
pumping out of water of all
sorts including rain water.
(b) Extra over item (a) above, 135000 10 Rs.20
for consolidation of the Cubic Cubic (Rupees
filled up areas or some of metres metres Twenty
the top layers of the filled only).
up areas or road embank-
ment portions by watering
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and ramming/rolling as
directed.
In respect of these items the statement of claim filed on
behalf of the contractor was in the following terms:
(b) Earthwork in excavation measured but not paid in full:
That under agreement item No. 4.09 (a) the claimants as per
instructions, specifications and agreement excavated
645
earthwork in open excavation for forming garbage tanks in
all kinds of soil for a quantity of 2, 15,000 Cum and there-
after the contract was rescinded against which reduced
quantity has been measured provisionally upto 17th CC bill
for 2,09,523 Cum measured on 24.5.82 and as per the said
measurements the claimants are yet to be paid for a quantity
of 5,477 Cum over and above the payments already made upto
17th CC. The claimants claim payment for 5,477 Cum of exca-
vation @ Rs. 18 per each Cum. amounting to Rs.98,586.00.
CLAIM AMOUNT... Rs. 98,586.00
(c)(xii) Cost towards consolidation of earth by ramming and
rolling:
That as per agreement item No. 4.09(b) the claimants are
required to fill up the low lying areas etc., as specified
under General Conditions of the Contract at para 3.05 with
the excavated spoils obtained out of earthwork in excavation
under agreement item No. 4.09(a). The payment for earthwork
in open excavation for work executed under agreement item
No. 4.09(a) is to be made on sectional measurements calcu-
lated by level sections. The excavated earth obtained from
garbage excavation, a quantity of 2, 15,000 Cum as per
provisions made in agreement item No. 4.09(b) was consoli-
dated in different areas as per instructions and approved
plan. The claimants claim payment for this quantity of
consolidation at Rs.20 per Cum i.e. Rs.2 extra over Rs. 18
per Cum as specified in agreement item No. 4.09(a) & (b),
amounting to Rs.43,00,000.00 against which payment has been
made in CC bills for reduced quantity and amount of
Rs.34,043.00. The claimants claim payment for the
balance amount of Rs.42,65,957.00 not paid for.
CLAIM AMOUNT Rs.42,65,957.00
In other words, the contractors claimed payment at the rate
of Rs.18 per cubic metre in respect of the excavation work
done by them under item No. 409(a). Again, in respect of the
same quantity. of 2,15,000 cubic metres, the contractors
made a claim at Rs.20 per cubic metre as the amount payable
to them in respect of the consolidation of
646
excavated earth by ramming and rolling. The Division Bench
was of the view that under item No. 4.09(b), the contractors
were entitled to an additional payment of Rs.2 only, since
the contractors had already been paid at the rate of Rs.18
per cubic metre in respect of the excavation done by them.
The extra charges for ramming and rolling were payable only
at the rate of Rs.2 per cubic metre instead of Rs.20 per
cubic metre. The Division Bench accordingly scaled down the
amount awarded by the arbitrator in this regard to 1/10th of
the amount awarded by him.
It is submitted on behalf of the contractors that the
rate payable for the work under item 4.09(b) of the contract
was not at all in dispute between the parties at any stage.
The Union had not raised any plea in this regard in its
reply to the contractors’ claim, in the objections to the
award filed in the High Court or in the arguments before the
learned Single Judge. Clearly, the Division Bench travelled
beyond the limits permissible for the interference with an
award by a court of law in reducing the amount awarded on
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this account. It is pointed out that the award itself is a
non-speaking award. The award does not refer to the terms of
the contract or incorporate the details of the claims made
by the contractors. Though it is true that the arbitrators
awarded a sum of Rs.23,96,000 against item (c)(xii), they
have not given reasons therefore. The award neither shows
that the amount has been worked out at the rate of Rs.20 per
cubic metre nor does it show the quantity in respect of
which the amount has been worked out. There is no reference
to the terms of the contract or to item No. 4.09, clause (a)
or (b). No reasons have been given by the arbitrators for
determining that a sum of Rs.23,96,000 has to be paid to the
contractors under item (c)(xii). It is therefore submitted
that there was no error apparent on the face of the record.
Learned counsel vehemently contended that it is now settled
law that an award cannot be said to suffer from a manifest
error unless the error appears on the face of the award or
of some document incorporated in the award. Reference is
made to the decisions of this Court in the following cases:
Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd.,
Indore, [1967] 1 SCR 105; Allen Berry & Co. Pvt. Ltd. v.
