Union Of India v. Pam Development Pvt. Ltd. .

Aniruddha Bose, J.:— The present appeal before us is against a judgment of an Hon'ble Single Judge of this Court rejecting an application filed under Section 34 of the Arbitration and Conciliation Act, 1996 (the Act) for setting aside an award made and published by Sri Satyabrata Mitra, a retired judge of this Court. The appellant before us is Union of India, who had entered into an agreement with the respondent for the purpose of construction of an industrial covered loco shed and certain allied works at a place close to Calcutta, being Santra gachi. The respondent had entered into the agreement after being successful in a tender floated by the railway administration, being a department of the appellant.

2. The agreement contained an arbitration clause being Clause 64 of the general conditions of contract, the text of which is reproduced below:—

“64(3)(a) ARBITRATION: Matters in question, dispute or difference to be arbitrated upon shall be referred for decision to—

3(a)(i) A sole Arbitrator who shall be the General Manager or a Gazetted Railway Officer nominated by him in that behalf in cases where the claim in question is below Rs. 5,00,000/- (Rupees Five lakhs) and in cases where the issues involved are not of a complicated nature. The General Manager shall be the sole Judge to decide whether or not the issues involved are of a complicated nature.

3(a)(ii) Two Arbitrators who shall be (Gazetted Railway Officers of equal status to be appointed in the manner laid in Clause 64(3)(b) for all claims of Rs. 5,00,000/- (Rupees Five lakhs) and above, and for all claims irrespective of the amount of value of such claims if the issues involved are of a complicated nature. The General Manager shall be the sole Judge to decide whether the issues involved are of a complicated nature or not. In the event of the two Arbitrators being divided in their opinions the matter under disputes will be referred to an Umpire to be appointed in the manner laid down in Clause 3(b) for his decision.

3(a)(iii) It is a term of this contract that no person other than a Gazetted Railway Officer, should act as an Arbitrator/Umpire and if for any reason, that is not possible, the matter is not to be referred to Arbitration at all.

3(a)(iv) In cases where the claim is up to Rs. 5,00,000/- (Rupees Five lakh), the Arbitrator(s)/Umpire appointed, as the case may be shall give the award on all matters referred to arbitration indicating therein break-up of the sums awarded separately 1 on each individual item of dispute. In cases where the claim is more than Rs. 5,00,000/-(Rupees Five lakh), the Arbitrator(s)/Umpire so appointed, as the case may be shall given intelligible award (i.e the reasoning leading to the award should be stated) with the sums awarded separately on each individual item of dispute referred to arbitration.

3(b) For the purpose of appointing two arbitrators as referred to in sub-clause (a)(ii) above, the Railway will send a panel of more than three names of Gazetted Railway Officers of one or more departments of the Railway to the contractor who will be asked to suggest to the General Manager one name out of the list for appointment as the contractor's nominee. The General manager, while so appointing the contractor's nominee, will also appoint a second arbitrator as the Railway's nominee either from the panel or from outside the panel, ensuring that one of the two arbitrators so nominated is invariably from the Accounts Department. Before entering upon the reference the two arbitrators shall nominate an Umpire who shall be a Gazetted Railway Officer to whom the case will be referred to in the event of any difference between the two arbitrators. Offices of the Junior Administrative grade of the Accounts Department of the Railway shall be considered as of equal status of the Officers in the intermediate administrative grade of other departments of the Railway for the purpose of appointment as arbitrators.”

3. The Arbitrator in the present appeal was appointed by the Hon'ble Chief Justice of this Court in exercise of his power under Section 11(6) of the Act. The Arbitrator had awarded a sum of Rs. 74,95,177 (Rupees Seventy four lacs ninety five thousand one seventy seven) together with interest at the rate of twelve per cent, per annum from 19th, April, 1994 till the date of the award within 28th Feb., 2002 and in default thereof the Railway Authorities were directed to pay further interest on the sum awarded at the rate of twelve per cent, per annum from the date immediately following the date of the award till payment. Under the head “cost”, a sum of Rs. 2,44,082 (two Lac forty four thousand eighty two) was awarded. The award was signed and made on 25th January, 2002. The break-up of the amount awarded against individual claims is reproduced below:

“1. For Idle Labour Declined 2. For Idle equipment Declined 3. For Idle on site overhead beyond the Stipulated period Rs. 6,01,000/- Allowed 4. For Idle off site overhead Declined 5. For Loss of Profit 14,80,740.00 allowed 6. For escalation Rs. 10,75,180.00 allowed 7. For miscellaneous infractuous Expenditure Rs. 66,070.00 + Rs. 1,88,620.00) Rs. 2,54,690.00 Rest of the claim Declined 8. For work done but not paid for Rs. a) Scheduled Item Rs. 12,27,362.00 allowed b) Non-scheduled Item Rs. 7,45,281.00 allowed c) Scheduled Items suffering variation In excess of 25% Rs. 14,16,909.00 Allowed 9. For refund of Security Deposit Rs. 3,93,915.00 allowed Total 74,95,177.00 10. Interest as hereinafter provided Cost of the arbitration proceedings being 57.7% of success Rs. 2,44,082.00 Allowed.

