M.S. Home Decolom And Anr. vs Jawahar Lal Nehru University
1989 Latest Caselaw 450 Del

JUDGMENT

D.P. Wadhwa, J.

(1) The petitioner, a climnt, filed a petition (S. No. 1854-A/86) under Section 14 of the Arbitration Act .(for short 'the Act') for making award dated 4th August, 1986 of the third respondent, the sole arbitrator, rule of the court.

(2) On notice being issued, the arbitrator filed his award and the proceedings. Thereafter, parties were given notice of filing of the award. The objections to the award have been filed by the first respondent (IA 1436/87).

(3) On pleas of the parties, the following issues were framed :- (1) Whether the award is liable to be set aside on the objections by respondents, 1 and 2, (2) Relief.

(4) Parties led their evidence by means of affidavits.

(5) Three, main objections to the award have been taken, namely, (i) in terms of the arbitration agreement between the parties the arbitrator did not give reasons; (ii) the arbitrator gave an award of Rs. l,41,000.00 to the claimant on account of increase in the prices of blocks, labour etc. which was wrong find in contravention of Clause-10 C of agreement between the parties; and (iii) arbitrator erred in awarding interest at the rate of 15% p.a. on the amount of the award from 8th May, 1981 to the actual date of payment of decree whichever was earlier.

(6) Parties entered into a contract for construction of hostel block in Sector Xiii of Jnu Campus. Clayse-23 thereof constituted an arbitration agreement between the parties. This clause is as under :-- "EXCEPT where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications. designs, drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right matter or thing whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders,or these conditions or otherwise concerning the work or the execution failure to execute the same whether arising during the progress of the work or after the completion or arbitration of the person appointed by the Vice Chancellor arbitration of the person, appointed by the Vice Chancellor of the University. It will be no objection to any such appointment that the arbitrator so appointed is a University Officer, that he had to deal with the matters to which the contract relates and that in the course of his duties as University Officer he had expressed views on all or any of the matters in dispute or difference. The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason the Vice-Chancellor at the time of such transfer vacation of office or inability to act. shall appoint another person to act as arbitrator in accordance with the terms of the contract. Such person shall he entitled to proceed with the reference from the stage at which, it was left by his predecessor. It is also a term of this contract' that no person other than a person appointed by the Vice-Chancellor should act as arbitrator and, if for any reason, that is not possible, the matter is not to be referred to arbitration at all. In all cases where the amount of the claim in dispute is Rs. 50,000.00 (Rupees fifty thousand) and above, the arbitrator shall give reasons for the award. Subject as aforesaid the provisions of the Arbitration Act. 1940, or any statutory modification or re-enactment thereof and the rules made there under and for the time being in force shall apply to the arbitration proceeding under the clause. It is a term of the contract that the party invoking arbitration shall specify the dispute or disputes to be referred to arbitration under this clause together with the amount or amounts claimed in respect of each such dispute. The arbitrator may, from time to time with the. consent of the parties enlarge the time for marking and publishing the awards It is also a term of the contract that if the contractor(s) dodoes not inak.. any demand for arbitration in respect of any claim(s) in writing 90 days of receiving the intimation from the University Architect that the bill is ready fur payment of the claim of the contractor(s) will be denied to have been waived and absolutely barred and the University shall be discharged and released of all liabilities under the contract in respect of those claims."

(7) Disputes having arisen between the parties, the claimant filed a petition under Section 20 of the Act in this court (S. No. 404-Ai81). By order dated 15th May, 1981, that petition was allowed and it was directed that in terms of the arbitration clause contained in the contract the Vice-Chancellor shall appoint an arbitrator and the arbitrator so appointed will decide the disputes between the parties Both the parties were held entitled to refer their disputes to the Arbitrator. The Vice Chancellor by his letter dated 5th June, 1981 appointed Mr. N. Krishnamoorthi Arbitrtor, Government of India in the Ministry of Works and Housing Nirman Bhawan, New Delhi, is the sole arbitrator. He held arbitration proceedings and then resigned in January, 1984. On 13th July, 1984 Mr. Swami Dayal, respondent No. 3 was appointed as the sole arbitrator. He gave his award on 4th August, 1986, which is under challenge.

