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Rajdev Engineering Works v. D.D.A .

Delhi High Court

May 19, 1988

Judgment

Subsequent
References

CaseIQ

Smart Summary (Beta)

Structured Summary of the Opinion (N.C. Kochhar, J.)

Factual and Procedural Background

The Delhi Development Authority (respondent) awarded a contract (Agreement No. 4.PE/AGD VII/E/80-81) to M/s. Rajdev Engineering Works (petitioner) for internal electrification of 201 dwelling units, Phase II, Asian Games Village Complex, Siri Fort, New Delhi. The agreement contained an arbitration clause. Disputes arose and the Engineer Member of the respondent referred the matters to the sole arbitrator, Shri M.P. Gandhi (Superintending Engineer (Electrical) of the respondent), who made an award dated 19 July 1985.

The petitioner filed an application (Suit No. 1443-A/85) to have the award filed in court. The respondent filed objections (I.A. 1180/86) challenging the award in respect of items/claims 2, 4, 6, 8, 9 and 10 on grounds including that the arbitrator had not given reasons, had misinterpreted the agreement terms and had not decided the matters according to law. The objection petition was opposed. On the pleadings the court framed the issue (14 May 1986): “Whether the award is liable to be set aside on any of the objections of the objectors?” Parties led evidence by affidavits and documents. The court heard counsel for both sides and perused the record before delivering findings on each claim and the issue of interest.

Legal Issues Presented

Whether the arbitral award is liable to be set aside on any of the objections raised by the respondent (as framed by the court): “Whether the award is liable to be set aside on any of the objections of the objectors?”
Whether the arbitrator had the power to award interest (including pendente lite/future interest) where the reference to the arbitrator was not made in a suit but by the Engineer Member of the respondent Authority.

Arguments of the Parties

Respondent / Objector (represented by Shri M.L. Jain)

Challenged the award in relation to claims 2, 4, 6, 8, 9 and 10 on grounds that the arbitrator failed to give reasons, misinterpreted the agreement and did not decide in accordance with law, amounting to misconduct of the proceedings.
Specifically on interest (Claim No. 10), argued that the arbitrator is not a "court" and therefore has no power to grant pendentelite or future interest; relied on the Supreme Court decision in Executive Engineer Irrigation Galimala v. Abhaduta Jena (JT (1987) 4 SC 8).
On particular substantive claims the respondent advanced factual/legal objections mentioned in the record:
- For claim 4: contended the cost of making good edges of certain boxes was the petitioner’s contractual responsibility under additional conditions Nos. 23 and 24.
- For claim 6: relied on the Chief Technical Examiner's opinion that the cost of adaptor boxes was included in switch boards.
- For claim 8: asserted contractual condition No. 11 barred claims for compensation for idle labour.
- For claim 9: relied on additional condition No. 3 to argue the petitioner should have known the nature of soil (rocky) prior to tendering and thus could not claim extra for earthing.

Petitioner / Award-Proponent (represented by Shri Rajesh Lakhanpal)