4. Against the said award an application under Section 34 was taken out before an Hon'ble Single Judge of this Court assailing the awad on various grounds including the jurisdiction of the Arbitrator to adjudicate upon the dispute and make the award. On the latter issue, the case of the appellant has been that under the agreement, the Arbitration Clause also specified manner in which an Arbitrator was to be appointed and the qualification for the Arbitrator. The Arbitrator who was appointed by this Court under Section 11(6) of the Act did not meet such requirements. The other grounds of challenge to the said award inter alia were that the learned Arbitrator had allowed claims on “excepted matters” and further he lacked jurisdiction to award interest there being a positive exclusion clause on award of interest in the said agreement. Then it has been alleged that claims of the respondent for non-scheduled works were allowed which ought not to come within the scope of the arbitration and are contrary to the agreement. In course of the arbitration proceeding a counter claim was made by the appellant which was rejected.

5. In the impugned order, the Hon'ble Single Judge of this Court rejected the application under Section 34 of the Act, holding against the Appellant/petitioner on all these points. On the issue of composition of the Arbitral Tribunal and award of compensation on excepted matter, the Hon'ble Single Judge held:

“Section 16 of the Act contemplates that Arbitral Tribunal is competent to rule on its own jurisdiction including ruling on any objection with respect to the existence or validity of the Arbitration agreement. However, such plea that the Arbitral Tribunal does not have Jurisdiction shall be raised not later than the submission of the statement of defence. The plea that the Arbitral Tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the Arbitral proceedings.

Admittedly, in the case in hand, neither in the statement of defence nor in the counter claim the petitioner took the plea that the constitution of the Arbitral Tribunal was not valid nor the petitioner raised the plea, during the arbitral proceedings, that the learned arbitrator was exceeding the scope of his authority in considering excepted matters.”

6. On the aspect of award of interest also, the Hon'ble Single Judge following two decisions of the Hon'ble Supreme Court being The Board Of Trustees For The Port Of Calcutta v. Engineers-De-Space-Age, AIR 1996 SC 2853 and Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa v. N.C Budharaj (Dead) by L.Rs, (2001) 2 SCC 721 : (AIR 2001 SC 626), as well as a Division Bench judgment of the Hon'ble High Court of Andhra Pradesh, N.G Gunani v. The Union of India, 1996 (4) Andh LT 1046 declined to interfere with the award on the issue of grant of interest.

7. The same issues have been raised before us also and we propose to deal first with the question of the jurisdiction of the Arbitration Tribunal vis-a-vis its composition as this issue goes to the very root of the present proceeding. The argument of the appellant on this point is that the award is a nullity as the reference itself is void being contrary to the agreement. For this purpose we have been taken through the provisions of clause 64(a)(3)(iii) which stipulates that no person except the Railway officers of stipulated rank can act as Arbitrator(s)/Umpire and if for any reason the same is not possible, the matter was not to be referred to arbitration at all.

8. In the present appeal the existence of the Arbitration clause itself is not disputed. The contention of the appellant is that none could be appointed as Arbitrator who do not meet the requirement as contemplated in Clause 64 and if the same was not complied with, there ought not to have been any reference at all. On behalf of the respondent it has been submitted that the respondent had duly demanded the Arbitration before the designated officers of the Railways and when the Railways failed to appoint any officer within the stipulated time, the respondent had applied before this Court for appointment of an Arbitrator.

9. In support of his case the learned counsel for the appellant has pleaded that the proceeding before the Arbitrator and the subsequent award was nullity, vitiated under the principles of coram non-judice. The authorities relied on by Mr. Pal learned Senior Advocate for the appellant on this point are Sunder Dass v. Ram Parkash, (1977) 2 SCC 662 : (AIR 1977 SC 1201), Sushil Kumar Mehta v. Govind Ram Behra (Dead) Through his L.Rs (1990) 1 SCC 193, Chiranjilal Shrilal Goenka v. Jasjit Singh, (1993) 2 SCC 507 : (1993 AIR SCW 1439), A. Mohammad Yunus (Dead) by L.Rs v. Food Corporation of India, 2000 (2) Arbi LR 2 (SC), Md, Army Welfare Housing Organisation v. Sumangal Services (P) Ltd.., (2003) 3 Arbi LR 361 : (AIR 2004 SC 1344) an unreported judgment of the Hon'ble Supreme Court passed in Civil Appeal No. 2053/1999 in the case of Union of India v. M.P Gupta decided on 5th February, 2004 (reported in 2005 AIR SCW 3389).