(8) There were claims and counter claims before the arbitrator; ten claims by the claimant and six by respondent No. .1. In the present, controversy I am concerned only with claim No. 7 and claim No. 9 of the claimant. Under claim No. 7 the claimant claimed Rs 2,09,472.00 on account of increase in the rates of material and labour and under claim No. 9 he claimed interest at the rate of 15% p.a. and stated that the claim of interest was under Section 34 of the Code of Civil Procedure (for short 'the Code') and further that a notice dated 4th June. 1981 for awarding interest was served and the interest was claimed from 8th May, 1981. It was specifically stated that the claimant claimed interest pro suit from 8th May, 1981 and pendent-lite and future as well. Under claim No. 7 the arbitrator awarded a sum of Rs. l,41.000.00 to the claimant. The respondent has contended that this c1aim could not have been allowed under Clause 10-C of the contract between the parties. The claimant agrees to this. He says that though he has labelled his claim under Clause 10-C under the contract, it. was in fact not su and this amount was claimed on account of damages suffered by him after the stipulated date of completion in the contract and as such Clause 10-C has no application. I, therefore, need not set out Clause 10-C. The question thus remains that if this claim could have been allowed outside Clause 10-C. There is ample authority for this proposition in favor of the claimant. Reference may be made to a being decision of this court in Metro Electric Co. v. Delhi Development Authority, Air 1980 Delhi, 266(1) and Villayati Ram Mittal v. The Union of India & Ors. 1986 (1) Arbitration Law reporter 328 (2). Moreover, I find that the arbitrator has given reasons for awarding the amount under claim No. 7 to the claimant. It cannot be said that no reasons have been given. No fault can even otherwise be found in the award of Rs. l,41,000.00 to the claimant. Moreover, the arbitrator is the sole judge and this court is not sitting in appeal even to go into the process of reasoning of the arbitrator. Sufficiency of reasons cannot also be gone into. Objections to the award that it is without reasons or the claim is not admissible under the contract are, therefore, over-ruled.

(9) Then, the objection regarding award of interest comes. Either an arbitrator would usually award interest from the date of reference Sill decree or payment whichever was earlier and under Section 29 of the Act the Court would grant interest from the date of decree. It was as simple as that. But, now it is not so simple in spite of various pronouncements of the Supreme Court and also of this court, In Executive Engineer Irrigation Galimala & Ors. V. Abhaduta Jena . the court was, concerned with the question of award of interest by the arbitrator for the period prior to the reference and during the pendency of arbitration proceedings. In that case reference was made without the intervention of the court under Chapter-II of the Act.

(10) In the present case before me. I am concerned only with the question of award of interest by the arbitrator during the pendency of arbitration proceedings and subsequent to his making the award. As a matter of fact, the question of award of interest after making of the award also becomes academic, in the present case, inas much as in Gujarat Water. Supply & Sewerage . Board v. Unione Erectors (Gujarat) (P.) Ltd.. & Anr. the Supreme Court while deleting the interest pendent lite awarded by the arbitrator and in the exercise of power under Section 3 of the interest Act, 1978 and Section 29 of the Act directed that interest be paid from the date of the award till the date of actual payment. Thus, the only question that survives for consideration is the jurisdiction of the arbitrator to award interest pendtnte-lite, i.e., from the date of reference till the date of award.

