M.L. Sharma vs State Trading Corporation Of ...
1997 Latest Caselaw 674 Del

JUDGMENT

C.M. Nayar, J.

(1) This judgment will dispose of three petitions being Suit No. 2369/91 (M/s M.L.Sharma & Company v. State Trading Corporation), Suit No. 2370/91 (M/s M.L.Sharma & Company v. State Trading Corporation) and Suit No. 2371/91 (M/s-M.L.Sharma & Company v. State Trading Corporation) as they raise common questions and were decided by the respective awards by the same arbitrator.

(2) The respondent State Trading Corporation (for short STC) entered into three separate contracts dated July 6, 1979 for the work of Sanitary installations and plumbing works for Community Centre Project at Stc Colony, New Delhi; dated November 12, 1979 for the work of external services for Community Centre Project at Stc Colony, New Delhi and dated July 8, 1980 for construction of compound wall and underground tank at Stc Colony, New Delhi.

(3) Certain disputes arose out of the execution of the works and such disputes were referred in the respective petitions filed under Section 20 of the Arbitration Act before this Court i.e. Suit Nos. 341-A/87, 342-A/87 and 343-A/87. The order dated September 23, 1988 which is common in all the three petitions was passed which is common in all the three petitions was passed in one of the petitions and the same reads as follows: "This is a petition under Section 20 of the Arbitration Act seeking direction to Respondent State Trading Corporation of India Ltd, for short Stc, to file the arbitration agreement in Court and disputes be referred for arbitration in terms of the arbitration clause. The petitioner was awarded the work of construction of compound wall all round the community Hall Water tanks and installation of booster pumps etc. at Stc Colony, Mehrauli Road, New Delhi. Certain disputes arose out of the execution of the work. The petitioner has raised certain disputes which are mentioned in para 7 of the petition. According to the petitioner he invoked the arbitration clause by letter dated 2nd March, 1984 but did not have any effect and hence this petition has been filed. I do not see any serious opposition to this petition on behalf of the Stc except that claims, if any, of the Stc have also to be referred for arbitration. I have also heard the counsel for the parties and noted their respective contentions. In the result, the petition is allowed. The respondent is directed to file the arbitration agreement in Court and the disputes arising out of this agreement are referred for arbitration in terms of the arbitration clause. The Chief Engineer Stc is directed to appoint an Arbitrator within four weeks from the date of receipt of this order for deciding the disputes between the parties. The claims of the petitioner are mentioned in para 7 of this petition which are required to be referred for arbitration. Stc is at liberty to file their claim before the Arbitrator if they have any. The petition is disposed of."

(4) The disputes arising between the parties were referred to the named arbitrator in terms of Clause 7 of the respective Agreements which may be reproduced as under:- Settlement of disputes by Arbitrator

"7.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 of materials used on the work or as to any other question, claim, right, matter of other things whatsoever, if any, way arising out of or relating to the contract, designs, drawings, specifications, estimate, instructions, orders or these conditions; or otherwise, concerning the work, or the execution of failure to execute the same whether arising during the progress of the work of after the completion or abandonment thereof shall be referred to the sole arbitration of the persons appointed by the Chief Engineer, State Trading Corporation, New Delhi. It will not be that the Arbitrator so appointed is a Government servant, that he had to deal with the matters to which the contract relates and that in the course of his duties as Government servant he had expressed view 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 reasons such Managing Director or Deputy Managing Director, Board of Management, as aforesaid at the time of such transfer, vacation of office or inability to act shall appoint another person to act as arbitrator in accordance with terms of the contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by the predecessor. In all cases where the amount of the claims in dispute is Rs. 50,000.00 (Rupees fifty thousand) and above, the arbitration shall give reasons for the award. 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. It is also a term of the contract that if the contractor does not make any demand for arbitration in respect of any claims in writing within 90 days of receiving the intimation from the State Trading Corporation that the bill is ready for payment, the claim of contractor will be deemed to have been waived and absolutely barred and the State Trading Corporation shall be discharged and released of all liabilities under the contract in respect of those claims. A panel of Arbitrators of not less then three in number must be offered to the Contractor for selection of one out of these three as the Arbitrator. The Arbitrator(s) may from time to time with consent of the parties enlarge the time, for making and publishing the award. It will not be necessary to reproduce the facts in each case as common claims arising from the disputes have been made though the amounts claimed thereunder are different. I will, therefore, only refer to the claims as incorporated in Suit No. 2369/91.