10. The decision in the cases of Chiranjilal Shrilal Goenka, (1993 AIR SCW 1429) (supra) Sushil Kumar Mehta (1990) 1 SCC 193) (supra) & Sunder Das (AIR 1977 SC 1201) supra) relate to orders passed under Indian Succession Act 1925, Haryana Urban (Control of Rent and Eviction Act) 1973 and Delhi Rent Control Act 1958 respectively and these authorities have been relied on by Mr. Pal for the proposition that a decree or order passed without jurisdiction is a nullity and could be challenged at any stage. The other decisions on which reliance was placed all related to proceedings under the Arbitration Act, 1940 (1940 Act). In the decision of the Hon'ble Supreme Court in the cases of A. Mohammed Yunus (2000 (2 Arbi LR 2) (supra) and M.P Gupta (2005 AIR SCW 3389) (supra), provisions similar to Clause 64 of the agreement came up for interpretation. In the case of M.P Gupta, appointment of Arbitrator who did not meet the qualification contemplated in the agreement was challenged at the initial stage, and the railway authorities succeeded before the Hon'ble Supreme Court in having the appointment of the Arbitrator set aside. In the case of A. Mohammed Yunus (supra) award made by the Arbitrator who was not appointed in terms of the agreemet was found to be an award made by quorum-non-judis. Both these decisions, however, relate to proceedings uder Arbitration Act, 1940. Similarly, in the case of M.D Army Welfare Housing Organisation (AIR 2004 SC 1344) (supra), it was held that an order made by the arbitrator, who did not have the authority under the law to pass such an order, was vitiated under the principle of coram non-judice, and would be held to be a nullity. This case also arose out of proceedings under the 1940 Act.

11. The learned counsel for the respondent however, has contested the case made out by the appellant on this count mainly on two grounds. Firstly, he has contended that the provision of Section 4 of the ACA 1996 would be squarely applicable in the present case as before the Arbitral Tribunal this point was not taken and the appellant participated in the proceeding all along without raising any jurisdictional dispute on the authority of the Arbitrator to determine the issues. Secondly, it has been submitted by the learned counsel for the respondent that all the disputes which were adjudicated upon by the Arbitrator were referred to him by an Hon'ble Single Judge of this Court by an order dated 4th March, 1998 in A.P No. 1 of 1997 (being the application under Section 11) and the Arbitrator derived his authority to determine the subject-dispute from this Court only. The order dated 4th March, 1998 was not challenged in any forum.

12. In support of his case on this issue, the learned counsel of the respondent relied on the decision of the Hon'ble Supreme Court in the case of Naryan Prasad Lohia v. Nikunj Kumar Lohia, (2002) 3 SCC 572 : (AIR 2002 SC 1139) Prasun Roy v. The Calcutta Metropolitan Development Authority, AIR 1988 SC 205, two unreported decisions of the Hon'ble Division Bench of this Court (A.P.O No. 24) arising out of A.P No. 197 of 1996 Union Of India… v. Shakambari & Co. & Ors.… delivered on September 19, 2001 and APOT No. 557 of 2002 arising out of AP No. 397 of 1997 delivered on 23rd February 2004, Krishna Kumar v. Union of India (2004 (23) Ind LD 438) and Union of India, and Pawandas (Pawan Kumar) Pvt. Ltd., (2003) 3 Cal LT 342 (HC).

13. We agree with the submissions on proposition of law advanced by the learned counsel for the appellant that if an order is nullity for want of jurisdiction, the same can be challenged at any stage. The decisions of the Hon'ble Supreme Court in cases of Chiranjilal (1993 AIR SCW 1439) (supra), Sushil Kumar ((1990) 1 SCC 193) (supra) and Sunder Dass (AIR 1977 SC 1201) as also Sikkim Subba Associates v. State Of Sikkim (2001) 5 SCC 629 : (AIR 2001 SC 2062) which have been relied on by the appellant are all authorities for this proposition. In the present case, however, we are to see if the arbitrator inherently lacked jurisdiction, which would have rendered his award, or any step taken by him to be nullity.

14. In our opinion, it is not so. The main challenge thrown on this aspect was that the Arbitrator was not Gazetted Railway Officer, and that by itself rendered any step taken by him to be a nullity.

