Indian Institute Of Technology vs Creative Construction
2007 Latest Caselaw 277 Bom

JUDGMENT

R.M.S. Khandeparkar, J.

1. Since common questions of law and facts arise in both these appeals, they were heard together and are being disposed of by this common judgment.

2. Both these appeals arise from the judgment dated 2nd November, 1998, passed by the learned Single Judge in Arbitration Petition No. 14 of 1987. By the impugned judgment the learned Single Judge has allowed the Arbitration Petition which was filed by The Indian Institute of Technology, who are appellants in the Appeal No. 109 of 1999, (hereinafter called "the appellants"). M/s Creative Construction, are the appellants in Appeal No. 349 of 1999 (hereinafter called "the respondents")- The learned Single Judge has reduced the rate of interest to 7% per annum from 18% per annum which was granted in the award dated 27th August, 1996 passed by the learned arbitrator.

3. The challenge to the impugned order by the appellants is on the ground that the learned Single Judge failed to take note of the fact that the respondents had failed to place on record any evidence to substantiate their contention that there was payment of sales tax in excess of 4% and that therefore the amount claimed by them which was in terms of the agreement between the parties. Reference is made to a Clause of the contract between the parties which provided that "Maharashtra Government Works Contract Sales Tax in excess of 4% as applicable to this contract, will be reimbursed to the contractor against production of necessary proof of payment for the same. Any reduction in the rate of Maharashtra Government Sales Tax on Works Contract below 4% will be adjusted (recovered) from the bills of the contractors". The appeal by the respondents is on the ground that the agreement between the parties do not prohibit grant of interest at the rate over and above the rate specified under the agreement and considering the provision of law in Section 34 of the Code of Civil Procedure, the learned arbitrator had ample discretion to award interest over and above 7% and therefore the learned Single Judge could not have modified the award by reducing the interest of 18% to 7%. Reliance is sought to be placed on behalf of the respondents in the decision in the matter of Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age and in Rajasthan State Mines and Minerals Ltd. v. Eastern Engineering Enterprises and Anr. . Attention has also been drawn to the decision in the matter of Arosan Enterprises Ltd. v. Union of India and Anr. , while contending that the learned Single Judge could not have reappreciated the evidence while dealing with the petition for modification of the award. So also reference was made to the decision in the matter of State of U.P. v. Harish Chandra and Co. .

4. The facts of the case in brief are that the appellants had constructed type "B" quarters at the Powai Campus and contract in that regard was awarded to the respondents. As certain disputes and differences arose between the parties, the matter was referred to arbitration and the arbitrator declared his award on 27th August, 1996, and thereby four claims were granted while rejecting some other claims made by the respondents. The claims which have been granted include the claim relating to payment of sales tax.

5. The controversy between the parties which is sought to be raised in the appeal filed by the appellants relates to the amount claimed and awarded towards reimbursement of sales tax amount paid by the respondents over and above 4% of the contract value. It is the case of the appellants that the respondents have failed to establish the reimbursement claim correspondences to the amount of sales tax paid by the respondents over and above 4% of the contract value. According to the appellants only piece of evidence in support of their claim which was produced by the respondents was of the letter dated 6th March, 1992. On the other hand, on behalf of the respondents attention is drawn to the clear finding in the award about production of challans in support of said claim by the respondents.

6. As regards the appeal filed by the respondents is concerned it is the contention that though the terms of the agreement provided for interest at the rate of 7% per annum in case of delayed payment that would not curtail the power of the arbitrator to award the interest at the rate over and above 7%. The respondents have suffered loss due to delay in reimbursement of the said amount and they were in fact required to be reimbursed by the appellants in terms of the agreement between the parties. In that regard, reliance is placed in the decision in the matter of Rajasthan State Mines and Minerals Ltd. (supra). On the other hand, it is the contention on behalf of the appellants that the arbitrator was bound by the terms of the agreement, and therefore, could not have awarded interest at the rate over and above 7%.

7. As regards the contention on behalf of the appellants is concerned, it is seen that the appellants did not raise any dispute about the amount claimed by the respondents towards the reimbursement for the sales tax paid by the respondents nor it was the contention before the arbitrator that the amount in excess of the 4% of the sales tax could not have been claimed by the respondents. The objection on behalf of the appellants which was raised before the learned arbitrator was to the effect that the respondents had failed to substantiate their claim by producing any voucher about the payment of sales tax and that therefore the respondents were not entitled to claim any amount as reimbursement and/or interest thereon. Obviously the defence was that the respondents had not produced any voucher for payment of the tax and that therefore there was no evidence to substantiate the claim of the respondents about payment of sales tax, and not that the amount claimed by way of reimbursement related to the amount in excess of 4%. The objection which is now sought to be raised in relation to the reimbursement of sales tax is about the amount being in excess of 4%, which plea which did not find place in the defence before the learned arbitrator. It was sought to be raised for the first time before the learned Single Judge in the arbitration petition, Once it is evident from the records that the ground on which the award was sought to be modified or challenged was not raised before the arbitrator and that it is related to the disputed question of facts or mixed question of fact and law and consequently there was no opportunity for the respondents to meet the ground in that regard before the learned arbitrator, before whom the evidence was required to be produced by the parties in support of their rival contentions, the appellants cannot be allowed to raise such point for the first time in the arbitration petition. By allowing the appellants to raise such a point for the first time in the petition, it would result in the respondents being left with no opportunity to defend the case. It is not the case of the appellants that the appellants were not able to raise such point before the arbitrator, for any sufficient reason or ground.

