Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.2732 OF 2001
U.P. Cooperative Federation Ltd. …Appellant
VERSUS
M/s Three Circles …Respondent
J U D G M E N T
TARUN CHATTERJEE, J.
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1. On or about 14 of December, 1983, a tender was floated by
the U.P. Cooperative Federation Ltd. (hereinafter referred to as “the
Federation”) for construction of 4000 Metric Ton cold storage at
Vashi, New Mumbai. The tender document mentioned the time of
completion as twelve months. M/s Three Circles – the respondent
herein, submitted a tender to get the contract. In the year 1984, a
contract was executed with M/s Three Circles. Clause 10[f] of the
Contract Agreement reads as follows:
“It is further agreed that all disputes or
differences arising out of the provisions as contained
in the preceding paragraphs, [a] to [f] of Clause 10
shall be referred to the Managing Director of
Employer, whose decision shall be final, conclusive
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and binding and shall not be referred to arbitration or
to any court of law .”
Clause 11 of the contract reads as follows:
“All disputes and differences between the parties
regarding the construction or interpretation of any of
the terms and conditions herein contained or
conditions of contract being the integral part of this
contract [except those which are subject matter of the
decision of Managing Director of the Employer or/are
expressly forbidden and excluded from being referred
to arbitrator under any clause by the contract
documents and such decision shall be final, conclusive
and binding upon the parties hereto] or determination
of and liability or any disputes of whatever nature
whether during the course of progress or work or
thereafter or after recession of the contract, shall be
referred to the arbitration as provided in the condition
No.51 of the Heading “scope and performance” in the
Tender documents and shall be deemed to be
reference within the relevant provisions of the Indian
Arbitration Act, 1940, and or any statutory modification
of enactment there under. ”
Clause 51 of the General Conditions of contract provided for
arbitration. This clause reads as follows:
“51. The contractor will become nominal member of
the Federation and will abide by the rules and
regulation laid down from time to time. Except where
otherwise provided for in the contract all questions and
disputes relating to the meaning of the specifications,
designs, drawings and instructions herein before
mentioned and as to the quality of workmanship or
materials used on the work or as to any other
questions, claim, right, matter or thing whatsoever in
any way arising out of or relating to the contract,
designs, drawings, specifications, estimates,
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instructions, order or these conditions or otherwise
concerning the works, or the execution or failure to
execute the same whether arising during the progress
of the work or after the completion or abandonment
thereof shall be referred to the sole arbitration of the
Registrar Cooperative Societies Uttar Pradesh and if
the Registrar is unable to or unwilling to act, to the sole
arbitration of some other person appointed by the
Managing Director, willing to act as such arbitrator.
There will be no objection if the arbitrator so appointed
is an employee of Federation and that he had to deal
with the matters to which the contract relates and that
in the course of his duties as such he had expressed
views on all or any of the matters in dispute or
difference. The arbitrator to whom the matter is
originally referred being transferred or vacating his
office or being unable to act for any reason, such
Managing Director as aforesaid at the time of such
transfer vacation of office or liability to act shall appoint
another person to act as arbitrator in accordance with
the terms of the contract. Such person shall be
entitled to proceed with the reference from the stage at
which it was left by his predecessor. It is also a term
of this contract that no person other than a person
appointed by such Managing Director as aforesaid
should act as arbitrator and if for any reason, that is
not possible the matter is not to be referred to
arbitration at all. Cases where the amount of the claim
in dispute is Rs.25,000/- [Rupees twenty five
thousand] and above, the arbitrator shall give reasons
for the award. Subject as aforesaid the provisions of
the Arbitration Act, 1940 or any statutory modification
or reenactment thereof and the rules made there
under and for the time being in force shall apply to the
arbitration proceeding under this clause.
It is a term of the contract that the party invoking
arbitration shall specify the dispute or disputes to be
referred to arbitration under this clause together with
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the amount or amounts claimed in respect of each
such dispute.
The arbitrator[s] may from time to time with
consent of the parties enlarge the time, for making and
publishing the award.
The work under the contract shall, if reasonably
possible, continue during the arbitration proceedings
and no payment due or payable to the contractor shall
be withheld on account of such proceedings.