CLAIMNo. 1: For Rs. 45,744.13 (Final Bill): Whether the Claimants are entitled to the claim of Rs. 45,744.13 as due to them in the final bill, for the work done by them, and if so, to what extent? The learned arbitrator examined the facts and evidence on record and concluded as follows: Claimants have submitted their final bill on 29.7.81. In the final bill, claimants have not deducted: (i) the rebate of 5% offered by them. (ii) the cost of cement supplied by the respondents.

As there is some difference in the details of measurements supplied by the claimants and respondents, the site of work was inspected on 3.11.1990 in the company of Claimants and respondents (7th hearing) and on the basis of evidence of work done available at the site, the measurements were verified and a final bill has been prepared (Annexure-I) and as per this final bill, the gross amount of the work done works out to Rs. 59,164.31, after effecting the rebate of 5%. The net amount payable works out to Rs. 17,509.00 after taking into (i) The recovery for 40 bags of cement. (ii) The cheque amount of the Ist R/A bill paid on 15.1.80. (iii) The cheque amount of the 2nd R/A bill paid on 28.4.80. (iv) The cheque amount of the interim Award dated 31.10.90. (v) The tax deducted at source. The total of the Tax deducted at source works out to Rs. 1,278.00 as per details given in Annexure-I. Respondents may provide Tds certificate for Rs. 1,278.00 to the Claimants.

(5) Accordingly, I award that the respondents do pay an amount of Rs. 17,509.00 to the claimants for settlement of this claim. This is in addition to the amount already paid in interim Award and T.D.S. Rs. 1,278.00 .

CLAIMNo. 2: For Rs. 3,850.00 towards refund of security deposit: Whether the Claimants are entitled to the claim of Rs. 3,850.00 towards refund of earnest money and security deposit paid by them, and if so, to what extent? This claim was also upheld and as the amount had already been paid as per the interim award and hence, no further amount was payable.

CLAIMNo. 3: For Rs. 3,150.00 . Whether the claimants are entitled to the claim of Rs. 3.150.00 towards less of profitability on the amount of work withdrawn from the contracted amount and if so, to what extent? The claimants were held not entitled to this amount as they had not been able to substantiate their claim with any documentary evidence.

CLAIMNo. 4: For Rs. 96,489.00 Whether the claimants are entitled to the claim of Rs. 96,489.00 towards interest for the presuit period, and if so, to what extent? The pleadings and arguments of the parties were referred to in detail with regard to this claim and the following award was made which will indicate that adequate reasons have been given by the arbitrator to allow this claim.

"THE claimants submitted their final bill on 29.7.81, along with the measurement sheets. In the normal course, the measurement sheets should have been checked at site, and if necessary, corrected or amended, and arrived at the final quantities and passed the final bill within 3 months of submission by the claimants. This has not been done by the respondents. There is no justification for the respondents to delay for more than 2 years in taking their own measurements, and insisting on the claimants, to accept those measurements. Part of the final bill amount, which has been worked out by the respondents, as due to the claimants, in their letter No. STC:GAD:HC:ARB:88-89 dated 22.12.88/4.1.89, has not been paid by the respondents. The claimants are, therefore, justified in asking for compensation, by way of interest, under the Interest Act, for the delay in payment of their legitimate amount.

The Security deposit of Rs. 3,850.00 is refundable to the claimants on 29.7.82. The defect liability period being 12 months from the virtual date of completion, and no defects have been pointed out to the claimants, before 29.7.82. The claimants have claimed interest at 24% per annum in their letter No. MLS/850/81, dated 7.11.81 (Exh. C-4). Considering the facts and circumstances of this case, I am of the opinion that a rate of interest of 15% simple interest per annum is justifiable in this case as the legitimate payments due to the claimants, were delayed by the Respondents, without any valid reason.