Union oflndia, [1971] 3 SCR287;N. Chellappan v. Secretary,
Kerala State Electricity Board & Anr., [1975] 1 SCC 289;
Hindustan Tea Co. v. K. Shashi Kant Co. & Ant., [1986]
Suppl. SCC 506; Hindustan Steel Works Construction Ltd. v.C.
Rajasekhar Rao, [1987] 4 SCC 93 and Sudarsan Trading Co. v.
Government of Kerala & Anr., [1989] 2 SCC 38. According to
the contractors, what the Division Bench has done is to give
its own interpretation to item Nos. 4.09(a) & (b) of the
contract, to read an erroneous interpretation
647
of the said item into the award made by the arbitrators and
to substitute its opinion in the place of that given by the
arbitrators. Thus, it is submitted, runs quite contrary to
the principles enunciated in the above decisions and should,
therefore, be set aside.
On the other hand, Shri Milon Banerjee, learned counsel
for the Union of India submitted that the award is really a
speaking award in so far as it does specify the amount
granted in respect of each item of claim. He submitted that
the present case falls within the principle enunciated in
M/s Alopi Prashad & Sons, Ltd. v. Union of India, [1960] 2
S.C.R. 793, which has been taken note of in the case of M/S
Sudarsan Trading Co. v. Government of Kerala & Anr., [1989]
2 SCC 38 at p. 54 that an award which overlooks or ignores
the terms of the contract is bad. He also made a reference
to the decision of the Delhi High Court in Bhagat Trading
Co. v. Union, AIR 1984 Delhi 358 in this context. He also
referred to a decision of the Punjab High Court in Union of
India v. Bakshi Ram, [1957] LIX P.L.R. 572, holding that
"when there are pleadings in an arbitration and they are
specifically referred to in the award so that it cannot be
understood without reference to them, then those pleadings
are incorporated in the award and they must be included in
the consideration whether there is any error apparent on the
face of the award" and that "if a lump sum is awarded by an
arbitrator and it appears on the face of the award or is
proved by extrinsic evidence that in arriving at the lump
sum matters were taken into account which the arbitrator had
no jurisdiction to consider, the award is bad." The conten-
tion of Shri Banerjee is that the annexure to the award
clearly incorporates the statement of claim made by the
contractors. Since in turn the statement of claim refers to
the clauses of the contract, the contract should also have
been treated as incorporated in the award. It is also appar-
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ent on the face of the award, insofar as it relates to item
(c)(xii), that the arbitrators have awarded payment at Rs.20
per cubic metres under item 4.09(b) whereas it must obvious-
ly be at Rs.2 per cubic metre. According to the learned
counsel, the decisions relied upon by him clearly show that
an award which ignores or overlooks the express terms of a
contract suffers from an error apparent on the face of the
record and can be set aside by this Court. He submitted that
the award, read with the annexure, brings out the reasoning
of the arbitrators and that an error therein can be recti-
fied by the court. The arbitrators had no power to travel
beyond the authority of the contract and, in order to deter-
mine whether they had exceeded their authority, the contract
can be looked into by the court. In support of this conten-
tion, the learned counsel also referred to a passage at p.
42 1 in the Law of Arbitration by Bachawat (Second Edition).
648
We have considered the respective contentions of the
parties and we are of the opinion that the Division Bench
erred in setting aside the award insofar as it relate to the
sum of Rs.25,96,000. Though the annexure sets out the award
of the arbitrators as against various items of claims, the
mere enumeration of the heads of claims cannot be equated to
an incorporation of the statement of claim by the contrac-
tors into the award. At any rate, the award does not relate
the claims to the various clauses of the contract and the
mere fact that the statement of claim refers to various
items in the schedule to the contract does not result in the
contract itself being incorporated as part of the award. No
error can be found in the award unless one reads into it
first the statement of claim and then the relevant clauses
of the contract. But this cannot be done unless these docu-
ments are treated as incorporated in the award. This cannot
be done. That apart even if the contract can be read into
the award, we doubt whether this case can be treated as one
of an error on the face of the award. All that the award has
stated is that for the extra work involved in ramming and
rolling, the contractors were to be paid a sum of
Rs.23,96,000. The award does not mention how this amount is
arrived at. There is no mention of the quantity in respect
of which this is awarded nor the rate at which the payment
has been calculated. It is, however, pointed out that con-
tractors had claimed payment at the rate of Rs.20 per cubic
metres in respect of 2,15,000 cubic metres and that, even if
it is assumed that the ramming and rolling had been done in
respect of the entire volume of 2,15,000 cubic metres, the
contractors could have, on a proper construction of the
contract, been awarded only a sum of Rs.4,30,000 and nothing
more. Obviously, the award is calculated at Rs.20 per cubic
metres in respect of 1,19,800 cubic metre. It is clear, says
counsel for the Union, that the volume of the item for which
payment has to be made has been cut down but the amount has
been calculated at Rs.20 per cubic metre which exceeds the
amount of Rs.2 stipulated in the contract and this is erro-
neous on the face of it.