(11) The Supreme Court has held that but for Section 34 of the Code, even a court has no jurisdiction to giant interest pendente lite or future interest. (See Thawardass Pherumal & Anr. v. Union of India, ) (5). In that case the Supreme Court also held that arbitrator was not a court within the meaning of the Cods. In Executive Engineer Irrigation Galimala's case (Supra) the Supreme Court, after analysing its various decision, where arbitrator had awarded interest pendent-lite, was of the view that those were all cases in which the reference to arbitrators had been made by the court, of all disputes in the suit. It was, therefore, held that the arbitrator must be assumed in these circumstances to have the same power to award interest us the court. It was on that basis that the award of pendent-lite interest was made on the principle of Section 34 of the Code. The Supreme Court held that the arbitrator had no jurisdiction to award interest pendent-lite. In Food Corporation of India v. Surendra Devendra and Mohendra Transport Co. (1986) 1 Scc 547(6), the court considered Executive Engineer Irrigation Galimala's case and observed as under :-

"IN a recent decision, Chinnappa Reddy, J. speaking for a Bench of three learned Judges in Executive Engineer, Irrigation Galimala's case at paragraph 15 of the judgment considered the question of award of interest by an arbitrator. The learned Judge noted the decisions in Firm Madanlal Roshanlal Mahajan v. Hukamchand Mills Ltd. , Ashok Construction Co. v. Union of india (1971) 2 Scc 66 and State of M.P. v. M/s Saith & Skelton (P) Ltd. . and expressed the view that these were cases in which the references to arbitration were made by the court or in court proceedings of the disputes in the suit. It was held that the arbitrator must be assumed in these cases to have the same power to award interest as the court. Therefore, the grant of pendent-lite interest on the analogy of Section 34 of the Civil Procedure Code was permissible."

(Italics supplied).

IT was observed that "It was further held that the claimants were not entitled to claim pendent-lite interest as the arbitrator was not a court nor were the references to arbitration made in suites." This also appear to be a case where reference was made without the intervention of the court. In this case, therefore, the court in deference to the latest pronouncement of that court which was a pronouncement of three learned judges held "that the grant of pendent-lite interest" was not justified.

(12) In State of Orissa v. Niranjan Swain Jt 1989 (?) Sc 366 (7), again one of the questions was regarding award of interest pendent-lite by the arbitrator. Again reference was made in this case to Executive Engineer Irrigation Galimala (Supra) where the court had held that claimant was not entitled to claim pendent-lite interest as the arbitrator was not a court not was the reference to arbitration made in suit. In Union of India v. Globe Trading Corporation & Am. (FAO 218/78 decided on 8th December, 1987) also reported as 1988 Rlr 148(8) I took the view that there was no difference if the reference was made to the arbitration without intervention of a court, under Chapter-11 of the Act or with intervention of a court under Chapter-ill of the 9ct. Chapter-IV deals with arbitration of suits. I was, therefore, of the view that in both cases, whether the reference is under Chapter-II or Chapter-III of the Act the arbitrator would have no jurisdiction to award interest pendent-lite on the analogy of provisions of Section 34 of the Code. If. however, reference was in suit, as provided in Chapter-IV of the Act, the arbitrator would have power to award interest pendent-lite like a court under Section 34 of the Code. In Uttam Singh Duggal & co. v. Union of India & Ors. , Chaudhry, J" relying on the decision of the Supreme Court in State of Madhya Pradesh v. Saith Skelton Pvt. Ltd. , held that the facts in that case were quite identical with the facts of the case before him and then following the dictum of the Supreme Court in Executive Engineer Irrigation Galimala's case (supra) held that the reference in the case before him to the arbitration was made through the court and as such the arbitrator had the power to award pendent-lite interest State of Madhya Pradesh v. Saith Skelton Pvt. Ltd. case supra) the reference was not under Chapter-IV of the Act being a reference in a suit. In that case reference was originally made without intervention of the Court and when a petition was filed for removal of the arbitrator, it was with the consent of the parties that the Supreme Court set aside the appointment of the arbitrator and appointed a new arbitrator. In Executive Engineer Irrigation Galimala's case (supra) reference to the arbitration in the case of State of Madhya Pradesh v. Saith Skelton Pvt. Ltd. (supra) was held to be reference in suit. This appears to be the reason as to Why in Fci v. Surendra Devendra & Mohendra Transport Co. case (supra) the Supreme Court took the view that references to the arbitration in the cases mentioned in para 18 of the judgment were made by the court or in court proceedings. Though, if one refers to paragraph 15 of the judgment in Executive Engineer Irrigation Galimala's case the words 'court proceedings' are no where to be found.

