HIND BUILDERS ETC. v. UNION OF INDIA AND VICE-VERSA

Citation: [1990] 2 S.C.R. 638

Court: Supreme Court of India

Bench: S. RANGANATHAN, A.M. AHMADI

Case summary

It is also apparent on the face of the award, insofar as it relates to item (c)(xii), that the arbitrators have awarded payment at Rs. Thus, it is ~-submitted, runs quite contrary to the principles enunciated in the above decisions and should, therefore, be set aside.

Judgment text

The Judgment of the Court was delivered by RANGANATHAN, J. These are cross appeals by Mis. Hind Builders (hereinafter referred to as 'the contractors') and the Union of India. from an order of Division Bench of the Calcutta High Court in an arbitration matter. )--· The contractors had been awarded a contract for the execution of certain civil works in connection with the Metro Railway Project in 1 t--Calcutta. Certain disputes arose between the Union and the con· tractors. These disputes were referred for decision to two arbitrators appointed by the High Court of Calcutta. The arbitrators entered upon the reference on 27th June. 1983. The contractors had filed a claim before the arbitrators for a sum of Rs. 2,05,67,554. Un 26. 3. 1984 the arbitrators awarded-a-sum of Rs. 57,47,198 to the contractors. ~ The claim of the contractors filed before the arbitrators was an · itemised claim in respect of various items of works executed by them.

The body of the award made by the arbitrators reads as follows: "We ..... make and publish our Award, as below: (i) That the Respondent shall pay ..... the Contractors a sum of Rs. 57,47,198 ..... only in full and final settlement of all their claims and dues under the --abovementioned contract agreem~nt. In addition, . the three Bank Guarantees issued by Vijaya Bank, Cuttack, on behalf of the contractors, in favour of Metro Railway, Cuttack, shall be released by the Respondent Railway, as detailed in the Annexure to this Award. xxx xxx xxx ~ The Award shall be complied with within 60 (Sixty) days from the date of publication of this Award, failing which ~simple interest @ 11 per cent per annum on the amount of the Award (excluding interest vide item (1) of the Anne· xure i. e. Rs. 6,76,540) shall accrue till the date of payment or decree upon Award whichever is earlier.

" -("- In the annexure to the award, the arbitrators tabulated the various items of the claim before them, the amount claimed against each item and the amount awarded against each item. Ut\der item (1) in the annexure, the arbitrators had awarded an interest of Rs. 6,76,540 and that is why the direction regarding interest by the arbitrators excluded this amount from the principal amount which was to bear interest. As stated earlier, the total amount awarded was Rs. 57,47, 198 in respect of items (a) to (q) of the award as against the claim of Rs. 2,05,67,554 ). :: ' ' made by the contractors. On an application being made to the High Court of Calcutta on the Original Side for making the award a rule of court, the learned single Judge sitting on the Original Side confirmed the award except to the extent of Rs. 5,20,000. This is no longer in issue. The learned Judge. however, concluded his judgment with the following words: '"""' -~ "The principal sum awarded stands reduced by Rs.

5,20,000 as mentioned above. The respondent will be entitled to interest at the rate of 11 per cent per annum from the date of reference till the date of the award. " The Union of India preferred an appeal from the order of the learned single Judge. The Division Bench was of the opinion that the arbitrators were not justified in awarding a sum of Rs. 23,96,000 to the ~ contractors (as against a claim of Rs. 42,65,957 made by them) in respect of item (c)(xii) viz. "cost towards consolidation of earth by 1--1 ramming and rolling" and that they could have awarded under the .. contract only a sum of Rs. 2,39,600 in respect of this item. The amount awarded to the contractors was thus further reduced by the Division Bench by a sum of Rs. 21,56,400 (Rs. 23,96,000-Rs. 2. 39,600). The Bench then observed that the principal sum to be awarded to the 'contractors would now stand at Rs.

30,70,798 and directed that the respondent contractor should be entitled to interest at the rate of 11 per cent per annum on the said amount from the date of the reference till the date of the award. The contractors have appealed from the order of the Division Bench being aggrieved by the reduction of the amount awarded under item lc)(xii) to Rs. 2,39,600 from Rs. 23,96,000. The Union of India has preferred an appeal contending principally that, since the principal amount on which the arbitrator awarded interest was not Rs. 57,47,198 but only Rs. 50,70,658 (i. e. Rs. 57,47,198-Rs. 6,76,540), the contractors would be entitled to interest, after the judgment of the Division Bench, not on Rs. 30,70,798 as held by the Division Bench but only on Rs. 23,94,258.