15. In a similar situation in the case of Union Of India… v. Shakambari & Co. & Ors.… (supra), an Hon'ble Division Bench had been pleased to dismiss an appeal, sustaining the order of an Hon'ble Single Judge rejecting an application under Section 34 in which an award was assailed on the ground that composition of the Tribunal was not proper. In the case of Krishna Kumar v. Union of India (2004 (23) Ind LD 438) (supra), we have held that the Hon'ble Chief Justice is not strictly bound to appoint an Arbitrator who must have a qualification as agreed upon between the parties, and therefore, if the Arbitrator appointed by the Hon'ble Chief Justice does not have the qualification, his appointment would not be rendered invalid.

16. These authorities thus sustain the argument of the respondent that the Arbitrator in the present case, appointed by the Hon'ble Chief Justice was not without the authority to adjudicate on the subject dispute. This, coupled with the fact that the authority of the arbitrator was not challenged in course of the proceeding and the appellant had participated in the proceeding all along without raising any objection, in our opinion saves the jurisdiction of the Arbitrator. The four decisions of the Hon'ble Supreme Court relied on by the learned counsel for the appellant, being Union of India v. M.P Gupta (2005 AIR SCW 3389) (supra), A. Mohammed Yunus (2000 (2) Arbi LR 2) (supra), M.D Army Welfare Housing Organisation (AIR 2004 SC 1344) (supra) and Sikkim Subba Associates (AIR 2001 SC 2062) (supra) pertained to Arbitration Act, 1940, which did not have a provision similar to Section 4 of the ACA, 1996. In the case of M.P Gupta, jurisdictional point appeared to have been taken at the initial stage of appointment. The aspect of long participation in the proceeding does not appear to have been in issue in the three other decisions also. On the other hand, in the case of Prasun Roy (AIR 1988 SC 205) (supra), the Hon'ble Supreme Court while dealing with an appeal under the Arbitration Act, 1940, found the principle of acquiescence by long participation in a proceeding to be a legitimate defence against challenge to the Arbitrator's authority on jurisdictional ground. In the case of Narayan Prasad Lohia (AIR 2002 SC 1139) (supra), being a case arising out of ACA 1996, it has been held (Para 19):

“In our view. Section 34(2)(a)(v) cannot be read in the manner as suggested. Section 34(2)(a)(v) only applies if “if the composition of the Arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties.” These opening words make it very clear that if the composition of the Arbitral Tribunal or the arbitral procedure is in accordance with the agreement of the parties, as in this case, then there can be no challenge under this provision. The question of “unless such agreement was in conflict with a provision of this Part” would only arise if the composition of the Arbitral Tribunal or the arbitral procedure is not in” accordance with the agreement of the parties. When the composition or the procedure is not in accordance with the agreement of the parties then the parties get a right to challenge the award. But even in such a case the right to challenge the award is restricted. The challenge can only be provided the agreement of the parties is in conflict with a provision of Part 1 from which the parties cannot derogate. In other words, even if the composition of the Arbitral Tribunal or the arbitral procedure ts not in accordance with the agreement of the parties but if such composition or procedure is in accordance with the provisions of the said Act, then the party cannot challenge the award………..”

17. We are thus in agreement with the decision of the Hon'ble single Judge on this issue. In our opinion, at this stage, the award cannot be assailed on the ground that the composition of the Arbitral Tribunal was not proper. The Arbitrator did not lack jurisdiction to enter upon reference and adjudicate on the dispute and in our opinion his award is not a nullity on this ground.

18. This takes us to the second ground of challenge, which also touches upon the jurisdictional issue. Learned counsel for the appellant has submitted that certain claims which have been allowed by the Arbitrator which were kept beyond the scope of Arbitration, and award under these heads ought to be set aside.

19. It is the submission of the learned counsel for the appellant that amount awarded under the heads “Idle on site overhead,” “Loss of Profit,” “Miscellaneous expenditure” (being towards excess interest on mobilisation, and sixty four Neo Prene bearings) is against public policy, being contrary to the terms of contract. As regards claim allowed against the item “Escalation”, the case of the Appellant is that the contract provides a ceiling on this amount that could be awarded and the sum awarded has gone beyond the limit imposed by the contract.

20. In respect of amount awarded under the heads scheduled items and non-scheduled items, the appellant's submission on the latter is that the contract does not make provision for payment for items which have not been recorded in the Joint Measurement Book, and on award for “scheduled items”, the case of the appellant is that the Arbitrator had wrongly construed the terms of the Agreement. Certain amount awarded under the head “variation in excess of 25% has also been assailed on the ground that payment for these amounts have already been made. The Arbitrator's decision to allow Refund of Security Deposit has been argued to be contrary to the terms of the Agreement. It is the contention of the appellants that amount awarded against these claims ought to be set aside, the same being contrary to the terms of contract, and hence against Public Policy.

