AO/1063/1995 of TEHRI HYDRO DEVELOPMENT CORPORATION LTD. Vs KARAM CHAND THAPAR AND BROS. LTD. TICIL

(Court’s order whether the case is or not approved for reporting)

(Chapter VIII Rule 32 (2) (b)

Description of the case.

A.O. No. 1519 of 2001

Tehri Hydro Development Corporation Ltd.

Karam Chand Thapar and Bros. (Coal Sales) Ltd. Tehri, District Tehri Garhwal and another

Approved for reporting.

Not approved for reporting Date of decision 23.12.2004

Initial of Judge

A.O. No. 1519 of 2001

Old No. 1063 of 1995

Tehri Hydro Development Corporation

Ltd. …………Appellant

Versus

1. Karam Chand Thapar and Bros. (Coal Sales)

Ltd; Tehri, District Tehri Garhwal and another

2. State of U.P. ……………..Respondents.

Sri U.K. Uniyal Sr. Advocate assisted by Sri Sobhit Saharia, Advocate. Sri V.K. Kohli, Sr. Advocate assisted by Sri I.P. Kholi, Advocate.

Dated: December 23,2004

Hon’ble Rajesh Tandon, J.

Heard the learned counsel for the partiers.

Present appeal has been filed against the judgment and

order dated 4.8.1995 passed by the District Judge, Tehri Garhwal, thereby rejecting the petition of the appellant under section 30 and 33 of the Arbitration Act for setting aside the award.

Briefly stated, as agreement was entered between the

appellant and respondent no.1 on 28.4.1978 for manufacturing Chain Link Fabric of approximate 50mm mesh woven form 9 SWG steel wires. The respondent no.1 did not use 9 SWG steel wires and used 10 SE Steel wires, which is inferior in quality for

Chain Link Fabric of approximate 50mm mesh woven form 9

manufacturing the chain link fabric. The appellant accordingly

reduced the amount to Rs.55/- PER Sq.M. whereas the

respondent no. 1 claimed rate of Rs. 71/- per Sq. M., which was refused by the appellant. This raised dispute, which was referred to arbitration.

refused by the appellant. This raised dispute, which was

The arbitrators gave an award on 5.31994 allowing the

claim of respondent no.1 and fixed the rate of Rs.65/- per sq. m.

The arbitrators accordingly held that Rs.1,92,347.28 was

payable to the claimant respondent no.1. They further allowed

payment of interest @ 12% per annum of the aforesaid amount

from 23.11.1987 to 5.3.1994 and further interest @ 6% on the

principal amount from the date of award to the date of decree.

Respondent no.1 has filed objections in proceedings under

section 30 and 33 of the Arbitration Act, 1940. The appellant

has submitted that as per directions of the contract chain link

fabric was to be made out 9 SWG wire as per directions of the

Engineer-in charge. The contractor made fabric out of 10 SWG

wire, which is lighter and cheaper requiring less material and

labour and deduction at the rate of Rs.5/- per Sq. m. was

rightfully made which was conveyed to the contractor vide letter

dated 12.9.1987. The appellant has further submitted that the

rate of Rs.55/- per sq.m. payable against this item of work had

been earlier conveyed to the contractor. Contractor received

various payments. The contractor received payment without

any protest. It is also submitted that the award suffers from

factual and legal infirmities.

Respondent Karam Chand Thapar and Brothers filed

objections traversing objections of the appellant. It has been

submitted that the objections are time barred and the award

cannot be challenged on the alleged grounds. It is also

submitted that incorrect facts have been mentioned from the

said of objections.

On the pleadings of the parties, the reference Court has

framed the following issues:

1.Whether arbitrators misconducted themselves in making the award? making the award?

2.Relief, if any?

The District Judge, Tehri Garhwal has recorded finding

that Tehri Hydro Development Corporation was agreeable to

the rate of Rs.60/- at the time of the award. The contractor was

claiming Rs. 70/- and the arbitrator in the peculiar facts truck

the golden mean of Rs. 65/-. The District Judge has held that

the arbitrators did not misconduct themselves in rendering the

award and rejected the objections, under section 30 and 33 of

the Arbitration Act, vide impugned order dated 4.8.1995. I do

not find any illegality or infirmity in the award passed by the

arbitrators and confirmed by the District Judge, Tehri Garhwal.

However, Mr. U.K. Uniyal, Sr. Advocate for the appellant,

has submitted that the arbitrators had awarded interest

pendent lite notwithstanding the prohibition contained in the

contract against the payment of interest on delayed payments.

Clause 1.2.14 of the contact was relied upon in this behalf and

that clause reads as under:

1.2.14NO CLAIM FOR DELAYED PAYMENT DUE TO DISPUTE ETC.

