Citation Codes

Equivalent Citations

citation codes

Case Number

First Appeal No. 189 of 2005

Attorney(S)

Mr. Ravi Karnavat, Advocate No. 1
Mr. MP Shah, Advocate for the Defendant(s) No. 1
Ms. Kruti M. Shah, Advocate for the Defendant(s) No. 1

Judges

K.S. Jhaveri
G.B. Shah, JJ.

Acts

Clause 16(3) of the General Conditions of Contract read with Section 17 of the Indian Arbitration Act, 1993,
provisions of clause 16(3) of the General Condition of Contract.
Clause 16(3) of the General Condition of Contract,
Section 17 of the Indian Arbitration Act, 1993,
SECTION 29 ARBITRATION ACT

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Smart Summary

Case Summary — Judgment of K.S. Jhaveri, J.

Factual and Procedural Background

The appellant (original opponent) had awarded to the respondent a contract for quarrying, stacking and loading stone ballast, broken stone aggregate, rubble etc. from the Western Railway quarry at Udvada, the estimated contract value being Rs. 55,81,000/-. A Contract Agreement was entered into between the parties. Disputes arose and, pursuant to an order of this Court, Arbitrators were appointed on 30.09.1998.

The Arbitrators issued an award on 22.03.2001 directing the appellant to pay various sums: Rs. 30,00,000/- under various claims and refund the security deposit of Rs. 1,55,000/-. The Arbitrators also awarded Rs. 44,92,800/- with interest at 12% per annum from 26.09.1988 to 22.03.2001. The total award against the appellant is recorded in the opinion as Rs. 76,92,800/-. The respondent filed Civil Miscellaneous (Arbitration) Application No. 22 of 2001 to enforce the award; the appellant filed objections.

The Civil Judge (S.D.), Valsad, by judgment and decree dated 29.07.2004 allowed the application and, as recorded in the opinion, held that the Contractor was entitled to recover an amount the Court below recorded as Rs. 76,43,8000/- with running interest at 12% per annum from the date of filing of the application till realization. The present appeal challenges that judgment and decree.

Legal Issues Presented

Whether the Arbitrators were entitled to award interest (specifically Rs. 44,92,800/-) at 12% per annum for the pre-reference period (from 26.09.1988 to 22.03.2001) on the sum of Rs. 30,00,000/-, in view of Clause 16(3) of the General Conditions of Contract which, as pleaded, provides that "No interest will be payable upon the earnest money and the security deposit or amounts payable to the Contractor under the Contract" (and related language quoted in the opinion).
Whether the trial Court was correct in decreeing the award in terms of the Arbitrators' award, including interest at the rate and for the periods awarded, or whether the Court should have refused to pass decree in terms of the award insofar as interest was concerned (having regard to the Arbitration Act, 1993 provisions such as Section 17 and related principles).

Arguments of the Parties

Appellant's Arguments

The Arbitrators erred in awarding Rs. 44,92,800/- as interest on the Rs. 30,00,000/- award for the pre-reference period from 26.09.1988 to 22.03.2001.
The award of interest was contrary to Clause 16(3) of the General Conditions of Contract, which states that no interest is payable upon earnest money, security deposit or amounts payable to the Contractor under the Contract (except interest on government securities deposited under a sub-clause).
The appellant had specifically raised this point before the trial Court, but the Court below ignored the contention.
The appellant relied on Section 17 of the Indian Arbitration Act, 1993 (quoted in the opinion) and argued that the award is unreasonable and the Court should not have passed a decree in terms of the award, particularly with respect to amounts awarded under claim Nos. 5 and 12.
The appellant sought allowance of the appeal (i.e., relief from the interest portion of the award and the decree as made by the trial Court).

