Gujarat High Court
State Of Gujarat And Anr. vs Vir Vijay Construction Co. on 1 September, 1993
Equivalent citations: (1994)1GLR119
Author: M.B. Shah
Bench: M.B. Shah
JUDGMENT M.B. Shah, J.
1. These appeals are filed by the State of Gujarat against the judgment and decree dated 27th October, 1989 passed by the learned Civil Judge (S.D.), Ahmedabad (Rural) at Mirzapur, below Civil Misc. Application No. 6 of 1989 and in Special Civil Suit No. 48 of 1989. By the impugned judgment and order, the trial court passed a decree by modifying the award passed by the Arbitrator on 30th March, 1988. The court reduced the amount awarded from Rs. 54,36,885/- to Rs. 52,56,691.98 ps. on the basis of agreed calculation. It also directed that the said amount, after deducting Rs. 18 lakhs which are already paid under the interim award should be paid with the simple interest at the rate of 10% per annum instead of 18% interest as awarded by the Arbitrator from the date of the award, i.e., 30th March, 1988 till realisation.
2. For appreciating the contentions which are raised in these appeals, it would be necessary to state a few facts pertaining to the dispute between parties.
3. On 5th August, 1981 the Executive Engineer, Irrigation Department, Rajpipla, accepted the tender of respondent No. 1 for a sum of Rs. 1,00,77,752/- for construction of earth work and lining for Karjan Left Bank Main Canal CH. 7.08 km to 15.94 km. of Karjan Project. On 16th November, 1981 the work order was issued. The work was required to be completed as per the contract within the period of two years from the date of the work order. However, it is found that the State Government was not in a position to hand over the possession of the site to the contractor over which the work was required to be carried out by him. Till 7th February, 1985, the respondent carried out the work to the extent of Rs. 52 lakhs and the said amount was paid by the appellants. It is also found that the respondent was required to execute more than 30% of the contract work with regard to some items and 'extra items' which have cropped up due to exigencies of the work.
4. The dispute between the parties had arisen with regard to the fixation of revised rates of 'extra work' and also the fixation of rates for 'extra items' not contemplated in the tender agreement. The Government thought that the contractor was claiming much higher rates. Hence, as per the tender agreement, and at the request of the contractor, the State Government decided to refer the dispute for sole arbitration. For this purpose first the Government has issued Memorandum dated 12th August, 1985 wherein it is inter alia stated :
(i) for the execution of the work where the variation is more than 30% in quantity in some items of the work; and
(ii) for some 'extra items' which cropped up due to the exigencies of the work;
there was dispute between the contractor and the State Government with regard to the rate. The contractor has, therefore, desired that his claim for rates claimed by him be settled through arbitration under the terms of the contract. The above proposal was accepted by the State Government and the State Government appointed Shri B. P. Patel as sole Arbitrator in respect of the claims put forth by the contractor as per the list attached as Appendices 'A' and 'B' and subject to the following observations.
(a) If there are any counter-claims for compensation for delay in executing the work by the contractor, etc. these should be put up from Government side for arbitration.
(b) The Arbitrator will give a speaking award and he will not decide about any interest payable.
(c) The Arbitrator should not give any views on the subject which would put the Government in an embarrassing position.
(d) Elements of overlapping nature in Extra Items and Escalation are to be verified by the Arbitrator.
Appendix 'A' pertains to the claims of the contractorg with regard to 'extra items' of work where variation in quantity is more than 30% above the tender quantity. Appendix 'B' pertains to 'extra items' of work on which the rates and payments are to be decided by the Arbitrator.
5. Thereafter, the parties, executed arbitration agreement on 4th September, 1985. As per the arbitration agreement, the claims of the contractor were required to be decided by the sole Arbitrator Shri B. P. Patel, retired Chief Engineer. Clause 4 of the Appendix II to the agreement provides that it was agreed between the Government and the contractor mutually that the items mentioned therein which were under dispute and which arose out of the contractor be referred to the sole arbitration of Shri B. P. Patel. As per the said agreement, only claims by the contractor are referred to the sole Arbitrator.
6. Pursuant to the said reference, the contractor filed the statement of claims on 16th September, 1985 before Arbitrator and gave the details of each claim itemwise. The total claim before the Arbitrator was for a sum of Rs. 1,35,30,382.77 ps. for various items.
7. The State Government filed its written statement on 28th October, 1985. Alongwith the written statement, it filed counter-claims for a sum of Rs. 60,39,891/-. Thereafter, the written statement was amended by filing fresh written statement on 12th April, 1986 and the counter-claims were reduced to Rs. 23,12,346.96. In the written statement, it is stated that extension of time was granted upto 16th November, 1984; further extension of time was granted upto 31st August, 1986; still however, the work was not completed within the stipulated time; the contractor had abandened the work since 1985, the department may propose counter-claim of compensation for the breach of the contract and reserves its right to claim and recover such amount from the contractor. The State Government denied the contention of the contractor that it was not in a position to hand over the possession of the entire land by stating that the remaining land had been acquired upto July, 1984 and was handed over to the contractor. It is pointed out that price escalation has been given to the contractor upto the extended period, i.e., upto 16th November, 1984. It is admitted that there was some problem of acquisition of lands but by the end of July, 1984 all the required lands were acquired and handed over to the contractor. In paragraph 10 of the written statement, it is specifically mentioned that the contractor demanded new rates for 'extra items' by his letter dated 27th July, 1983. Thereafter the rates were negotiated between the parties and the contractor modified the rates after negotiations. The relevant part reads as under :
"The department had informed the claimant on 24.6.1983 vide Letter No. IPD/2/AB/1/2092-A, to execute excess quantity more than 30% and extra item as per terms and conditions of the contract. It is submitted that the claimant has offered his new rates vide letter dated 27.7.1983 and the same were negotiated on 9.4.1984 and accordingly the claimants had modified the rate vide dated 17.4.1984.
It is also admitted that the negotiated rates were referred to the State Government for its acceptance. Subsequently, the Government by its letter dated 30th July, 1984 informed that the contractor should be asked to accept the rates as per the Government formula or on the basis of Schedule of Rates (SOR) of the concerned year in which the excess occurred as per its letter dated 14th March, 1985. In paragraph 11, it is specifically mentioned that, as per the General Conditions No. 31 and 32 of the contract, for variation in quantities increased or decreased beyond 30 per cent, the rates of such items shall be decided subject to mutual settlement. Which regard to the claim of interest at the rate of 18%, it is stated that, in the arbitration agreement appointing the Arbitrator, the question of interest is expressly excluded from being decided at the level of arbitration. Therefore, the Arbitrator has no jurisdiction to deal with that question. In the counter-claim statement, the Executive Engineer also claimed interest at the rate of 20% on the said amount of Rs. 23,12,346.96 ps.
8. On 30th May, 1986, after hearing both the parties the sole Arbitrator made an interim award under Section 27 of the Arbitration Act granting a sum of Rs. 18 lakhs in favour of the contractor, by making it clear that he was not deciding the issues raised by the parties and that the claims and the counter-claims made by both the parties will be decided on merits after further hearing. Thereafter on 29th February, 1988, the sole Arbitrator wrote a letter to the contractor endorsing a copy to the Executive Engineer and the Assistant Government Pleader, who was appearing in the matter on behalf of the state Government, that he has decided to declare the award on 30th March, 1988. He mentioned the arbitration fees and other incidental expenses. In the said letter, it is stated that an amount of Rs. 20,600/- towards the fees of the Arbitrator and costs is to be shared equally by both the parties. However, the directed the contractor to make the fully payment of Rs. 20,600/- before 15th March, 1988 by a demand draft. With regard to the share of Rs. 10,300/-, of the State Government, he stated that the necessary mention would be made in the award.
