New Venus Cooperative Group ... vs R.K.K. Printers And Ors.
2005 Latest Caselaw 1725 Del

JUDGMENT

Badar Durrez Ahmed, J.

1. The impugned award was made on 28.10.1994. The main objection preferred against the award is that the learned Arbitrator did not at all discuss claim No.1 in the award nor has any finding been recorded therein with regard to claim No.1. The other objection that has been raised by the learned counsel for the Objector is that in so far as claim No.7 is concerned, which pertains to the forfeiture of the security deposit amount of Rs. 2 lacs, while the learned arbitrator has found the contractor/respondent liable for the delay and hence holding that the invocation of the forfeiture clause was justified, the said Arbitrator has only permitted forfeiture of Rs. 1 lac as against the entire security deposit of Rs. 2 lacs. The learned counsel for the respondent has, however, also stated that another issue which needs to be determined by this court is with regard to the amount of interest that is payable by the objector to the respondent. Before I consider these questions, a brief background maybe necessary.

2. Disputes had arisen between the parties as a result of which the petitioner/objector had filed a petition under Section 20 of the Arbitration Act, 1940 (hereinafter referred to as the said Act) whereupon the disputes were referred to arbitration before the learned Arbitrator who had made the award on 28.10.1994 which is impugned herein. The petitioner had made several claims and the respondent had also submitted his counter claims. The claims and counter-claims included claims for interest also. However, the learned Arbitrator found it fit not to award any interest on the claims as well as on the counter claims. The learned Arbitrator had entered upon the reference on 8.1.1990 and made the award on 28.10.1994. The objections were filed by the petitioner/objector on 24.4.1995. No objections were preferred by the respondent inasmuch as they accepted the award in its entirety including the rejection of interest. During the pendency of the present proceedings before this court under Sections 14/17 of the said Act, certain settlement talks had also been initiated. However, those talks fell through. It would be pertinent to note that on 24.5.1999, as recorded in the order of that date, the petitioner/objector expressed its willingness to pay the awarded amount of Rs. 5,42,946/- to the respondent without prejudice to its rights and contentions. It is also an admitted position that the payment was ultimately made by the petitioner/objector to the respondent on 13.06.2003.

3. I now take up the objections raised by the petitioner/objector. The first objection was that the claim No.1 preferred by him to the extent of Rs. 73,314.13 was not at all considered by the learned Arbitrator and this would be apparent from a plain reading of the award itself. This claim was in respect of the amount paid to the contractor from 16.10.1985 and 2.3.1986 by way of statutory escalation of rates of wages payable to the labour. The petitioner/objector claimed that the contractor/respondent would have been entitled to retain this amount if he had completed the work on schedule i.e. by 1.11.1983. According to him, since the work was not executed within the time schedule as agreed upon, the contractor is liable to pay this amount back to the employer. Although this claim has been mentioned in page 8 of the award in paragraph 7 thereof, there is no discussion contained in the award insofar as this claim is concerned. The learned counsel for the respondent/contractor was also unable to point out any portion of the award where this claim has been discussed. Accordingly, there is merit in what the learned counsel for the petitioner/objector has submitted. Going by the admitted position that the work was not completed as per the time schedule agreed upon, it becomes clear that the petitioner would be entitled to the said sum of Rs. 73,314.13 and, therefore, to this extent, the award needs to be modified.

4. Coming now to the second objection raised by the petitioner/objector, it becomes clear that a claim of Rs. 2 lacs (being claim No.7) was prayed for by the petitioner before the learned Arbitrator. This amount represented the security deposit made by the respondent/contractor with the petitioner/objector. There was some dispute as to the manner in which the said amount was lying in deposit with the petitioner. However, the Arbitrator conclusively determined that an amount of Rs. 2 lacs was lying with the petitioner by way of security deposit. The contention of the petitioner/objector before the learned Arbitrator was that as the respondent/contractor had failed to complete the construction according to the terms of the agreement between the parties, the entire amount of the security deposit of Rs. 2 lacs was liable to forfeiture. There is no doubt that the learned Arbitrator has discussed this claim in an elaborate manner from pages 31 to 36. However, the learned Arbitrator, despite finding that the petitioner/objector was entitled to forfeit, held that the forfeiture would be only of an amount of Rs. 1 lacs and not of the entire sum of Rs. 2 lacs. The reasoning given by the learned Arbitrator is as under:

Despite the fact that the employer must have incurred higher expenditure for completion of the construction in 1991 which ought to have been completed by the contractor/employer latest by 1987/1988, I cannot persuade myself to permit him to forfeit the entire amount of security deposit of Rs. 2 lakhs by way of compensation for the simple reason that the employer has not produced any satisfactory evidence to prove as to what is the exact amount he had had to spend for completion of the construction of the building, as agreed upon, over and above the amount arrived at by valuing the said building at 50% above DSR 1981. On balancing the equities on both sides, I am of opinion that if the employer is allowed to forfeit one half amount of the security deposit, i.e. Rs. One Lakh only, it should meet the ends of justice. He must refund the remaining Rs. One Lakh to the contractor. If the employer has suffered more damages than Rs. One lakh being awarded for him, he must bear that loss because he did not produce relevant evidence to prove the amount of exact loss. The employer is thus awarded Rs. 1 lakh as compensation instead of Rs. 2 lakhs claimed by him.

