Thermospares India vs B.H.E.L. And Ors.
2006 Latest Caselaw 1025 Del

JUDGMENT

Sanjay Kishan Kaul, J.

Page 2073

IA No. 4562/2001 (Under Sections 30 and 33 of the Arbitration Act, 1940)

1. The respondent BHEL invited tenders for erection, testing and commissioning of pressure parts of Boiler Units I and II at Panipat Thermal Power Project, Panipat in 1976. The petitioner submitted its tender, which was the lowest and was thus accepted. A letter of intent was issued by the respondent. The respondent issued the work order No. 60049 dated 3.11.1976 to the petitioner for Unit I for a total value of Rs. 12,34,200/- and during the execution of the said work on 10.5.1977 also awarded pressure parts work of Unit II to the petitioner as per the work order dated 10.5.1977.

2. The respondent further invited tenders for erection of external pipelines and auxiliaries of Units I and II and the tender of the petitioner was found to be the lowest, which was accepted and the letter of intent issued on 13.6.1977. The work order No. 60060 dated 17/22.08.1977 was placed on the petitioner for a total value of Rs. 12,37,440/-.

3. The work was completed and according to the respondent all the payment due to the petitioner was made. The communications between the parties, however, show that the petitioner raised certain claims and in view of the disputes filed petitions under Section 20 of the Arbitration Act, 1940 (hereinafter referred to as the said Act) in this Court, which was registered as Suit No. 305A/1985 and 304A/1985. The petitions related to work order No. 60060 and 60049 respectively. The petitions were disposed of only on 8.1.1994 referring their disputes to Arbitration in terms of the Arbitration Clause between the parties, the disputes being as set out in para 12 of the petitions.

4. The General Manager of the respondent vide letter dated 24.7.1998 appointed Shri Ashok Kumar, as the Sole Arbitrator. It may be noticed that Shri Ashok Kumar is an Engineer by qualification and a retired AGM of the respondent. The Arbitrator made and published his awarded dated 27.7.2000. The respondent aggrieved by the same has filed the objections under Sections 30 and 33 of the said Act.

5. Learned counsel for the respondent has advanced the submissions at length taking this Court through the various documents and pleadings. Learned counsel did initially seek to contend that there was no proper appreciation of the evidence by the Arbitrator but learned Counsel was put to notice that in view of a catena of judgments of the Apex Court that would not be the scope of scrutiny by the Court in the present proceedings. As far as the claims are based on appreciation of evidence, the same cannot be rescrutinised by this Court as that would amount to this Court sitting as a Court of appeal, which is not permissible. It is not for this Court to interfere with an award merely on the basis that the Court would come to a different conclusion on the material available before the Arbitrator. The legal position in this behalf has been elucidated in Food Corporation of India v. Joginderpal Mohinderpal and Anr. and by the Division Bench of this Page 2074 Court in DDA v. Bhagat Constructon Co. Pvt. Ltd. 2004 (3) Arb.LR 481. It has been held that in the absence of the award being absurd, reasonableness is not a matter to be considered by the Court, as appraisement of evidence by an Arbitrator is not ordinarily a matter for the Court. In fact in M/s Sudarsan Trading Co. v. Govt. of Kerala , it has been held that the interpretation of a contract is a matter for the Arbitrator and the Court is not to substitute its own decision for that of an Arbitrator. So long as the view taken by the Arbitrator is plausible, though perhaps not the only correct view, the award cannot be examined by the Court. In both Arosan Enterprices Ltd v. Union of India and Anr. 1999(3) Arbitration Law Reporter 310 and State of UP v. Allied Constructions , it has been reiterated that Section 30 of the said Act is restrictive in its operation and unless one of the conditions specified therein is satisfied an award cannot be set aside. The Arbitrator is a judge chosen by the parties and his decision is final. Thus, error apparent on the face of the record would not imply closer scrutiny on merits of the documents and material on record.

6. If the aforesaid tests are applied to the objections filed by the petitioner a number of them would fall by the wayside.

7. Learned counsel for the petitioner, despite this legal position, sought to canvass that there are claims where there is total absence of evidence and thus at least to that extent the scrutiny of the Court is not precluded. Further, it was contended that the award was in violation of the specific clauses of the Contract and since the Arbitrator was a creature of the Contract, the Arbitrator was bound to follow the terms as set out in the Contract. Some of the claims made by the petitioner were stated to have been given up even prior to the commencement of the Arbitration proceedings. The basic sub-stratum of the submissions of the learned Counsel for the respondent rested on the plea that the petitioner had given No Claim Certificates as far back as 1979/1980 and once all the matters regarding financial implications stood settled, it was not open to the Arbitrator to have awarded the amount. The petitioner not having challenged the No Claim Certificate, the respondent contended that a plea of payment beyond the No Claim Certificate was not admissible.

8. In order to appreciate the aforesaid plea of the respondent, the stand of the petitioner in this behalf has to be kept in mind, which is that the dispute is not really so much in respect of the work originally envisaged under the Contract but in respect of the variation arising from the direction of the respondent for TIG welding joints and extra joints. It was, thus, the contention that the Arbitrator has considered this aspect and awarded amounts on that account since the No Claim Certificate could not be construed as settlement of the said two claims. The signatures on the No Claim Certificate have not been denied by the petitioner but the additional plea is that the No Claim Certificate form a part of the documents for payment in a pre-format form Page 2075 and the petitioner would not have been entitled to even the undisputed amounts, if that Certificate had not been signed. The submission thus is that what is called a No Claim Certificate in the present case has to be distinguished from a Certificate issued by a party post negotiations of the respective claims of the parties where one party agrees to accept the same in full and final satisfaction of all the claims.

9. Learned counsel for the petitioner drew the attention of this Court to the No Claim Certificates. In respect of the Contract No. 60049, the No Claim Certificate is dated 24.9.1979. It is in a printed format giving the total work carried out, total payments made and the balance payment to be made. It also contains a printed certification to the effect that the Contractor has no further claim under the Agreement/Work order. It may, however, be noticed that at the end of the said certification, the Contractor/petitioner has added the words 'except as otherwise'. It is also really not in dispute that the said document formed a part of the set of documents to be signed by the Contractor for release of payment. There is also another certificate styled as 'Certificate to be furnished by the Contractor' in the printed format stating that the work done and the payment for the labour or material supplied had been made in full and final satisfaction of all the claims of the Contractor.

10. Learned counsel for the respondent also drew the attention of this Court to a letter dated 24.1.1983 of the petitioner stating that all the bills of the petitioner had been cleared and settled except for an amount of Rs. 12,000/- left to be paid against the final bill. The refund of Rs. 3,611.86/- deducted towards security against labour was sought in addition to the same vide the said letter. The letter also stipulates that the petitioner was withdrawing the earlier letter dated 23.8.1982. This was followed up by another letter dated 8.2.1983 withdrawing the earlier letter dated 18.1.1983 and stating that there was no claim on account of interest. A request was also made in view thereof to clear the final bill. The letter dated 18.1.1983 is available whereby interest had been claimed on account of delay in payment.