We are afraid that, in putting forward this contention,
the respondents are really trying to analyse the reasons of
the arbitrator for making the award under this head when no
such reasons have been stated in this award. In fact, it
does not necessarily follow that the payment has been di-
rected at the rate of Rs.20 per cubic metre in respect of 1,
19,800 cubic metre. Theoretically, it could have been award-
ed, in respect of the entire volume of 2, 15,000 cubic
metre, at the rate of Rs.11 and odd per cubic metre. It is,
however, clear that the payment has been granted at a rate
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in excess of Rs.2 per cubic metre. We shall, however, take
it that the arbitrators have awarded at the rate
649
of Rs.20 per cubic metre in respect of this item of work
for, as pointed out by Dr. Ghosh, the Union of India had
never put forward the case either before the arbitrator or
before the learned single Judge that the contractors were
not entitled to payment at the rate of Rs.20 per cubic metre
as claimed and it was before the Division Bench for the
first time that a question arose that the payment for the
item should be at Rs.2 and not Rs.20 per cubic metre. Wheth-
er the payment should be made at the rate of Rs.20 per cubic
metre or at Rs.2 per cubic metre will depend upon a proper
interpretation of the contract. It is argued that the main
item of work viz. excavation and distribution of the exca-
vated work has been paid for under item No. 4.09(a) and that
item 4.09(b) envisages an additional payment of Rs.2 per
cubic metre if the excavated soil, instead of being loosely
distributed, is rammed and rolled by applying some pressure.
This seems, prima facie, a plausible interpretation of
clause 4.09(b). But we cannot assume, in the absence of any
evidence or expert knowledge, that the ramming and rolling
was not an independent, heavy or cumbersome piece of work
and merely involved a minor addition to the work under item
4.09(a). On the other hand, in the grounds of appeal filed
by the contractors it is contended:
"The High Court failed to appreciate that the process of
ramming and rolling is a very expensive specialised process
as it has to be done layer by layer not exceeding six inches
at a time and requires watering, breaking of clods and use
of specialised road rollers, bulldozers and other equipment.
The work of ramming and rolling is much more expensive than
that of earth excavation provided for in item 4.09 (a). The
High Court further failed to appreciate that in its reply to
the statement of claim of the petitioner, the respondent No.
1 had not disputed that the rate applicable for ramming and
rolling was Rs.20 per cubic metre. The respondent No. 1 had
only raised a dispute with regard to the quantity of the
ramming and rolling done by the petitioner. The High Court
misinterpreted the contract and erred in reducing the award
for ramming and rolling by erroneously applying the rate of
Rs.2 per cubic metre."
This may be fight or wrong but this is also a plausible
view. Unfortunately, this was an aspect not urged before, or
considered by, the arbitrators. There was no evidence before
the arbitrators or material adduced before the Court as to
the nature of these operations. It is difficult to say, by
merely reading the terms of contract that the
650
arbitrators have erroneously interpreted the terms of the
contract. It is not without significance that the departmen-
tal officers did not dispute the rate of the claim. Equally,
the arbitrators were experienced engineers and would not
have passed, what is now said to be, an astounding claim
without thought. It is difficult to assume that all these
persons have overlooked that the contractor had already been
paid at Rs.18 under item 4.09(a) especially when it is so
stated on the face of the claim. This, therefore. is not a
case where tile arbitrators can be said to have ignored or
overlooked a term of the contract; on the contrary, they
have acted upon a particular interpretation of certain
clauses of the contract on which two views are possible.