9. On 30th March, 1988 Arbitrator declared the award. In the award, it is stated that the contractor had claimed Rs. 1,35,30,383/- plus interest at the rate of 18% per annum from the due date till realisation. As against, this, the State Government had submitted its counter-claims amounting to Rs. 60,39,891/- on 20 October, 1985, which were subsequently cancelled and the counter-claims were reduced to Rs. 23,12,347/- on 25th April, 1986. After considering the claims made by the contractor, the award was passed by stating that claims No. 8, 12, 13, 14, 15, 16, 17, 18 and 19 of the claim statement were not considered because they were not included in the Appendices "A" and "B" enclosed with the Government order refering the matter to the Arbitrator. Similarly, the claim for interest has not been considered because it has been specifically mentioned in the arbitration order that the Arbitrator will not decide about any interest payable. It is also stated that he has passed the award as per the Statement at Annexure "X" enclosed therewith after considering the claim and the counter claims, perusing all the documents filed before the Arbitrator by the parties, hearing both the parties fully to their entire satisfaction, giving due consideration to the arguments put forth by them in support of their respective stands and after visiting the work site in company of both the parties for proper appreciation of the points in dispute. The reasons for fixing the rates and the amount awarded were given in Appendix "I" which was to be treated as an integral part of the award. As per the award, it was declared that the contractor is entitled to recover remaining amount of Rs. 36,36,885/- with the simple interest at the rate of 18% per annum from the date of the award, i.e., 30th March, 1988 to the date of decree or realisation whichever is earlier. In the award, it is also mentioned that the contractor has paid entire sum of Rs. 20,600/- towards the fees and costs of arbitration and, therefore, he is entitled to recover half of the said amount, i.e., Rs. 10,300/- from the State Government. On the basis of the said award, after considering the objections filed by the parties, the trial court has passed the decree dated 27th October, 1989 as stated above. Against the said judgment and decree, these appeals are filed.
10. At the time of hearing of these appeals Mr. K. M. Mehta, learned A.G.P. contended that the award is illegal and erroneous because :
(i) the award passed by the Arbitrator is a non-speaking order as reasons in detail are not given;
(ii) the rates for 'extra work' and 'extra items' fixed by the Arbitrator are much higher than the agreed rates;
(iii) the counter claims No. 8, 9 and 10 of the State Government and wrongly rejected by the Arbitrator; and
(iv) the Arbitrator misconducted himself by accepting entire fees and costs directly from the contractor.
11. Learned A.G.P. Mr. K. M. Mehta has raised the additional contention that the State Government has paid Rs. 8,74,170.71 ps. as escalation price for the period from January, 1982 to June, 1984, and as this aspect is not discussed by the Arbitrator, the award is unreasonable and biased.
12. As against this Mr. Soparkar, learned Advocate appearing on behalf of the contractor, vehemently submitted that :
(i) the award is made in accordance with law and on the basis of evidence on record produced by both the parties before the Arbitrator;
(ii) it is not open to the Civil Court to reappreciate the evidence or to set aside the award on the ground of sufficiency or otherwise of the reason assigned by the Arbitrator;
(iii) the award passed by the Arbitrator is a judicious one and is based on mutually agreed rates between the contractor and the Executive Engineer-in-charge of the project and also on the basis of the rates which are approved by the Superintending Engineer, Karjan Canal Circle, Irrigation Department;
(iv) the Arbitrator has considered the counter-claims, but rightly not granted the same. He further stated that, at the time of arbitration agreement, it was not agreed that the so-called counter-claims of the State Government were required to be referred to the Arbitrator for his decision. The terms of reference are specific and the Arbitrator has no jurisdiction to travel beyond the terms of reference.
(v) it hardly lies in the mouth of the State Government to contend that the Arbitrator has misconducted himself by accepting the fees from the contractor. It is dubius method adopted by the State Government or its officers to strangulate the contractor who has completed his work at the behest of the Executive Engineer-in-charge of the project and at the request of the Superintending Engineer and to see that the Arbitrator fails to declare the award within the stipulated time. The Arbitrator was appointed by the State Government with the consent of the contractor. By recovering the fees and costs from the contractor by demand draft after informing the parties, it cannot be stated that he has misconducted himself. By no stretch of imagination, it can be termed as under-hand transaction and particularly where one-half share of the State Government which is recovered is only Rs. 10,300/- that too in a dispute involving a sum of Rs. 1 crore and more.
13. As regards the additional contention of the learned A.G.P. that the Arbitrator has not taken into consideration the escalation price paid to the tune of Rs. 8,74,170.71 ps. by the State Government to the contractor for the period from January, 1982 to June, 1984, Learned Advocate Mr. Soparkar submitted that it is baseless and is raised with ulterior motive of creating unnecessary confusion as that is paid as per the terms of the contract. He pointed out that :
(a) in the counter-claims (which are filed without any justification and without there being any reference), no such claim was raised on behalf of the State Government;
(b) before the trial court also, no such contention is raised in the written statement or in the objection filed by the State Government; and
(c) in the appeal memo also, no such contention is raised.
He submitted that if these types of contentions on behalf of the State Government are permitted to be raised at any stage without there being any foundation, the whole purpose of referring the matter to the Arbitrator could be frustrated. According to him, this conduct clearly reveals the intention on the part of some officers of the State Government to delay the payment which is lawfully due to the contractor by creating confusion by any means.
14. At this stage, we would note that, on behalf of the contractor, cross-objections are filed wherein it is submitted that the trial court has erred in reducing the rate of interest from 18% per annum to 10% per annum and the trial court ought to have granted interest at the rate of 18% per annum from the date of reference till realisation. These cross-objections are filed along with a civil application or condonation of delay in filing cross-objection by stating that :
(i) it is well-settled law that without there being any cross-objections at the time of final hearing of the appeal, this court can be requested to enhance the rate of interest;
(ii) even otherwise the question of rate of interest was required to be finally adjudicated by this court at the time of hearing of the appeal; and
(iii) cross-objections can be filed at any point of time.
Learned Advocate Mr. Soparkar has relied upon the decision of the Supreme Court in the case of Secretary, Irrigation Department of Orissa v. G. C. Roy (AIR 1992 SC 732), and submitted that this court should award interest at the rate of 18% per annum from the date of reference till the amount is realised.