(13) Then, in Ram Nath Mehra v. Union of India (S. No. 1510-A/84) decided on 7th December, 1988(10) Sabharwal, J. appears to have drawn a distinction where reference to arbitration' is made with or without the intervention of the court, i.e.. Chapter-II or Chapter-III of the Act. He referred to the decision of the Supreme Court in Executive Engineer Irrigation Galimala's case (supra), Uttam Singh Duggal v Union of India's case (supra) and Union of India v. Globe Trading Corporation's case (supra). He did not expressly disagree with the view expressed by me in Globe Trading Corporation's case that there was no difference when the reference to arbitration was made without intervention of a court under Chapter-II or with intervention of a court under Chapter-111 of the Act and that in both the cases the arbitrator would have no jurisdiction to award interest pendente lite. Sabharwal, J. was, however, of the view that since the disputes relating to interest did not appear to have been referred to arbitration in Globe Trading Corporation's case "and as such reference to arbitration was not made in the course of a suit" and further that "the dispute as regards claim of interest was not the subject matter of reference in the said case." He held that in the case before him the question of interest had been referred to arbitration in the course of a suit (when in fact reference was made on a petition under section 20 of the Arbitration Act) and that. that point was covered by the case of Uttam Singh Duggal v. Union of India (supra). He, therefore upheld the award of interest pendent-life.

(14) There is apparent conflict in the view expressed by me in Globe Trading Corporation's case and that by Sabharwal, J. in Ram Nath Mehra's case: It is the question of inherent jurisdiction of the arbitrator to award interest pendent-lite. I do not think he can assume jurisdiction when disputes regarding award of interest pendent-lite arc referred to him. The view taken in. Rama Nath Mehra's case may also appear to be contrary to that of the Supreme Court in Executive Engineer Irrigation Galimala's case. Then, when I took the view that there is no distinction' if reference under Chapter-II or Chapter-ill, Sabharwal. J. appears to have taken a different view. His view might get support from the use of the expression "reference to arbitrator was made by the court or in court proceedings of the disputes in the suit" in Fci v. Surendra Devendra and Mohendra Transport Co.'s case (supra). I am, however, not quite sure of this as the Supreme Court in various pronouncements has held that the arbitration has no jurisdiction to award interest pendente lite except where reference is under Chapter-IV. If a distinction is made of reference under Chapter-II and Chapter-III, then in every case where there is claim of interest pendente lite, the claimant will have to approach the court under Section 20 (Chapter-III) of the Act, thus making the provision's of Chapter-II sort of subservient to those of Chapter-III. Proceedings under Chapter-III are only alternative to those under Chapter-II of the Act. To my mind, therefore, this question needs to be decided by a larger bench.

(15) BUT. then, the award on the question of interest pendente lite can be severed from rest of the award and decree to that extent passed.

(16) I would, therefore, frame the following question for being referred to a larger bench :- Has the arbitrator jurisdiction to award interest pendente lite, i.e., for the period from the date of reference and till the date of award when reference is under Section 20 (Chapter-lit) of the Act ?

(17) While, thereore, I direct that papers for decision on the aforesaid question be laid before Hon'ble the Chief Justice for constituting a larger bench, I would make award in question' to the extent of various claims and interest thereon at the rate of 15 per cent p.a. from the date of the award till payment, a rule of the court and pass a decree in terms thereof. A decree sheet will be so drawn up. Ordered accordingly.

(18) Question of costs of these proceedings will be considered after decision on the reference by the large bench. Ordered accordingly.