ORAL JUDGMENT (PER DR. D.Y CHANDRACHUD, J.):

Admit. With the consent of the learned counsel, the Appeal is taken up for hearing and final disposal.

2. This Appeal arises from a decision of a Learned Single Judge dated 10 March 2011 rejecting a petition for setting aside an arbitral award under Section 34 of the Arbitration and Conciliation Act 1996. A contract was awarded by the Central Railway to the Respondent for the construction of 100 units of Type-I (M/S) quarters at Kalwa at a tendered cost of Rs. 1.02 Crores. The period for the completion of work was 24 months commencing from the date of the award of the contract. The period for completion was extended from time to time. A major portion of the work was completed by 31 March 1996 barring minor deficiencies and physical possession of the quarters was taken over on 27 October 1997. On 16 September 2003, the General Manager of the Central Railways constituted an arbitral Tribunal under Clause 64 of the General Conditions of Contract in pursuance of an order passed by this Court on 15 June 2003 in an arbitration application under Section 11 of the Arbitration and Conciliation Act 1996. The arbitral Tribunal was called upon to decide the arbitrability of each claim and to publish a reasoned award under Clause 64. The arbitral Tribunal made its award on 15 February 2008.

3. The award contains in paragraph 22 a summary in the following terms:

Claim No. 8,24,987.00 1,20,000.00

Amount Awarded Rs.

1. Work done not paid 6,44,028.00 2,04,813.00

2. Refund of Security Deposit 3,60,000.00 57, 500.00

3. Payment of extra items 1,10,000.00 47, 289.00

4. Payment of watch and ward interest 18,20,000.00 2,28,000.00

5. Interest 4,48,620.93 1,56,235.00

6. Balance payment due to variation 3,00,791.00 NIL

7. Wrongful deduction 3, 000.00 3, 000.00

8. PVC 7,02,076.00 74, 382.00

9. Any other claims 11, 808.00 NIL

10. Underutilization of overheads 7,45,150.00 1,56,000.00

11. Underutilization of Machinery 10,43,210.00 NIL

12. Underutilization of Labour force 31,12,130.00 3,00,000.00

13. Underutilization of centering and shuttering Short Description Amount Claimed Rs.

14. Interest Cost Not specified NIL 15 Cost 2,00,000.00 NIL

4. The Appellant was directed to pay an amount of Rs. 13,47,219/- to the Respondent within thirty days of the award, failing which it was stated that further interest will accrue with effect from the date of the award under Section 31(7).

5. The award was sought to be challenged before the Learned Single judge primarily on the ground that in awarding interest and compensation for delay, the arbitral Tribunal had acted contrary to the express conditions of the contract under which the award of such claims was prohibited. The Learned Single Judge held that there was nothing to indicate that such a defence was raised in the written statement or that it was argued before the arbitral Tribunal and on that ground came to the conclusion that the award could not be interfered with. The petition was accordingly dismissed.

6. Counsel appearing on behalf of the Appellant has challenged the arbitral award insofar as the following claims came to be awarded viz. Claim Nos. 1, 2, 5, 10, 12 and 13. The principal basis of the appeal is that the award of the claims by the arbitral Tribunal was contrary to the express terms and conditions of the contract. Hence, in order to evaluate these submissions, it would be necessary to consider the arbitral award and the specific contractual conditions governing each head of claim.

i) Claim No. 1 was in respect of work done but not paid in respect of which the arbitral Tribunal awarded interest at the rate of 10% per annum from 20 November 1997 to 3 June 2002, in the total amount of Rs. 2,04,813/-. The arbitral Tribunal has noted that an amount of Rs. 4,55,140/- was paid over to the contractor only on 21 May 2002 and on this ground awarded interest for the period of delayed payment. Clause 16(2) of the General Conditions of Contract provides as follows:

“16(2): No interest will be payable upon the Earnest Money and Security Deposits or amounts payable to the Contractor under the Contract …..”