11. Learned counsel for the respondent referred to the admission/denial of document carried out in the Arbitration proceedings to point out that insofar as the No Claim Certificates dated 24.9.1979 and 5.4.1980 are concerned, the signatures of Shri Y.K. Jain on behalf of the petitioner were not disputed but it was stated that the certificate pertained only to the running bills and had no relevance to the extra work of TIG welding. Similarly the letter dated 24.1.1983 referred to above was also not disputed but the endorsement stated that the same pertained to the clearance of running bills for the work originally allotted. Learned counsel submitted that even the so called extra work had been completed by the relevant date and admittedly there was no separate work order given. It was thus submitted that the No Claim Certificates amounted to a final settlement of all the claims of the petitioner.

12. Learned counsel for the respondent submitted that the plea of the petitioner about these No Claim Certificates has been referred to in the Award but the Arbitrator came to the conclusion that the same were required to be signed by the petitioner before receiving any payment and thus the No Claim Page 2076 Certificates are obtained without free consent as the payments lying with the respondent would not have been released without signing the No Claim Certificate. Learned counsel contended that the statement of claim filed by the petitioner was cryptic and there was no such plea raised about the absence of any free consent or any duress on the part of the respondent. Not only that, even prior to the institution of the petition the petitioner had not raised the issue about any such absence of free consent or duress till the filing of the petitions under Section 20 of the said Act.

13. Learned counsel for the respondent relied upon the judgment of the Apex Court in Nathani Steels Ltd. v. Associated Constructions 1995 Supp (3) Supreme Court Cases 324. It was held that once there is a full and final settlement in respect of any particular dispute or difference in relation to a matter covered under the Arbitration Clause then such a dispute or difference does not remain as an Arbitrable dispute and the Arbitration Clause cannot be invoked. The plea that the settlement recorded was under a mistake was repelled as the same would amount to the sanctity of the Contract being lost as settlement was also a Contract. Thus one party would obtain benefit under the settlement and would then question the same on a ground of mistake without having the settlement set aside. The pre-requisite, however is that there should be an amicable settlement by and between the parties and a full and final payment as per the settlement. The same principle has been reiterated in Union of India v. Popular Builders, Calcutta . Learned counsel for the respondent referred to the 9th proceedings held before the Arbitrator on 4.9.1999, which recorded the contentions of the parties. The contention of the petitioner recorded therein is that the claim under Contract 60049 had arisen as a consequence of change of welding specifications from Arc welding to TIG welding during the course of execution of work for which the additional expenses had to be incurred. Ad hoc payments were made for this amounting to Rs. 93,578.90, however, later on the respondent arbitraly sanctioned an amount of Rs. 61,517.28 on 26.4.1979 for each unit of additional work and instead of making further payment deducted from the running bills cost of argan gas supplied by the respondent. The deduction made for argan gas was Rs. 1,23,967.74, which was more than the total amount of Rs. 1,23,034.56 paid for the additional work, though the petitioner had incurred huge expenses on labour, argan gas, etc. and over heads due to these changes in specifications. The payment to TIG welders was stated to be much higher than other welde Rs. The No Claim Certificate issued by the petitioner for running bills was submitted as not relevant for the extra work and the same were given under duress as the bank guarantee and other payments were not being released. Learned counsel for the respondent, however, submitted that this plea sought to be orally advanced on behalf of the petitioner did not form a part of the statement of claim nor was any correspondence placed on record to substantiate this stand of the petitioner from the date of the final bill till the invocation of the Arbitration.

Page 2077

14. Learned counsel for the respondent contended that the position on the issue of the No Claim Certificate was similar even in respect of the other Contract No. 60060. Learned counsel referred to the final bill dated 21.10.1981 which contains the memorandum of payments. The total value of work done is stated at Rs. 14,88,228.24 while the total value as per the original contract was Rs. 12,37,440/-. It was thus contended that the final bill included the extra work. This bill also contains the endorsement that there is no further claim under the Agreement/work order. As in the case of other contract, an endorsement was made 'except as per Annexure I attached' but the same was scored out and countersigned by the Contractor. The total amount recoverable is shown in Minus (-) being Rs. (-)3,611.86, thus amount was actually recoverable from the petitioner. Insofar as the security deposit was concerned the endorsement states that the security deposit would be released after April 1981 being one year from the completion of the work.

15. Learned counsel drew the attention of this Court to the letter dated 12.6.1984 of the petitioner in respect of the final bill against the second work order seeking payment of Rs. 5,000/- withheld to complete the balance work during shut down. On the said letter the respondent issued a certificate that no work was being carried out by the petitioner during the shut down period and thus the withheld money of Rs. 5,000/- be released to the petitioner. The further endorsement is that this being the final payment all formalities be completed. Learned counsel thus submitted that as per the own case of the petitioner in 1984 only a sum of Rs. 5,000/- was payable. It is in view thereof that when the Arbitration Clause was invoked the respondent in its letter dated 3.1.1985 had stated that only a sum of Rs. 5,000/- was withheld against the work order and more than three years had passed since the final measurements were settled, the net recovery to be made was Rs. 3,611.86 and thus the balance amount payable out of Rs. 5,000/- was Rs. 1,305.14 after recovering income tax of Rs. 83/- and for this amount advance stamp receipt was sought from the petitioner. It was submitted that since advance receipt was never submitted the payment could not be made.

16. Learned counsel for the petitioner seriously disputed this concept of final settlement specially conscious of the fact that the same would be fatal to practically all the claims made by the petitioner.

17. Learned counsel for the petitioner emphasised that the so called settlements and certificates were 'dotted lines' settlements and the bills of the petitioner would not have been paid but for signing the same. In respect of the Contract No. 60049 even the words 'except as otherwise' had been endorsed. In any case the aspect of TIG welding joints and extra joints was contended to be separate and in this behalf learned Counsel referred to the minutes of the meeting held on 25.4.1979. The relevant extract of the said minutes are as under:

3. After discussions, it was settled that

(a) the claim on extra tig welder joints (Bill No. 30/BHEL/PTP/78-79 against work order No. 529/VA/103/60049 and Bill No. 26/BHEL/PTP/78-79 against work order No. 07/PPN/60049 dated 10.5.1977, belonging to Jan. 10, '79 and 10.1.78 respectively) will be settled on the same terms and conditions as were settled for M/s. Northern India Erectors, Badarpur, and adjustment made for the advances already paid to them on this account.

Page 2078

(b) The extra claims regarding the extra joints for piping namely, Bill No. TSI/EPI/179 dated 26.3.79 for Rs. 2,63,600 and TSI/EPI/180 dated 26.3.79 for Rs. 2,64,200 were settled to Rs. 77,315.60 (Rupees seventy seven thousand three hundred fifteen and paise sixty only) as per the annexure attached. An amount of Rs. 65,000/- will be released to effect immediate labour payment and the balance set off against the dues of M/s. Thermospares to BHEL.

18. Learned counsel submitted that the reading of the aforesaid would show that the claim for TIG welding was to be settled on the same conditions as M/s. Northern India Erectors and in respect of the extra joints for piping were to be settled as per para 3(b) referred to above.

19. Learned counsel submitted that the respondent made even part payments on 22.9.1983 and 17.12.1984 and thus full and final satisfaction would not have been accorded as there would have been no reason to make these part payments.