In addition, at the tune of the hearing before us, counsel for the Union of India raised two further points: ( I) that the Division Bench erred in awarding interest to the contractors from the date of the reference till the date of the award. (2) That though the arbitrators had also awarded interest on the principal sum till the date of payment, the contractors should now be held entitled to interest only upto the date of the award because the learned single Judge and the Division Bench have heId so and the contractors have preferred no appeal therefrom. Taking up the contractor's appeal first, the point raised falls within a very narrow compass and turns on the interpretation of item No. - . 09 of the annexure to the contract containing the schedule of rates. This item reads as follows. Item Brief description Approx- Unit of Rate of l"o. of work imate payment payment in Qty. "words" & "figures" Rs. P. 2 3 4 5 ,_,_. . --- ';. ,, " . :, \ ' / ; . , ·. • ', . ·' ·, i-. ·. I ·, , \- ..

". - '. A' 4. 09 (~) Earthwork in open excava-2,35,000 10 Rs. 180 \\ ' tion for forming garbage Cubic Cubic (Rupees one \ tanks in all kinds and metres • . metres · hundred _>Jconditions of soils upto - eighty depths varying from 0 to 3 n:·ly). 3 metreli from the existing ground level and disposing of the spoils so as to raise land_ required for - piling work, to fill up the existing low lying areas and ponds, to form embankments for roads,'ett::of the Car Depot complex includ- . - ing spreading in layers, ·breaking clods, levelling, - dressing, all lifts/descents ahd all leads etc. complete - ) D' .. Note: No extra payments Wu! be made ifwet excavation is met with or for baling/ pumping out ofwater of all - · -sorts includiilg ralli water. - - "- ,_ (b) Extraoveritein (a) abo~e, l,3s;ooo -10 Rs. 20 for consolidation of the ' Cubic Cubic (Rupees filled up areas or some of metres - - metres Twenty the top layers of the filled only). ·up areas or road embank- .

· ment portions by watering . - and ramming/rolling as directed. In respect of these items the statement of claim filed on behalf of the - · • contractonvas in the following terms: - _-- --- (b) Eanhwork in excavation measured but not paid in full: . That unde( agreement item No. 4. 09 (a) the claimants as rer instructions, specifications and agreement excavated -·• -,,,,, earthwork in open excavation for forming garbage tanks in all kinds of soil for a quantity of 2, 15,000 Cum and thereafter the contract was rescinded against which reduced quantity has been measured provisionally upto 17th CC bill for 2,09,523 Cum measured on 24. 5. 82 and as per the said measurements the claimants are yet to be paid for a quantity of 5,477 Cum over and above the payments already made upto 17th CC. The claimants claim payment for 5,477 Cum of excavation @ Rs. 18 per each Cum. amounting to Rs. 98,586. UO. CLAIM AMOUNT ... Rs. 98,586. 00 ..

(c)(xii) Cost towards consolidation of earth by ramming and rolling: ~t That as per agreement item No. 4. 09(b) the claimants are --· required to fill up the low lying areas etc. , as specified under General Conditions of the Contract at para 3. 05 with the excavated spoils obtained out of earthwork in excavation under agreement item No. 4. 09(a). The payment for earthwork in open excavation for work executed under agreement item No. 4. 09(a) is to be made on sectional _measurements calculated by level sections. The excavated earth obtained from garbage excavation, a quantity of 2, 15,000 Cum as per provisions made in agreement item No. 4. 09(b) was consolidated in different areas as per instructions and approved plan. The claimants claim payment for this quantity of consolidation at Rs. 20 per·cum i. e. Rs. 2 extra over Rs. 18 per Cum as specified in agreement item No. 4. 09(a) & (b), amounting to Rs. 43,00,000.

oO against which payment has been made in CC bills for reduced quantity and amount of Rs. 34,043. 00. The clait mants claim payment for the balance amount of Rs. 42,65,957. 00 not paid for. CLAIM AMOUNT Rs. 42,65,957. 00 In other words, the contractors claimed payment at the rate of Rs. 18 - Iii''-!? er cubic metre in respect of the excavation work done by them under item No. 4. 09(a). Again, in respect of the same quantity. of 2,15,000 cubic metres, the contractors made a claim at Rs. 20 per cubic metre as the amount payable to them in respect of the consolidation of 646 SUPREME COURT REPOR"S [1990] 2 S. C. R. excavated earth by ramming and rolling. The Division Bench was of .. _ the view. that under item No. 4. 09(b), the contractors were entitled to an additional payment of Rs. 2 only, since the contractors had already been paid at the rate of Rs. 18 per cubic metre in respect of the excavation done by them.