8. The letter dated 6th March, 1992 to which attention was drawn by the learned advocate for the appellants, rather than supporting the contentions raised on behalf of the appellants, clearly discloses that the respondents had produced sufficient evidence before the learned arbitrator about their claim in relation to reimbursement of the sales tax paid by them. The very first sentence of the said letter reads "As requested on telephone today by Mrs. Tipnis we forward herewith details of works contract sales tax paid for above work". The term 'above work' relates to the subject on which the letter was addressed to and the said subject reads thus : "Construction of Type "B" Quarters. Works contract Sales Tax on escalation amount of Cement and Steel". Undisputedly, the letter has gone unchallenged in the evidence before the learned arbitrator. Obviously, therefore, sufficient evidence in support of the claim of the respondents was placed before the arbitrator. The appellants had never sought to dispute that the claim made and disclosed in detail along with the letter dated 6th March, 1992 did not depict the correct amount paid by the respondents over and above 4% of the sales tax. Reference to the said letter, no way discloses need and justification for interference in the impugned order. The learned Single Judge has passed the impugned order after taking into consideration the fact that the respondents had placed sufficient evidence before the learned arbitrator and on appreciation of the said evidence, the learned arbitrator had arrived at a decision regarding the quantum of amount to be paid by the appellants to the respondents as reimbursement in relation to the payment of the sales tax by the latter.

9. The contention that the amount disclosed in the letter dated 6th March, 1992 was not only in relation to payment of sales tax amount on the work contract awarded to the respondents by the appellants but the same also included the amount of sales tax paid by the respondents in relation to liability under other contracts is totally devoid of substance. The remaining contents of the letter dated 6th March, 1992 undoubtedly disclose a reference to the assessment proceedings by the competent authorities under the Sales Tax Act. The narration in that regard is obviously to assert that the respondents had not only paid the sales tax to the concerned department but the latter had even carried out assessment proceedings in that behalf. By mere reference to the assessment proceedings, it cannot be presumed that such assessment proceedings were sufficient to infer that the details about the payment of sales tax given by the respondents were not only in relation to the work contract allotted to the respondents by the appellants but also include the payment in relation to the other sales tax liability of the respondents. In fact as already observed above the details specifically refer to the work contract allotted by the appellants. Being so, there is no substance in the appeal filed by the appellants and the same is liable to be rejected as no other ground of challenge is canvassed in the matter.

10. As regards the appeal by the respondents, it is not in dispute that the contract between the parties specifically provided for the rate of interest and it was 7% per annum. It is the contention on behalf of the respondents that nothing prohibited the learned arbitrator from awarding rate of interest over and above the contract rate and in that regard the provisions of Section 34 of the Code of Civil Procedure are sought to be pressed into. Undoubtedly Section 34 of Code of Civil Procedure provides that in case of commercial transactions rate of interest which can be awarded can exceed 6% and can be at the rate which is charged by the nationalized banks. However, the same is always to be subject to the contractual terms between the parties. The Section 34 of the Code of Civil Procedure and particularly proviso thereto clearly specifies that the discretion of the Court to be exercised in awarding the rate of interest shall always be subject to the contractual rate of interest. In fact, that has been also the decision of the Apex Court in Engineers-De-Space-Age (supra). The said decision rather than assisting the respondents justifies the impugned order whereby the learned Single Judge has reduced the rate of interest from 18% to 7%. It is to be noted that in the entire award by the learned arbitrator no reason has been disclosed for awarding the rate of interest at 18%. The award disclose reasons for the grant of every other relief, except for the rate of interest. It is pertinent to note that the learned arbitrator was fully aware of the fact that the contract specifically provided for 7% interest rate.