The Arbitrator shall be deemed to have entered
on the reference on the date he issues notice to both
the parties fixing of the date of the first hearing.
The Arbitrator shall give a separate award in
respect of each dispute or difference referred to him.
The venue of arbitration shall be such place as
may be fixed by the Arbitrator in his sole discretion.
The award of the Arbitrator shall be final,
conclusive and binding on all parties to this contract.”
2. The respondent was given extension of time for execution and
completion of the project pursuant to Clause 13 of the General
Conditions of Contract. It may be kept on record that Clause 32
clearly postulates that the extended time was also to be the essence
of the contract. After the expiry of stipulated period of time, the
respondent submitted certain claims to the Managing Director of the
appellant in terms of Clause 10 of the Contract. A compensation of
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Rs.87,000/- was awarded to the respondent. In this connection, it
may be stated that the respondent had also suspended work for
some time.
3. The respondent thereafter filed a suit being Arbitration Suit
No.3212 of 1986 before the High Court of Bombay under Section 20
of the Arbitration Act, 1940 [in short ”the Act”] praying for appointment
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of an Arbitrator. By an order dated 7 of January, 1988, the High
Court appointed one Shri N.N. Shrikhande as the sole Arbitrator to
decide the disputes raised by the parties. Subsequently, the
appellant filed a notice of motion praying for setting aside the order of
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appointment dated 7 of January, 1988 and also prayed for stay of
the arbitration proceedings. The said notice of motion was, however,
dismissed by the High Court. The appellant filed an appeal which was
also dismissed on the ground of delay.
4. The appellant, feeling aggrieved, filed a special leave petition
being SLP [C] No.11703 of 1988 in which this Court granted leave,
which came to be registered as Civil Appeal No.3585 of 1988. By an
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order dated 4 of October, 1988, this Court had set aside the order
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dated 7 of January, 1988 and remanded the matter to the High
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Court for nominating another Arbitrator. Again by an order dated 2
of November, 1988, the High Court appointed one Shri S.N. Mishra
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as the sole Arbitrator. On 1 of March, 1989 the learned Arbitrator
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entered upon the reference. On 2 of March, 1989, statement of
claim was filed by the respondent. Various claims were made, inter
alia, for escalation, purchase of additional material and transport
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charges. Reply to show cause notice was filed on 16 of March,
1989 by the appellant and rejoinder to the same was also filed by the
respondent. The learned Arbitrator thereafter by a reasoned award
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dated 20 of October, 1989 directed the appellant to pay a sum of
Rs.32,68,805.80 to the respondent along with interest at the rate of
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15% till the date of final payment. On or about 14 of December,
1989, the appellant filed an application for setting aside the said
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award before the High Court. By a judgment and order dated 19 of
October, 1994, a learned Judge of the High Court dismissed the said
petition of the appellant, inter alia, on the following findings:
[1] The claim of the appellant that they were entitled to deduct
certain amounts from the final payment to the respondent on account
of his having consumed extra cement was rejected.
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[2] The Arbitrator did not have any jurisdiction in rejecting the claim
in view of Clause 10 of the agreement.
[3] The claim of the appellant that it was entitled to deduct certain
amount from the final bill on account of non utilization of steel was
rejected.
[4] The Arbitrator awarded escalation price to the respondent on
account of increase in prices even after the stipulated time of
completion.
[5] The Arbitrator disallowed the claim of the appellant for
deduction of amounts from the final bill on account of poor
workmanship.
[6] The claim towards purchase of surplus wood by the respondent
was allowed along with the claim for filling of earth.
[7] The claim of the respondent towards transport charges for
carrying wood was allowed despite the fact that the contract provided
for local wood to be used.
[8] Expenses towards litigation and interest at the rate of 18% prior
to the reference were also allowed.
5. Feeling aggrieved, an appeal was carried to the Division Bench of
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the Bombay High Court and by a judgment and order dated 11 of
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February, 2000, the Division Bench partly allowed the appeal
limited to the question of interest but rejected all other contentions
of the appellant. Feeling aggrieved by the aforesaid order of the
Division Bench of the High Court, a special leave petition was filed,
which on grant of leave was heard in the presence of learned
counsel for the parties.