Respondent's Arguments

The respondent supported the impugned judgment and decree and contended that the award of interest by the trial Court was just and proper.
Counsel for respondent relied upon precedent decisions (including Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age and State of Orissa v. B.N. Agarwalla) to contend that an Arbitrator can award interest pendente lite and that courts have roles in determining or confirming such interest when converting an award into a decree.
The respondent also relied upon the decision Union of India v. H.K. Dhruva (2002 (3) Arb. LR 272) and other authorities cited in the opinion to support the contention that the interest awarded was permissible.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age, (1996) 1 SCC 516	The opinion records that this decision (paragraphs 4 and 5) holds that an Arbitrator may award interest pendente lite; a contractual clause prohibiting the Commissioner from entertaining claims for interest does not necessarily prohibit an Arbitrator from awarding interest.	The respondent relied on this authority to support the proposition that the Arbitrator could award interest. The Court considered the authority in the context of competing contract clause language but ultimately found the claim to be contrary to Clause 16(3) of the General Conditions of Contract in this case.
State of Orissa v. B.N. Agarwalla, (1997) 2 SCC 469; AIR 1997 SC 925	The opinion records that this decision distinguishes pre-reference interest (which in many circumstances could not be awarded for periods prior to applicability of the Interest Act or in absence of contractual or legal entitlement) from future interest; it confirms that arbitrators can award future interest and that when an award is filed and a decree is passed the Court under Section 29 of the Arbitration Act can determine interest and rate.	The respondent relied upon this authority. The Court referred to the passages quoted in the opinion (paras 30, 37, 38) concerning limits on pre-reference interest, the arbitrator's jurisdiction to award future interest, and the Court's role under Section 29. Notwithstanding these authorities, the Court found the award in respect of claim No. 12 violated Clause 16(3) and modified the decree accordingly.
Union of India v. H.K. Dhruva, 2002 (3) Arb. LR 272	The opinion records that the respondent relied upon this decision; the opinion does not quote specific passages or state in detail the legal principle drawn from it within the text of the judgment.	The decision was cited and relied upon by the respondent's counsel to support the contention that the interest award was appropriate. The Court noted the reliance but based its decision as set out in the reasoning section on Clause 16(3) read with Section 17 of the Arbitration Act, 1993.
Associated Engineering Company (referred to in quoted passage)	The opinion quotes a passage (from the Board of Trustees case) which mentions paragraphs 26 and 29 of the Associated Engineering Company case as part of a discussion that an Arbitrator remains within jurisdiction to award interest pendente lite; the opinion does not reproduce a full citation for this case.	The referenced extract shows that earlier cases (including Associated Engineering Company) were discussed in the Board of Trustees decision to support the proposition that the Arbitrator was within jurisdiction to award interest. The Court in the present opinion considered such authorities in the aggregate but found Clause 16(3) decisive for claim No. 12.

Court's Reasoning and Analysis

The Court reviewed the award and the submissions of counsel. The key analytical steps, as set out in the opinion, are:

The Court examined the Arbitrators' findings and awards claim by claim. It agreed with the Arbitrators' determinations and amounts awarded under Claim Nos. 1, 3, 5, 9 and 11, finding them "just and proper" after consideration of the material and applicable principles recorded by the Arbitrators.
With regard to Claim No. 12, however, the Court found that the Arbitrators had committed a "gross error" in awarding Rs. 44,92,800/- as interest on the Rs. 30,00,000/- award. The Court concluded that this interest award was contrary to Clause 16(3) of the General Conditions of Contract, which (as quoted in the opinion) provides that "No interest will be payable upon the earnest money and the security deposit or amounts payable to the Contractor under the Contract..." (with a proviso about government securities deposited under a sub-clause).
The Court considered the authorities cited by the respondent (including Board of Trustees and State of Orissa v. B.N. Agarwalla) regarding the arbitrator's power to award interest pendente lite and the court's role under the Arbitration Act. It recognized those principles but placed decisive weight on the contract clause (Clause 16(3)) read together with Section 17 of the Indian Arbitration Act, 1993, as the relevant legal framework in this case.
On that basis—the wording of Clause 16(3) and the Court's duty under Section 17 to pronounce judgment in terms of an award unless there is cause to remit or set aside—the Court accepted the appellant's contention concerning Claim No. 12 and the interest portion of the award.
Accordingly, the Court quashed and set aside the trial Court's judgment and decree only to the extent of the interest awarded under Claim No. 12 (the Rs. 44,92,800/-) and the direction to pay interest at 12% per annum from the date of filing of the application till realization. The Court ordered that interest (to the extent payable) shall be payable only from the date of filing of the application before the Court below until the date of the judgment and decree of the Court below (i.e., up to 29 July 2004).
The Court modified the trial Court's decree to that limited extent and directed that a decree be drawn accordingly.