15. Whether the award is a non-speaking one.
It is apparent that the Arbitrator has assigned reasons which are at Appendix 'I' to the award. In the award itself the Arbitrator has mentioned that the reasons for the amounts awarded were given in the Appendix 'I' which was treated as integral part of the award. For making the award, the following reasons are inter alia assigned :
(a) Firstly, the Arbitrator has considered clauses 31 and 32 of the contract. Clause 31 provides that variation in the quantities of work in Schedule 'B' shall not vitiate the contract. If the quantities of work actually involved under any item vary by more than 30%, the rate shall be decided on mutual agreement, i.e., after obtaining the consent of the contractor. The rate for the entire quantity is subject to revision and these new rates will be subject to mutual settlement. Clause 32 provides that the contractor shall be bound to execute 'extra items' of work as directed by the Executive Engineer and the rate for 'extra items' as to be mutually agreed based on the Schedule of Rates or rate analysis as the case may be. If the contractor is aggrieved by the fixation of rate by the Executive Engineer, as per clause 51, the Superintendent Engineer is appellate authority. The Arbitrator has taken into consideration this aspect and has arrived at the conclusion that, as per the contract between the parties, the Superintending Engineer is the appellate authority against the decision of the Executive Engineer and his decision is final and not of the State Government.
(b) The Arbitrator has also taken into consideration the fact that the contractor submitted to the Executive Engineer, vide letter dated 27th July, 1983, the revised rates for seven items where variation in the quantities of work was more than 30% as well as for three extra items. After negotiations with the Executive Engineer, the contractor submitted the revised rates vide letter dated 17th April, 1984. He has also observed that these mutually agreed rates are lower than those originally claimed by the contractor. The Executive Engineer recommended to the Superintending Engineer, Karjan Canal Circle, Bharuch, for acceptance of 'revised agreed rate'. The Superintending Engineer forwarded the said rates for approval to the Chief Engineer vide his letter dated 25th September, 1984.
(c) He has also taken into consideration the work items carried out by the contractor worked out to be 68.13% above the estimated quantity.
(d) The estimate was prepared on the basis of Schedule of Rates of 1980-81. But the Work Order was issued on 16th November, 1981 and due to handing over possession of the land in piecemeal the work had not yet been completed. Even in the meeting which was held on 21st November, 1987 between the Superintending Engineer, Karjan Canal, the Executive Engineer and the contractor, it was mentioned that there was problem of land acquisition in 1.27 kms. length of land and, therefore, it was decided that the Executive Engineer should submit a proposal to relieve the contractor for work where the site is not available.
(e) Construction period was prolonged because of the delay on the part of the State Government. The cost had gone up in geometric proportion. The work was going on for the last six years and four months and still it was not completed because the land was not acquired by the State Government. As per the tender conditions, the work was to be completed within 24 months.
(f) He, therefore, took into consideration the schedule of Rates of the previous years, acceptance of tender of the contractor which was 68.13% above the tender rate; abnormally long period of construction involved and the points mentioned by the Superintending Engineer in his recommendation for acceptance of revised mutually agreed rates. On the overall consideration of the aforesaid facts he has passed the award fixing the rates of various items. He has also mentioned that, for such mutually agreed rates, a detailed and critical examination of rates does not appear to be permissible and the revised rates are required to be examined in broad and general way.
(g) Lastly, he mentioned in the award that he had requested the parties to prepare the statement showing the quantities of various items executed as on 31st August, 1987 and they did not submit it till the last hearing, i.e., on 2nd February, 1988. He had relied mostly upon the quantities of the last running bill dated 14th February, 1987. It is mentioned that the final bill should be adjusted according to the revised rates.
16. From the aforesaid reasons assigned by the Arbitration appointed by the Government or fixing the rates of 'extra items' and 'extra work', it cannot be said that the award is without sufficient reasons or is a non-speaking one.
17. Whether the rates fixed by the Arbitrator are much higher than the agreed rates :
In our view, fixation of rates for 'extra items' and 'extra work' cannot he said to be excessive, arbitrary or illegal. In fixing the rates for the disputed items, there is no question of illegality and no statutory provision is required to be taken into consideration for fixing the rates. Apart from the illegality, it would be difficult to arrive at the conclusion that fixation of rates by the Arbitrator is in any way unreasonable or arbitrary. As stated above, the Arbitrator has fixed rates for 'extra items' and 'extra work' after taking into consideration :
(a) The basis of Schedule of Rates for the relevant years;
(b) Agreed rates between the contractor and the Executive Engineer which are subsequently approved by the Superintending Engineer;
(c) Letter written by the Superintending Engineer and other relevant aspects.
Against this fixation of rates, the court cannot sit in appeal for re-examining or re-assessing the materials which led the Arbitrator to fix the same. Further, in a case where the Arbitrator has taken plausible view even though two views are plausible with regard to fixation of rates, this court would have no jurisdiction to interfere with the award.
18. In our view the learned A.G.P. Mr. Mehta has raised the contentions by ignoring the fact that these appeals are filed under Section 9 of the Arbitration Act and the limited jurisdiction of the Civil Court for setting aside the award under Section 30 of the Act. From the various decisions, which are cited at the Bar and which, we would refer presently, it can be stated that;
(a) in the award, the Arbitrator is not required to give reasons in detail;
(b) the award can be set aside only on the ground of error of law on the face of it, that is to say, if the award is based upon any legal proposition which is erroneous;
(c) the Civil Court has no jurisdiction to sit in appeal over the award and review the reasons assigned by the Arbitrator and the award cannot be set aside merely because by process of inference and arguments it could be demonstrated that the Arbitrator has committed some mistake in arriving at his conclusion;
(d) the award cannot be interfered with even in the case where on an interpretation of any contract or documents, two views are plausible and the Arbitrator accepts one view while the other view is more appealing to the court;
(e) the award can be set aside by the Civil Court if the Arbitrator has misconducted himself or the Arbitrator has acted contrary to or gone beyond the terms of the reference.
19. While dealing with this aspect, in the case of Indian Oil Corporation Ltd. v. Indian Carbon Limited (AIR 1988 SC 1340), the Supreme Court has considered the provisions of Section 14, 30, 33 of the Arbitration Act and held that the award cannot be set aside on the ground that detailed reasons are not given. The arbitration procedure should be quick and that quickness of the decision can always be ensured by insisting that short intelligible indications of the grounds should be available to find out the mind of the Arbitrator for his action. The court further held in that case that Civil Court does not sit in appeal over the award and review the reasons. The court pertinently observed that the Civil Court can set aside the award only if it is apparent from the award that there is no evidence to support the conclusion or if the award is based upon any legal proposition which is erroneous. Similarly, in the case of State of Orissa v. M/s. Lal Brothers (AIR 1988 SC 2018), the Supreme Court, dealing with the similar contention, held that an award may be set aside by the court on the ground of error on the face of the award, but an award is not invalid merely because by a process of inference and argument it may be demonstrated that the Arbitrator has committed some mistake in arriving at his conclusion. It is not open to the court to speculate, where no reasons are given by the Arbitrator, as to what impelled him to arrive at this conclusion. The fact that a lump sum award has been given is no ground to declare the award bad.
This question is also considered by the Supreme Court in the case of F.C.I. v. Joginderpal Mohinderpal (AIR 1989 SC 1263). The court dealt with Section 30 of the Arbitration Act and held that the arbitration award can be set aside for an error of law appearing on the face of it. It is not misconduct on the part of the Arbitrator to come to an erroneous decision, whether his error is one of fact or law, and whether or not his findings of fact are supported by evidence. The relevant observations of the Supreme Court are as under :
"So far as the material of the present purpose is concerned, an award of the arbitrator can only be interfered with or set aside or modified with the four corners of the procedure provided by the Act. It is necessary to find whether the arbitrator has misconducted himself or the proceedings legally in the sense whether the arbitrator has gone contrary to the terms of reference between the parties or whether the arbitrator has committed any error of law apparent on the face of the award. It is necessary to emphasise that these are grounds for setting aside the award but these are separate and distinct grounds. Halsbury Laws of England Vol. 2, 4th Edn., para 623 reiterates that an arbitrator's award may be set aside for error of law appearing on the face of it. Though this jurisdiction is not to be lightly exercised, the award can also be set aside if, inter alia, the arbitrator has misconducted himself or the proceeding. It is difficult to give an exhaustive definition what may amount to misconduct on the part of the arbitrator. This is discussed in Halsbury's Laws of England (supra). It is not misconduct on the part of an arbitrator to come to an erroneous decision, whether his error is one of fact or law, and whether or not his findings of fact are supported by evidence."