21. In support of his argument that the impugned award ought to be set aside for claims being allowed under these heads, learned counsel for the appellant relied on two decision of the Hon'ble Supreme Court, being State Of Maharashtra v. Digambar., AIR 1979 SC 1339, Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises, (1999) 9 SCC 283 : (AIR 1999 SC 3627), and a decision of the Hon'ble High Court of Andhra Pradesh, being State of Andhra Pradesh v. Associated Engineering Enterprises, Hyderabad, AIR 1990 AP 294. In addition, the decision of the Hon'ble Supreme Court in the case of Sikkim Subba Associates has also been relied on by the appellant.

22. Relying on the decision in the case of Rajasthan State Mines & Minerals Ltd. (AIR 1999 SC 3627) (supra), he has submitted that the Arbitrator had acted in excess of his Jurisdiction by making award in respect of claims relating to heads which were prohibited under the contract and thereby a departure was made from the terms of contract, which rendered the award without jurisdiction. The decision in the case of State Of Maharashtra v. Digambar. (AIR 1979 SC 1339) was relied on by him to demonstrate that withholding of security deposit was proper, and allowing claim on this head was contrary to law. The case of State of Andhra Pradesh v. Associated Engineering Enterprises (AIR 990 AP 294) (supra) was relied on by him in support of his argument that award of compensation on delay in delivery of work site ought not to be granted in the absence of proper notice to claim for compensation.

23. Learned Advocate for the respondent on the other hand has submitted that the disputes under these heads were specifically referred to the Learned Arbitrator by the above-referred order of this Court. In course of the arbitration proceeding, at no point of time objection was taken by the Appellant as regards the authority of the Arbitrator to decide on these issues. He has relied on the decision of the Hon'ble Supreme Court in the case of J.G Engineer's Pvt. Ltd. v. Calcutta Improvement Trust, (2002) 2 SCC 664 : (AIR 2002 SC 766) in support of this contention. Two other authorities on which he has placed reliance on is the case of P.M Paul v. Union Of India ., AIR 1989 SC 1034 and Metro Electric Co. v. Delhi Development Authority, AIR 1980 Delhi 266, for the proposition that allowing claim on escalation was permissible in an Arbitration proceeding. The other decisions which have been referred to by him are Chairman and MD, NTPC Ltd. v. Reshmi Construction, Builders & Contractors, (2004) 2 SCC 663 : (AIR 2004 SC 1330); Food Corporation of India v. Joginderpal Mohinder Pal, AIR 1989 SC 1263; Municipal Corporation of Delhi v. Jagan Nath Ashok Kumar, AIR 1987 SC 2316 and General Manager, Northern Railway v. Sarversh Chopra (2002) 4 SCC 45 : (AIR 2002 SC 1272).

24. The respondent's submissions on the issue of “excepted matters” rest on two main planks. Firstly, he submitted that the disputes in the present case were referred to the Arbitrator by this Court in the order dated 4th March, 1998 in A.P No. 1 of 1997 (Palm Development Pvt. Ltd. v. Union of India). We have been taken through the signed copy of the minutes of this order, from where it appears that reference was made as regards disputes enumerated in the Annexure “E” to the petition (A.P No. 1 of 1997). Learned counsel for the respondent submitted that the statement contained in the Annexure “E” of the statement contained all these disputes. His argument is that the Arbitrator in the present case derived his power or authority from this Court, and could not be fettered by the terms of contract.

25. The second plank of his argument is that the authority of the Arbitrator to decide on excepted matters is primarily an issue relating to his jurisdiction, and the appellant having participated in the proceeding without raising dispute about arbitrability of these issues had already waived its right to dispute arbitrability of these claims and in an application under section 34, objection on this ground could not be raised for the first time.

26. We have considered the authorities relied upon by the learned counsel for the appearing parties and their rival submissions. In our opinion, in the given facts, the impugned award does not warrant interference on this ground. The decision of the Hon'ble Supreme Court in the case of Rajasthan Mines and Minerals Ltd. (AIR 1999 SC 3627) (supra) involved a factual context different from that of the present case, where the reference to the arbitrator was specifically with regard to the dispute arising between the parties on the basis of the concerned agreement. For this purpose, para 23 of the said judgment is relevant and the same reproduced below (para 22 of AIR):—