Holding and Implications

APPEAL PARTLY ALLOWED

Holding:

The impugned judgment and decree dated 29.07.2004 is quashed and set aside insofar as it relates to the amount awarded by the Arbitrators in respect of Claim No. 12 (interest amounting to Rs. 44,92,800/-) and the direction regarding payment of interest at the rate of 12% per annum from the date of filing of the application before the trial Court till realization.
As modified by this Court, interest (to the extent permitted) shall be payable only from the date of filing of the application before the trial Court up to the date of the judgment and decree passed by the trial Court (29 July 2004).
The awards under Claim Nos. 1, 3, 5, 9 and 11 were upheld as "just and proper" by this Court.

Implications:

Direct effect on the parties: the respondent's entitlement to the amounts awarded under Claim Nos. 1, 3, 5, 9 and 11 stands confirmed; the substantial interest component awarded under Claim No. 12 (Rs. 44,92,800/-) is set aside, and the period for which interest may be paid has been curtailed to the date of judgment (29 July 2004) rather than continuing until realization as ordered by the trial Court.
The Court's modification is made on the basis of the express contract clause (Clause 16(3)) read with Section 17 of the Arbitration Act, 1993; the opinion does not purport to lay down a new general principle of law beyond the application of those provisions and the authorities considered. The decision is therefore directed to the facts and contractual provision in this case: no broad new precedent beyond what is discussed and applied in the opinion is claimed.

Decree to be drawn in accordance with the modification directed by this Court.

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Union Of India v. Raveechee & Co.

K.S. Jhaveri, J.:— By way of this appeal, the appellant-original opponent has challenged the judgment and decree dated 29.07.2004 passed by the Civil Judge (S.D.), Valsad, in Civil Miscellaneous (Arbitration) application No. 22 of 2001, whereby the Court below has allowed the said Application.

2. The facts of the case are that the present appellant had given a contract to the respondent of quarrying, stacking and loading stone ballast, broken stone aggregate, rubble etc. from the Western Railway quarry at Udvada at an estimated cost of Rs. 55,81,000/- and thereafter Contract Agreement was entered into between the parties. Since the dispute and differences arose between the parties, the matter came up before this Court and in pursuance of the order of this Court, the Arbitrators were appointed on 30.09.1998 to resolve the dispute between the parties.

3. The Arbitrators passed their award on 22.03.2001 and directed the present appellant to pay an amount of Rs. 30 Lakhs under various claims and refund the security deposit of Rs. 1,55,000/-. The Arbitrators also awarded Rs. 44,92,800/- with interest at the rate of 12% per annum from 26.09.1988 to 22.03.2001. The Arbitrators have awarded total amount of Rs. 76,92,800/- against all claims of the respondent. Against the said award, the respondent-Contractor filed a Civil Miscellaneous (Arbitration) Application No. 22 of 2001. The appellant filed its objections to the aforesaid application. The Court below vide impugned judgment and decree dated 29.07.2004 held that the Contractor is entitled to recover the amount of Rs. 76,43,8000/- with running interest at the rate of 12% per annum from the date of filing of the application till realization. Hence, this appeal.

4. Learned advocate for the appellant mainly contended that the Arbitrators have committed an erred in awarding Rs. 44,92,800/- as interest on the award of Rs. 30 Lakhs excluding the amount of security deposit at the rate of 12% per annum from 26.09.1988 to 22.03.2001. He has drawn our attention to Clause 16(3) of the General Condition of Contract, which reads as under:—

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

5. Learned advocate for the appellant further contended that appellant had filed an application before the Court below and specifically contended that the award of interest is against the provisions of clause 16(3) of the General Condition of Contract. However, the Court below has ignored the same.

6. Learned advocate for the appellant also drawan our attention to Section 17 of the Indian Arbitration Act, 1993, which reads as under:—

“17. Judgment in terms of award. Where the Court sees no cause to remit the award or any of the matter referred to arbitration for reconsideration or to set aside the award, the Court shall, after the time for making an application to set aside the award has expired or such application having been made after refusing it proceed to pronounce judgment according to the award, and upon the judgment so pronounced a decree shall follow and no appeal shall lie upon such decree except on the ground that it is in excess of or not otherwise in accordance with the award.”

7. Learned Advocate for the appellant submitted that the award passed by the Arbitrators is unreasonable and the Court below too committed an error in passing the decree in terms of such unreasonable award. It is further submitted by the learned advocate for the appellant that the Court below ought not to have passed any decree in terms of the award more particularly with respect to the amount awarded under the claim Nos. 5 and 12.