The effect of this very clause was considered by the Supreme Court in a judgment in Sree Kamatchi Amman Constructions v. The Divisional Railway Manager (Works), Palghat 2010 ALL SCR 2282.. The Supreme Court held that if there is a specific bar against payment of interest in the contract, the arbitrator cannot award any interest for the pre-reference period or pendente lite. The Supreme Court held that in view of the specific provisions made in the Act of 1996 in Section 31(7)(a) by the use of the words “unless otherwise agreed by the parties”; the arbitrator was bound by the terms of the contract in regard to the award of interest from the date of the cause of action to the date of the award. Hence, where the parties had agreed that no interest shall be payable, the arbitral Tribunal cannot award interest between the date when the cause of action arose to the date of the award. In view of the express provisions of clause 16(2) of the General Terms of Contract, the award of interest was prohibited and there was an agreement between the parties as “otherwise agreed” within the meaning of Section 31(7)(a). Section 28(3) makes it clear that in all cases the arbitral Tribunal shall decide in accordance with the terms of the contract. It is not open to the arbitral Tribunal to ignore the terms of the contract. Evidently the arbitral Tribunal has acted contrary to the terms of the contract while awarding this claim;

ii) Claim No. 2 related to the refund of security deposit on which interest has been awarded by the arbitral Tribunal at the rate of 10% between 19 November 1998 and 10 October 2002. Here again, it is evident that the award of interest is directly in the teeth of Clause 16(2);

iii) Claim No. 5 is for the award of interest on delayed payments. The arbitral Tribunal has here again awarded interest at 10% per annum. What has been held in regard to the award of interest in respect of claim Nos. 1 and 2 will also apply to the award under this head. The award of interest for the pre-reference period was clearly contrary to the provisions of clause 16(2);

iv) Claim No. 10 was for the underutilization of overheads. The arbitral Tribunal noted that the contract was extended for approximately two years from 25 March 1994 to 31 March 1996. The Tribunal came to the conclusion that the liability for this delay ought to be shared equally by both the parties and that the claimant - Respondent should be compensated for the non-utilization of overheads for a period of one year for which an award in the amount of Rs. 1.56 lacs was made. Now insofar as this aspect is concerned, clause 17(iii) of the General Conditions of Contract provides as follows:

“(iii) In the event of any failure or delay by the Railway to handover to the contractor possession of the lands necessary for the execution of the works or to give the necessary notice to commence the works or to provide the necessary drawings or instructions or any other delay caused by the Railway due to any other cause whatsoever, then such failure or delay shall in no way affect or vitiate the contract or alter the character thereof or entitle the contractor to damages or compensation therefore, but in any such case, the Railway may grant such extension or extensions of the completion date as may be considered, reasonable.”

v) When the Respondent sought an extension of the period for completion, it had declared that it shall not claim any compensation. The Appellant had while granting extension clarified that the contractor would not be entitled to make claims whatsoever against the Railways by virtue of the extension being granted nor would the Railways entertain or consider any such claim, if made. A similar provision was interpreted in the judgment of the Supreme Court in Ramnath International Construction (P) Ltd. v. Union Of India AIR 2007 SC 509. In that case, the contractual conditions stipulated that no claim in respect of compensation or otherwise howsoever arising as a result of the extensions granted shall be admitted. The Supreme Court held that in view of the clear terms of the contract, the award of compensation had been rightly set aside by the High Court. A similar view was taken in a judgment of a Learned Single Judge of this Court in Chaitanya Electrical Private Limited v. General Manager Central Railway Arbitration Petition no. 370 of 2002. while interpreting the provisions of clause 17(3). An appeal against the decision was dismissed by the Division Bench on 17 March 2003 4. In view of the express terms of the contract, the arbitral Tribunal has manifestly erred in ignoring the contract and awarding the claim;

vi) Claim No. 12 and Claim No. 13 related to the award of compensation for the underutilization of labour force and of centering and shuttering respectively. Here again the arbitral Tribunal has granted compensation on account of the extended period of the contract by partly apportioning the liability to the Appellant. The award under both these heads is clearly unsustainable in view of the specific conditions contained in Clause 17(iii) noted earlier.

7. For these reasons, we have come to the conclusion that the award in respect of claim Nos. 1, 2, 5, 10, 12 and 13 is clearly contrary to the express terms of the contract. We do not find with respect merit in the view which weighed with the Learned Single Judge. Ex facie, the arbitral award would indicate that the arbitral Tribunal made a reference to the terms and conditions of the contract agreement in paragraph 4 of the award as having been adverted to during the course of the hearing. If that be so, there was no reason or justification for the Tribunal to disregard the terms of the contract. In any event, the arbitral Tribunal is bound by the mandate of section 28(3) and cannot ignore the terms of the contract between the parties to the arbitration agreement. For the aforesaid terms, we would have to allow the Appeal and accordingly allow the Appeal by setting aside the award of the arbitral Tribunal to the extent to which the Tribunal awarded the claims of the Respondent in respect of claim Nos. 1, 2, 5, 10, 12 and 13. The Appeal is disposed of in these terms.

There shall be no order as to costs.