The extra charges for ramming and rolling were payable only at the rate of Rs. 2 per cubic metre instead of Rs. 20 per cubic metre. The Division Bench accordingly scaled down the amount awarded by the arbitrator m this regard to ! /10th of the amount awarded by him. It is submitted on behalf of the contractors that the rate payable ' for the work under item 4. 09(b) of the contract was not at all in upra); Firm Madan/a/ Roshanla/ Mahajan v. Hukumchand Mills Ltd. , (supra); Union of India v. Bungo Furniture Pvt. Lid. , (supra) and State of Madhya Pradesh v. Mis Saith & Skelton Pvt. Ltd. , (supra). In regard to interest prior to the suit, it was held in these cases that since the Interest Act, 1839, was not applicable, interest could be awarded if there was an agreement to pay interest or a usage of trade having the force of law or any other provision of substantive law entitling the claimant to recover interest.

Illustrations of the provisions of substantive law under which the arbitrator could award interest were also given in some of the cases. It was said, for instance, where an owner was deprived of his property, the right to receive interest took the place of the right to retain possession, and the owner of immovable property who lost possession of it was, therefore, entitled to claim interest in the place of right to retain possession. It was further said HIND BUILDERS v. U. 0. 1. [RANGANATHAN, l. ] 653 that it would be so whether possession of immovable property was taken away by private treaty or by compulsory acquisition. Another instance where interest could be awarded was under. Section 61(2) of the Sale of Goods Act which provided for the award of interest to the seller or the buyer, as the case may be, under the circumstances specified in that section. xxx xxx xxx 18.

While this is the position in cases which arose prior to the coming into force of the Interest Act, 1978, in cases arising after the coming into force of the Act, the position now is that though the award of pendente lite interest is still governed by the same principles, the award of interest prior to the suit is now governed by the Interest Act, 1978. Under the Interest Act, 1978, an arbitrator is by definition, a court and may now award interest·in all the cases to which the Interest Act applies. " Sri Milon Banerjee, appearing for the Union of India, however, contends that the above principle is applicable only in cases where an arbitrator is appointed on intervention of comt as contemplated in Chapter IV of the Arbitration Act. It is only in these cases that the arbitration proceedings can be considered to be a continuation of the court proceedings, empowering the arbitrator to do all that the court could do.

For, even in cases arising after the Interest Act, 1978, the award of pendente lite interest can only be in terms of the provisions of s. 34 of the Code of Civil Procedure and this cannot be invoked. in cases of arbitration except in cases falling under Chapter IV merely on the ground that the appointment of the arbitrator is made under S. 8, 12 or 20 of the said Act. Counsel submits that Chinnappa Reddy, J. has pointed out in Abhadhuta Jena's case [ [1988] 1 SCC at pp. 434-5 I that in all cases whether arising before or after the Interest Act, the claimants would not be entitled to interest from the date of reference to the date of the award for the simple reason that "the arbitrator is not a court nor were the references to arbitration made in the course of suits". It is this principle that has been reiterated in Food Corporation of India v. Surendra, Devendra & Mohendra Transport Co. , [1988] 1 3 ..... _ SCC 547 (at pp. 554 et seq) and Gujarat Water Supply & Sewage Board v.

Unique Erectors, [1989] 1SCC532. There is force in the contention urged by Sri Banerjee. There are passages ih Abhaduta Jena which indicate that the grant of pendente ( lite interest would be justified only when the reference to arbitration is made in the course of a suit: vide, the last sentence on p. 428, the first ---~sentence on p. 429, the emphasis added in the extracts from earlier judgments on pp. 430-1, and the summings up at p. 433 and 435. The principle indicated in these passages apparently is that since a Court has, under s. 34, of the C. P. C. , power to grant pendente lite interest in a suit, an arbitrator to whom a reference to arbitration is made in the course of the suit would be clothed with all the powers of the Court including the one to grant such interest. This is how this Court has also looked at the matter in a subsequent case. In State of Rajasthan v. Sharma & Co.