11. The Apex Court in Engineers-De-Space-Age (supra), after referring to the decision of the Constitutional Bench in Secretary, Irrigation Department, Govt. of Orissa v. G.C. Roy ruled that:

It will appear from what the Constitution Bench stated to be the legal position, that ordinarily a person who is deprived of his money to which he is legitimately entitled to as of right is entitled to be compensated in deprivation thereof, call it by whatever name. This would be in terms of the principle laid down in Section 34 of the Code of Civil Procedure.... In other words, according to Their Lordships the arbitrator is expected to act and make his award in accordance with the general law of the land but subject to an agreement, provided, the agreement is valid and legal. Lastly, it was pointed out that interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference. Their Lordships concluded that where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute is referred to the arbitrator, he shall have the power to award interest pendente lite for the simple reason that in such a case it is presumed that interest was an implied term of the agreement between the parties, it is then a matter of exercise of discretion by the arbitrator.

(emphasis supplied)

Plain reading of this decision would disclose that the Apex Court has clearly ruled that it is only in cases where the contract between the parties is silent that the questions of exercising discretion in that regard in terms of statutory provisions would arise; but when the agreement between the parties specifically provides a particular rate of interest, the learned arbitrator has to award interest at the agreed rate. Undoubtedly in the absence of prohibition for grant of interest, Section 34 of Code of Civil Procedure would be attracted. The Apex Court, in the same decision, after taking into consideration the facts of the matter before it, observed that:

Strictly construed the term of the contract merely prohibits the Commissioner from paying interest to the contractor for delayed payment but once the mater 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 pendente 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 pendente lite.

The Apex Court therefore has held that the term of the agreement which disclose prohibition for one of the parties to the agreement to pay interest on account of delay in payment, would not, by itself, be sufficient to curtail the discretion of the arbitrator to award interest in terms of Section 34 of Civil Procedure Code. That is not a decision on the point of rate of interest which could be awarded by the arbitrator, when the rate is clearly specified under the agreement between the parties.

12. The decision of the Apex Court Harish Chandra and Co. (supra) is absolutely of no help to the respondents. That was a case where one of the terms of the contract provided that:

No claim for interest or damages will be entertained by the Government with respect to any moneys or balances which may be lying with the Government owing to any dispute, difference; or misunderstanding between the Engineer-in-Charge in making periodical or final payments or in any other respect whatsoever.

It was held that the said clause did not provide for any bar for direction for payment of interest by the arbitrator. The issue in the matter in the hand is only to the rate of interest and not regarding the right to claim interest.

13. No quarrel can be found with the proposition that in the arbitration petition or in the appeal arising out of the order passed in the arbitration petition, this Court is not entitled to reassess the evidence which was led before the arbitrator. It has, however, to consider whether the arbitrator has misconducted in declaring the award in the matter under challenge. The decision of the Apex Court in Arosan Enterprises Ltd. (supra) is in fact very clear in that regard. However, it is nobody's case that the matter requires reassessment of the evidence as such.

14. As far as the decision of the Apex Court in Rajasthan State Mines and Minerals Ltd. (supra), is concerned and paragraph 44 to which the attention was drawn, in particular to Clauses (a), (c), (e) and (f), the same read thus:

(a) It is not open to the Court to speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion.

(c) If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his adjudication then the Court cannot interfere.

(e) In a case of a non-speaking award, the jurisdiction of the Court is limited. The award can be set aside if the arbitrator acts beyond his jurisdiction.

(f) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. The arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award.

Undoubtedly the Apex Court has ruled that it is not open to the Court to speculate when no reasons are given by the arbitrator. With reference to this clause it is sought to be contended that merely because the learned arbitrator has not given any reason for awarding 18% interest it is not open for this Court to speculate the reasons in respect thereto. The contention is totally devoid of substance as in the case in hand, there is no occasion for speculation about reasons for grant of such relief. The point what is canvassed on behalf of the appellants is that the agreement specifically provides for a specific rate of interest and therefore the arbitrator could not have awarded over and above the said rate i.e., 7%. We are merely analyzing the said contention in reference to the agreement which is not in dispute. Granting of rate of interest over and above the rate which was specifically agreed upon between the parties can by no stretch of imagination be considered as a mere error of law or fact. It is clearly a misconduct on the part of the arbitrator in awarding the rate of interest totally contrary to the terms of the agreement and the law on this aspect in very clear from the decisions relied upon by the respondents in Rajasthan State Mines and Minerals Ltd. (supra) as well as in Engineers-De-Space-Age (supra). The Apex Court in Rajasthan State Mines and Minerals Ltd. (supra) has clearly ruled that when the Arbitrator gives an award ignoring the most relevant terms of the agreement between the parties, he clearly exceeds his jurisdiction and such an award is liable to be set aside. We fail to understand how this observation help the respondent; rather the same justifies interference by the learned Single Judge in the award to the extent it awarded interest at the rate over and above the agreed rate of interest.

14A. For the reasons stated above, we do not find any merit in the appeals and both the appeals are dismissed. In the circumstances of the case, there shall be no order as to costs.