Defended the arbitrator's findings and resistence to setting aside the award on the challenged claims, arguing the arbitrator had given reasons and reached correct conclusions on the merits for claims 2, 4, 6, 8 and 9 as set out in the award.
On interest (Claim No. 10), contended that the arbitrator could award interest and relied on a line of authorities including:
- Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., AIR 1967 SC 1030,
- Union of India v. Bungo Steel Furniture Pvt. Ltd., AIR 1967 SC 1032,
- Krishan Kumar Madhok v. Union of India, AIR 1982 Del 332,
- Miss Mohinder Kaur Kochhar v. Punjab National Bank Ltd., AIR 1981 Del 106, and
- State of Orissa v. Consolidated Construction Co., AIR 1981 Ori 166.
On the merits of specific claims the petitioner contested the respondent's factual/legal contentions, e.g. that adaptor boxes were supplied and their cost recoverable separately, that condition No. 11 did not bar compensation where building availability delayed continuation beyond the contractual period, and that the petitioner was not obliged to dig to discover soil conditions per condition No. 3.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Executive Engineer Irrigation Galimala v. Abhaduta Jena (JT (1987) 4 SC 8)	Held that an arbitrator is not a "court" within the meaning of Section 34 CPC and has no power to award pendente lite interest except where the reference to the arbitrator is made in a suit (in which case the arbitrator assumes the court's power).	The court relied on this decision to conclude that because the reference to the arbitrator in the present case was not made in a suit but by the Engineer Member of the respondent Authority, the arbitrator had no power to grant pendentelite or future interest. This led to setting aside the interest component of the award (Claim No. 10).
Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., AIR 1967 SC 1030	Authority cited in the context of whether an arbitrator can award interest; formed the basis of later decisions that supported an arbitrator's power to grant interest in some contexts.	The court noted this case (and Union of India v. Bungo Steel Furniture) were relied upon by decisions that favored arbitrator's power to award interest. However, after considering Executive Engineer Galimala (supra), the court treated these earlier lines of authority as considered by the Supreme Court and concluded in the present factual setting that the arbitrator lacked power to grant future interest.
Union of India v. Bungo Steel Furniture Pvt. Ltd., AIR 1967 SC 1032	Another Supreme Court authority relied upon in the line of cases addressing an arbitrator's power to award interest.	The court recorded that this decision was among those taken into account by the Supreme Court in Executive Engineer Galimala, and thus featured in the analysis leading to the conclusion that the arbitrator in the present case could not grant interest.
Krishan Kumar Madhok v. Union of India, AIR 1982 Del 332	Decision cited as supporting the view that an arbitrator can award interest; it was based on the earlier Supreme Court decisions (Firm Madanlal and Union of India v. Bungo Steel).	The court noted the case as part of the line of earlier decisions on which the petitioner relied, but observed that these cases were grounded in the Supreme Court authorities that were considered in Executive Engineer Galimala; ultimately the court followed the Supreme Court's pronouncement in Executive Engineer Galimala to deny the arbitrator power to award future interest here.
Miss Mohinder Kaur Kochhar v. Punjab National Bank Ltd., AIR 1981 Del 106	Cited as authority supporting arbitrator's power to award interest in some circumstances (relied on by the petitioner).	Noted by the court as part of the petitioner's supporting authorities; the court nevertheless concluded that Executive Engineer Galimala's reasoning controlled the present situation and that interest could not be sustained.
State of Orissa v. Consolidated Construction Co., AIR 1981 Ori 166	Another decision cited that followed the line permitting arbitrators to award interest, based on the earlier Supreme Court authority.	Recognized as part of the group of cases invoked by the petitioner; the court observed their reliance on Firm Madanlal and Union of India v. Bungo Steel and held that on the facts of the present case, Executive Engineer Galimala precluded the arbitrator's award of interest.

Court's Reasoning and Analysis

The court considered each contested claim of the petitioner (claims numbered in the award) on the pleadings, affidavits and documents, and the arbitrator's findings. The court evaluated both factual findings and questions of law as presented in the record. The court's reasoning proceeded claim-by-claim for the objections raised by the respondent and then addressed the larger legal question about the arbitrator's power to award interest.

Findings on the specific claims (as recorded in the opinion):

Claim No. 2: The arbitrator found that thimbles/lugs worth Rs. 4,824.60 were not supplied and that the respondent was justified in making that deduction; the arbitrator allowed the balance Rs. 3,175.40 to the petitioner. The court held the arbitrator had given valid reasons and the award on this claim could not be set aside.
Claim No. 4: The petitioner claimed Rs. 10,200 for making good edges of various boxes; the arbitrator allowed Rs. 4,896. The respondent relied on additional conditions Nos. 23 and 24 to deny the claim; the court reviewed those conditions and found no error in the arbitrator's conclusion and declined to interfere.
Claim No. 6: The petitioner claimed Rs. 24,000 for adaptor boxes. Although the respondent relied on the Chief Technical Examiner's opinion that adaptor costs were included in switch boards, the court examined the relevant items (items 30–34 and 36) and agreed with the arbitrator that adaptor boxes were payable separately; the court found no basis to reverse that conclusion.
Claim No. 8: This concerned a claim for continuation/establishment costs during an extended period. The court noted the contract completion was extended (original completion date 21 Oct 1981; actual completion 30 Oct 1982) and considered condition No. 11 (which barred compensation for idle labour in certain circumstances). The court accepted the petitioner's submission that condition No. 11 only barred claims for idle labour during notified contract periods when the site was not available, and did not preclude compensation where the building was not available beyond the contracted period while the petitioner was required to maintain staff; thus the arbitrator's allowance was not interfered with.
Claim No. 9: The petitioner claimed extra for earthing in rocky soil; the arbitrator allowed part of the claim (Rs. 1,360). The respondent relied on additional condition No. 3 to assert the petitioner should have known site conditions. The court held condition No. 3 did not oblige the petitioner to dig the soil to discover whether it was rocky and agreed with the arbitrator's reasoning allowing the claim in part.