This case certainly cannot be brought under the principle
that the arbitrators have ex facie exceeded the authority or
jurisdiction conferred on them by the Contract. At worst,
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what can be said is that they may have committed an error in
deciding the issue referred to them but the error is not
apparent on the face of the award even if the contract is
read as part of it both because the arbitrators have not
given their reasoning and because the view taken by them of
the relevant terms of the contract cannot be said to be
clearly erroneous. In a matter on which the contract is open
to two equally plausible interpretations, it is legitimate
for the arbitrators to accept’ one or the other of the
available interpretations and, even if the Court may think
that the other view is preferable, the Court will not and
should not interfere. This view is too well settled to need
any reference to any precedent other than Sudershan Trading
Co’s case referred to earlier. That is why we think that
this case does not fall within the principle referred to by
Shri Banerjee and that Dr. Ghosh is right in his submission
that the Division Bench exceeded its jurisdiction in inter-
fering with this part of the award.
Turning now to the appeal of the Union of India, there
is really no dispute about the first contention regarding
the amount on which interest is payable to the contractors.
The correct computation should stand as follows in the light
of our findings in the contractors’ appeal:
Compensation awarded 57,47,198
by arbitrator
Less: Interest element
therein [item (1)] 6,76,540
Net principal amount
awarded 50,70,658
651
Less:Amount deleted
by learned Single Judge 5,20,000
---------------
45,50,650
---------------
---------------
The contractors will be entitled to interest on this amount.
What is the period with reference to which interest
would be payable on the above amount? The arbitrators had
allowed interest on the amount awarded by them from 5.10.82
to 26.3.84 under item (1) and had also allowed interest from
the date of the award till the date of payment or decree,
whichever is earlier. Of this, the learned Single Judge had
deleted the interest for the period 5.10.82 to 6.5.83 and
what remains is the award of interest from 6.5.83 till the
date of payment. There are two disputes as to this. The
first objection raised on behalf of the Union is that the
contractors will not be entitled to any interest for the
period from the date of reference to arbitration (6.5.1983)
till the date of the award (26.3.1984). On behalf of the
contractors, Dr Ghosh refutes this contention. He relies
upon the decision of this Court in Executive Engineer v.
Abhaduta Jena. [1988] 1 SCC 418 and contends that, in all
cases where, as in this case, arbitrators are appointed by
Court and disputes referred to them for arbitration, pen-
dente lite interest can and should be awarded by the arbi-
trator. He points out that, though initially in Seth Thawar-
das’ case [1955] 2 SCR 48 some doubts were raised about the
competence of the arbitrator to award interest, this Court
has subsequently consistently held that an arbitrator can do
this: vide, Nachiappa v. Subramaniam, [1960] 2 SCR 209;
Satinder v. Arnrao, [1961] 3 SCR 676; Firm Madanlal v.
Hukamchand Mills Ltd., [1967] 1 SCR 105; Union v. Bungo
Steel Furniture P. Ltd., [1967] 1 SCR 324; Ashok Construc-
tion Co. Ltd. v. Union, [1971] 3 SCC 66 and State v. Saith &
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Skelton P. Ltd., [1972] 3 SCR 233. After referring to these
and other cases, Chinnappa Reddy, J. in Abhaduta Jena,
(supra) summed up the position thus:
"15. As a result of the discussion of the various cases, we
see that Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ranjit,
65 IA 66; Union of India v. West Punjab Factories, [1966] 1
SCR 580 and Union of India v. Watkins & Co., AIR 1966 SC 275
were cases of award of interest not by an arbitrator, but by
the court. It was laid down in those three cases that
652
interest could not be awarded for the period prior to the
suit in the absence of an agreement for the payment of
interest or any usage of trade having the force of law or
any provision of the substantive law entitling the plaintiff
to recover interest. Interest could-also be awarded by the
court under the Interest Act if the amount claimed was a sum
certain payable at a certain time by virtue of a written
instrument. In regard to pendente lite interest, the provi-
sions of the Civil Procedure Code governed the same.
16. The question of award of interest by an arbitrator was
considered in the remaining cases to which we have referred
earlier. Nachiappa Chettiar v. Subramaniam Chettiar, [1960]
2 SCR 209; Satinder Singh v. Amrao Singh, [1961] 3 SCR 676;
Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd.,
[1967] 1 SCR 105; Union of India v. Bungo Steel Furniture
Pvt. Ltd., [1967] I SCR 324; Ashok Construction Co. v. Union
of India, [1971] 3 S.C.C. 66 and State of Madhya Pradesh v.