20. Learned counsel for the petitioner referred to some of the communications to throw light on how the issue of extra work was understood by the parties as also in respect of the No Due Certificate. In this behalf learned Counsel referred to the letter dated 2.5.1980 of the respondent referring to the fact that the work order was closed after 'obtaining' No Due Certificate. Learned counsel thus emphasised the fact that the No Due Certificate was obtained by the respondent from the petitioner. In reply to the same the petitioner addressed a communication dated 22.5.1980 to state that the actual cost does not include over head charges and requested for refund of all excesses and illegal recoveries made. It was further stated that the No Due Certificate did not mean that the petitioner cannot challenge illegal recoveries and legal claims.

21. The bills for TIG welding dated 10.1.1979 and 11.10.1980 were submitted by the petitioner at the extra rate of Rs. 300/- per metric tonne.

22. I have considered it appropriate to examine this issue with detailed reference to the factual matrix and documents on record which in normal circumstances would not be so required. It has been necessitated in the present case on account of the fact that the very sub-stratum of the claims of the petitioner suggest the absence of any final settlement. This issue has been raised even before the Arbitrator as a preliminary issue. After a full and final settlement has been arrived at, it cannot be said that the Arbitrator would still go into this issue and determine the respective claims. The Court does not sit in appeal over an award nor does it like to interfere with an award specially when it has been made by an expert. The Arbitrator in the present case is undoubtedly technically qualified to go into the disputes. This principle has been set out in Jagdish Chander v. Hindustan Vegetable Oils Corporation and Anr. . However in view of the judgment in Nathani Steels Ltd. Case (Supra) and as followed in Union of India v. Popular Builders, Calcutta case (Supra) this aspect certainly is Page 2079 required to be examined and would fall within the purview of scrutiny by the Court under Section 30 of the said Act.

23. The Arbitrator did take cognizance of this plea but on examination of the pleadings and submissions has found that the certificate was prepared and was required to be signed along with the bill and was thus without the free consent as the payment lying with the respondent would not have been released to the petitioner. Such a plea can be examined by an Arbitrator but the sub-stratum of the same must be laid. A perusal of the statement of claim filed by the petitioner shows that it is cryptic and no such plea has been set out. The petitioner had filed a petition under Section 20 of the said Act and the disputes forming subject matter of these objections were referred to Arbitration. However, the claims of the petitioner have to be tested on this touchstone, as the reason for rejection of the plea of the respondent of a final settlement has been found by the Arbitrator to be the absence of free consent on the part of the petitioner. This is a specific plea, which was required to be raised and has not been so raised.

24. Even if it be assumed that the fact that such a certificate was required to be issued at the stage of finalisation of the bills would imply there is some inherent duress as the petitioner would not have recovered the amounts in the absence of the said certificate, the conduct of the petitioner soon thereafter would be important. In case of such absence of consent or duress the least that is expected is that the petitioner would address the issue to the respondent at least on receipt of the balance payment. There has been absence of any such communications despite a period of more than three years having passed prior to the filing of the petitions under Section 20 of the said Act. In fact, the communications addressed by the petitioner on 8.2.1983 and 18.1.1983 in respect of contract No. 60049 seem to suggest that the petitioner had accepted that only the amount set out therein were recoverable from the respondent. The minutes of the meeting held on 25.4.1979 relied upon by the petitioner itself would show that both parties were conscious of the issue arising from the claim of the petitioner for TIG welding and for extra joints. The respondent vide its letter dated 20.10.1980 had relied upon the said minutes and had taken a categorical stand that no further payments were outstanding in that behalf and the bills raised by the petitioner were returned in original.

REGISTERED A.D.

ERN/60060/PTPP/28/Piping/2052 Oct. 20, 1980

M/s. Thermospares India,

Mechanical Erectors and Engineers

Jain Ghati, Jattan Street

Karnal (Haryana).

SUB: - TIG WELDING CLAIM REG.

Dear Sir,

This is in reference to your letter No. TSI/B-1/240/80-81 dated Oct. 11, 1980 regarding the above mentioned subject. Your claims in respect of Tig welding have already been settled and cleared vide minutes of meeting held on 25.4.79 at New Delhi and no further payment is outstanding in this regard. As such your letters No. TSI/B-1/239/80-81 dated Oct. 11, 1980 and TSI/B-1/243/80-81 dated Page 2080 July 21, 1980 (for bill No. 26/BHEL/PTP/78-79 against W.O. No. 07/PPN/60049/ dated 10.5.77), and TSI/B-1/242/80-81 dated July 21, 1980 (for bill No. 30/BHEL/PTP/78- 79 against W.O. No. 529/VA/10/60049) are hereby returned to your in original.

Thanking you,

Yours faithfully,

(A.K. SHAMNANI)

Encl: As above.

CC: - Sh. A.D. Parasher

DGM/Thermal,

BHEL, PPNR., New Delhi.

25. The letter of the petitioner dated 24.1.1983 stating that the bills were cleared except to the extent of Rs. 12,000/- itself deals a blow to the claims of the petitioner. It would be useful to reproduce the same as under:

Ref. No. TSI/B-1/275/81-82 Dated 24.1.1983

The Project Manager,

M/s. Bharat Heavy Electricals Ltd.,

Panipat Thermal Power Project,

ASAN, Panipat.

SUB: Finalisation of Final Bill against W.O.No. 27/PPN.

Dear Sir,

We are to bring it to your kind notice that all our bills are cleared and settled, except the above and now only a sum of Rs. 12,000/- (Rupees Twelve Thousand app.) is left to be paid to us against the above bill. The Bank Guarantee against all the work orders were also released long back. We shall be highly thankful to your goodself if the above sum is released immediately and the cheque of the said amount be sent to our bankers 'The Hindustan Commercial Bank Ltd., Panipat' with the request to credit the same to our current account and under intimation to us.

We are also pleased to withdraw our letter No. TSI/B-1/244/82-83 dated 23-8-1982.

We also request you to kindly refund a sum of Rs. 3750/- deducted as security against labour from our bills as we have made the payments to all our workers and no liability on labour account is left.

Thanking you and hoping for an immediate action at your end for the clearance of the bill under question.

Yours faithfully,

for Thermospares India

(B.K. JAIN)

C.C.1. Deputy General Manager,

Finance, M/s. B.H.E.L.,

P.P-N.R. Vikram Tower

Rajindra Place, ND.

26. It may be noted that if the issue of TIG welding and other claims were still pending, what was the occasion to have issued this letter in 1983. It was a Page 2081 different matter that the petitioner did not even pay this amount on the ground that the complete issue stood already settled and that there was no amount payable. The purpose of referring to this letter is to show the stand of the petitioner itself which did not make out a case for any large amount due and outstanding on any account whatsoever other than the amount referred to in the letter dated 24.1.1983. It is not possible to accept the plea of the petitioner that this letter did not relate to the issue of TIG welding and extra joints since that matter was being processed separately. In the minutes of meeting dated 25.4.1979 the two aspects were referred to in para 3, which has been quoted above, but the letter dated 20.10.1980 of the petitioner clearly stated that the matter stood settled. Admittedly there is no separate work order, in respect of the TIG welding and the extra joints and the same formed a part of the main contract. The plea of the petitioner was that this amounted to additional work/modification of the original work. Thus one cannot understand as to what would be the occasion vide letter dated 24.1.1983, to have accepted finalisation of the final bill de hors these aspects when these two aspects are specifically raised in the minutes dated 25.4.1979 and are said not to be payable in terms of the letter dated 20.10.1980.