6. We have heard the learned counsel for the parties and examined
the impugned order of the High Court as well as the application for
setting aside the award passed by the Arbitrator filed at the
instance of the appellant and other materials on record. On behalf
of the appellant, Mr. Rakesh Dwivedi, learned senior counsel,
contended at the first instance that there was an error apparent on
the face of the award on the issue of ‘balance steel recovery’. Mr.
Dwivedi contended that the respondent was having balance steel
with it which was not consumed or returned and the respondent
should, therefore, pay interest on it as per penal rates in terms of
Clause 15[2][6] of the Contract. At this stage we may refer to
Clause 15 [2][6] which runs as under :-
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“if on completion of work, the contractor fails to
return surplus materials out of those supplied by the
Federation, then, in addition to any other liability
which the contractor would incur, the Engineer In-
charge may, by a written notice to the contractor,
require him to pay within a fortnight of receipt of
notice, for such unreturned surplus materials at
double the issue rates.”
7.
On this score, the finding of the Arbitrator was that there was no
clear evidence put forward by either of the parties as to what
happened to the balance steel and under that circumstances the
claimant, namely, the respondent was directed to pay at the issue
rates and not at the penal rates. However, though this was the
observation in the body of the award, in Appendix ‘C’, the
Arbitrator had given certain deductions based on balance steel
under three heads. Mr. Dwivedi, therefore, contended that the
appendices were part of the award itself which is to be interpreted
in conjunction with Appendix ‘C’ and, therefore, in the light of
Appendix ‘C’ where a finding of unutilized steel under three heads
lying unutilized the Arbitrator should have awarded the respondent
to pay at penal rates and by not doing so and directing the
payment at issue rates it was against the express terms of the
contract and liable to be interfered with. In response to this
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argument, the learned counsel for the respondent, however,
contended that Appendix ‘C’ could not be construed to be a part of
the award, since, in the award the observation was that there was
no clear evidence as to the balance steel, payment at penal rates
could not have been awarded. It was further contended by
learned counsel for the respondent that if anyone, it was the
respondent who should be aggrieved and at any rate, the
appendix did not give the appellant to contend that there was a
finding of unutilized balance steel. The Arbitrator in his award
clearly stated that in the absence of a positive finding of the same,
the penal rate cannot be awarded. The Court, therefore, rightly
held that Appendix ‘C’ did not mean to be a positive finding by the
Arbitrator that such steel was unutilized and had been
appropriated by the respondent. Accordingly, we do not find any
infirmity either in the award of the Arbitrator or in the findings of the
Division Bench as well as of the learned Single Judge on this
ground.
8. It was next contended by the learned senior counsel for the
appellant that there was inferior quality of workmanship as a result
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of which it was entitled to make deduction from the bills. The
learned Arbitrator had refused to accept this submission from the
side of the appellant that under the contract the respondent was
obliged to use local materials including local bricks, that the bricks
in the Bombay region were of inferior quality and further that all the
bills presented had been passed by the Architect of the appellant
without any objection, therefore, the appellant was estopped from
raising the issue and no recovery could be allowed. We do not
find any infirmity in the aforesaid findings of the Arbitrator as well
as the findings arrived at by the High Court. Mr. Dwivedi had
drawn our attention to the fact that under the contract this was an
issue which was left to the sole discretion of the Managing Director
of the appellant and, therefore, was not within the jurisdiction of
the Arbitrator to arbitrate upon. In this connection, Mr. Dwivedi
placed reliance on Clause 10[b], [c] and [f] and Clause 11 of the
Articles of Agreement. The learned Single Judge as well as the
Division Bench, after examining the Clauses, as indicated
hereinabove, held that these Clauses did not include within their
purview ‘bad workmanship’ and, therefore, it was beyond the
jurisdiction of the Arbitrator to decide it. In respect of Clause 10
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[c], the Court, in our view, has rightly rejected the argument of the
appellant that ‘negligence or lack of proper care’ was synonymous
to bad workmanship. Accordingly, we do not find any ground to
interfere with the findings of the High Court in rejecting the
submissions of the learned counsel for the appellant on this
ground. In any view of the matter, the Arbitrator had considered
the entire materials on record and the rival submissions of the
parties and then came to the conclusion of fact, which was
accepted by the courts below, it is not open to this Court to
interfere with such conclusions until and unless it is manifest that
such conclusions are perverse or arbitrary. That apart, we are of
the view that this would not be a ground for setting aside the
award under the Arbitration Act, 1940.