M/s. Saith & Skelton Pvt. Ltd., [1972] 3 SCR 233 were all
cases in which the reference to arbitration was made by the
court, of all the disputes in the suit. It was held that the
arbitrator must be assumed in those circumstances to have
the same power to award interest as the court. It was on
that basis that the award of pendente lite interest was made
on the principle of Section 34 Civil Procedure Code in
Nachiappa Chettiar v. Subramaniam Mills Ltd., (supra); Firm
Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd.,
(supra); Union of India v. Bungo Furniture Pvt. Ltd.,
(supra) and State of Madhya Pradesh v. M/s Saith & Skelton
Pvt. Ltd., (supra). In regard to interest prior to the suit,
it was held in these cases that since the Interest Act,
1839, was not applicable, interest could be awarded if there
was an agreement to pay interest or a usage of trade having
the force of law or any other provision of substantive law
entitling the claimant to recover interest. Illustrations of
the provisions of substantive law under which the arbitrator
could award interest were also given in some of the cases.
It was said, for instance, where an owner was deprived of
his property, the right to receive interest took the place
of the right to retain possession, and the owner of immova-
ble property who lost possession of it was, therefore,
entitled to claim interest in the place of right to retain
possession. It was further said
653
that it would be so whether possession of immovable property
was taken away by private treaty or by compulsory acquisi-
tion. Another instance where interest could be awarded was
under Section 61(2) of the Sale of Goods Act which provided
for the award of interest to the seller or the buyer, as the
case may be, under the circumstances specified in that
section.
XXX XXX
XXX
18. While this is the position in cases which arose prior to
the coming into force of the Interest Act, 1978, in cases
arising after the coming into force of the Act, the position
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now is that though the award of pendente lite interest is
still governed by the same principles, the award of interest
prior to the suit is now governed by the Interest Act, 1978.
Under the Interest Act, 1978, an arbitrator is by defini-
tion, a court and may now award interest. in all the cases
to which the Interest Act applies."
Sri Milon Banerjee, appearing for the Union of India,
however, contends that the above principle is applicable
only in cases where an arbitrator is appointed on interven-
tion of count as contemplated in Chapter IV of the Arbitra-
tion Act. It is only in these cases that the arbitration
proceedings can be considered to be a continuation of the
court proceedings, empowering the arbitrator to do all that
the court could do. For, even in cases arising after the
Interest Act, 1978, the award of pendente lite interest can
only be in terms of the provisions of s. 34 of the Code of
Civil Procedure and this cannot be invoked in cases of
arbitration except in cases falling under Chapter IV merely
on the ground that the appointment of the arbitrator is made
under S. 8, 12 or 20 of the said Act. Counsel submits that
Chinnappa Reddy, J. has pointed out in Abhadhuta Jena’s case
[ [1988] 1 SCC at pp. 434-5] that in all cases whether
arising before or after the Interest Act, the claimants
would not be entitled to interest from the date of reference
to the date of the award for the simple reason that "the
arbitrator is not a court nor were the references to arbi-
tration made in the course of suits". It is this principle
that has been reiterated in Food Corporation of India v.
Surendra, Devendra & Mohendra Transport Co., [1988] 1 SCC
547 (at pp. 554 et seq) and Gujarat Water Supply & Sewage
Board v. Unique Erectors, [1989] 1 SCC 532.
There is force in the contention urged by Sri Banerjee.
There are
654
passages in Abhaduta Jena which indicate that the grant of
pendente lite interest would be justified only when the
reference to arbitration is made in the course of a suit:
vide, the last sentence on p. 428, the first sentence on p.
429, the emphasis added in the extracts from earlier judg-
ments on pp. 430-1, and the summings up at p. 433 and 435.
The principle indicated in these passages apparently is that
since a Court has, under s. 34, of the C.P.C., power to
grant pendente lite interest in a suit, an arbitrator to
whom a reference to arbitration is made in the course of the
suit would be clothed with all the powers of the Court
including the one to grant such interest. This is how this
Court has also looked at the matter in a subsequent case. In
State of Rajasthan v. Sharrna & Co., [1988] 4 SCC 353, the
parties had entered into a compromise in certain proceedings
in Court agreeing that their disputes would be settled by
arbitration but the arbitrators were appointed subsequently
by the parties themselves and a reference made to them. A
Bench of this Court (of which one of us was a member) re-
viewed the earlier cases and explained the decision in
Abhaduta Jena thus:
"12. This was awarding interest pendente lite. This is in
violation of the principles enunciated by this Court in
Executive Engineer (Irrigation), Balimela v. Abhaduta Jena.