The contractor agrees that no claim for interest or

damages will be entertained or payable by the Government in

respect of any money or balances which may be lying with the

Government owing to any disputes, difference misunderstanding between the parties or in respect of any delay or omission on the part of the Engineer-in-charge in

misunderstanding between the parties or in respect of any

making intermediate or final payments or in any other respect

whatsoever.

The learned counsel for the appellant has urged that this

clause contained an absolute prohibition against the payment of

interest on account of any delay on the part of the appellant in

making interim or final payment or otherwise.

In support of his contention, the learned counsel for the

appellant has relied upon (2003) 5 SCC 705 Oil & Natural Gas

Corporation Ltd. v. Saw Pipes Ltd. In this case the apex Court

has dealt with the grounds on which court can, under Section

34 (2) of he Arbitration and Conciliation Act, 1996 can set

aside the arbitral award. The Facts of this case are not applicable

to the present case.

The learned counsel has also cited (2001) 2 SCC 721,

Executive Engineer, Dhenkanal Minor Irrigation Division vs.

N.C. Budharaj & others. In that case the apex Court as per

majority has held that arbitrator, whether appointed with or

without intervention of Court, has power to grant interest in

respect of per reference period, provided there is no stipulation

or prohibition in the arbitration agreement excluding his

jurisdiction. The Forum of arbitration created by consent of

parties, with or without intervention of Court, being only

substitute for conventional civil court, it is an unavoidable

necessity that parties be deemed to have agreed by implication

that arbitrator would have the power to award interest in the

same way and same manner as court. In the present case the

arbitrators have awarded no interest for pre-reference period

and this citation is also not applicable to the facts of the present

case.

The learned counsel for the appellant has further placed

reliance on the case law (2002) 5 SCC 679 W.B. State

Warehousing Corp. vs. Sushil Kumar Kayan and others. In this

case the apex Court has held that arbitrator’s jurisdiction to be

determined by taking into consideration whether particular

claim can be raised before an arbitrator. An arbitrator exceeds

jurisdiction if he decides an issue, which cannot be raised before

him by virtue of contract or law. However, the facts of this case

are not similar to the facts of the instant case. The learned

counsel for the appellant has further relied upon (2002) 5 SCC

685, Indian National Congress (I) vs. Institute of Social Welfare

and others. In this case also awarding of interest has been

challenged the apex Court has held that considering the dispute

involved and overall circumstances of the case, the award qua

the rate of interest modified from 15% to 6%.

The learned counsel for the respondent has placed

reliance on (1996) 1 SCC 516 Board of Trustees for the Port of

Calcutta vs. Engineer-De-Space-Age. In this case the apex court

has held that any clause in the agreement does not prohibit the

arbitrator from awarding interest pendente lite. Moreover,

arbitrator has jurisdiction to interpret the clause of the contract

to decide whether interest pendente lite could be awarded by

him thereunder. The apex Court has as under:

“(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 not power to award interest pendent 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.

4. We are not dealing with case in regard to award of

interest for the period prior to the reference. We are dealing

with case in regard to award of interest by the arbitrator

post reference. The short question, therefore, is whether in

view of sub-clause (g) of clause 13 of the contract extracted

earlier the arbitrator was prohibited form granting interest

under the contract. Now the term in sub-clause (g) merely

prohibits the Commissioner from entertaining any claim for

interest and does not prohibit the arbitrator from awarding

interest. The opening words “no claim for interest will be

entertained by the Commissioner” clearly establishes that the

intention was to prohibit the Commissioner from granting

interest on account of delayed payment to the contractor.

Clause has to be strictly construed for the simple reason that as

pointed out by the Constitution Bench, ordinarily, person

who has legitimate claim is entitled to payment within

reasonable time and if the payment has been delayed beyond

reasonable time he can legitimately claim to be compensated

for that delay whatever nomenclature one may gives to his

claim in that behalf. If that be so, we would be justified in

placing strict construction on the term of the contract on

which reliance has been placed. Strictly construed the term of

the contract merely prohibits the Commissioner form paying

interest to the contractor for delayed payment but once the

matter goes to arbitration the discretion of the arbitrator is

not, in any manner, stifled by this term of the contract and the

arbitrator would be entitled to consider the question of grant

of interest pendente lite and award interest if he finds the

claim to be justified. We are, therefore, of the opinion that

under the clause of the contract the arbitrator was in no

manner prohibited form awarding interest pendente lite.