27. The only conclusion thus to be arrived at is that from the point of view of the respondent the whole matter already stood concluded and the stand of the petitioner was only that a further sum of Rs. 12,000/- and Rs. 3,611.86 /- was to be paid which was also never admitted by the respondent.

28. Again insofar as the second contract is concerned, the final bill dated 21.10.1981 clearly shows that extra work is envisaged in the bill since the bill amount is more than the value of the contract. While examining the aforesaid bill, it has been noticed that the total value of the work order was Rs. 12,37,450/- while the final bill was for Rs. 14,88,228.24. Even the endorsement made in the writing by the representative of the petitioner 'except as per Annexure I attached' was deleted and countersigned. At no stage thereafter has the petitioner raised this issue for quite some time. On the other hand the communication dated 12.6.1984 of the petitioner itself would show that only a sum of Rs. 5,000/- was claimed. The said communication with endorsement is as under:

751/B-1/249/82-83 Dated 18-2-1983

The Sr. Accounts Officer,

M/s. Bharat Heavy Electricals Ltd.,

PP-NR, Vikram Tower,

16, Rajindra Place, New Delhi-110008.

SUB: Withdrawal of claim of interest charges

ATTN: Mr. V.K. Saxena

Dear Sir,

This has reference your letter No. PN: TFA: P and A dated 1st Feb., 1983. In this regard we are pleased to withdraw our claims preferred vide our letter No. TSI/B-1/244/2-83 dated 23.8.82 and TSI/B-1/245/82-83 dated 18.1.83 and that now there is no claim whatsoever on a/c of interest now. Page 2082 Hope you will find the above in order and favor to clear our final bill against W.O. No. 27/PPN at the earliest.

Thanking you, we remain,

Yours faithfully,

for Thermospares India

(B.K. Jain)

Pls. Pay this by 25/2/82. The cheque is to be sent by Regd. Post ad - A/c payee-Non Negotiable cheque may be issued.

(M.K. Jain)

29. In view of the aforesaid it does not even lie in the mouth of the petitioner to contend that anything more was payable. This letter was even replied to by the petitioner in the following terms vide letter dated 3.1.1985:

SM: NHO: FA: P and A: 152: 84-85 January 3, 1985

M/s. Thermospares India,

through its Partner Mr. B.K. Jain,

C/o Shri J.D. Jain,

Advocate,

Lawyers' Chamber No. 117,

Supreme Court of India,

Tilak Marg

NEW DELHI-110001

M/s. Thermospares India, through its Partner Mr. B.K. Jain, C/o Shri J.D. Jain, Advocate, Lawyers' Chamber No. 117, Supreme Court of India, Tilak Marg NEW DELHI-110001

Dear Sir,

We acknowledge your notice invoking arbitration clause against Work Order No. 27/PPN/60060 and would like to state as follows:

As far as this work order is concerned the entire measurements have been accepted by you. A sum of Rs. 6,674.40 was paid to you vide cheque No. H-048367 dated 22.9.83. You have also signed the entire measurements as acceptable on 21.10.1981 at page 8 of MB 317. A net recovery of Rs. 3611.86 was to be made and we have withheld a sum of Rs. 5,000/- against this Work Order. We will be pleased to refund the sum of Rs. 1305.14 after recovering Income-tax of Rs. 83 due from you for which a Tax Deduction Certification will be furnished to you.

In this connection, we wish to point out that the bills for extra works that were submitted by you were discussed between the parties and the issue was finally settled. You have also furnished a 'no claim certificate' in the final bill. It is now more than three years that you have accepted the final measurements and there are no disputes between you and us existing since 21.10.1981.

We, therefore, fail to understand as to how the arbitration clause could now be invoked when no disputes exist. You request is, therefore, wholly misconceived and totally untenable. If, in spite of this, you still institute any action in a Court of Law, the same would be solely at your risk and cost.

To obtain the payment of Rs. 1305.14 we, however, request that an advance stamped receipt may be given to us to enable us to release this payment to you without any delay.

Page 2083

Thanking you,

Yours faithfully,

for BHARAT HEAVY ELECTRICALS LTD.

(S. BALASUBRAMANIAM)

MANAGER (FINANCE)

30. Thus the respondent informed the petitioner that in view of the stand of the petitioner as acceptable to the respondent a sum of Rs. 1,305.14 was payable for which advance stamp receipt may be given. The petitioner never gave the receipt and the respondent never paid the amount. If the petitioner were to issue the receipt the amount would be paid.

31. The aforesaid facts show that the claims of the petitioners stood fully satisfied in respect of both the contracts and the Arbitrator has completely ignored all the material placed before him. The Arbitrator proceeds on a presumption of an element of duress and pressure on the petitioner when the petitioner has neither raised such a plea in the claim filed before the Arbitrator nor has this been a plea in any communication placed on record by the petitioner. It is a case of total absence of any evidence and it is not understood as to what is the material on which the Arbitrator came to the conclusion that the settlement was under pressure or duress which is the basis for rejection of the plea of the respondent.

32. The result is that the finding arrived at by the Arbitrator in this behalf is liable to be set aside and the natural consequence is that all claims of the petitioner are held to have been finally settled.

33. The aforesaid finding negates the whole claim of the petitioner but in view of there being certain other aspects raised in the award, I consider it appropriate to even discuss the same.

34. Learned counsel for the respondent had impugned the findings of the Arbitrator even in respect of the over run charges, which has been considered as issue No. 2. In this behalf learned Counsel drew the attention of this Court to Clause 3.34 of the conditions of the Contract which reads as under:

3.34. No over run charges shall be paid in the event of the completion period is extended for any reasons whatsoever.

35. Learned counsel for the respondent contended that there was no reasoning given by the Arbitrator to come to a finding for payment of over run charges albeit for a much smaller amount, and such over run charges could not have been granted in view of the specific stipulations in Clause 3.34. It was not even pleaded that respondent was at fault and no details of the same were given in the Contract.

36. Learned counsel also referred to the minutes of the meeting dated 13.8.1976 where the aspect of over run charges not being payable was specifically agreed to. The relevant extracts are as under:

13. With regard to the overrun the representative stated that they are fully agreeable to the terms and conditions given in the tender documents.

15. The representative of M/s. Thermo Spares India clarified that all terms and conditions as otherwise given in the tender specification are agreeable.

Page 2084

37. Despite the aforesaid, it was contended that the Arbitrator had come to the conclusion that the said provision was without consideration and in view of the uncertainty of the period for which no over run charges would be paid, the contract terms were held not to be equitable and thus the clause was held as not binding.

38. To some extent I find force in the aforesaid contention of the learned Counsel for the petitioner. The Arbitrator is a creature of the contract and the award thus must be within the four corners of the contract. However, this clause would not, in my considered view, imply that even if the delays were attributable to the respondent, the petitioner would be without any remedy. There were over runs which occurred but there is no finding that the respondent was at fault. In order for the Arbitrator to have granted any amount on account of this claim a finding ought to have been arrived at that the delay was occasioned on account of the factors attributable to the respondent and then only the question of compensation to the petitioner in this behalf would have arisen.