Further, with regard to the reasonableness of the award, the Supreme Court held that it should be reasonable in regard to circumstances of the case. This would be clear from the following observations of the Supreme Court in the case of Gujarat Water Supply and Sewerage Board v. Unique Erectors (Gujarat) (Pvt.) Ltd. (AIR 1989 SC 973) :
"Reasonable as such of an award unless the award is per se preposterious or absurd is not a matter for the court to consider. Appraisement of evidence by the arbitrator is ordinarily not a matter for the court. It is difficult to give an exact definition of the word 'reasonable'. Reason varies in its conclusions according to the idiosyncrasy of the individual and the times and the circumstances in which he thinks. The word 'reasonable' has in law prima facie meaning of reasonable in regard to those circumstances of which the actor called upon to act reasonable, knows or ought to know."
In the case of Hind Builders v. Union of India (AIR 1990 SC 1340), the Supreme Court pointed out that where on an interpretation of any contract or documents, two views are plausible and the Arbitrator accepts one view while the other view is more appealing, it would not be open to the court to interfere and is a matter on which the contract is open to two equally plausible interpretations, it is legitimate for the Arbitrators to accept one or the available interpretations and, even if the court may think that the other view is preferable, the court will not and should not interfere. This view is too well settled to need any reference to any precedent other than Sudershan Trading Co's (AIR 1989 SC 890) case.
20. In view of the aforesaid settled legal position, there is no substance in the contention raised by the learned A.G.P. for the appellants that the award is illegal or arbitrary. He has failed to point out any error of law committed by the Arbitrator in fixing the rates for 'extra work' or for 'extra items'. However, he repeatedly submitted that the rates fixed by the Arbitrator are unreasonable. Therefore, knowing very well that we have no jurisdiction to reappreciate the evidence, we have gone through the material parts of evidence and, in our view, the award passed by the Arbitrator cannot be, by any stretch of imagination, said to be excessive. Learned A.G.P. Mr. Mehta forgets one material aspect that when the contractor had claimed at a particular rate by letter dated 27th July, 1983, he demanded higher rates. Subsequently, the lower rates were mutually agreed between the Executive Engineer and the contractor. The Executive Engineer submitted the mutually agreed rates for sanction of the Superintending Engineer who, after visiting the site and after seeing the work carried out by the contractor, arrived at the conclusion that the mutually agreed rates were reasonable. He, therefore, forwarded the proposal for approval to the Chief Engineer as per the contract between the parties. The opinion of the Superintending Engineer under the tender clause 51 is final. Still however, it seems that the Chief Engineer or the State Government has not approved the rates mutually agreed between the contractor and the Executive Engineer. For this purpose, learned Advocate Mr. Soparkar relied upon the letter dated 29th May, 1984 written by the Superintending Engineer to the Chief Engineer and Joint Secretary, Irrigation Department. The Superintending Engineer has specifically mentioned that the tender amount of Rs. 1,00,77,751.78 ps. against the estimated cost of Rs. 70,77,364.92 ps. was higher by 42.39% in comparison with the sanctioned estimated amount as per S.O.R. of 1980-81. In detail, he has stated that the earth work which was required to be done by the contractor has increased much more. It is, inter alia, stated that the aggregate depth of cutting in some length had gone upto 10.5 mtrs. and for that purpose the contractor has to provide special arrangements for dumping excavated stuff in 2 to 3 instalments by providing necessary terms, etc., during the course of excavation. This phenomena have compelled the contractor to any maximum higher rates to the labourers for the items of cutting. It is also stated that the planning of establishing equipments thought by him for the work of embankment had to be curtailed off, for which he has to undergo certain financial loss on account of initial establishment, etc. It is also pointed out that the tender which was accepted from the contractor works out to be 68.13% above the estimated amount of the concerned items. Considering all these acts, the contractor submitted revised rates for all the items in which there was variation in quantity of the work by more that 30% by his letter dated 27th July, 1983. It is also noted that the matter had remained under correspondence and finally the Executive Engineer had negotiated with the contractor again on 17th April, 1984 when the contractor had reduced the rates to some extent. In paragraph 8, it is specifically mentioned that handing over possession of the lands piecemeal and not handing over possession of the land upto that date in a length of 2.6 kms. out of total 8.6 kms of the canal under issue has prolonged the work until now and onwards for which the matter regarding extension of time limit is being dealt with separately. It is also stated that the contractor was required to engage special gang for carrying out dressing work for the subgrade of lining which has cost him more and taking into other aspects as narrated by him in his letter it was requested that the Government approval may please be accorded for the rates demanded by the contractor as per their letter dated 17 April, 1984. After this letter, there is further letter dated 21st January, 1985 by the Superintending Engineer, Karjan Canal Circle, Bharuch, wherein it is stated that after receipt of the letter from the Government, the office of the Superintending Engineer had considered the rates and recommended the rates as per S.O.R. 1983-84 based on the present rate analysis. But the contractor had not accepted. However, it would be worthwhile to reproduce the recommendations made by him, which are as under :
"I have personally inspected the site and gone through circumstances and site situation under which, they have carried out and are carrying out the canal works. It seems that as now reported by the concerned Executive Engineer that they have actually spent more than the rates recommended by this office. Under these circumstances the rates finally demanded by the contractor seem to be reasonable to such extent. It is, therefore, requested to consider these rates and process the claims of the contractors at an early date."
21. From the aforesaid discussion, it is clear that the Arbitrator, who is a retired Chief Engineer and an expert in the field, has fixed rates for 'extra work' and 'extra items' by considering :
(a) the letters written by the Executive Engineer and the Superintending Engineer;
(b) delay in handing over the possession of the land for the period of 6 years and four months even though the work was required to be completed within two years;
(c) Schedule of Rates for all the years.
(d) the fact that the contract tender was executed or a price higher than the tender amount of 68.38%;
(e) rates mutually agreed between the Executive Engineer and the contractor, and
(f) change in the nature of work, i.e., decrease in the quantities of embankment work and increase in the quantities of cutting (earth work) items. It not only increased upto 6 mtrs. depth but some quantities had also crept in the item of cutting upto 10.5 mtrs. depth.
It should be noted that the Arbitrator has fixed the rates lower than the rates agreed between the Executive Engineer and the contractor which are approved by the Superintending Engineer. Hence, it can be stated that the fixation of rates by the Arbitrator seems to be reasonable in the circumstances of the case and is on the basis of evidence produced before him.