Our attention was drawn by Shri Soli J. Sorabjee, counsel
for the respondent, to the decision of this Court in Food
Corporation of India v. M/s Surendra, Devendra & Mohendra
Transport Co., where at pages 555-556 of the report, the
Court referred to certain decisions cited by Chinnappa
Reddy, J. in Executive Engineer (Irrigation) in which he had
expressed the view that those were cases in which the refer-
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ences to arbitration were made by the court or in court
proceedings of the disputes in the suit. In that context it
was held in those cases that the arbitrator had power to
grant interest. It was contended before us that this was a
similar case. There was a court proceeding in this case
regarding the appointment of the arbitrator and, as such, on
the same analogy it should be treated that the arbitrator
had power to grant interest. We are unable to accept this.
13. What Mr. Justice O. Chinnappa Reddy meant to say by the
latter judgment in Executive Engineer (Irrigation) case,
referred to in Food Corporation of India was where the
disputes regarding the merit of the case were pending in the
court and such disputes instead of being decided by the
655
court, adjudication had been referred to an arbitrator by
the court, in such cases the arbitrators deciding in the
place of court, would have the same powers to grant interest
pendente lite as the courts have under Section 34 of the
Civil Procedure Code. Instant case is not such a
proceeding."
This principle would logically be applicable, as rightly
contended by Shri Banerjee, only to cases where the refer-
ence to arbitration arises in the course of a suit.
Dr. Ghosh, however, submits that, except for Nachiappa
v. Subramaniam, [1960] 2 SCR 209 and Hukumchand Mills,
[1967] 1 SCR 105, the other cases referred to by Chinnappa
Reddy, J. were all only cases in which an arbitrator had
been appointed under s. 8 or 20 of the Arbitration Act. The
principle enunciated, he submits, was actually a little
wider than that contended for by Shri Banerjee. It is this
that where an arbitrator is appointed by the Court and a
reference is made to him, he has all the powers of the
Court. He invites attention to the observations in Hukum-
chand Mills, case [1967] 1 SCR 105, reiterated (in the
context of post-award interest) in Union v. Bungo Furniture
Co., [1967] 1 SCR 324 at p. 329) that it is "an implied term
of the reference that the arbitrator will decide the dispute
according to law and would give such relief with regard to
pendente lite interest as a Court could give if it decided
the dispute". He urges that Abhaduta Jena related to a batch
of cases, arising out of references made prior to, and later
than, the commencement of the Interest Act, 1978, but by the
parties themselves under the terms of the contract, without
reference to court and so it was held that pendente lite
interest could not be granted. But that is not so in the
present case. He says that this decision was simply followed
in State v. Construction India, [1987] Suppl. SCC 708, in
the Food Corporation case [1988] 1 SCC 547 and in State v.
Sharma and Co., [1988] 4 SCC 353. The Gujarat Water Supply
case [1989] ISCC 532 was, he urges, also a similar case
(see para 5) though in that case there appear to have been
some proceedings in Court earlier. In short, he virtually
submits that Abhaduta Jena and Sharma’s case have unduly
restricted the grant of pendente lite interest and require
reconsideration and that pendente lite interest should be
awarded in all cases where the intervention of Court is
sought for the appointment of arbitrators, directly or
indirectly, at any stage.