39. Learned counsel for the petitioner attempted to contend that if there was delay in completion of the contract by reason of default by the respondent the petitioner was entitled to be compensated and the Arbitrator was entitled to award damages as held by the learned single Judge of this Court in M/s. Rawla Construction Co. v. Union of India 2nd 1982 (I) Delhi 44. Learned counsel also referred to the decision of the learned single Judge in Suit No. 843/1991 and Suit No. 2613/1991 titled M/s. Express Engineering and Construction Company v. Delhi Development Authority decided on 4.10.1994. The contract in that case contained an Exclusion Clause as in the present case. It was held that:

The exclusion clause like Clause 10(c) of the contract in question had come up for discussion in various judgments. In Chitley on Contract 24th Edition, paras 813 to 816 and the book 'Building Contract' 4th Edition page 140 analysis the legal position with regard to importance of such exclusion clauses. It can be culled out from the observations made in these books that where there is a fundamental breach or a breach of a fundamental term which breach is accepted by the innocent party, the exclusion clause cannot be relied on in respect of the said breach occasioning the acceptance of the repudiation or in respect of breaches occurring thereafter. If the innocent party does not accept the breach so as to bring the contract to an end, but affirms the contract, it is a question of construction whether the clause can be relied on if performance is totally different from that which the contract contemplates.

Similar clause of a contract came up for consideration before this Court in case of M/s. Salwan Construction Company v. Union of India 1977 (2) 2nd Delhi 748. A similar contention was raised before the court on the basis of these clauses that if was not open to the Arbitrator to award a general increase in price and that at best he could award damage if the builders were able to prove it to his satisfaction. There was a non speaking award which came up for consideration in that case. The arbitrator had awarded compensation which was not in consonance with the said Page 2085 exclusion clause of the contract. The grant of damages was upheld. In the said case also, the delay had occurred in completing the contract because possession of the site was not given in time and there had taken place delay in supply of drawings and some other reasons which was attributable to the employer and it was held that damages could be awarded in such a case. It was held that if there was increase in performance of the work because of the breach of the contract of the contract breaker the measure of damages will be the compensation to cover up the increase of expense or additional cost of execution. This is the loss suffered by the buildeRs.

It was a question of interpretation of the contract and the arbitrator, while interpreting Clause 10(c) of the contract had come to the conclusion that the claimant is entitled to damages or compensation on account of escalation taking place in the prices due to delay occurring in completing the work and the delay was attributable to the D.D.A. The arbitrator is sole judge in giving his findings on the questions of law as well as facts unless it is shown that the interpretation given by the arbitrator is absurd or preposterous, the Court cannot say that there has occurred any illegality in giving the award which is apparent on the face of it.

In Rawla Construction Company v. Union of India 1982 Rajdhani Law Reporter 20, a contention was raised that in view of exclusion Clause 9, 11 and 63 of the conditions of the contract, the contractor was not entitled to any compensation even if the delay in the execution of the contract was caused for the reason of default on the part of the Government. This contention was negatived. It was held that such provision as attempt to deprive the contractor of the right to claim the damages will be strictly construed against the employer because such a clause will have calamitous consequences for the contractor and he will have no remedy anywhere, however outrageous the conduct or behavior of the employer may be, however, interminable the delay. It was further laid down that most unusual circumstances which give rise to claim was delay in giving the possession of the site to the contractor or suspension of the work caused by some act or omission of the employer and a consequent increase of expense in the performance of the works. It was held that the work contractor will be entitled for the delay caused notwithstanding that an extension of time for completion has been granted in respect of such delay. Reliance was placed for this view on observations appearing in Emden and Gill's Building Contracts and Practice, 7th edition page 272 and Halsbury Laws of England, 4th edition volume 4 para 1281 page 653.

In M/s. Om Prakash Baldev Krishan v. Union of India AIR 1984 Delhi 342 also, interpretation of exclusion Clause 9 of the general conditions of the contract and Clause 3.1 of the special conditions of the contract came up for consideration. The court held that question of construction of contract generally speaking is question of law and arbitrator is a domestic tribunal appointed by the parties and erroneous decision of arbitrator on a question of law does not vitiate the award unless the error appears on the face of the award.

Page 2086

40. The aforesaid judgment has been set out as even the judgment of M/s. Rawla Construction Co. case (Supra) has been analysed. The principle laid down is that the non-defaulting contractor cannot be put to a loss on account of the defaults of the other party and in this behalf the decision of the Arbitrator is final. However, the presumption is that there is a fault attributable to the other party. There is no such finding recorded by the Arbitrator in the present case. The learned Arbitrator has proceeded on the basis that since no penalty was imposed on the petitioner, the delay caused cannot be said to be attributable to the petitioner and thus the petitioner must be compensated. This reasoning, in my considered view, is fallacious. There has to be a positive finding that the respondent was at fault. Delay could be on account of mutual factors or otherwise. The respondent may agree not to impose penalty on the petitioner. All these cannot ipso facto give rise to a presumption in favor of the petitioner without a finding being arrived at in this behalf.

41. Learned counsel for the petitioner also sought to contend that in such work contract an element of guess work amount is always acceptable. In this behalf learned Counsel relied upon the judgment of Calcutta High Court in Deo Kumar Saraf v. Union of India 1989 (2) Arbitration Law Reporter 88 where it was held that even if damages are not satisfactorily proved, still the contractor would be accorded the benefit of every reasonable presumption as to the loss of damages once there is a breach of works contract by the other party. It was held that the Court's jurisdiction to award damages cannot be confined to evidence on record only. Learned counsel further referred to the judgment of the Apex Court in Dwarka Das v. State of Madhya Pradesh and Anr. where it was held that the appellate court was not justified to interfere with the finding of fact given by the Trial Court regarding quantification of the damages even if it was based upon guess work.

42. Once again this plea is based on the fact that the Court does not scrutinise an award by a technical man as an appellate Court and some element of guess work can be utilised. This guess work is of relevance only if the pre-requisite is satisfied which is that there is a fault attributable to the other party and, thus, an amount is liable to be paid. This pre-requisite is absent in the present case.

43. Thus, the findings of the Arbitrator for the over run charges cannot be sustained.

44. The respondent has also raised the plea of limitation and according to the learned Counsel for the respondent all the bills being dated 19.1.1978, 10.11.1979 and 31.3.1980 were accordingly settled. Even in the minutes of meeting dated 25.4.1979 all the three bills have been referred to. Not only that para 4 of the minutes records as under:

4. While making the above settlement as in above para 3, it was agreed by M/s. Thermospares that

(a) those settlements regarding the extra claims are final as far as those bills are concerned and nothing would be outstanding in this regard.

Page 2087

45. This has been even discussed in the award. Learned counsel for the respondent, however, does not dispute that this plea was neither raised in the petition under Section 20 of the said Act nor before the Arbitrator and has been raised for the first time. However, learned Counsel contends that the same being a legal plea can be raised.