, (1988) 4 SCC 353, the parties had entered into a compromise in certain proceedings in Court agreeing that their disputes would be settled by arbitration but the arbitrators were appointed subsequently by the parties themselves and a reference made to them. A Bench of this Court (of which one of us was a member) reviewed the earlier cases and explained the decision in Abhaduta Jena thus: "12. This was awarding interest pendente lite. This is in violation of the principles enunciated by this Court in Executive Engineer (Irrigation), Ba/ime/a v. Abhaduta Jena. Our attention was drawn by Shri Soli J. Sorabjee, counsel for the respondent, to the decision of this Court in Food Corporation of India v. Mis Surendra, Devendra & Mohendra Transport Co. , where at pages 555-556 of the report, the Court referred to certain decisions cited by Chinnappa Reddy, J.

in Executive Engineer (Irrigation) in which he had expressed the view that those were cases in which ,the references to arbitration were made by the ,court or in court proceedings of the disputes in the suit. In that context it was held in those cases that the arbitrator had . power to grant interest. It was contended before us that this was a similar case. There was a court proceeding in this case regarding the appointment of the arbitrator and, as such, on the same analogy it should be treated that the arbitrator had power to grant interest. We are unable to accept this. 13. What Mr. Justice 0.

Chinnappa Reddy meant to say by the latter judgment in Executive Engineer (Irrigation) case, referred to in Food Corporation of IndUi was where the disputes regarding the merit of the case were pending in the court and such disputes instead of being decided by the court, adjudication had been referred to an arbitrator by ) the court, in such cases the arbitrators deciding in the place -->---- of court, would have the same powers to grant interest pendente lite as the courts have under Section 34 of the Civil Procedure Code. Instant case is not such a proceeding. " This principle would logically be applicable, as rightly contended by Shri Banerjee, only to cases where the reference to arbitration arises _, in the course of a suit. Dr. Ghosh, however, submits that, except for Nachiappa v. Subramaniam, [1960] 2 SCR 209 and Hukumchand Mills, [1967] 1 SCR -. f' 105, the other cases referred to by Chinnappa Reddy, J. were all only • cases in which an arbitrator had been appointed under s.

8 or 20 of the Arbitration Act. The principle enunciated, he submits, was actually a .... _,. _ _.. little wider than that contended for by Shri Banerjee. It is this that where an arbitrator is appointed by the Court and a reference is made to him, he has all the powers of the Court. He invites attention to the observations in Hukumchand Mills, case (1967] 1SCR 105, reiterated (in the context of post-award interest) in Union v. Bungo Furniture Co. , (1967] 1 SCR 324 at p. 329) that it is "an implied term of the reference that the arbitrator will decide the dispute according to law and would give such relief with regard to pendente lite interest as a Court could give if it decided the dispute".

He urges that Abhaduta I :x Jena related to a batch of cases, arising out of references made prior to, and later than, the commencement of the Interest Act, 1978, but by the parties themselves under the terms of the contract, without reference to court and so it was held that pendente lite interest could not be granted. But that is not so in the present case. He says that this decision was simply followed in . State v. Construction India, [1987] Suppl. >- SCC 708, in the Food Corporation case [1988] 1SCC 547 and in State v. Sharma and Co. , (1988] 4 SCC 353. The Gujarat Water Supply case -). [1989) lSCC 532 was, he urges, also a similar case (see para 5) though in that case there appear to have been some proceedings in Court earlier.

In short, he virtually submits that Abhaduta Jena and Sharma's case have unduly restricted the grant of pendente lite interest and require reconsideration and that pendente lite interest should be awarded in all cases where the intervention of Court is sought for the appointment of arbitrators, directly or indirectly, at. any stage. -'------ Generally speaking, it would only seem reasonable that the power to grant interest pendente lite should b~ treated as ancillary to the award of damages or compensation which, but for the delay in the litigation (whether in Court or by way of arbitration), the claimant should have received much earlier. However, though pendente lite interest has been made available in Court proceedings, its extension to arbitration law appears to have acquired some technical limitations resulting in denial of pendente lite interest in most cases of arbitration. Even if we accept the contention of Dr.