“It is settled law that the arbitrator is the creature of the contract between the parties and hence if he ignores the specific terms of the contract, it would be a question of jurisdictional error which could be corrected by the Court and for that limited purpose agreement is required to be considered. For deciding whether the arbitrator has exceeded his jurisdiction reference to the terms of the contract is a must. It is true that arbitration Clause 74 is very widely worded, therefore, the dispute was required to be referred to the arbitrator. Hence the award passed by the arbitrator cannot be said to be without jurisdiction but, at the same time, it is apparent that he has exceeded his jurisdiction by ignoring the specific stipulations in the agreement which prohibit entertaining of the claims made by the contractor. In the letter dated 5-2-1985 appointing the sole arbitrator, it has been specifically mentioned that agreement dated 14-5-1981 was executed by and between the parties and that the contractor has raised the claims as mentioned in the letter dated 7-9-1983 which was denied by the Company and at the request of the contractor, the sole arbitrator was appointed to adjudicate the claims made by the contractor vide his letter dated 7-9-1983. This reference to the arbitrator also clearly provides that reference was with regard to the dispute arising between the parties on the basis of the agreement dated 14-5-1981. It nowhere indicates that the arbitrator was empowered to adjudicate any other claims beyond the agreement between the parties. No such issue was referred for adjudication. Even the arbitrator in his interim award has specifically stated that he was appointed to adjudicate the disputes between the parties arising out of the agreement dated 14-5-1981.”

27. In the present case it has been submitted that the disputes on the basis of which claims were made were specifically referred to the Arbitrator. In a decision delivered later in point of time, in the case of J.G Engineer's Pvt. Ltd. (AIR 2002 SC 766) (supra), controversy relating to excepted matter came up for consideration before the Hon'ble Supreme Court, and it was held by the Hon'ble Supreme Court.

“12 The issue of termination of the contract in question, on the facts under consideration before us, does not relate to the jurisdiction of the arbitrator. Without going into the scope of Clause 1.9 of the Information and instructions to Tenders or that of Clause 15 of the contract and assuming that issue of termination of contract can be brought within the scope of the said clauses and, thus, made an excepted matter but that would depend upon the fact whether the Engineer's certificate under Clause 1.9 has been issued or not. Therefore, specific plea had to be taken that such a certificate was issued and, therefore, the aspect of termination was not arbitrable. As already noticed, no such fact was pleaded or contention urged in the counter-statement of facts. In this view, it is not necessary to decide whether the issue of termination of the contract could be brought within the ambit of the excepted matter or not or that the Engineer's certificate could be conclusive only as to the quality or measurement of the work done.

13. The Division Bench was, thus, not correct in coming to the conclusion that the fundamental terms of the agreement between the parties prohibited the arbitrability of the excepted matters. The first ground on the basis of which the judgment of the learned single Judge was reversed is thus, hot sustainable.”

28. In the case of Rajasthan Mines and Minerals Ltd. (AIR 1999 SC 3627) (supra), it has been held that the question as to whether an arbitrator ignores specific terms of the contract would be a question of “jurisdictional error”.

29. There are a large body of authorities, some of which we have referred to in the earlier part of this judgment, for the proposition that the question of jurisdictional error should be raised at the threshold. Admittedly, in the present case, no objection was taken either by way of filing an application under Section 16 or even in the counter-statement. Accordingly, in our opinion, deliberation of these disputes before the Arbitrator and his award on the same cannot be held to be a nullity, on the ground of being contrary to the provisions of the Act. Thus, we are of the view that the ratio of the decisions of the Hon'ble Supreme Court in the cases of Narayan Prasad Lohia (AIR 2002 SC 1139) (supra) and J.G Engineer's (AIR 2002 SC 766) (supra) are applicable in the present case.

30. In the case of Sarvesh Chopra (AIR 2002 SC 1272) (supra), objection as regards arbitrability was in issue at the stage when a petition under Section 20 of the 1940 Act was filed as regards arbitrability of the claims. The factual context of that case is thus different from the one which we are faced with. In our opinion, the arbitrability of these issues in essence, are issues relating to jurisdiction of the Arbitrator, and if these issues are not raised at the threshold, whether in course of the proceeding itself or by instituting an action under Section 16 of ACA, 1996, the appellant shall be deemed to have waived its objection on this ground. We, thus agree with the Hon'ble single Judge on this aspect of the controversy also.

31. Argument was also advanced by the learned Advocate of the parties on the aspect of construing “excepted matters”, but in view of our above holding, we do not consider it necessary to decide on that aspect of the controversy. That would inevitably require analysing the individual claims in the backdrop of the contract, which we decline to do having regard to the legislative mandate as regards scope of jurisdiction of the Court under Section 34 of the ACA Act, 1996.

32. On the point of interest, learned counsel for the appellant argued that clause 16(2) of the General Conditions of Contract prohibits grant of interest and in view of such prohibitory clause in the contract, award of interest was illegal, being contrary to the provisions of Section 31(7) of the ACA, 1996. In the award, interest has been granted from 19th April, 1994. The Arbitrator found that contractual provision barring payment of interest had come to an end after “the expiration of the stipulated period as on 18-4-1994.” Thus the amounts awarded as interest covers pre-reference as well as post-reference and post-award period.