46. Learned counsel for the petitioner, on the other hand, disputed the proposition on the ground that the matter in issue is one of both of law and facts and unless the sub-stratum for the same is raised it is not appropriate to permit the petitioner to raise this plea at a belated stage. Learned counsel in this behalf relied upon the judgment of the learned single Judge of this Court in Naraindas R. Israni v. Union of India ALR 1993 (1) Delhi 233. The learned Judge analysed the plea of limitation on merits and observed in para 17, which is as under:

17. The next contention put forward by the learned Counsel for the petitioner is that the respondent for the best reasons known to them never raised an point with regard to the limitation before the learned arbitrator. Hence, in view of the above they are estopped from raising the said point before this Court. Admittedly, this is not the objection raised by the objector that they raised the plea with regard to the plea of limitation before the learned arbitrator and the same was not looked into and adjudicated upon. Thus, they cannot now be permitted at this stage to raise the said plea. The underlying idea behind the enactment of Arbitration Act was to provide a cheap and speedy remedy to the litigant public for resolving their disputes. Thus if the parties have chosen a particular forum for agitating their grievances they must raise all sorts of issues with regard to the facts and law before the said authority.

If they are permitted to raise the said issues over again before the court it will defeat the very purpose of the Arbitration Act.

47. I am in agreement with the submission of the learned Counsel for the petitioner on this account as even though the plea of limitation is a legal plea and there are some admitted documents and bills on record, there can always be subsequent communication and acknowledgements which can extend limitation. The ground for the plea of limitation must thus be established. Not only this, as observed in Naraindas R. Israni case (Supra) the underlying principle behind the said Act was to provide a remedy to the public through the process of Arbitration by choosing a particular forum. Thus all pleas of facts and laws must be raised before the said authority. No such plea has been raised nor is it being co-related to the facts when the stand of the petitioner is that there were subsequent communications in this behalf. As to whether the subsequent communications do or do not extend limitation would have been an issue for the Arbitrator to consider and thus on this aspect I find myself in disagreement with the plea of the respondent.

48. Learned counsel for the respondent also sought to contend that the order of reference dated 8.9.1994 referred the disputes set out in para 12 of the petitions to Arbitration while the Arbitrator had gone beyond the reference which was not permissible. This plea has been raised in respect of issue No. 7 where the petitioner has claimed a sum of Rs. 50,000/- Page 2088 toward legal expenses. The Arbitrator records the plea of the respondent that the claim of costs before the High Court was not the subject matter of reference.

49. In my considered view, in the absence of reference, it was not open to the Arbitrator to have gone into this issue. The legal cost before the Arbitrator can always be awarded by the Arbitrator but not cost in respect of the High Court proceedings. Neither any costs were awarded by the High Court nor a reference has been made in this behalf. In fact the Arbitrator notes that the petitioner has not even given details of the expenses incurred in pursuing the matter before the High Court.

50. The last aspect arises out of the contention of the learned Counsel for the respondent that the Arbitrator could not have awarded any interest. In this behalf learned Counsel contended that the contract prohibited payment of interest and referred to the two clauses in the two contracts which are as under:

Clause 1.10.4 (Contract No. 529/VA/103/60049)

No interest shall be allowed an earnest money/security deposit or any money due to contractor by BHEL

Clause 1.8.10 (Contract No. 27/PPN/60060)

No interest shall be payable by BHEL on Earnest Money/Security Deposit or any money due to the contractor by BHEL

51. Learned counsel for the petitioner, on the other hand, contended that the award of such interest was within the domain of the Arbitrator.

52. Learned counsel for the respondent referred to the judgment of this Court in DSA Engineers (Bombay) v. Housing and Urban Development Corporation (HUDCO) 2004 (2) Arb.LR 33 (Delhi), where it was observed in para 14 as under:

14. The next objection i.e. raised is against Claim No. 5, which is a claim for payment of interest. The petitioner claimed interest on the awarded amount at a rate of 24% p.a. The Arbitral Tribunal has awarded pendente lite interest at the rate of 15% p.a. On the amount awarded as against all the claims except Claim No. 2(f) and future interest at the rate of 15% p.a. Payable till the date of decree of payment whichever is earlier. The contention of the counsel for the respondent/objector is that the aforesaid Award is hit by the provisions of Clause 20, which according to the counsel is prohibitory clause for payment of interest. The said clause provides as follows:

Clause 20.1 - No interest shall be payable on any money due to the contractor against earnest money, security deposit, interim or final bills or any other payments due under this contract.

The aforesaid plea was made a part of the objection petition being Ground-F thereof and sought to be supported by a decision of the Supreme Court in Secretary, Irrigation Department, Government of Orissa and Ors. v. G.C. Roy reported in (1991) Suppl. 3 SCR 417 : 1992 (1) Arb.LR 145 (SC) Page 2089 and in State of Orissa v. B.N. Agarwalla . In the case of G.C, Roy (Supra), the Supreme Court has held that where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute along with claim for principal amount or independently is referred to the Arbitrator, he shall have power to Award interest pendente lite. In B.N. Agarwalla's case (Supra), the Supreme Court has held that there can be no doubt that if the terms of the contract expressely stipulate that no interest would be payble then, notwithstanding the provisions of the Interest Act, 1978 an Arbitrator would not get the jurisdiction to Award interest. In the present case, I have extracted the provisions of Clause 20.1 which categorically prohibits payment of interest on any amount due to the contractor against earnest money, security deposit, interim or final bills or any other payments due under the contract. Therefore, the said clause prohibits payment of interest on any amount which is found due and payable under the aforesaid contract. Whatever interest is levied by the learned tribunal is the amount which according to it was due and payable to the contractor. Therefore, on the aforesaid sum found due and payable, no interest could have been awarded by the Arbitral Tribunal in view of Clause 20.1 and in the light of ratio of the aforesaid decisions of the Supreme Court. There exists between the parties an agreement which prohibits grant of interest. The Supreme Court has also clearly held that if the terms of the contract expressly stipulate that no interest would be payable, then the Arbitrator would not get the jurisdiction or right to Award interest even notwithstanding the provisions of the Interest Act. Power to grant interest by the Arbitrator emanates from the statutory provisions but the same is always subject to the agreement between the parties as laid down by the Supreme Court in the aforesaid decisions. In that view of the matter the Award passed by the learned tribunal awarding interest at the aforesaid rate to the petitioner is found to be in violation of the agreed terms and conditions. The aforesaid prohibitory clause applies in full force and, therefore, in view of the ratio of the aforesaid decisions of the Supreme Court the Award in respect of the aforesaid claim towards payment of interest also stands set aside.

53. Learned counsel also referred to the judgment of the learned single Judge of this Court in M/s. Beebcon Engineers Pvt. Ltd. v. Bharat Heavy Electricals Ltd. 2006 (1) Arb.LR 194 (Delhi), which followed the judgment in DSA Engineers (Bombay) v. Housing and Urban Development Corporation (HUDCO) case (Supra).

Page 2090

54. Learned counsel lastly referred to the Constitution Bench judgment of the Supreme Court in Secretary, Irrigation Department, Government of Orissa and Ors. v. G.C. Roy where the ratio has been set down in para 43 and 44, which are as under:

43. The question still remains whether arbitrator has the power to award interest pendente lite, and if so on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge:

(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator.

(ii) An arbitrator is an alternative form (sic forum) for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. If the arbitrator has no power to award interest pendente lite, the party claiming it would have to approach the court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings.

(iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such power and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to Section 41 and Section 3 of Arbitration Act illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement.

(iv) Over the years, the English and Indian courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jena Page 2091 case almost all the courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law.

(v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred.

44. Having regard to the above consideration, we think that the following is the correct principle which should be followed in this behalf:

Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes - or refer the disputes as to interest as such - to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view.