Ghosh, pendente lite interest cannot still be awarded by an arbitrator appointed by the parties under a private agreement for which there may be no justification in equity. These anomalies have arisen because formerly an arbitrator could not be treated as a Court to which the Code of Civil Procedure applied and because now the Interest Act, 1978, while including arbitration proceedings within its ambit, has, apart from a reference to s. 34, omitted to provide specifically for pendente lite interest. This has been clearly brought out by Chinnappa Reddy, J. We have earlier referred to passages from Abhaduta Jena which outline the principle the learned Judge had in mind for permitting pendente lite interest by an arbitrator. It is interesting, in fact, to notice that the present contentions of Dr.

Ghosh (based on certain earlier decisions of this Court) appear to have been advanced by him in the Food Corporation case [1988] I SCC 547 to support a wider contention that pendente lite interest should be awarded even in an arbitration by private agreement (as in that case) so long as the terms of the arbitration agreement did not exclude the jurisdiction of the arbitrator to entertain such a claim. But the Court did not accept the contention and followed Abhaduta Jena. Abhaduta Jena has been followed in later cases also and its scope has been recently explained in Sharma's case [1988] 4 SCC 353.

We may point out that in the latter case, a specific point was raised that since the Court had been concerned with the appointment of the arbitrator at some stage it should be treated as a reference to arbitration by court warranting the grant of pendente lite interest but this contention was negatived and the principle confined only to cases where a ieference to arbitration is made in the course of suits. The position was similar in the Gujarat Water Supply case [1989] 1SCC532 but pendente lite interest was denied. In view of Abhaduta Jena and the clarification specifically set out in para 13 of Sharma's case, we are unable to accede to the contention of Dr. Ghosh, attractive as it is an equitable proposition. The Division Bench of the High Court had no occasion to consider the above recent pronouncements of this Court.

Further, it is _;seen that, before the Division Bench, the Union took an objection that under clause 16(2) of the general conditions of contract, the contractors could claim no interest on the amounts that may be determined as payable to them. The Division Bench met this contention by relying on a circular issued by the Government of India making the claim for interest entertainable in arbitration "if notice had been issued in this behalf by the arbitrator". There is, however, no finding and nothing on record brought to our notice to show that any specific notice, claiming interest, had been given as contemplated by the contract. Having regard to all these considerations, we are unable to uphold the order of the Division Bench on this issue. This takes us to the second point urged on behalf of the Union in regard to interest.

The contention is that the learned Single Judge had restricted it to the date of the award, and that this has become final as the contractors have preferred no appeal therefrom. The grounds of appeal before us by the Union are confined only to the mistake in not taking into account the sum of Rs. 6,76,540 and do not raise any question regarding post-award interest. It is, therefore, not open to Shri Banerjee to raise this question. That apart, on merits also the contention raised that post-award interest has been declined by the High Court is not correct. The contention overlooks the course of pleadings between the parties. The arbitrators had, in the annexure to the award, computed interest from 5. 10. 82 to 26. 3. 84 i. e. from the date of the termination of the contract till the date of the award and in the award, had granted interest on the amount awarded from the date of award till the date of decree or payment.

A point had been raised before the High Court in the memo of objections that the arbitrators had erred in awarding interest in the manner mentioned in the award but the objection urged by the Union before the learned Single Judge was a different one viz. that the arbitrators ought not to have granted interest for the period prior to the date of reference without any agreement or right in law to claim such interest. It is this contention that was accepted by the learned Single Judge who deleted the interest award prior to the date of the reference and held that the arbitrators had jurisdiction to award interest from the date of the reference till the date of the award. This did not affect the arbitrator's direction in the main part of the award, that interest will accrue on the amount of the award (if the said amount was not paid within 60 days) till the date of payment or decree, whichever is earlier. This part of the award was riot questioned.

Jn fact, the decree drawn up in consequence of the order of the learned Single Judge, specifically directs (a) interest on the awarded amount from 6. 5. 83 (date ofreference) to 26. 3. 84 (date of the award); (b) "thereafter, interest on the amount·awarded at 11% from 27 . 3. 84 to 11. 12. 84" (date of the decree); and (c) interest the~eafter at A 9% per annum. The objection of the Union in the LPA on the question of interest was only that the arbitrators had erred in awarding interest from 6. 5. 1983 to 26. 3. 1984. It is this contention that was accepted by the Division Bench. The High Court had, therefore, not decided that the --contractors were not entitled to interest beyond the date of the award. This contention of the Union, therefore, fails and is rejected. B In the result C. A. 1280/88 is allowed and C. A. 1281/88 is allowed in part. There will be no order as to costs. R. N. J. Appeals allowed.