9. That apart, in our view, the High Court was justified in holding that
the poor workmanship did not fall under any of the sub-clauses of
Clause 10 of the Articles of Agreement, which enumerates the
matters in which the Managing Director will have the exclusive
authority to decide the dispute as per Clause 11 of the Agreement.
Clause 10(b) provides that all special losses and damages
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suffered by the Employer, as certified by the certificate of the
Engineer-in-charge, shall be final, conclusive and binding. Clause
10(c) of the agreement makes “losses suffered by the employer or
damages due to negligence or lack of proper care” on the part of
the contractor shall be liable to be reimbursed and the certificate of
the Engineer-in-charge as to the extent of damage and its value is
declared to be final, conclusive and binding upon the contractor.
Clause 11 provides that all disputes and differences arising out of
the contract as contained in the proceedings in paragraphs (a) to
(f) of Clause 10 shall be referred to the Managing Director of
Employer whose decision shall be final, conclusive and binding
and shall not be referred to arbitration or to any Court of law. In
this connection, as noted herein earlier, the High Court was fully
justified in holding that “lack of proper care or negligence”
appearing in Clause 10(c), was not synonymous to bad
workmanship by which the respondent had based its claim.
Workmanship refers to skill or talent displayed in the performance
of a work and is not related to the care or diligence showed in the
work or choosing the materials. Accordingly, this submission of
Mr.Dwivedi, learned senior counsel appearing for the appellants is
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not worthy of consideration and, therefore, it is rejected.
10. We also find from the impugned judgment of the High Court that
both the parties had admitted before the Arbitrator that the format
to be used for analysis of extra items shall be the CPWD Format
and that both the parties had indicated to the Arbitrator that there
was no difference between them as to the format used by them in
analyzing the extra items. However, the parties are not at ad idem
on the actual rates to be taken for labour and material, referred to
in the format. It also appears from the judgment of the High Court
that while the appellant insisted that the rates prescribed by
CPWD in respect of the labour and material had to be used, the
respondent insisted that local rates would have to be used.
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Considering the resolution approved in a meeting on 6 of March,
1986, where the Architect approved extra items 1 to 6 at the rates
that were put forward by the respondent and with regard to extra
items 7 and 8 the rates analysis put forward by the appellant was
not even contested by the respondent. With regard to the analysis
of item No.9 pertaining to transportation and wages, the Arbitrator
denied the claim of the respondent. With regard to item No.10, the
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rate put forward by the appellant was accepted by the Arbitrator. In
these circumstances, it is no longer open to hold the contention
that there was any requirement that the CPWD rates must be
accepted and that no deviation therefrom was permissible under
the Contract. In this view of the matter, it is difficult to agree that
the Arbitrator had acted beyond the terms and conditions of the
contract while coming to the findings of fact relating to the extra
items on rates other than the CPWD rates also.
11. The next ground of attack of the impugned judgment rests on
payment of interest. From the impugned judgment, it appears that
three limbs of the argument of the parties were dealt with by the
Division Bench of the High Court. It is not in dispute that the
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learned Arbitrator entered upon the reference on 1 of March,
1989. The Arbitrator having found that the appellant was liable to
pay a total sum of Rs.32,68,805.80 p. directed that if the said
amount is not paid by the appellant to the respondent on or before
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15 of December, 1989, the same would carry interest @ 15% per
annum till the payment was made. The total sum of
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Rs.32,68,805.80 as found by the learned Arbitrator included the
following three claims :-
Claim No.1 : Rs.17,36,994.97
Claim No.2 : Rs.2,40,615.96
Claim No.8 : Rs.2,68,000.000
So far as Claim No.1 was concerned, the Arbitrator found that
what was due was Rs.13,62,349/- to which he added interest from
January 1987 to October, 1989 @ 15% which worked out to
Rs.3,74,645.97. Thus the total amount in respect of Claim No.1 as
mentioned above worked out to Rs.17,36,645.97 (there is an
apparent inconsistency in the figures of claim No.1 reproduced with
this figure), but the thing remains that the learned Arbitrator
calculated interest @ 15% for the period from January 1987 to
October, 1989 and added it to make up the claim No.1. Similar was
the exercise carried out by the learned Arbitrator in regard to claim
No.2 in which the Arbitrator having found that a total sum of
Rs.1,88,718.40 p. was due, added interest for the period from
January 1987 to October, 1989 again @ 15% which amounted to
Rs.51,897.56 making the total under the head of CPWD as
Rs.2,40,615.96 p. So far as Claim No.8 as mentioned by the learned
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Arbitrator is concerned, it appears that the learned Arbitrator re-
calculated the amount of interest and awarded Rs.2,68,000/- as
interest on delayed payment. It is not in dispute that the learned
Arbitrator in his final analysis had allowed interest @ 15% per annum.