The claimants are, therefore, entitled for payment of simple interest at 15% per annum, on their amounts of Claim No. 1 and 2 w.e.f. 7.11.81 and 29.7.82 respectively, as per calculations given below: (i) Final bill amount : Rs. 40,521 (41,799 - Tds 1278 = 40,521). Date of entry into reference : 18.2.89 Pre-suit period 7.11.81 to 18.2.89 = 7 years + 3 months 15 x 7 40,521 x -------- 25 years = 44,066 100 (ii) Security deposit amount : Rs. 3,850.00 Pre-suit period 29.7.82 to 18.2.89 (6 years 6 1/2 months). 3,850 x 15 x 6.54 years = Rs. 3,766 Total Rs. 47,842

Accordingly, I award that the respondents do pay the claimants, an amount of Rs. 47,842.00 in settlement of this claim." Claim No. 5 : Towards pendente lite and future interest. Whether the claimants are entitled to the claim of interest on their due amounts of Claim Nos. 1 and 2 at 24% per annum, during the pendente lite period and also future period, and if so, to what extent? The reasoning as well as the amounts awarded in respect of this claim may be reproduced as under: "The claimants had submitted the final bill on 29.7.81 along with the measurement sheets. In the normal course, the final bill should have been cleared in 3 months time. Even after appointment of the Arbitrator, the respondents have taken considerable time of more than 1 year to file the counter statement of facts. The respondents have not given satisfactory reasons, for such abnormal delay of nearly 9 years in settling the final bill. The claim of interest for the pendente lite period is a specific claim by the claimant and the Arbitrator was appointed through the intervention of Hon'ble High Court of Delhi. Hence, the example of Supreme Court judgment in the case of Ee, Galimala v. Abudata Jane cited by the respondent is not relevant to this case. Since the legitimate payment due to the claimant has been considerably delayed, the claimants are entitled for payment of simple interest, under the Interest Act during the pendente lite period, at the rate of 15% per annum, w.e.f. 19.2.89, as per calculations given below:- (i) Final bill amount: Rs. 40,521 Tds (41,799 - 1278 = 40,521) Interim Award given on 30.10.1990 = 26,861.81 (23,011.81 +3,850) Claim No. 1 towards claim Say : No. 2 Rs. 23,012. Pendente lite Interest : (a) Period 19.2.89 to 30.10.90 (1 year-8 months 40,521 x 15 x 1.666 Years 100 =Rs. 10;126 (b) Period 1.11.90 to 31.3.91 (5 months). 23,011.81 (40,521 - ------------- x 15 x 5 Months = Rs. 1058 (-) 568TDS) (c) Security deposit amount : Rs. 3,850.00 Period 19.2.89 to 30.10.1990 (1 year - 8 months) 3,850 x 15 x 1.666 Rs. 962 ---------------------- year 100 Rs. 12,146"

Similarly, future interest was also awarded in case the respondents failed to pay the awarded amount on or before May 1, 1991. Claim No. 6: For Rs. 7,500.00 towards cost of Arbitration. Whether the claimants are entitled to the claim of Rs. 7,500.00 towards the expenditure incurred by them for the Arbitration proceedings and if so, to what extent? This claim was rejected as the claimants were held not to have proved the same by evidence on record. The respondents did not put forward any counter claim before the arbitrator.