22. Whether the award is illegal because the counter-claims Nos. 8, 9 and 10 are rejected by the Arbitrator.
Learned A.G.P. Mr. Mehta submitted that the Arbitrator has misconducted himself in refusing to grant counter-clams Nos. 8, 9 & 10. Counter claims No. 8, 9 and 10 are as under :
------------------------------------------------------------------------------------------- Sr. Particulars of the Counter-claim Counter-claim Amount awarded claim amount as amount as modified modified on 2.2.1988 ------------------------------------------------------------------------------------------- (1) (2) (3) (4) (5) ------------------------------------------------------------------------------------------- 8. Recovery of rent of 59,700 5,34,825 Not considered machinery Irrigation because these are for recoveries and should be settled in final bill as per rules
9. Recovery of cement 1,78,247 99,255 179.80 MT
10. Cost of empty cement 69,796 1,09,192 bags 2729.80 MT x 20 - 54596 bags x 2 rate per bag. ------------------------------------------------------------------------------------------
We would note that with regard to other counter-claims there is no substance and the learned A.G.P. also has not raised any contention. With regard to the aforesaid items, the Arbitrator has stated that these items are not for fixation of rates but there are recoveries and should be settled at the time of sanctioning the final bill as per the rules. It is apparent that this finding is in conformity with the Arbitration Agreement. Clause 4 of the Arbitration Agreement reads as under :
"4. New, therefore, it is hereby agreed between the Government and the contractor mutually that the items mentioned, below which are under dispute and which arise out of the aforesaid contract we referred to the sole arbitration of person of the rank of Retired Chief Engineer Shri B. P. Patel to be appointed or nominated by the Government who shall always be deemed to have been appointed by both the parties hereto.
(1) Shri T. K. Rawalji, Executive Engineer, Irrigation Project DN No. 2 Rajpipla.
(2) Shri J. K. Modi of M/s. Vir Vijay Const. Co. Patan."
The items 'mentioned below' in the Arbitration agreement dated 4th September, 1985 pertain to the claims of rates by the contractor for various items for 'extra work' and for 'extra items'. Nowhere, it is agreed and stated that the State Government was having some counter-claim against the contractor. Learned A.G.P. Mr. Mehta has not disputed this aspect. However, he submitted that in the Memorandum dated 12th August, 1985 issued by the Deputy Secretary, Irrigation Department for referring the matter to arbitration for settlement of various claims put forth by the contractor, it is mentioned :
"After careful consideration, the Government is now pleased to allow Arbitration in respect of the claims put forth by the said contractor as per list attached herewith as Appendices "A" and "B" and also is pleased to appoint Shri B. P. Patel as the sole Arbitrator subject to the following observations :
(a) if there are any counter-claims for compensation for delay in executing the works by the contractors, etc., these should be put up for Government side for arbitration."
23. In our view considering the Arbitration Agreement which is executed between the State Government and the contractor on 4th September, 1985, this Memorandum cannot be relied upon for holding that the reference was made to the Arbitrator for deciding the counter-claims of the State Government for delay in executing the work by the contractor. No such term is found in the Arbitration Agreement which is subsequently executed between the parties. The items, which are mentioned in the agreement, related to the work carried out and their rates claimed by contractor. There is no mention of the alleged counter-claims by the State Government. Hence, the Arbitrator had no power or authority to decide the said claims as the parties have not given him such power under the agreement. It is established law that the Arbitrator has no jurisdiction to travel beyond the terms of reference and to widen his jurisdiction by deciding the question not referred to him by the parties. If he exceeded his jurisdiction his award would be liable to be set aside. In the case of Associated Engineering Company v. Government of Andhra Pradesh (AIR 1992 SC 232), the Supreme Court held :
"The arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled outside that bounds of the contract, he has acted without jurisdiction".
The Supreme Court further held that a deliberate departure from the contract amounts to not only manifest disregard of his authority or a mis-conduct on his part, but it may tantamount to a mala fide action. As against this the learned A.G.P. has relied upon the decision of the Supreme Court in the case of K. V. George v. The Secretary to Government Water and Power Department, Trivandrum (AIR 1990 SC 53). In that case, the Arbitrator had not considered the counter-claims and kept the same for consideration subsequently. The court held that such award passed by the Arbitrator is not sustainable at law and the Arbitrator has misconducted himself in the proceedings by making such award because it is the duty of the Arbitrator while considering the claims of the appellant to consider the counter-claims made on behalf of the respondent. In that case the matter was referred specifically to the Arbitrator for deciding the claims of the appellant and the counter-claims of the respondent. Therefore, the Arbitrator was bound to consider the counter-claims before making an award in favour of the appellant-contractor whereas the acts in the present case are quite different. The reference to the Arbitrator in the present case is mainly with regard to fixation of rates for 'extra items' and for 'extra work' carried out by the contractor. Hence, the aforesaid decision is not helpful to the appellants in the present case.
Mr. K. N. Mehta learned A.G.P. has further relied upon the decision of the Supreme Court in the case of M/s. Chahal Engineering and Construction Co. v. Irrigation Department Punjab, Sirsa (J.T. 1993 (4) SC 434). In our view, this decision has also no bearing in the present case. The Court has specifically held in that case that the main point of controversy between the parties related to scope of reference before the Arbitrator. After considering that question, the court arrived at the conclusion that the scope of reference of arbitration was not confined to the work which was completed when Shri Avtal Singh gave his award. The court held that on account of extended scope of the reference, the Arbitrator had also to take into consideration the counter-claims of the department which arose out of the entire said work. As stated earlier, in the present case, the scope of reference is limited to the terms mentioned in clause 4 of the Arbitration Agreement. Hence, the aforesaid decision would have also no bearing.
24. For the time being, apart from the Arbitration Agreement dated 4th September, 1986, even if we consider the Memorandum dt. 12th August, 1985, yet the counter-claims for items No. 8, 9 & 10 would not be covered because in the Memorandum it is specifically mentioned that the arbitration of Sh. B. P. Patel was subject to the observation that 'if there are any counter-claims for compensation for delay in executing the work by the contractor, etc.' these should be put up from the Government side for the arbitration. This clause, in our view, seems to be a general clause and the observation is made without taking into consideration the relevant facts more particularly the fact that the delay was on the part of the State Government in handing over the possession of the land over which the contractor was required to carry out the work. In the present case, the counter-claim on account of delay in executing the work by the contractor is at Item No. 5. This is for extra expenditure incurred by the department towards material due to delay in completion of the work. For this claim, no dispute is raised by the State Government and no amount is awarded by the Arbitrator. Learned A.G.P. Mr. Mehta, has also not raised any dispute for this item. Further, by no strech of imagination, it can be said that there was delay on the part of the contractor in executing the work. From the letter, which we have quoted above, it is clear that there was delay on the part of the State Government in handing over the possession of the lands for executing the work. Finally, the State Government has failed to take the possession of land for 1.27 kms length for which the execution of work was required to be abandoned. As against this claim No. 8 pertains to recovery of rent of machinery. Irrigation Mechanical Division No. 2, claim No. 9 is for recovery of price of cement and claim No. 10 pertains to recovery of cost of empty cement bags which are allegedly not returned by the contractor. These claims are not considered by the Arbitrator because they pertain to recoveries and are to be settled at the time of sanctioning the final bill. Therefore, it is apparent that these counter-claims are not for compensation for delay in executing the work by the contractor.