Analysis and reasoning on the interest issue (Claim No. 10):

The arbitrator had awarded interest at 12% p.a., effective two months after publishing of the award, payable till actual payment or decree, in respect of the petitioner's monetary claims.
The respondent argued the arbitrator lacked the power to grant pendentelite/future interest because an arbitrator is not a "court" under Section 34 CPC and thus cannot grant such interest where the reference was not made in a suit; the court recorded reliance on Executive Engineer Irrigation Galimala v. Abhaduta Jena for this proposition.
The petitioner relied on several authorities which supported an arbitrator's power to award interest (Firm Madanlal Roshanlal Mahajan; Union of India v. Bungo Steel; and subsequent cases that followed them).
The court examined the lineage of authorities and observed that the cases cited for the petitioner's position were ultimately grounded in the two older Supreme Court authorities (Firm Madanlal and Union of India v. Bungo Steel) and that the Supreme Court in Executive Engineer Galimala had considered those decisions and concluded that where the reference is not made in a suit, the arbitrator is not invested with the court's power to award pendente lite interest under Section 34 CPC.
Because, in the present case, the reference to the arbitrator was not made in a suit but was made by the Engineer Member of the respondent Authority, the court held the arbitrator had no power to grant pendente lite or future interest. The court therefore found an error apparent on the face of the record in awarding interest and set aside that part of the award (Claim No. 10).
The court further observed that under Section 29 of the Arbitration Act the court itself has no power to grant interest prior to the date of decree, and that the present result created hardship for the petitioner; the court directed a copy of the order be forwarded to the Ministry of Law and Justice for consideration of legislative action.

Holding and Implications

Holding:
The court's dispositive rulings were as follows:

SET ASIDE the arbitrator's award in respect of Claim No. 10 (the award of interest), because the arbitrator had no jurisdiction to award pendente lite/future interest when the reference was not made in a suit.
MADE THE AWARD A RULE OF COURT in respect of Claim Nos. 1 to 9 and 11, and directed that a decree be drawn in terms thereof.
Directed that the respondent shall pay to the petitioner interest @ 12% p.a. from the date of the court's order ("from today") until payment.

Implications and consequences:

Direct effect on the parties: The petitioner succeeds on the substantive merits of claims 1–9 and 11 (the award in respect of those claims is made an order of the court and a decree will be drawn). The portion of the arbitrator's award granting interest (Claim No. 10) is set aside for lack of jurisdiction. Independently, the court ordered the respondent to pay interest at 12% p.a. from the date of the court's order until payment.
Broader legal impact: The court applied existing Supreme Court authority (Executive Engineer Galimala) to deny an arbitrator power to award pendente lite/future interest where the reference was not made in a suit. The opinion does not purport to create a new precedent beyond applying governing authority; it also notes the practical hardship created by this legal position and forwards the matter to the Ministry of Law and Justice for any legislative remedy.
No additional or novel rule of law was announced by the court beyond its application of existing authorities and statutory provisions to the facts of the case.

Case status recorded: I.A. 1180/86 and Suit No. 1443-A of 1985 were decided in accordance with the court's directions; "Order accordingly."

Show all summary ...

N.C Kochhar, J.—Delhi Development Authority (the respondent) had awarded the contract for internal electrification of 201 dwelling units, Phase II in Asian Games Village Complex, Siri Fort, New Delhi to M/s. Rajdev Engineering Works (the petitioner). Agreement No. 4.PE/AGD VII/E/80-81 was executed between the parties. This agreement was governed by an arbitration clause. The disputes having arisen, the Engineer Member of the respondent referred them to the sole arbitration of Shri MP. Gandhi, Superintending Engineer (Electrical) of the respondent (the arbitrator), who entered upon the reference and made his award dated 19th July, 1985.

2. On an application having been filed by the petitioner (Suit No. 1443-A/85), direction were issued to the arbitrator and consequently the award was filed in court. The respondent filed objections (I.A 1180/86) challenging the award in respect of items 2, 4, 6, 8, 9 and 10 on the grounds that the arbitrator had not given reasons in support of his award; had misinterpreted the terms of the agreement between the parties and had not decided the matter in accordance with law and as such had misconducted the proceedings. The objection petition has been opposed.