33. The appellant has contested the award of interest mainly on two grounds Firstly, it has been submitted that award of interest was contrary to what was agreed upon by and between the parties there being a specific bar on payment of interest in Clause 16(2) of the GCC, which is reproduced below:—

“No interest will be payable upon the earnest money or the security deposit or amounts payable to the Contractor under the contract, but the Government Securities deposited in terms of sub-clause (1) of this clause will be repayable with interest accrued thereon.

34. Interest on the said Government Security will be drawn by the Railway Administration and credited to the contractor and the contractor shall not be entitled to claim any other sum by way of interest or profit on the said Security Deposit than the amount actually drawn by the Railway Administration from the Government.”

35. The second ground of challenge to the award of interest was that interest on unliquidated amount is not payable. On this issue, learned Advocate for the appellant relied on the decisions of the Hon'ble Supreme Court in the cases of Union Of India v. A.L Rallia Ram, AIR 1963 SC 1685 : Union Of India v. Watkins Mayor & Co. and Co. AIR 1966 SC 275 : Union of India v. W.P Factories, AIR 1966 SC 395 : Executive Engineer Dhankanal v. N.C Budharia, (2001) 2 SCC 721 : (AIR 2001 SC 626), an unreported decision of the Hon'ble Gauhati High Court in Arbitration Appeal No. 4/2001 delivered on 19th June, 2002 in the case of Union of India v. Major V.P Nnhawan (Retd.)

36. The submission of the learned counsel-for the respondent on this point has been that the Arbitrator has awarded interest in this matter on construing the different clauses of the agreement and the Arbitrator made the award only upon coming to a finding that award of interest was permissible in this case. He further contended that the Arbitrator's power to award interest on unliquidated damages could not be taken away after coming into operation of the Interest Act, 1978 and in the subject-dispute notice as stipulated in the Interest Act was duly issued. The judicial authorities relied on by the learned counsel for the respondent on this issue are Firm Madanlal Roshanlal v. Hukumchand Mills Ltd., AIR 1967 SC 1030. The State Madhya Pradesh v. Saith and Skelton (P) Ltd., AIR 1972 SC 1507; P.M Paul v. Union Of India ., AIR 1989 SC 1034; Secretary, Irrigation Department, Govt., of India v. G.C Roy, AIR 1992 SC 732; Ram Nath International Construction Pvt. Ltd. v. State Of U.P., (1997) 11 SCC 645 : (AIR 1998 SC 367); N.G Gunani v. Union of India, 1996 Supp Arbi LR 566 as also the decision of the Hon'ble Division Bench of this Court in the case of Board of Trustees for the Port of Calcutta v. Mahalakshmi Construction, 2002 (1) Arbi LR 656 (Calcutta) (DB) (supra).

37. The decision of the Supreme Court in the case of Union Of India v. Watkins Mayor & Co. & Co., (AIR 1966 SC 275) (supra) is for the proposition that interest for unliquidated amount under the Interest Act, 1839 ought not to be granted. The decision of the Hon'ble Supreme Court in the case of Union of India v. W.P Factories (AIR 1966 SC 395) (supra) was referred to for the proposition that in the absence of any usage or contract, award of interest by way of damages was not permissible. Thus, no interest could be awarded in the award for the pre-reference period. The decision of the Hon'ble Supreme Court in the case of Union of India v. Rallia Ram (AIR 1963 SC 1685) (supra) was in the same line. The judgment of the Constitution Bench of the Hon'ble Supreme Court in the case of Executive Engineer, Dhenkanal (AIR 2001 SC 626) (supra) is again an authority for the proposition that the Arbitrator's power to award interest for the pre-reference period is subject to arty contrary stipulation or prohibition in the contract.

38. We find from the authorities cited before us, most of which are under the 1940 Act, that the Arbitrator is not fettered by the contract to award interest for the post-reference (akin to interest pendente lite) and post-award period. For pre-reference period, interest can be awarded only if there is no prohibition or contrary stipulation in the contract. As regards interest on unliquidated damage, the provisions of Interest Act, 1978 would come into operation.

39. In this appeal, where we are dealing with a case to which ACA, 1996 is applicable. Section 31(17) of the Act provides the basic guideline for grant of interest. Section 31(7)(a) of the ACA 1996 is the relevant provision, which we reproduce below:—

“Section 31(7)(a). Unless otherwise agreed by the parties, where and insofar as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.”

40. In view of such express provisions of Section 31(7)(a), in our opinion the Arbitrator has wide discretion to award interest. We are also of the view that interest can be awarded by the Arbitrator for unliquidated amount also. Provided of course, the parties have not agreed otherwise. The statute confers power on the Arbitrator to include interest in the sum for which award is made. All it requires under the ACA 1996 is that arbitral award is for payment of money, to empower the Arbitrator to grant interest. The distinction between unliquidated amount and liquidated sum for the purpose of determining the Arbitrator's power to award interest thus no more survives in view of such express provisions of Section 31(7)(a) of the ACA 1996.