25. The learned A.G.P. Mr. Mehta, further submitted that, apart from the counter-claims for compensation for delay in executing the work by the contractor, the State Government is entitled to file counter-claims for other item, because the term "etc." is used in the observations made in the Memorandum issued by the Government. In our view, it would be difficult to accept this contention of the learned A.G.P. firstly because there is no such provision in the Arbitration Agreement for referring the question to and get the decision of the Arbitrator and, secondly, the Memorandum is not based on the Arbitration Agreement and some observations made in the said Memorandum are not binding to the Arbitrator or to the contractor. Further, the general observations made in the Memorandum pertain only to the counter-claims of the State Government for compensation for delay in executing the work by the contractor. The term "etc." is required to be read along with the said previous sentence.
26. In any set of circumstances, it cannot be said that the finding given by the Arbitrator with regard to the counter-claims is in any way erroneous or illegal because the recovery of cost of empty cement bags is not a matter of dispute which requires any settlement through the Arbitration. Therefore, the Arbitrator has stated that these amounts are to be recovered after settling the account at the time of sanctioning of the final bill because during the pendency of the arbitration proceedings the tender work was not completed nor the State Government has terminated the contractor. Some work was required to be completed and in the Award it is observed in paragraph 10 that :
"He has requested both the parties vide letter 24th August, 1987 to prepare the statement showing the quantities of various items involved in the case, as executed upto 31.8.1987 and, submit it before 30.9.1987. But they did not submit till the last hearing on 2.9.1988."
No doubt, this observation is with regard to the quantities of work executed by the contractor for various 'extra items'. But, this would clearly mean that the final bill was to be settled between the parties and, in that view of the matter, if there is any recovery on account of rent of machinery or price of cement supplied or cost of empty cement bags, those amounts are required to be adjusted in the final bill and, hence, it cannot be said even on merits that the finding given by the Arbitrator can be termed as illegal or arbitratary.
27. Misconduct of the Arbitrator :
Lastly, learned A.G.P. Mr. K. M. Mehta has vehemently submitted that the Arbitrator has misconducted himself as he has accepted the entire arbitration fees and costs from the contractor. In support of this contention, he has relied upon the decision of the Calcutta High Court in the case of Akshoykumar v. S. V. Dass & Co. (AIR 1935 Cal 359).
28. In the facts of the present case, it would be difficult for us to accept the contention of the learned A.G.P. that the Arbitrator has misconducted himself by accepting the entire fees and costs from the contractor. It is true that, as per the Arbitration Agreement, the Arbitrator's fees and other charges were to be shared by the contractor and the State Government equally. However, when the arbitration work was over, the Arbitrator wrote a letter dated 29th February, 1988 to the contractor and copies were sent to the Executive Engineer, Irrigation Project, Rajpipla and to Shri S. S. Desai, Assistant Government Pleader, who appeared in the matter, informing that he has decided to declare the award on 30th March, 1988 at 5.50 p.m. in all, the Arbitrator's fees and other charges were to the extent of Rs. 20,600/- and that this amount is to be shared equally by both the parties, i.e. each party has to pay Rs. 10,300/- he has directed the contractor to make full payment of Rs. 20,600/- before 15th March, 1988 by a Demand Draft, and that, as regards share of Rs. 10,300/- which is to be paid by the Executive Engineer, necessary mention would be made in the award for adding this amount to the amount awarded. From this letter, it is apparent that the Arbitrator has directed the contractor to pay arbitration fees and costs by a demand draft before 15th March, 1988 so that he could declare the award on 30th March, 1988. Learned Advocate Mr. Soparkar submitted that, because of unusual delay with the Government officers in depositing the amount, if the Arbitrator has directed the contractor to deposit the entire amount of arbitration fees and costs, it cannot be said that he had received and pecuniary inducement which might have some effect on the determination of the matter submitted to him for his adjudication. In the present case, at no point of time, it is allegedly by the State Government that the sole Arbitrator was prejudiced against the State Government or that he has received any pecuniary inducement from the contractor which would have any effect on his determination of the matter submitted to him for his adjudication. The fees and costs were accepted by him only after informing the Executive Engineer and the Government Pleader who had conducted the arbitration proceeding before him. At no point of time, after receipt of the letter from the Arbitrator, either the Executive Engineer or the Government Pleader has protested against it. The letter was written by the Arbitrator on 29th February, 1988 and the award was pronounced on 30th March, 1988. Even at the time of hearing of this matter, the learned A.G.P. was not in a position to make any imputation or to point out any prejudice on the ground that the Arbitrator has directed the contractor to deposit the fees and costs before 15th March, 1988. The Arbitrator is entitled to recover fees and costs from the parties are prescribed in the arbitration agreement and that the Arbitrator has recovered only prescribed fees.
29. Learned Advocate Mr. Separkar further submitted that the Arbitrator has followed the procedure which is followed in almost all cases and for this purpose he relied upon the passage by Russel on arbitration, which is as under :
"Practice not to deliver award until charges paid. Lien for fees :
It is usual for an arbitrator to settle for himself what he considers a proper remuneration for his trouble. On giving notice to the parties that the award is ready for delivery, it is advisable also to notify them what is the amount of his charges in order that the party who comes to take up the award may be prepared to pay them. Either party can then take up the award. The arbitrator has a lien for his reasonable costs on the award and submission, and on any remoranda or valuation obtained by himself from other persons for his own guidance, but not on documents put in evidence before him by the parties. As the rentention of the award is practically the chief security on which he can rely for the satisfaction of his claim, the practice commonly prevails not to deliver the award upto the party seeking to take it up until the charges have been paid. Where the party who takes up the award is not by the terms of its provisions to be the party ultimately liable to pay them, he may recover from his opponent all the costs of the award that its directions impose upon the labour."
From the aforesaid passage, it is clear that, after giving notice to the parties that the award is ready for delivery, the Arbitrator has to notify them what is the amount of his charges so that the parties can pay them. The learned Author has also observed that the practice commonly prevails not to deliver the award upto the party seeking to take it up until the charges have been paid. Further, in the present case, at no point of time, the State Government has shown it is willingness to deposit or pay the arbitration fees and costs even though at the time of executing the agreement, the Government has directed the contractor to deposit Rs. 5,000/- towards fees and costs for the arbitration proceedings. Even that amount is withheld by the State Government until now. Nor it has paid its share of the arbitration fees and costs either to the contractor or to the Arbitrator. As per clause 8 of the Arbitration Agreement, the contractor was required to pay fees for arbitration to the Executive Engineer in Charge of the work at the rate of 50% of the fees payable to the Arbitrator as per the table given in Appendix 'I' and the said amount of fees should be deposited by the contractor before the commencement of the hearing. Clause 7 of the Appendix 'I' further provides that payment towards arbitration fees shall be made to the Arbitration on completion job. It is not disputed that the arbitration work was over in the month of January/February, 1988. The Arbitrator has issued notice informing that he intended to pronounce the award on 30th March, 1988. Still the State Government has not deposited one-half of the amount of arbitration fees and costs. Further, in the present case, the Arbitrator has demanded the fees as fixed by the State Government as per the table at clause 8 of Appendix 'I' of the Arbitration agreement, after completion of the work. Therefore, in the present case it hardly lies in the mouth of the State Government that, as the Arbitrator has directed the contractor to pay Rs. 20,600/- towards fees and costs instead of Rs. 10,300/-, i.e., one-half of the share, the Arbitrator has misconducted himself. In our view, the reliance placed on the decision of the Calcutta High Court in the case of Akshoykumar (supra) would not advance the contention of the appellants in any manner. In that very case, the court observed that everything would depend upon the circumstances attending the payment of fees of the Arbitrator and the court would be required to find out whether the Arbitrator was influenced in his decision by the manner in which the fees came to be recovered by him. In the present case, it can be stated that the procedure adopted by the Arbitrator is just and in consonance with the provisions of Section 14(2) of the Arbitration Act. Hence, in the present case, it cannot be stated that the Arbitrator has misconducted himself in determining and accepting the entire fees and costs by demand draft from the contractor before declaring the award.