55. Learned counsel thus contended that a perusal of the aforesaid judgments show that the Supreme Court was dealing with the situation where the agreement does not provide for grant of interest nor does it prohibits grant of interest and thus the agreement is silent about the award of interest.

56. Learned counsel for the petitioner, on the other hand, referred to the judgment of the Apex Court in State of UP v. Harish Chandra and Co. where it was observed that the claim for damages or claim for payment of work done and which was not paid for would not obviously cover any money which was said to be lying with the Government.

57. Learned counsel also referred to the judgment of the Apex Court in The Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age 1995 ALR (Suppl) 733. The decision is by a Bench of three Judges. The decision was occasioned by a reference made by a Bench of two learned Judges by the following order:

1. This appeal came up before a bench of two learned Judges on 7.11.1994 when it passed the following order:

The question for decision in the present case relates to the award of interest pendente lite by the Arbitrator. The effect of the decision in Secretary, Irrigation Department, Govt. of Orissa and Ors. v. G.C. Roy etc. is stated to be pending before a three Judges Bench on a reference being made to this effect. Accordingly, Special Leave is granted in the present matter.

Page 2092

58. The relevant clause which was the subject matter of adjudication was Clause 13(g), reads as under:

13. The short question which arises for consideration in this case and which was canvassed before us by Mr. Salve the learned senior counsel for the appellant was the Arbitrator had awarded interest pendente lite notwithstanding the prohibition contained in the contract against the payment of interest on delayed payments. Clause 13(g) of the contract was relied upon in this behalf and that clause reads as under:

No claim for interest will be entertained by the Commissioners with respect to any money or balance which may be in their hands owing to any dispute between themselves and the Contractor or with respect to any delay on the part of the Commissioners in making interim or final payment or otherwise.

59. The Supreme Court thereafter proceeded to consider the effect of the Constitution Bench in Secretary, Irrigation Department, Government of Orissa and Ors. v. G.C. Roy case (Supra). The Supreme Court observed in para 7 of the judgment that they were not dealing with the case in regard to the award of the interest prior to period of reference and observed as under:

8. Generally, the question of award of interest by the arbitrator may arise in respect of three different periods, namely: i) for the period commmencing form the date of dispute till the date the arbitrator enters upon the reference; ii) for the period commencing from the date of the arbitrator's entering upon reference till the date of making the award; and iii) for the period commencing from the date of making of the award till the date the award is made the rule of the court or till the date of realisation, whichever is earlier. In the appeals before us we are concerned only with the second of the three aforementioned periods. In Executive Engineer (Irrigation) Balimela v. Abhaduta Jena (1988) 2 SCC 721, two questions arose for consideration of the Court, namely i) the power of the arbitrator to award interest for the period prior to his entering upon reference, and; ii) the powers of the arbitrator to award interest for the period the dispute remained pending before him pendente lite. Since, the Court dealt with the second question in detail and held that the arbitrator had no jurisdiction or authority to award interest pendente lite, we think it necessary to consider the reasons for the decision. Justice Chinnappa Reddy, J. speaking for the bench held that neither the Interest Act, 1839 nor the Interest Act, 1978 conferred power on the arbitrator for awarding interest pendente lite. The learned Judge observed that Section 34 of the Civil Procedure Code which provides for the same did not apply to arbitrator inasmuch as an arbitrator is not a court within the meaning of the said provision. Consequently the arbitrator could not award interest pendente lite.

9. For this proposition, the learned Judge relied upon the decision in Seth Thawardas Pherumal v. Unionof India . The learned Page 2093 Judge pointed out that in Thawardas 'question of payment of interest was not the subject matter of reference to the arbitrator' though the interest awarded by the arbitrator related to the period prior to the reference to arbitration as well as the period during the pendency of the arbitration. The learned Judge also noticed that the observations of Bose, J in Thawardas have given rise to considerable difficulty in later cases whrein they have been explained as having been never intended to lay down any such broad and unqualified proposition as they appear to lay down on first impression. The learned Judge then referred to various decisions including the decisions in Nachiappa Chettiar v. Subramaniam Chettiar , Satinder Singh v. Amrao Singh , Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd. , Union of India v. Bungo Steel Furniture Pvt. Ltd. , Ashok Construciton Co. v. Union of India and State of MP v. Saith and Skelton (P) Ltd. wherein the power of the arbitrator to award interest was upheld and explained them on the basis that all those were 'cases in which the reference to arbitration was made by the court, of all the disputes in the suit'. It would be appropriate to reproduce the observations insofar as they are relevant:

The question of award of interest by an arbitrator was considered in the remaining cases to which we have referred earlier. Nachiappa Chettiar v. Subramaniam Chettiar, Satinder Singh v. Amrao Singh, Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., Union of India v. Bungo Steel Furniture Pvt. Ltd., Ashok Construciton Co. v. Union of India and State of MP v. Saith and Skelton (P) Ltd. were all cases in which the reference to arbitrator was made by the court, of all the disputes in the suit. It was held that the arbitrator must be assumed in these circumstances to have the same power to award interest as the court. It was on that basis that the award of pendente lite interest was made on the principle of Section 34, Civil Procedure Code, in Nachiappa Chettiar v. Subramaniam Chettiar, Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., Union of India v. Bungo Steel Furniture Pvt. Ltd and State of MP v. Saith and Skelton.

60. It may be noticed that in the present case the interest awarded by the Arbitrator is both with regard to the period of prior to reference and post reference.

61. The recent judgment of this Court by the learned single Judge in FAO No. 289/2003 titled Union of India v. R.C. Singhal and Ors. decided on Page 2094 21.3.2006 has also been brought to the notice of this Court which has analysed the same issue of payment of interest in case of such clauses in the conditions of the Contract. Clause 16.2, which was considered in the said judgment is as under:

Clause 16.2

Interest on amounts

No interest will be payable upon the earnest money or the security deposited or amount payable to the contractor under the contract, but Government Securities, deposited in terms of Clause 1 of this Clause will be repayable with interest accrued thereon.

62. Sanjiv Khanna, J has considered a number of both reported and unreported judgments on the issue of interest payable in such a situation. The judgment in Executive Engineer v. N.C. Budhiraja (deceased) (2001) 2 SCC 721 was considered where it was held that the Arbitrator has jurisdiction to grant interest on the sums found due and payable for pre-reference period but that would be subject to in the absence of any stipulation or prohibition of contract to grant any such interest. The learned Judge took note of the fact that the principle of law is well settled that an Arbitrator cannot ignore or disregard an express provision of contract and is bound by the terms and conditions of the contract. Similarly the question whether the Arbitrator can award interest is no longer res integra and the power extends to awarding of interest for pre- reference period interest, from the period after entering upon reference till the award namely pendente lite interest and interest from the date of award till the date of decree and from the date of decree till the date of payment. The judgment is dealing with the pendente lite and future interest. It was held that interest is a compensation paid by a party retaining or detaining the money belonging to another for use and forbearance and commonly expressed as annual percentage of outstanding principal. It is a charge that is paid for use of money.