To sum up, the claimants were awarded the following amounts under each Head: Suit No. 2369/91 The arbitrator awarded a sum of Rs. 77,497.00 in respect of settlement of all the claims of the claimants and the same is referred below under the respective Heads: ____________________________________________________________________________ Claim no. Items Claimed Awarded Deductions Awarded Amount Amount less Paid in amount (Rs) (Rs) Tds (Rs) Interim Award now (Rs) (Rs) payable (Rs) ____________________________________________________________________________ 1. Final bill 45,744.13 41,799 1278 23011.81 17509 say 23012 2. Refund of security deposit, 3,850 3,850 3850 Nil 26861.81 17509 3. Loss of Profitability, 3,150 Nil, - - - 4. Pre-suit interest, 96,489 Simple interest at 15% 47842 Pa = 47,842 5. (i) Pende 24% per Simple - 12146/77497 nte lite annum interest at 15%, Pa = 12,, 146, (ii) Future, -do- Simple interest rate at 15% Pa w.e.f. amount of Rs. 175009.00 ____________________________________________________________________________ Suit No. 2370/91 The Arbitrator awarded a sum of Rs. 1,05,351.00 as indicated below: ____________________________________________________________________________ Claim no. Items Claimed Awarded Less Tds Deductions Awarded Amount Amount amount (Rs) Paid in amount (Rs) (Rs) (Rs) Interim now Award payable (Rs) (Rs) ____________________________________________________________________________ 1. Final bill 79,205.94 52,588 2,696 16,593 33.299 2. security deposit, 5,000 Nil Nil 3. Earnest money Deposit 3,500 2,500 - 2,500 Nil 4. (i)Pre-suit 1,56,889 Simple interest at 15% - 56,897 interest, Pa = 56,897 5. (i)Pende 24% per Simple - 15,155 nte lite annum interest at 15%, Pa = 15,155.00 (ii) Future, -do- Simple interest rate at 15% Pa w.e.f. 2.5.91 also as an amount of Rs. 33,299.00 if the awarded amount is not paid before 1.5.91 till the actual payment or decree whichever is earlier. 6. Cost of 10,000 Nil - - - arbitration. ____________________________________________________________________________ Suit No. 2371/91 Similarly, in this case the arbitrator awarded a sum of Rs. 75,190.00 as per the following details: ____________________________________________________________________________ Claim no. Items Claimed Awarded Less Tds Deductions Awarded Amount Amount amount (Rs) Paid in amount (Rs) (Rs) (Rs) Interim now Award payable (Rs) (Rs) ____________________________________________________________________________ 1. Final bill 70,686.42 36,060 1,548 13,459 21,053 2. security deposit, 5,000 5,000 - 5,000 Nil 18,459 21,053 3. Per-suit 1,35,756 Simple interest at 15% - 11,419 interest 4. (i)Pende 24% per Simple interest at 15% - 75,190 interest, Pa = 11,437 (ii) Future, -do- Simple interest rate at 15% Pa w.e.f. 2.5.91 also on an amount of Rs. 21,053.00 if the awarded amount is not paid before 1.5.91 till the actual payment or decree whichever is earlier. 5. Cost of 10,000 Nil - - - arbitration. ___________________________________________________________________________

(6) The learned counsel for the respondent has not made any serious challenge to the awards as made by the learned arbitrator and indeed no challenge can be agitated in view of the settled position of law that it is not open for this Court to interfere where the reading of the award shows that the arbitrator had considered specific issues raised by the parties and the findings have been recorded by him after giving cogent reasons. The arbitrator, in this situation, cannot be held to have misconducted himself or in proceedings. In Goa, Daman & Diu Housing Board v. Ramakant V.P.Darvotkar the Supreme Court clearly analysed the powers and scope of interference in such matters. Paragraph 12 of this judgment may be reproduced as follows: "Section 16 empowers the Court to remit the award to the Arbitrator for reconsideration only in three cases specified therein. Clause (C) of Section 16(1) provides that the award shall be remitted to the Arbitrator by the Court where an objection to the legality of the award is apparent on the face of it. Of course, the High Court has come to a finding that the Arbitrator was guilty of misconduct for his failure to give reasons as required. There is, however, nothing to show that the Arbitrator misconducted himself or the proceedings in any other manner nor there is anything to show that the awards have been improperly procured. There is no allegation, far less, any finding, that the arbitrator was biased or unfair or he has not heard both the parties or he has not fairly considered the submissions of the parties in making the awards in question. In our opinion, it is evident from the four awards made by the Arbitrator that the Arbitrator has considered all the specific issues raised by the parties in the arbitration proceedings and came to his finding after giving cogent reasons. The above awards cannot under any circumstances be considered to be made by the Arbitrator without recording any reasons for the same. Therefore, in such circumstances, it is not proper to hold that the Arbitrator has misconducted himself or in the proceedings in the matter of giving the awards."