So far as the payment of interest is concerned, the Division Bench of
the High Court after analyzing the decisions of this Court, namely,
Executive Engineer, (Irrigation) Balimela & Ors. Vs. Abhaduta
Jena & Ors. [1988 (1) SCC 418], Secretary, Irrigation Department,
Government of Orissa & Ors. vs. G. C. Roy [1992 (1) SCC 508]
came to the conclusion of law which was that the Arbitrator has
power to award pendente lite interest and where the contract was
silent as to the awarding of interest, the Arbitrator has the power to
award interest for the pre-reference period if there is a substantive
law which empowers him to do so or if there is a usage of trade for
payment which has the force of law. In our view, the High Court was
perfectly justified in holding that the Arbitrator has the power to award
interest for the pre-reference period. It needs to be repeated at this
juncture that the arbitration in question was governed not by the
present Act of 1996 but by the provisions of Arbitration Act, 1940.
However, as this power emanates from Section 3 of the Interest Act,
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1978, the High Court noted that the rate of interest cannot be more
than ‘the current rate of interest’ as stipulated by the said Section.
Accordingly the High Court had reduced the rate of interest for pre-
reference period from 18% to 15%. It was, however, argued on behalf
of the appellant that the High Court was not justified in awarding
interest for pre-reference period in view of Section 3 of the Interest
Act, 1978 which was pursuant to a special clause in the Contract. As
in the present case there was no such clause in the agreement and
hence it was not within the power of the Arbitrator to make an award
with respect to interest.
12. In our view, this argument lacks substance. The position of law,
as found by the High Court in its impugned judgment on
consideration of various other judgments of this Court, would clearly
show that in those judgments the High Court relied on also did not
stipulate any express agreement with respect to interest as a
precondition to the authority of the Arbitrator to award interest for the
pre-reference period. The matter would have a different issue
altogether if there had been a specific provision prohibiting grant of
interest which was, of course, not the case of the appellant.
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13. In the case of State of Rajasthan and Anr v. Ferro Concrete
Construction Pvt. Ltd, [2009 (8) SCALE 753], the same work was
advanced in which this Court observed:
“But this Court has held that in the absence of an
express bar, the arbitrator has the jurisdiction and
authority to award interest for all the three periods -
pre reference, pendente lite and future (vide
decisions of Constitution Bench in Secretary,
Irrigation Department, Government of Orissa vs. G.
C. Roy - 1992 (1) SCC 508, Executive Engineer,
Dhenkanal Minor Irrigation Division vs. N. C.
Budharaj - 2001 (2) SCC 721 and the subsequent
decision in Bhagawati Oxygen vs. Hindustan
Copper Ltd -2005 (6) SCC 462). In this case as
there was no express bar in the contract in regard
to interest, the Arbitrator could award interest.”
14. In view of the above decision in law now settled by this Court,
we are unable to hold that the Arbitrator was not entitled to award
interest on the pre-reference period because there was no clause in
the agreement prohibiting such awarding of interest. However, the
High Court had reduced the rate of interest to the ‘current rate of
interest’ and, therefore, it is not open for us to interfere with such rate
of interest at this stage in this appeal. Therefore, there is no
substance in this argument, accordingly it is rejected.
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15. Now the question comes which is related to awarding of
‘interest on interest’. According to the appellant, they have to pay
interest on an amount which was inclusive of interest and the
principal amount and, therefore, this amounts to a liability to pay
‘interest on interest. This question is no longer res integra at the
present point of time. This Court in McDermott International Inc. v.