3. On the pleadings of the parties, following issue was framed on 14th May, 1986:

“Whether the award is liable to be set aside on any of the objections of the objectors?”

The parties were allowed to lead their evidence in the form of affidavits and documents and consequently necessary affidavits have been filed on behalf of the parties.

4. I have heard Shri M.L Jain, Advocate for the objector/respondent; Shri Rajesh Lakhanpal, Advocate for the petitioner and have also perused the record of the case. My findings on the issue are as under:

Claim No. 2.

5. This claim related to the sum of Rs. 8,000/- for which refund was claimed by the petitioner from the respondent who had deducted the above said sum from the bill of the petitioner on the ground that he had failed to supply thimbles/lugs. The learned arbitrator found that the thimbles/lugs of the value of Rs. 4.824.60 had not been supplied by the petitioner and as such the respondent was justified in deducting the said sum from the bill of the petitioner. He further found that no material had been placed before him to justify the withholding of the balance sum of Rs. 3,175.40 and as such the petitioner was entitled to receive the same from the respondent. The learned arbitrator has given valid reasons for allowing the claim of the petitioner to the extent of Rs. 3,175.40 and the award of the arbitrator cannot be said to be invalid or had on any account in regard to this claim.

Claim No. 4:

6. The petitioner had claimed a sum of Rs. 10,200/- for making good the edges of hook boxes, junction boxes and fan regulator boxes. The claim had been resisted by the respondent on the ground that this was the responsibility of the petitioner to do so at his own cost in view of the additional conditions No. 23 and 24 of the agreement between the parties. The learned arbitrator found that the contention of the respondent was not correct but held that the claim of the petitioner to the extent of Rs. 4,896/- was justified and allowed the same. After perusing the said conditions, I do not find that the arbitrator came to a wrong conclusion or that any interference is called for.

Claim No. 6:

7. The petitioner had claimed Rs. 24,000/- for providing adopter boxes. It has not been disputed that the adopter boxes of the said value had been provided by the petitioner but the claim was contested on the ground that according to the opinion of the Chief Technical Examiner the cost of the adopter boxes was included in the cost of switch boards. After going through items 30 to 34 and 36, which given the cost of various items, I am of the view that the learned arbitrator rightly held that the cost of the adopter boxes were to be paid separately and was not included in the switch boards. The learned counsel for the respondent has not been able to point out to me as to how the decision of the arbitrator is wrong on this point.

Claim No. 8.

8. The next challenge on behalf of the respondent is to the award in regard to claim No. 8 whereby the learned arbitrator allowed a sum of Rs. 18,000/- to the petitioner. Before discussing the arguments raised at the Bar, it may be stated that it is not disputed that according to the original agreement, the petitioner was to commence work on 22nd February, 1981 and to complete it by 21st October, 1981 i.e within a period of 8 months but the actual date of completion of work was 30th October, 1982. It is also not disputed that under the terms of the agreement, the petitioner was bound to employ engineer and during the continuation of the contract, he had to maintain establishment. The petitioner has claimed that during the extended period of 12 months, he was entitled to claim Rs. 26,480/- Rs. 2240/- p.m taking into acccount Rs. 800/- p.m paid as salary to one engineer, Rs. 360/- p m. paid as salary to one Munshi and a sum of Rs. 1080/- p m. paid as salary to three chowkidars.

9. I have, gone through condition No. 1I according to which the parties had agreed, that the petitioner was to adjust his time according to the construction of the building and could not claim anything by way of compensation for idle labour or otherwise. In my view it has been rightly contended by Shri Rajesh Lakhanpal on behalf of the petitioner that the condition No. 11 in the agreement only debarred the petitioner from claiming for idle labour if he could not get the site or could not do the work for certain period during the period notified in the contract. It does not stand to reason that if for any reason the building is not made available to the petitioner who is bound to employ engineer etc. to carry out the work even after the contracted period, condition No. 11 can debar his claim for compensation beyond contracted period on that account. I, therefore, do not find any error in the award in regard to this claim as well and no ground has been made out for interference.

Claim No. 9.