63. The learned Judge came to the conclusion that the Clause 16.2 does not prohibit or prevent an Arbitrator from granting interest for a period after an Arbitration Clause is invoked till payment. The clause does not specifically put any restriction on the Arbitrator to grant interest and the Division Bench of the Andhra Pradesh High Court in Union of India represented by General Manager, South Central Railway v. G.G. Satyanarayana and Ors. 2003 (2) Arb.LR 391 has held that the clause is not applicable and does not impose any restriction on the Arbitrator. The clause was held to restrict only the departmental officers not to allow interest because of late payment but did not impose any restriction on the power of the Arbitrator. Such a clause was held not to bind the Arbitrator. In fact the Division Bench of the Andhra Pradesh High Court followed the earlier judgment of the same Court in N.G. Gunani v. Union of India 1996 (Suppl) Arb.LR 566 (AP). A Division Bench of the Gujarat High Court in Union of India v. K.K. Dhruva and Anr. 2002 (3) Arb.LR 272 has also taken a similar view.

64. Sanjiv Khanna, J has also considered the judgment of the Apex Court in Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age case (Supra), which in turn has considered the judgment of the Constitution Bench in Page 2095 G.C. Roy case (Supra). The Supreme Court has held that any clause which restricts grant or award of interest should be strictly construed as it goes against equity to deny a person compensation for delay in payment of money due and payable to him. Two aspects were emphasised by the Supreme Court. First that the clause restricted and prohibited the Commissioner from awarding the interest and not the Arbitrator for the period after commencement of Arbitration proceedings and second it was within the jurisdiction of the Arbitrator to decide and interpret the relevant clause and thus once the Arbitrator decides that they have power to award pendente lite interest under the contract it cannot be said that the Arbitrator misconducted by ignoring or disregarding an express provision of the contract or of wandering outside the contract.

65. One further decision considered by Sanjiv Khanna, J was of the Supreme Court in State of UP v. Harish Chandra and Co. case (Supra). The learned Judge referred to Clause 1.9, which is as under:

1.9 No claim for delayed payment due to dispute etc. 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 marking periodical or final payments or in any other respect whatsoever.

66. The Supreme Court rejected the contention that the Arbitrator was prohibited from granting interest on damages in view of the aforesaid clause. The words 'or in any other respect whatsoever' were held not to include the claim for damages or claim for payment for the work done and which was not paid for. Further it was for the Arbitrator to interpret the Clauses in respect of the entitlement to award interest.

67. On consideration of the aforesaid judgments, I am in full agreement with the views expressed by Sanjiv Khanna, J in Union of India v. R.C. Singha and Ors. case (Supra). In my considered view the effect of the judgment in Secretary, Irrigation Department, Government of Orissa and Ors. v. G.C. Roy case (Supra) fully stands explained in cases like the present one by the judgment in Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age case (Supra) and State of UP v. Harish Chandra and Co. case (Supra). The two ratio which clearly emerge are that the restrictions of such clauses do not operate on the Arbitrator and it is for the Arbitrator to interpret such clauses. A Constitution Bench of the Supreme Court in Secretary, Irrigation Department, Government of Orissa and Ors. v. G.C. Roy case (Supra) thus fully explained the issue in as much as there are certain observations that the power to grant interest by the Arbitrator exists unless prohibited by the Contract. Such clauses have been held not to be a prohibition on the authority of the Arbitrator to grant interest. A reference was also made to the provisions of Section 34 of the Code of Civil Procedure, 1908, which empowers the Court to award interest. Arbitration being an Page 2096 alternative forum to the Courts where disputes are decided, there is no justification in law and equity to deny Arbitrators the right to award interest. The right under Section 34 is discretionary right of the Court and is not dependent upon the terms agreed or contract between the parties. It is in view thereof that the learned single Judge in Union of India v. R.C. Singhal and Ors. case (Supra) and observed 'in my opinion the said clause does not prohibit or prevent an Arbitrator from awarding interest for the period after the Arbitration Clause is invoked till payment.'

68. The aforesaid view would also find support from the fact that once a reference has been sought and if the matter is pending in the Court for considerable period of time a party who has to recover the amount should not be put at a disadvantage. The matter was pending in this Court from 1985 till the same was decided in 1994. Thereafter also time was taken by the respondent in appointing the Arbitrator and the Arbitrator entered upon reference as a consequence thereof only in 1998. The petitioner can hardly be blamed for the same.

69. In DSA Engineers (Bombay) v. Housing and Urban Development Corporation (HUDCO) case (Supra) both the aforesaid judgments of the Apex Court which explain the law laid down by the Constitution Bench of the Supreme Court have not been brought to the notice of the learned single Judge. Similarly in M/s. Beebcon Engineers Pvt. Ltd. v. Bharat Heavy Electricals Ltd. case (Supra) only the judgment of DSA Engineers (Bombay) v. Housing and Urban Development Corporation (HUDCO) case (Supra) was brought to his notice without bringing the two judgments of the Apex Court to notice which had explained the position. The Apex Court in State of Orissa v. B.N. Agarwalla only laid down the proposition that the judgment in G.C. Roy case (Supra) did not overrule its entirety the judgment in Executive Engineer Irrigation Galimala and Ors. v. Abaadutta Jena 1987 (2) SCALE 675 inasmuch as in respect of the award of interest for pre-reference period the Arbitrator has jurisdiction to award interest only in cases which arose after the Interest Act, 1978 came into force but not prior to that Act. It may be further added that in M/s. Beebcon Engineers Pvt. Ltd. v. Bharat Heavy Electricals Ltd. case (Supra) a Division Bench judgment of this Court in Bharat Heavy Electrical Ltd. v. Globe Hi Fabs Ltd. (DB) is noted but all that is stated that the judgment is stayed by the Apex Court. The Division Bench has taken the view that after a party was at fault and money was withheld unreasonably it could not be said that the defaulting party was not liable to pay interest as a contract does not debar payment of interest on money illegally withheld after it became due. The award granting interest was thus held not to be without jurisdiction. A perusal of the judgment in Bharat Heavy Electrical Ltd. v. Globe Hi Fabs Ltd. case (Supra) shows that even before the Page 2097 Division Bench the judgments in Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age case (Supra) and State of UP v. Harish Chandra and Co. case (Supra) were not brought to the notice of the Division Bench.

70. I am thus of the considered view that I am bound to follow the view taken by Sanjiv Khanna, J since it is in consonance and a consequence of the view taken by the Apex Court in Board of Trustees for the Port of Calcutta v. Engineers- De-Space-Age case (Supra) and State of UP v. Harish Chandra and Co. case (Supra). The views expressed in DSA Engineers (Bombay) v. Housing and Urban Development Corporation (HUDCO) case (Supra) and M/s. Beebcon Engineers Pvt. Ltd. v. Bharat Heavy Electricals Ltd. case (Supra) would thus be per incurium as they are contrary to the views expressed by the Apex Court in Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age case (Supra) and State of UP v. Harish Chandra and Co. case (Supra), which judgments were never brought to the notice of the learned single Judges, while hearing those two cases.

71. I am thus of the considered view that the Arbitrator was well within his right to grant interest. It may be noticed that this question is more of academic interest as the award is otherwise being set aside.

72. In view of the aforesaid reasons, the award dated 27.7.2000 of the Sole Arbitrator, Shri Ashok Kumar cannot be sustained and is hereby set aside and the application filed by the respondent is allowed.

CS (OS) No. 1867/2000

73. The award dated 27.7.2000 of the Sole Arbitrator Shri Ashok Kumar is set aside and the suit is dismissed leaving the parties to bear their own costs.