Burn Standard Co. Ltd, & Ors. [2006 (11) SCC 181] has settled this
question in which it had observed as follows :
“The Arbitrator has awarded the principal amount
and interest thereon upto the date of award and
future interest thereupon which do not amount to
award on interest on interest as interest awarded
on the principal amount upto the date of award
became the principal amount which is
permissible in law.”
16. The High Court on this question has also rightly relied on a
decision of this Court in the case of Oil and Natural Gas
Commission vs. M/s. M .C. Clelland Engineers S.A. [1999 AIR
SCW 1224]. That being the position, we are unable to find any
ground to set aside the judgment of the Division Bench of the High
Court while considering the ground of ‘interest on interest’. So far
as the ground relating to the power of the Arbitrator to award
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interest on the cost of arbitration is concerned, we are of the view
that we do not find any infirmity in the said findings of the High
Court relating to that ground. Since the legislature by way of an
amendment in the year 1956 deleted Section 35(3) of the Code of
Civil Procedure which empowered the court to award interest, the
Arbitrator, on analogy, cannot have the power to award interest on
costs. Therefore, the High Court has failed to justify in holding that
the powers of the Arbitrator are not effected by changes made to
the Code of Civil Procedure. The power of the Arbitrator, if any,
shall be located from the act itself. We may note that awarding
costs is a matter of discretion of the Arbitrator under the 1940 Act.
Sir Mohd. Akbar Khan vs. S.Attar Singh (deceased) [AIR 1945
PC 170] is an answer to the aforesaid ground. Paragraph 8 of the
First Schedule to the Arbitration Act, 1940 which contains “Implied
Conditions of Arbitration Agreements” lays down that –
“the costs of the reference and award shall be in the
discretion of the arbitrators or umpire who may
direct to, and by, whom, and in what manner, such
costs or any part thereof shall be paid, and may tax
or settle the amount of costs to be so paid or any
part thereof and may award costs to be paid as
between legal practitioner and client.”
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17.A plain reading of this paragraph would show that there is a
provision in this clause which does not permit or prohibit the
imposition of interest on costs of arbitration.
18. The High Court has also observed in the impugned judgment that
the principles in relation to payment of interest on interest will
apply in this context as well and that there is no principle or
precedent prohibiting award of interest on cost. It may be noted
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that the Law Commission of India in its 55 Report submitted in
1973 discussed the rationale behind grant of interest on interest
and on costs. Though the Commission found it fit not to disturb the
position of law that emerged after the deletion of Section 35(3) of
the Code of Civil Procedure, but Law Commission had expressed
its opinion in favour of grant of interest on costs. The logic behind
it was that the cost incurred in the litigation were actually and
rightfully incurred by the successful litigant which he would have
invested but for the lengthy litigation proceedings. Interest, which
is damages for wrongful retention of money that rightfully
belonged to one, thus can be paid on costs as well. This may also
be considered that costs of arbitration are actually incurred by the
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respondent and it is only that it becomes payable only with the
award in its favour. Accordingly, we do not find any infirmity in the
judgment of the Division Bench except in that we are of the view
that the rate of interest from 15% should be reduced to 7%. In
McDermott International vs. Burn Standards (supra), it had
summarized the practice of this Court on this issue in the following
words :-
“The 1996 Act provides for award of 18% interest.
The arbitrator in his wisdom has granted 10%
interest both for the principal amount as also for
the interim. By reason of the award, interest was
awarded on the principal amount. An interest
thereon was upto the date of award as also the
future interest at the rate of 18% per annum.
However, in some cases, this Court was resorted
to exercise its jurisdiction under Article 142 in
order to do complete justice between the parties.
In pure Helium India (P) Ltd. [2003 8 SCC 593]
this Court upheld the arbitration award for
payment of money with interest at the rate of 18%
p.a. by the respondent to appellant. However,
having regard to long lapse of time, if award is
satisfied in entirety, respondent would have to pay
a huge amount by way of interest. With a view to
do complete justice to the parties, in exercise of
jurisdiction under Article 142 of the Constitution of
India, it was directed that award shall carry
interest at the rate of 6% p.a. instead and in place
of 18% p.a.