(7) The only challenge which has been made is with regard to pre-reference interest and it is contended by the learned counsel for the respondent that the arbitrator had no jurisdiction to grant interest under this Head. He has argued that the provisions of the Interest Act, 1978 which came into force with effect from August 19, 1981 do not provide grant of pre-reference interest as Section 3 which confers power on Court to allow interest has not been, complied with. He submits that the claimants have not demanded interest nor any notice has been issued in this regard to make them eligible for award of pre-reference interest. This submission is mis-conceived as the reference was sought by the claimants by invoking the provisions of Section 20 of the Arbitration Act and this Court referred the disputes to the arbitrator which were specified in each petition that also asked for payment of interest. Moreover, the arbitrator is possessed with the jurisdiction to grant such interest. The latest judgment of the Supreme Court on the subject is State of Orissa v. B.N.Agarwalla in this context may be reproduced hereunder:

"15.Claim for interest for pre-reference period again came up for consideration before this Court in Jugal Kishore Prabhatilal Sharma v. Vijayendra Prabhatilal Sharma. It was contended in that case that the arbitrator could not award interest for pre-reference period. While Ranganathan, J.. with whom V. Ramaswami, J. concurred, only observed that "there is some force in this contention" but B.P. Jeevan Reddy, J. who was one of the members of the Bench which decided G.C. Roy case in his concurring judgment dealt with this question at some length. After referring to some of the observations in the judgment of the Constitution Bench in G.C.Roy case, it was observed by B.P. Jeevan Reddy, J. at p. 139 as follows : (SCC para 39) "In the circumstances, it would not be correct to read the first of the five principles set out in para 43 as overruling Jena insofar as it dealt with the arbitrator's power to award interest for the pre-reference period. Principle No. (i) should be read alongwith principle No. (v) wherein it is clearly stated that the interest for the period anterior to the reference (pre-reference period) is a matter of substantive law unlike interest pendente lite. The conclusion in para 44 again deals only with the power of the arbitrator to award interest, pendente lite. It is, therefore, not right to read the said decision as overruling Jena insofar as it dealt with the power of the arbitrator to award interest for the pre-reference period."