10. Mr. Jain has next assailed the award in regard to claim No. 9. The petitioner had claimed a sum of Rs. 2040/- on the ground that the earthing was carried out in rocky area rather than in ordinary soil. The arbitrator allowed the claim to the extent of Rs. 1360/-. Mr. Jain contends that according to condition No. 3 in the additional conditions of the agreement, the petitioner was bound to visit the site of work in order to acquaint himself with the access of site, location of work etc. included in the work and to get any other relevant information such as physical progress of building work, programme of building work execution etc. and as such he ought to have known before tendering that he had to do the earthing in rocky area and as such the claim could not have been made by him.

11. After redding condition No. 3, I do not think that the petitioner was obliged to even dig the soil to find out whether it was normal soil or rocky one. The learned arbitrator, therefore, for good and valid reasons held that the petitioner could not be debarred from claiming the extra amount on this account. The award of the learned arbitrator cannot, thus, be set aside in regard to this claim as well.

Claim No. 10.

12. The petitioner had claimed interest @ 12% p.a from the date of reference to the arbitrator till the payment of the amount by the respondent. The arbitrator awarded interest effective from two months after the date of publishing of the award and payable by the respondent till the date of actual payment or the decree whichever is earlier.

13. Shri M.L, Jain, the learned counsel for the respondent, has contended that the arbitrator is not a court and has no power to grant pendentelite and/or future interest and as such there is error apparent on the face of the record in this regard and the award is liable to be set aside. He has placed reliance on a decision of the Hon'ble Supreme Court in the case Executive Engineer Irrigation Galimala v. Abhaduta Jena, (JT (1987) 4 SC 8.

14. The contention of the learned counsel for the petitioner, on the other hand, is that the arbitrator can award interest. He has placed reliance on the decisions in cases Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., Indore, AIR 1967 SC 1030; Union of India v. Bungo Steel Furniture Pvt. Ltd., AIR 1967 SC 1032; Krishan Kumar Madhok v. Union of India, AIR 1982 Del 332; Miss Mohinder Kaur Kochhar v. Punjab National Bank Limited, New Delhi AIR 1981 Del 106 and State of Orissa v. Consolidated Construction Co., AIR 1981 Ori 166.

15. The decision in cases Krishan Kumar Madhok v. Union of India, Miss Mohinder Kaur Kochhar v. Punjab National Bank Ltd. and State of Orissa etc v. Consolidated Construction Company (supra) were based on the decision of the Supreme Court in cases Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., Indore and Union of India v. Bungo Steel Furniture Pvt Ltd, (supra). While deciding the case of Executive Engineer Irrigation Galimala v. Abhaduta Jena (supra), the Hon'ble Judges of the Supreme Court had taken into consideration the decision of the Supreme Court incases Firm Madanlal Roshanl Mahajan v. Mukumchand Mills Ltd. and Union of India v. Bungo Steel Furniture Pvt. Ltd. (supra) besides other cases decided by the Supreme Court. After considering all those cases the Hon'ble Judges held that an arbitrator is not a court within the meaning of Section 34 of the Code of Civil Procedure and has no power to award pendente lite interest in cases which are not referred to him in suits but where reference is made to an arbitrator in a suit the arbitrator assumes the power of the court and can award interest.

16. In the present case, admittedly, the reference to the arbitrator was not made in a suit but was made by the Engineer Member of the respondent Authority when the petitioner raised the abovesaid disputes. It is not made clear to me as to how the arbitrator can be said to have the power to grant future interest under the provisions of Section 34 of Civil Procedure Code when he has no such power to grant pendentelite interest. In this view of the matter. I hold that the arbitrator had no power to grant interest in this case.

17. The present is, of course, a case of hardship for the petitioner. In view section 29 of the Arbitration Act this Court has no power to grant interest prior to the date of decree and no compensation can be granted to the petitioner by awarding interest either from the date of award or from the date that the petition for making the award a rule of the court remained pending. But it is for the Legislature to provide by law for a way out in such like unhappy situations and. I direct that a copy of this order be forwarded to the Ministry of Law and Justice for such action as they may deem fit to take.

18. The result is that the arbitrator acted without jurisdiction in awarding interest against claim No. 10 and there is error apparent on the face of the record in this respect. The award in regard to claim No. 10 is liable to be set aside. Issue is decided accordingly.

19. In view of my above findings. I set aside the award in regard to claim Nos. 10 of the petitioner but make the award a rule of the court in regard to claim No. 1 to 9 and 11 and direct that a decree be drawn in terms thereof. The respondent shall also pay to the petitioner interest @ 12% p.a from today till payment.

20. I.A 1880/86 and Suit No. 1443-A of 1985 stand decided accordingly.

Order accordingly.