5. The learned counsel for the petitioner/objector submitted that in cases of forfeiture once the condition precedent permitting forfeiture is satisfied then forfeiture of the entire amount has to be allowed. On the other hand, the learned counsel for the respondent submitted that the learned Arbitrator has not erred in granting only Rs. 1 lacs as against the claim of Rs. 2 lacs because the same has been done on the basis of balancing of equities. The forfeiture clause is reproduced herein below:

The security deposit of the contractor will be forfeited if he fails to comply with any of the conditions of the contract. - [Clause 24 of Exhibit P-6]

Upon a plain reading of the said clause, it becomes clear that if the contractor fails to comply with any of the conditions of the contract, the security deposit becomes liable for forfeiture in its entirety. The learned Arbitrator having come to the conclusion that the respondent/contractor had failed to comply with the conditions of the contract even resulting in higher expenditures to the petitioner, he could not have limited the forfeiture to Rs. 1 lac when the clause specifically provided for forfeiture in its entirety.

Accordingly, I am of the opinion that the entire security deposit amount of Rs. 2 lacs was liable to forfeiture and, to this extent also, the award needs to be modified. In all other respects, after hearing submissions of learned counsel for the parties, I feel that no interference with the award is called for.

6. Now, I come to the question of interest. To recapitulate, the learned Arbitrator had declined the claim of interest to both the parties. No objection in respect thereof has been preferred by the respondent/contractor. Therefore, there is no dispute with regard to the period prior to the date of the award. The dispute between the parties is with regard to the interest for the period commencing on the date of the award i.e. 28.10.94 till 13.06.2003 when the awarded amount was paid by the petitioner/objector to the respondent/contractor. The learned counsel for the petitioner/objector submitted that no interest at all was payable by the petitioner. He said so on the strength of the decision of the Supreme Court reported in M/s Jagdish Rai and Brothers v. Union of India and, in particular, he referred to paragraphs 2 and 3 of the said decision of the Supreme Court. Paragraph 2 of the said decision makes it clear that there are four stages for grant of interest. The first stage is from the accrual of the cause of action till the filing of the arbitration proceedings. The second stage pertains to the period during which the proceedings are pending before the Arbitrator. The third stage relates to interest arising between the date of the award and the date of the decree and the fourth stage relates to the period commencing from the date of the decree till realisation of the award. The learned counsel for the petitioner/objector laid great stress on the following passage:

The claim for interest not having been made before the Court in which proceedings for making the award the rule of the court were pending would certainly disentitle the appellant for making such a claim during first three stages of pre-arbitration and post-arbitration that is between award and filing of application inasmuch as several considerations will have to be examined before award of interest and at what rate. Therefore, when the award had not been challenged for not granting interest, the award could not be upset to that extent. The view taken by the High Court appears to be correct to that extent.

7. He contends that no interest was granted by the Supreme Court for the first three stages in that case where the situation was somewhat similar to the facts of the present case. He further contends that the award has not yet been made a rule of the court and the petitioner has already paid the awarded amount, therefore, there is no question of the fourth stage being invoked. That being the case, it is his contention that no interest whatsoever would be payable by the petitioner to the respondent. I may deal with this case straightaway by stating that this decision has been rendered on the premise, as would be apparent upon a plain reading of the aforesaid quotation, that "the claim for interest not having been made before the court in which proceedings for making the award the rule of the court were pending." The situation here is entirely different inasmuch as the respondent has requested for interest, although not by a formal application, in proceedings before this court where the award is to be made a rule of the court. Therefore, the dictum of the Supreme Court in the case of Jagdish Rai and Brothers (supra) would not be applicable to the present case. The learned counsel for the respondent/objector pointed out another decision of the Supreme Court in the case of Gujarat Water Supply and Sewerage Board v Unique Erectors (Gujarat) (P) Ltd and Anr., and in, particular, he referred to the paragraphs 13, 14, 15 and 16 thereof to indicate that this court should and ought to grant interest during the pendency of the litigation, that is, from the date of the award to the date of the decree. Therefore, as pointed out by the learned counsel for the respondent, there is no impediment to the grant of interest from the date of the award till the date of the decree even though claim for interest has been rejected in the award by the learned Arbitrator. In my view, this submission of the learned counsel for the respondent is tenable and the case referred to him is quite apposite.

8. Now, in the peculiar facts of this case, since the amount has already been paid to the respondent and an adjustment has also to be made in terms of the modifications referred to above, interest would be awarded on the following principles:- After adjusting the amounts of Rs 73,314.13 and Rs 1 lac (totalling Rs 1,73,314.13) in favor of the objector, the amount of the award gets reduced to Rs 3,69,631.87 (Rs 5,42,946.00 - Rs 1,73,314.13). Interest shall run on this amount @ 6% per annum from 28.10.94 (i.e. the date of the award) till 13.6.2003 and on the balance amount (after adjusting the sum of Rs 5,42,946/- paid by the objector on 13.6.2003) from 13.6.2003 till payment @ 6% per annum. The objections stand disposed of and the award as modified is made a rule of the Court.