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Similarly in Mukand Ltd. vs. Hindustan Petroleum
Corpn. [2006 (4) SCALE 453], while this Court
confirmed the decision of the division bench
upholding the modified award made by the learned
single Judge, the court reduced the interest
awarded by the learned single judge subsequent to
the decree from 11% per annum to 7% per annum
observing that 7% per annum would be the
reasonable rate of interest that could be directed to
be paid by the appellant to the respondent for the
period subsequent to the decree.
In this case, given the long lapse of time, it will be in
furtherance of justice to reduce the rate of interest to
7%.”
19. Following the aforesaid decision and considering the fact that
there was a long lapse of time and for the ends of justice, we are,
therefore, of the view that the judgment of the Division Bench can be
modified only to the extent that the rate of interest should be reduced
from 15% to 7%. As we also find in this case that such reduction of
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interest is warranted because the award was passed on 20 of
October, 1989, now 20 years have passed since then.
20. This Court in Mcdermott International Inc. vs. Burn
Standard Co.Ltd. & Ors. (supra) S.B.Sinha,J., (as His Lordship then
was), following the two earlier decisions of this Court in the case of
Pure Helium India (P) Ltd. vs. ONGC [(2003) 8 SCC 593] and
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Mukand Ltd. vs. Hindustan Petroleum Corpn. Ltd. [(2006) 9 SCC
383] and considering the fact that due to long lapse of time if the
entire award is satisfied, the appellant would have to pay a huge sum
of money by way of interest. Therefore, in that decision, this court
directed reduction of rate of interest in order to do complete justice
between the parties in the exercise of its jurisdiction under Article 142
of the Constitution of India and that is the reason we also reduce the
rate of interest from 15% to 7%.
21. Before parting with this judgment, we may refer to two
decisions of this Court which were cited at the bar in the case of T.N.
Electricity Board vs. Bridge Tunnel Constructions & Ors. [1997 4
SCC 121] and Trustees of the Port of Madras vs. Engineering
Constructions Corpn. Ltd. [1995 5 SCC 531]. So far as the case of
T.N. Electricity Board is concerned, we have no quarrel with the
principle laid down in the aforesaid decision. In that decision, it was
held that one of the question that was decided was that the Arbitrator
cannot clothe himself conclusively with the jurisdiction to decide or
omit to decide the arbitrability of a particular item or the claim made
by the parties. It was held that when a specific reference has been
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made to the Arbitrator and the parties raise the dispute of arbitrability,
with the leave of the court/by a direction of the court in a proceeding
under Section 33, he is to decide the arbitrability of the dispute and
make a decision while giving reasons in support thereof. It was
further held that the decision of the Arbitrator in granting a particular
sum by a non-speaking award, therefore, hinges upon the arbitrability
of a dispute arising under the contract or upon a particular item
claimed thereunder. It was further observed that he was required to
give the decision thereon. Therefore, it was held that the question of
decision by implication does not arise since his jurisdiction to decide
the dispute on merits hinges upon his jurisdiction to decide the
arbitrability of the dispute.
22. The aforesaid decision of this Court, therefore, in our view
cannot come to help the appellant.
23. So far as the decision in the case of Trustees of the Port of
Madras vs. Engineering Constructions Corpn. Ltd. (supra) is
concerned, this case also has no application in the facts of this case.
In that case, the principles have been laid down in the case of a
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reasoned award and the court can interfere if the award is passed
upon a proposition of law which is unsound in law. The error apparent
on the face of the award contemplated by Section 16(1)( c) as well as
Section 30 (c ) of the Arbitration Act is an error of law apparent on the
face of the award and not an error of fact. Therefore, this decision, in
our view, is also of no help. The Arbitrator has passed his award on
the basis of the conditions of the clauses in the agreement and
passed an award and nothing could be shown from which it could be
held that the court could interfere with the award if the same was
passed upon the proposition of law which is unsound in law.
24. For the reasons aforesaid and subject to the modification as
noted hereinabove, this appeal has no merit and the same is hereby
dismissed. There will be no order as to costs.
……………………J.
[Tarun Chatterjee]
New Delhi; …………………...J.
September 10, 2009. [Harjit Singh Bedi]
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