41. Moreover, it appears from the award that notice under the Interest Act, 978 was issued by the claimant/respondent, Accordingly, in our opinion, challenge to the award on the ground that interest was awarded on unliquidated amount is not sustainable.

42. Interest awarded in the award has, as its component, interest on pre-reference, post-reference and post-award period. So far as interest on pre-reference period is concerned, the statute permits its exclusion by agreement between the parties. In construing the applicability of Clause 16(2), the Arbitrator has proceeded in this matter on the reasoning that on expiry of the contract, clause 16(2) of the agreement also does not survive. This leaves with the Arbitrator the power conferred under Section 31(7)(a), sans the exclusion provision by agreement that prohibits payment of interest incorporated in that section itself.

43. We find nothing wrong or illegal in such reasoning. Moreover, if we are to embark upon a legal enquiry as regards applicability of clause 16(2) of GCC after 18th April, 1994 upon the parties, we would be required to probe into the manner in which the Arbitrator has construed the contract. If we do so, we shall be exercising jurisdiction beyond that vested in us under Section 34 of ACA 1996.

44. For the post-reference period, the authorities are uniform that Arbitrator has power to award interest. The question that arises here is as to whether such power can be excluded by an agreement between the parties, and whether clause 16(2) constitute such an agreement. The Arbitrator has found that the agreement expired on 18th April, 1994 and he proceeded in the matter on the basis that after such expiry, the provisions of clause 16(2) does not survive. On this aspect, it has been held in a series of decisions delivered by the Hon'ble Supreme Court, under the 1940 Act, some of which we have referred to and followed while delivering this judgment, the Arbitrator has as much power as a civil Court to award interest for the post-reference period. In the light of the factual context of the present case, we would like to decide whether award of interest for the post-reference period was legally valid, assuming Clause 16(2) of the GCC still remains operative.

45. In our opinion, in order to decide as to whether an Arbitrator has been divested of his jurisdiction to award interest for the post-reference period by an agreement, we would have to analyse the manner in which the terms have been agreed upon. In the case of Board Of Trustees For The Port Of Calcutta v. Engineers-De-Space-Age (AIR 1996 SC 2853) (supra) interest prohibition clause ran as follows (para 2 of AIR):—

“No claim for interest will be entertained by the Commissioners with respect to any money or balance which may be in their hands owing to any dispute between themselves and the contractor or with respect to any delay on the part of the Commissioners in making interim or final payment or otherwise.”

46. This clause was held to be binding on the Commissioners, but not on the Arbitrator. In the case of N.G Gunani v. The Union of India (1996 (4) Andh LT 1046) (supra), a similar clause was construed by the Hon'ble Court of Andhra Pradesh, and such a clause was held to be a bar on the departmental officers to allow interest, but such a provision, it was held, did not restrict the power of the Arbitrator to award interest.

47. On this point, we are of the view that in the event the parties to an agreement intend to denude the Arbitrator of his power to award interest for the post-reference period, such prohibition must be incorporated in the “Arbitration contract” itself, which is often referred to as arbitration clause in legal parlance. The decision of an Hon'ble Division Bench of this Court in the case of Board of Trustees for the Port of Calcutta v. Mahalakshmi Constructions (2002 (1) Arbl LR 656) (supra), while considering legality of an award to which ACA 1996 was applicable held that unless the arbitration-agreement itself excepted payments-under certain heads, the Arbitrator could not be fettered by an agreement between the parties.

48. We are in agreement with the ratio of the judgments of this Court in the case of Board of Trustees for the Port of Calcutta v. Mahalakshmi Constructions (supra) and that of the Hon'ble High Court of Andhra Pradesh in the case of N.G Gunani (1996 (4) Andh LT 1046) (supra). In the present case, the interest prohibition clause admittedly was incorporated in the GCC, but not in the Arbitration Clause forming the Arbitration Contract. In our opinion, a plain reading of the contract does not reflect intention of the parties to denude the power of the Arbitrator to award interest. Clause 16(2) of the GCC has not been included in the list of excepted matters in Clause 63 thereof. It has also not been argued before us the issue of award of interest came within excepted matters. Accordingly, we are of the view that the interest exclusion clause should be held in the present case to be an embargo on the power of the appellant or its officers to award interest, but the Arbitrator's power to award interest has not been curbed in the agreement.

49. We accordingly hold that no illegality was committed by the Arbitrator in awarding interest in the present case. We agree with the Hon'ble Single Judge on this issue also.

50. So far as award of cost is concerned, we find no illegality on the face of the award under these two heads.

51. The appeal is accordingly dismissed.

Aloke Chakrabarti, J.:— 52. I agree.

Appeal dismissed.