Generally speaking, it would only seem reasonable that
the power to grant interest pendente lite should be treated
as ancillary to the award of damages or compensation which,
but for the delay in the
656
litigation (whether in Court or by way of arbitration), the
claimant should have received much earlier. However, though
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pendente lite interest has been made available in Court
proceedings, its extension to arbitration law appears to
have acquired some technical limitations resulting in denial
of pendente lite interest in most cases of arbitration. Even
if we accept the contention of Dr. Ghosh, pendente lite
interest cannot still be awarded by an arbitrator appointed
by the parties under a private agreement for which there may
be no justification in equity. These anomalies have arisen
because formerly an arbitrator could not be treated as a
Court to which the Code of Civil Procedure applied and
because now the Interest Act, 1978, while including arbitra-
tion proceedings within its ambit, has, apart from a refer-
ence to s. 34, omitted to provide specifically for pendente
lite interest. This has been clearly brought out by Chinnap-
pa Reddy, J. We have earlier referred to passages from
Abhaduta Jena which outline the principle the learned Judge
had in mind for permitting pendente lite interest by an
arbitrator. It is interesting, in fact, to notice that the
present contentions of Dr. Ghosh (based on certain earlier
decisions of this Court) appear to have been advanced by him
in the Food Corporation case [1988] 1 SCC 547 to support a
wider contention that pendente lite interest should be
awarded even in an arbitration by private agreement (as in
that case) so long as the terms of the arbitration agreement
did not exclude the jurisdiction of the arbitrator to enter-
tain such a claim. But the Court did not accept the conten-
tion and followed Abhaduta Jena. Abhaduta Jena has been
followed in later cases also and its scope has been recently
explained in Sharma’s case [1988] 4 SCC 353. We may point
out that in the latter case, a specific point was raised
that since the Court had been concerned with the appointment
of the arbitrator at some stage it should be treated as a
reference to arbitration by court warranting the grant of
pendente lite interest but this contention was negatived and
the principle confined only to cases where a reference to
arbitration is made in the course of suits. The position was
similar in the Gujarat Water Supply case [1989] 1 SCC 532
but pendente lite interest was denied. In view of Abhaduta
Jena and the clarification specifically set out in para 13
of Shartna’s case, we are unable to accede to the contention
of Dr. Ghosh, attractive as it is an equitable proposition.
The Division Bench of the High Court had no occasion to
consider the above recent pronouncements of this Court.
Further, it is seen that, before the Division Bench, the
Union took an objection that under clause 16(2) of the
general conditions of contract, the contractors could claim
no interest on the amounts that may be determined as
657
payable to them. The Division Bench met this contention by
relying on a circular issued by the Government of India
making the claim for interest entertainable in arbitration
"if notice had been issued in this behalf by the
arbitrator". There is, however, no finding and nothing on
record brought to our notice to show that any specific
notice, claiming interest, had been given as contemplated by
the contract. Having regard to all these considerations, we
are unable to uphold the order of the Division Bench on this
issue.
This takes us to the second point urged on behalf of the
Union in regard to interest. The contention is that the
learned Single Judge had restricted it to the date of the
award, and that this has become final as the contractors
have preferred no appeal therefrom. The grounds of appeal
before us by the Union are confined only to the mistake in
not taking into account the sum of Rs.6,76,540 and do not
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raise any question regarding post-award interest. It is,
therefore, not open to Shri Banerjee to raise this question.
That apart, on merits also the contention raised that post-
award interest has been declined by the High Court is not
correct. The contention overlooks the course of pleadings
between the parties. The arbitrators had, in the annexure to
the award, computed interest from 5.10.82 to 26.3.84 i.e.
from the date of the termination of the contract till the
date of the award and in the award, had granted interest on
the amount awarded from the date of award till the date of
decree or payment. A point had been raised before the High
Court in the memo of objections that the arbitrators had
erred in awarding interest in the manner mentioned in the
award but the objection urged by the Union before the
learned Single Judge was a different one viz. that the
arbitrators ought not to have granted interest for the
period prior to the date of reference without any agreement
or right in law to claim such interest. It is this conten-
tion that was accepted by the learned Single Judge who
deleted the interest award prior to the date of the refer-
ence and held that the arbitrators had jurisdiction to award
interest from the date of the reference till the date of the
award. This did not affect the arbitrator’s direction in the
main part of the award, that interest will accrue on the
amount of the award (if the said amount was not paid within
60 days) till the date of payment or decree, whichever is
earlier. This part of the award was not questioned. In fact,
the decree drawn up in consequence of the order of the
learned Single Judge, specifically directs (a) interest on
the awarded amount from 6.5.83 (date of reference) to
26.3.84 (date of the award ); (b) "thereafter, interest on
the amount’ awarded at 11% from 27.3.84 to 11.12.84" (date
of the decree); and (c) interest thereafter at
658
9% per annum. The objection of the Union in the LPA on the
question of interest was only that the arbitrators had erred
in awarding interest from 6.5.1983 to 26.3.1984. It is this
contention that was accepted by the Division Bench. The High
Court had, therefore, not decided that the contractors were
not entitled to interest beyond the date of the award. This
contention of the Union, therefore, fails and is rejected.
In the result C.A. 1280/88 is allowed and C.A. 128 1/88
is allowed in part. There will be no order as to costs.
R.N.J. Appeals
allowed.
659