16.Again in State of Orissa v. Lal Chand Kapani, after referring to the decision in Abhaduta Jena and G.C.Roy cases, it was observed at p. 69 as under : (SCC para 3) "It is thus clear that before the 1978 Interest Act came into force there was no provision under which the interest for the pre-reference period could be granted. In this case, the Supreme Court also held that the interest pendente lite i.e. from the date of reference to the date of the award, the claimants would not be entitled to the same for the reason that the arbitrator is not a Court within the meaning of Section 34 Civil Procedure Code since the reference was not by a Court in a pending suit. This view regarding the interest pendente lite however has been reversed in Secy. Irrigation Deptt., Govt. of Orissa V. G.C.Roy. Regarding the interest during the pre-reference period, the view taken in Abhaduta Jena case is not disturbed. Thereafter, the interest during the pre-reference period can be awarded provided on the date of the award, 1978 Interest Act was in force." 17. In Sudhir Bros. v. Delhi Development Authority the question with regard to awarding interest for pre-reference period, but in a case arising after the commencement of the Interest Act, 1978, came up for consideration and the legal position emanating from earlier decisions of this Court including G.C.Roy case and Jena case, was stated to be as follows : (SCC para 34, para 7) "The Constitution Bench in G.C.Roy case was dealing with the question relating to the award of interest pendente lite and not with the question of the award of interest for the pre-reference period and it was in that context that the Constitution Bench held that the view expressed in Jena case with regard to award of pendente lite interest could not be said to have laid down good law. The Constitution Bench did not deal with the question of pre-reference interest in cases coming after the enforcement of the Interest Act, 1978, which came into force from 19.8.1981. In G.C.Roy case itself, it is stated that the reference to the Constitution Bench had been necessitated only for deciding the question whether the decision in Jena case was correct insofar as it held that arbitrator had no power to award interest pendente lite. On a doubt being raised whether the Constitution Bench in G.C.Roy case had overruled the law laid down in Jena case relating to the power of the arbitrator to award interest for the pre-reference period in the post-Interest Act, 1978 the position was clarified by a three-Judge Bench in Jugal Kishore Prabhatilal Sharma v. Vijayendra Prabhatilal, Sharma, wherein it was specifically held that the decision in G.C.Roy case was concerned only with the power of arbitrator to award interest pendente lite and that it was not concerned with his power to award interest for the pre-reference period." 18. In view of the aforesaid decisions there can now be no doubt with regard to the jurisdiction of the arbitrator to grant interest. The principles which can now be said to be well-settled are that the arbitrator has the jurisdiction to award pre-reference interest in cases which arose after the Interest Act, 1978 had become applicable. With regard to those cases pertaining to the period prior to the applicability of the Interest Act, 1978, in the absence of any substantive law, contract or usage, the arbitrator has no jurisdiction to award interest. For the period during which the arbitration proceedings were pending in view of the decision in G.C.Roy case and Hindustan Construction Ltd. case, the arbitrator has the power to award interest. The power of the arbitrator to award interest for the post-award period also exists and this aspect has been considered in the discussion relating to Civil Appeal No. 9234 of 1994 in the later part of this judgment."

(8) In the present case the petitioner-claimants had moved an application under Section 20 of the Arbitration Act in each case wherein interest was one of the claims made by them. The arbitrator in all the cases awarded interest for the pursuit period with effect from November 7, 1981 i.e., subsequent to the date after the Interest Act, 1978 had come into force with effect from August 19, 1981. Therefore, the arbitrator possessed powers in law to grant such interest, until and unless the plea 1st raised that the arbitrator has no jurisdiction to award interest for pre-reference period and the contract prohibited the award of interest. This plea has not been taken by the learned counsel for the respondent. The operative portion of paragraph 25 of the above judgment may now be reproduced as under: "From the facts enumerated hereinabove it is clear that the reference in this case was made to the arbitrator by the Court on an application having been filed under Section 20 of the Arbitration Act. As interest was one of the claims made by the respondent, the said dispute was referred to the arbitrator. The arbitrator, therefore, had the jurisdiction to decide this issue. Inasmuch as reference to the arbitration was made after the Interest Act, 1978 had come into force w.e.f. 19.8.1981, the High Court rightly came to the conclusion that at least with effect from that date, interest could be awarded for the pre-reference period under Section 3 of the Interest Act, 1978. This conclusion of the High Court is in conformity with the decision of this Court in the case of Unique Erectors and Sudhir Bros. The only question, therefore, is whether the aforesaid Clause 4 of the agreement negates any claim for interest being made. There can be no doubt that if the terms of the contract expressly stipulate that no interest would be payable then, notwithstanding the provisions of the Interest Act, 1978 an arbitrator would not get the jurisdiction or right to award interest."

(9) In view of the law as stated above, it is, therefore, established that the arbitrator has the jurisdiction to award pre-reference interest in case it arose after the Interest Act, 1978 which became applicable w.e.f. August 19, 1981. In the present case, the interest was claimed by the claimant and the same was granted as it was held by the arbitrator that the legitimate payment due to the claimant had been considerably delayed and, therefore, they were entitled to interest.

(10) In view of the aforesaid reasons, there is no force in the objections of the respondent. The same are, accordingly, rejected. The Awards dated March 31, 1991 are made rule of the Court. The petitioner-claimant shall also be entitled to interest at the rate of 15 per cent per annum from the date of decree till realisation. Let decree be drawn accordingly. There will be no order as to costs.