5. Looked at from another point, if there was dispute as to

whether under this terms of the contract the arbitrator was

prohibited form awarding interest pendente lite, that was

matter which fell within the jurisdiction of the arbitrator, as

the arbitrator would have to interpret sub-clause (g) of clause

13 of the contract and decide whether that clause prohibits him

from awarding interest pendente lite. In that case it cannot be

said that the arbitrator had wandered outside the contract to

deny to him jurisdiction to decide the question regarding

payment of interest pendente lite. Even if we were to accept the

contention urged by the learned counsel for the appellant

placing reliance on paragraphs 26 and 29 of the Associated

Engineering Co. case[2] we think, that the arbitrator was well

within his jurisdiction in awarding interest pendente lite.

In present case the arbitrators have awarded sum of

Rs. 1,92,347.28 with interest @ 12% per annum form 23.11.1987

to 5.3.1994 and further interest @ 6% on the principal sum of

Rs. 1,92, 347.28 from the date of the award i.e. 5.3.1994 to the

date of the decree. The District Judge, Tehri Garhwal has also

held that the arbitrators did not misconduct themselves in

rendering the award.

Section 7-A, U.P. Amendment in the Arbitration Act, 1940

reads as under:

“7-A. Whether and in so far as an award is for the

payment of money, the arbitrators or umpire may deem

reasonable to be paid on the principal sum awarded, from the

date of the commencement of the arbitration, as defined in sub

section (3) of Section 37, to the date of award, in addition to

any interest awarded on such principal sum for nay period

prior to such commencement, with further interest at such rate

not exceeding six per cent per annum as the arbitrators or

umpire may deem reasonable on such principal sum from the

date of the award to the date of payment or to such earlier

date as the arbitrators or umpire may think fit, in no case

beyond the date of the decree to be passed on the award.”

Thus Section 7-A of the Arbitration Act, clears the

position regarding award of interest by the arbitrator for the

period of pendency of the reference as well as since the date of

the award. However, the rate of interest from the date of the

award to the date of payment shall not exceed six percent.

Lastly learned counsel for the petitioner has submitted

that the rate of interest awarded by the arbitrators is too high

and actually it ought to have been 6% throughout. I am not

convinced with the argument of the learned counsel for the

petitioner. No interference can be made by the appellate Court

in the rate of interest awarded by the arbitrator in view of the

proposition law laid down by the apex Court in (1999) 7 SCC

399 State of J & K vs Dev Dutt Pandit. The apex Court has

observed as under:

“21. In the present case the arbitrator awarded interest at

the rate of 10% per annum which was reduced by the learned

Single Judge to 6% per annum and upheld by the Division

Bench. Under Section 34 of the Code of Civil Procedure interest

at higher rate than 6% can be awarded where the liability in

relation to the sum so adjudged had arisen out of commercial

transaction. There is nothing on the record to show that

interest awarded by the arbitrator at the rate of 10% is in

contravention of Section 34 of the Code of civil Procedure.

That being so we do not think either the learned Single Judge

or the Division Bench were correct in reducing the rate of

interest as granted by the arbitrator. We would, therefore,

restore the award of interest at the rate of 10% per annum as

granted by the arbitrator from the date the arbitrator entered

into reference till realisation of the amount under the award.”

In view of the law laid down by the apex court in M/s

Sudarsan Trading Co. Vs. The Govt. of Kerala and another AIR

1989 SC 890, the award made by the Arbitrator cannot be

interfered. The observations are quoted below:-

“It is not open to the court to probe the mental process of

the arbitrator and speculate, where no reasons are given by

the arbitrator, as to what impelled the arbitrator to arrive at

his conclusion. See the observations of this Court in Hindustan

Steel Works Construction Ltd. Vs. C. Rajasekhar Rao (1987)

4SCC 93. In the instant case the arbitrator has merely sent out

the claims and given the history of the claims and then

awarded certain amount. He has not spoken his mind

indicating why he has done what he has done; he has narrated

only how he came to make the award. In absence of any

reason for making the award, it is not open to the court to

interfere with the award. Furthermore, in any event,

reasonableness of the reasons given by the arbitrator cannot

be challenged. Appraisement of evidence by the arbitrator is

never matter, which court question and considers. If the

parties have selected their own forum, the deciding forum

must be conceded the power of appraisement of the evidence.

The arbitrator is the sole judge of the quality as well as the

quantity of evidence and it will not be for the Court to take

upon itself the task of being judge on the evidence before the

arbitrator. See the observations of this Court in Municipal

Cropn. Of Delhi VS. Jagan Nath Ashok Kumar (1987) SCC

497;(AIR 1987 SC 23(6).”

In view of the law laid down above, no interference can be

made in the rate of interest awarded by the arbitrators and

confirmed by the District Judge.

Consequently, the appeal is dismissed. No order as to

costs.

(Rajesh Tandon, J.)

December 23, 2004

*Dhyani