30. Interest :
Now, we would deal with the contention of learned Advocate Mr. Soparkar for the respondent that the delay in filing the cross-objections may be condoned and that it be held that the trial court has errored in reducing the rate of interest from 18% per annum to 10% per annum. He further submitted that the question with regard to the payment of interest pendente lite is finally settled by the Supreme Court in the case of Secretary Irrigation Department, Government of India v. G. C. Roy (supra) and that this would be a fit case for grant of interest from 4th September, 1985, i.e., from the date of execution of the arbitration agreement. He further submitted that, according to the agreement between the parties, as recorded in the order dated 1st August, 1991 of this Court in Civil Appeal No. 1352 of 1991 the respondent is entitled to recover interest on the sum due to him at the rate of 18% per annum and that the question of interest prior to 1st August, 1991 is required to be determined at the time of final hearing of these appeals. He lastly submitted that all throughout the State Government has considered that rate of interest at 18% per annum would be a reasonable rate and, therefore, this court may award that rate of interest on the amount, which is wrongly and illegally without by the State Government, at least since year 1985.
31. For dealing with these contentions, it would be necessary to refer to certain orders passed by this court in Civil Applications filed by the State Government for stay of execution of the decree dated 27th October, 1989 passed by the trial court. As per the decree, the respondent is entitled to recover on amount of Rs. 34,56,608.89 ps. with simple interest at the rate of 10% per annum from the date of the award, i.e., 30th March, 1988 till the said amount is realised. Against the judgment and decree, the State of Gujarat has filed these appeals and in these appeals Civil Applications Nos. 1783 and 1785 of 1990 are filed for stay of execution and implementation of the judgment and decree. By an order dated 10th July, 1990, a Division Bench of this court (Coram R. A. Mehta & K. J. Vaidya, JJ.) directed the State Government to deposit a sum of Rs. 20 lakhs within the period of six weeks and continued the interim relief granted either in favour of the State Government. The Court further observed that the respondent would be at liberty to withdraw the same on furnishing the Bank guarantee to the satisfaction of the trial court. Against that order, the State Government filed a Special Leave Petition before the Supreme Court. The Supreme Court dismissed the Special Leave Petition by holding that it is against the interim order passed by the High Court in pending first appeal. The Supreme Court observed that the petitioner could be at liberty to move the High Court for imposition of any other condition which it may consider desirable and if that is done the High Court will consider and dispose of the same on merits in accordance with law.
Thereafter, the State Government filed Civil Application No. 2978 of 1990 in Civil Application No. 1783 of 1990 wherein it was prayed that this court may cancel or modify the order dated 10th July, 1990. After hearing the parties, the Division Bench (Coram : R. A. Mehta and K. J. Vaidya, JJ.), vide its order dated 28th September, 1990, modified the order dated 10th July, 1990 and imposed an additional condition that the respondent shall also give an undertaking to this court that in the event of the appellant succeeding and the respondent being required to repay any amount, the same shall be repaid with 18% interest per annum from the date of the payment to the date of repayment. It was also directed that the respondent shall also undertake to give further Bank guarantee every year for the amount of interest accruing and shall give such bank guarantee.
Thereafter, again the State Government filed Civil Applications Nos. 1352 of 1991 and 1469 of 1991 wherein it was prayed that the applicant has deposited an amount of Rs. 20 lakhs in the Trial Court on 12th October, 1990 and the respondent has not furnished the bank guarantee and he has not withdrawn the amount and, therefore, appropriate direction be given. It was also prayed that the Government has already paid Rs. 8 lakhs as per the interim award 30th May, 1986, therefore, the respondent he directed to file an undertaking to refund the said amount with interest at the rate of 18% per annum. The same Division Bench, by its order dated 1st August, 1991, inter alia, directed as under :
"In the facts and circumstances of the case, it is directed that the respondent-M/s. Vir Vijay Construction Company will be permitted to withdraw a sum of Rs. 3 lakhs (Rupees three lacs only) on furnishing security to the satisfaction of the Trial Court and he will not be required to furnish the bank guarantee. The Government will be entitled to withdraw a sum of Rs. 17 lakhs."
The court further held as under :
"Both the parties agree that in the event of any amount becoming payable by one party to the other party as a result of the First Appeal, that amount will be paid with interest at the rate of 18% per annum from today and the question of interest prior to this period will be the subject-matter of decision by the court.
As regards the claim of the Government in respect of a sum of Rs. 18 lakhs, we have already directed by an order dated 18th September, 1990 that the opponent No. 1 shall also give an undertaking to this court that in the event of the appellant succeeding and the respondent being required to pay any amount, the same shall be repaid with 18% interest p.a. from the date of the payment till the date of the repayment. This undertaking has not been furnished so far. The respondent agrees to file such undertaking latest by 9th August, 1991. After such undertaking is filed the respondent will be permitted to withdraw a sum of Rs. 3 lacs. It is clarified that the respondent is not required to furnish any Bank guarantee or security in respect of the claim of the Government of Rs. 18 lacs interest thereon."
Mr. Soparkar, learned Advocate for the respondent, pointed out that because of the dispute with the State Government the contractor is ruined to such an extent that he was not in a position to furnish the security for a sum of Rs. 3 lakhs as directed by this court on 1st August, 1991. He further submitted that a large amount is due and payable to the contractor which is unlawfully withheld by the State Government particularly by its officers for some oblique motives and because of this the contractor has suffered irreparable loss; his entire business is ruined; and nobody was prepared to give surety for a sum of Rs. 3 lakhs. Therefore, a note was filed before this court on 14th August, 1991 to modify the aforesaid order and the State Government has withdrawn the said amount.
32. In the present case, the question of payment of interest is required to be divided as under :
(1) Payment of interest pending reference before the Arbitrator.
(2) Payment of interest after the award is made by the Arbitrator. The Arbitrator has awarded interest at the rate of 18% per annum from the date of the award till the decree is passed or its realisation whichever is earlier.
(3) Payment of interest pending the application before the Trial Court.
(4) Payment of interest pending hearing of these appeals. This is divided into two parts :
(a) Payment of interest from the date of decree, i.e., 27th October, 1989 till 31st July, 1991;
(b) From 1st August, 1991 onwards, it is agreed by both the parties as stated in the order of this court that the amount payable by either party shall be paid with interest at the rate of 18% per annum.