8. By making the above submissions, the learned advocate for the appellant has submitted that this Court may allow this appeal.

9. On the other hand, Ms. Kruti M. Shah, learned advocate for the respondent No. 1 supported the impugned judgment and decree passed by the Court below and submitted the the impugned judgment and decree passed by the Court below is just and proper. She contended that the interest awarded by the Court below is just and proper.

10. In support of her contentions, she relied upon the decision of the Apex Court in the case of Board of Trustees for the port of Calcutta v. Engineers-De-Space-Age, reported in (1996) 1 SCC 516, more particularly paragraph Nos. 4 and 5 and submitted that the Arbitrator can award interest pendente lite. Paragraph Nos. 4 and 5 of the aforesaid decision reads as under:—

“4. We are not dealing with a case in regard to award of interest for the period prior to the reference. We are dealing with a case in regard to award of interest by the Arbitrator post reference. The short question, therefore, is whether in view of sub-clause (g) of Clause 13 of the contract extracted earlier the Arbitrator was prohibited from granting interest under the contract. Now the term in sub-clause (g) merely prohibits the Commissioner from entertaining any claim for interest and does not prohibit the Arbitrator from awarding interest. The opening words ‘no claim for interest will be entertained by the Commissioner clearly establishes that the intention was to prohibit the Commissioner from granting interest on account of delayed payment to the contractor. Clause has to be strictly construed for the simple reason that as pointed out by the Constitution Bench, ordinarily, a person who has a legitimate claim is entitled to payment within a reasonable time and if the payment has been delayed beyond reasonable time he can legitimately claim to be compensated for that delay whatever nomenclature one may give to his claim in that behalf. If that be so, we would be justified in placing a strict construction on the term of the contract on which reliance has been placed. Strictly construed the term of the contract merely prohibits the Commissioner from paying interest to the contractor for delayed payment but once the matter goes to arbitration the discretion of the Arbitrator is not, in any manner, stifled by this term of the contract and the Arbitrator would be entitled to consider the question of grant of interest pendent lite and award interest if he finds the claim to be justified. We are, therefore, of the opinion that under the clause of the contract the Arbitrator was in no manner prohibited from awarding interest pendent lite.

5. Looked at from another point, if there was a dispute as to whether under this term of the contract the Arbitrator was prohibited from awarding interest pendent lite, that was a matter which fell within the jurisdiction of the Arbitrator, as the Arbitrator would have to interpret sub-clause (g) of Clause 13 of the contract and decide whether that clause prohibits him from awarding interest pendent lite. In that case it cannot be said that the Arbitrator had wandered outside the contract to deny to him jurisdiction to decide the question regarding payment of interest pendent lite. Even if we were to accept the contention urged by the learned counsel for the appellant placing reliance on paragraphs 26 and 29 of the Associated Engineering Company case (supra) we think, that the Arbitrator was well within his jurisdiction in awarding interest pendent lite.”

11. She relied upon another decisions of the Apex Court in the case of State Of Orissa v. B.N Agarwalla reported in (1997) 2 SCC 469 : AIR 1997 SC 925, more particularly paragraph Nos. 30, 37, and 38, which reads as under:—

“30. The present appeal is confined only to the award of interest by the arbitrator. As far as pre-reference interest is concerned, in view of the settled legal position, pre-reference interest could not be awarded for the period prior to coming into force of the Interest Act, 1973 specially when the agreement between the parties did not provide for payment or interest. In other words, neither by contract nor under law was the respondent entitled to receive pre-reference interest for the period 1.6.1975 to 10.3.1981 which had been awarded to him. As far as future interest is concerned, it was within the jurisdiction of arbitrator to award the same. The appeal is allowed to the extent that the award of pre-reference interest to the sum of Rs. 68635/- is set-aside and the decree will stand modified accordingly. In appeal arising out of S.L.P. (C) No. 15995 of 1987, an agreement between the parties was entered sometime in the year 1966-67. Work was completed on 31.12.1970 and thereafter the respondent gave notice to the Chief Engineer raising some claims. On 19.10.1976, the Chief Engineer appointed a sole arbitrator. The arbitrator entered upon the reference and thereafter on 12.5.1981 gave an award of Rs. 1.56.073.74/- plus interest @ 7% from 1.4.1971 till the date of payment or decree. The award was made the rule of the Court and the High Court dismissed the appeal filed by the appellant. It is clear from the principle enunciated hereinabove that pre-reference interest could not have been awarded in favour of the respondent in the present case because the Interest Act, 1978 was not applicable and there was no term in the contract and nor was it established that under any law or usage any interest was payable. Applying the ration of decisions of this Court in Abhaduta Jena's case (supra) and other cases, the appeal is allowed to the extent that the award of the arbitrator, insofar as it awards interest for the pre-reference period is set aside. The decree would stand modified accordingly. Parties to bear their own costs.

37. When the arbitrator makes an award, it is not necessary that in every case the award has to be filed in a court and a decree, in terms thereof, is based. It does happen that when a award is made, the party against whom it is made, may accept the award and comply with the same. It is rightly not disputed that from the date of passing of the award, future interest can be awarded by the arbitrator as held by this Court in the cases of Unique Erectors Gujarat (P)Ltd. (supra) and Hindustan Construction Co. Ltd. (supra). The correct procedure which should be adopted by the arbitrator is to award future interest till the date of the decree or the date of payment, whichever is earlier. The effect of this would be that if the award is voluntarily accepted, which may not result in a decree being passed, then payment of interest would be made from the date of award till the date of payment. Where, however, as in the present case, the award is filed in the court and a decree is passed in terms there or, then Mr. Sanyal has rightly contended that it is for the Court to determine under Section 29 of the Arbitration Act as to whether interest should be ordered to be paid and if so at what rate.

38. Under Section 29 of the Arbitration Act. The Court can, even where the arbitrator has awarded interest from the date of the award till the date of payment, disallow interest from the date of the decree or determine a different rate at which the interest is to be paid or confirm the grant of interest as awarded in the award. When the Court does not modify the award with regard to grant of interest from the date of the award upto the date of payment, the effect would be as if the court itself has granted interest from the date of the decree till the date of payment at the rate which was determined by the arbitrator. The future interest would be regarded as having been ordered to be paid under Section 29 of the Arbitration Act when the Court does not modify the award in this respect.”

12. She also relied upon the decision of this Court in the case of Union of India v. H.K. Dhruva, reported in 2002 (3) Arb. LR 272.

13. We have heard the learned advocates appearing for the parties and perused the material on record. As far as the contention of learned advocate for the appellant that the award passed by the Arbitrator is erroneous is concerned, on going through the award, we find that the Arbitrator after considering all the material on record and the principle which was applicable in the case, awarded amount under Claim Nos. 1, 3, 5, 9 and 11. We are in complete agreement with the findings recorded by the Arbitrators. Therefore, we are of the considered opinion that the amount awarded by the Arbitrators under Claim Nos. 1, 3, 5, 9 and 11 are just and proper. However, we find that the Arbitrators have committed gross error in awarding amount under Claim No. 12. The Arbitrators have awarded Rs. 44,92,800/- as interest on the award of Rs. 30 Lacs. In our opinion the interest awarded by the Arbitrator is against the provisions of clause 16(3) of the General Condition of Contract. Therefore, in view of Clause 16(3) of the General Conditions of Contract read with Section 17 of the Indian Arbitration Act, 1993, we are of the opinion that the contention of the learned advocate for the appellant is required to be accepted.

14. For the foregoing reasons, the present appeal is partly allowed. The impugn ed judgment and decree dated 29.07.2004 passed by the Civil Judge (S.D.), Valsad, in Civil Miscellaneous (Arbitration) application No. 22 of 2001 is hereby quashed and set aside qua the amount awarded by the Arbitrator in respect of claim No. 12 regarding interest at the rate of 18% amounting to Rs. 44,92,800/- as also the direction regarding payment of interest at the rate of 12% per annum from the date of filing of the application before the Court below till realization of the amount. In so far as the payment of interest is concerned, the same shall be payable from the date of filing of the application before the Court below till the date of judgment and decree passed by the Court below i.e. 29 July, 2004.

15. The judgment and decree of the Reference Court is modified to the aforesaid extent. Decree be drawn accordingly.

Union Of India v. Raveechee & Co.

Case Summary — Judgment of K.S. Jhaveri, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondent's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Union Of India v. Raveechee & Co.

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