33. Mr. Soparkar, learned Advocate for the respondent, has vehemently submitted that the Government has wrongly withheld the amount legitimately due to the contractor since 1985 and, therefore, the contractor is entitled to recover that amount with interest at a reasonable rate which may be fixed by this court. He further submitted that in the present case even the State Government has thought that the reasonable rate of interest could be between 18% and 20% as it has all throughout demanded the same rate of interest from the contractor on the counter-claims. He further submitted that, apart from cross-obejctions which are filed at the larger stage, this court would have jurisdiction to pass such an order under Order XLI, Rule 33 of the Code of Civil Procedure. He submitted that, in view of the Supreme Court decision in the case of G. C. Roy (supra), for doing complete justice between the parties, the Arbitrator is having jurisdiction to award interest pendente lite.
It is true that the larger Bench of the Supreme Court has held in the case of G. C. Roy (supra), that 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 and these principles are applicable for the period the dispute is pending before the Arbitrator. The court held that interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre-reference period) and for doing complete justice between the parties, such power has always been inferred. It is a matter within the discretion of the Arbitrator to be exercised in the light of the facts and circumstances of the case, keeping the ends of justice in view.
34. However, in the present case, it would be difficult to accept the aforesaid contentions mainly because before the Arbitrator it was contended by both the parties that the Arbitrator had no power to award any interest on the amount which is found due and payable. The Arbitrator has specifically rejected the counter-claims filed by the State Government on certain items on the ground that, as per the Memorandum, the interest was not payable. For this purpose, in his award, he was referred to the memorandum issued by the State Government and observed that the claim for interest has not been considered because it has been specifically mentioned in the Arbitration Agreement that the Arbitrator will not decide about the interest payable. No doubt, at this stage Mr. Soparkar submitted that the Memorandum issued by the State Government is not the basis of the arbitration proceedings. But, in our view, no such contention with regard to interest is raised either before the Arbitrator or before the Trial Court and, therefore, it is not open to the respondent to raise such a new contention that the amount found due and payable to the contractor should be awarded with interest from the date of reference till the date of the award, in these appeals.
35. Further, for the grant of interest after the award is declared by the Arbitrator, i.e., from 30th March, 1988 till 27th October, 1989, the trial court has awarded interest at the rate of 10% per annum. The trial court has modified the award passed by the Arbitrator whereby the Arbitrator has awarded interest at the rate of 18% per annum on the amount of Rs. 30,36,885/- from the date of the award till date of the decree or realisation whichever is earlier. Considering the fact that the trial court has exercised its discretion and granted interest at the rate of 10% per annum, in our view, it would not be open to revise it in appeals filed by the State Government. Hence, on this ground also, the judgment and decree passed by the trial court does not call for any interference.
36. The question of awarding interest after the judgment and decree is passed by the trial court for the period from 1st August, 1991, as agreed between the parties, the respondent is entitled to recover the amount due and payable with interest at the rate of 18% per annum. In Civil Applications Nos. 1352 and 1469 of 1991 filed by the State Government, decided on 1st August, 1991, by the Division Bench of this court, it is specifically held that both the parties agree that in the event of any amount becoming payable by one party to the other party as a result of decision in the first appeals, that amount will be paid with interest at the rate of 18% per annum from today and the question of interest prior to this period will be the subject-matter of decision by the court. In view of the specific order and agreement before the court, the respondent is entitled to recover decretal amount with interest at the rate of 18% per annum from 1st August, 1991 till its realisation.
37. The next question would be at what rate the contractor is entitled to recover interest on and from 27th October, 1989 to 13th July, 1991. It should be noted that the State Government has all throughout filed civil applications for stay of execution of the money decree passed by the trial court for the work carried out by the contractor prior to 1985. Further, before this court, the State Government has filed civil application praying that the Government has already paid Rs. 18 lakhs and for that amount, the contractor be directed to give on undertaking at this court that, in the event of appeal being allowed, the contractor shall repay that amount with interest at the rate of 18% per annum from the date of payment till the date of repayment. On the basis of the said prayer in the civil application, the court has passed the order which we have quoted earlier that in the event of the applicant succeeding in the first appeal and the respondent being required to pay any amount, the same will be repaid with 18% interest from the date of payment till the date of repayment and that the contractor was also required to file an undertaking to that effect before this court. In the previous order dated 28th September, 1990 in Civil Application No. 2978 of 1990, it is also specifically mentioned that the contractor shall give an undertaking to this court that in the event of the appellant succeeding and the respondent being required to repay any amount, the same shall be repaid with 18% interest per annum from the date of repayment. These conditions were imposed in view of the observations made by the Supreme Court in its order whereby the State was given an opportunity to move this court for imposition of any other condition which it may consider desirable. In our view, considering peculiar facts of the case and that :
(a) the contentions raised by the State Government all throughout that the contractor should be directed to repay the amount with 18% interest;
(b) the written objections filed by it before the Arbitrator wherein the amount is claimed with interest at the rate of 20% per annum.
(c) the contractor had completed the work prior to 1985 and that the amount for the work done is wrongly withheld by the State Government since 1985; and
(d) the orders passed by this court in various Civil Applications filed by the State Government including the order directing the contractor to repay the amount of Rs. 18 lakhs with interest at the rate of 18% per annum.
it would be just and proper to direct that the decretal amount should be paid with interest at the rate of 18% per annum from the decree (27th October, 1989) till 31st July, 1991.
38. In view of the aforesaid discussion, it can be stated that :
(i) for awarding the amount to the contractor, the Arbitrator has given sufficient justifiable reasons. Hence, it cannot be said that the award is a non-speaking one;
(ii) fixation of rates by the Arbitrator for 'extra work' and 'extra items' is reasonable in the circumstances of the case and on the basis of the evidence produced before him.
(iii) counter-claims Nos. 8, 9 and 10 are rightly rejected by the Arbitrator, because as held by the Arbitrator, these are recoveries and could be settled at the time of sanctioning of the final bill as per the rules. In any case, the dispute referred to the Arbitrator is limited as per clause 4 of the Arbitration Agreement and the aforesaid claims of the Government are not included therein.
(iv) the Arbitrator has not misconducted himself by informing the parties in writing that the award is to be declared on 30th March, 1988 and directing the contractor to pay the entire fees and costs by demand draft before declaring the award.
(v) With regard to interest :
(a) the prayer for grant of interest from the date of reference till the award is declared, is not granted;
(b) the rate of interest at 10% per annum on the decretal amount from 30th March, 1988 till 27th October, 1989, as directed by the trial Court, does not call for any enhancement;
(c) because of peculiar facts of the case, interest at the rate of 18% per annum on the decretal amount from 27th October, 1989 till 31st July, 1991 is granted;
(d) contractor is entitled to recover interest at the rate of 18% per annum on the decretal amount from 1st August, 1991 till realisation, as agreed between the parties at the time of hearing of the civil application.
39. In the result, the appeals filed by the State Government are dismissed with costs. Cross-objections are also rejected with a direction that the respondent-contractor is entitled to recover the decretal amount with interest at the rate of 18% per annum from 27th October, 1989 till its realisation. Decree to be drawn accordingly.
40. Mr. K. M. Mehta, learned A.C.P. appearing on behalf of the State Govt., has requested that some time may be granted for paying the decretal amount with interest and costs. Considering the facts and circumstances of the case, time to pay the decretal amount with interest and costs is granted upto 18th October, 1993. It is directed that the appellants shall deposit the said amount with interest and costs on or before 18th October, 1993 before the trial court. It would be open to the respondent to withdraw the said amount after following the necessary procedure.
41. Appeals dismissed with costs.