Mahanadi Coal Fields Limited vs M/S. Kishorilal Loomba And Sons on 13 May, 2019

[Cites 25, Cited by 0]

Orissa High Court

Mahanadi Coal Fields Limited vs M/S. Kishorilal Loomba And Sons on 13 May, 2019

Equivalent citations: AIRONLINE 2019 ORI 104

Bench: Biswanath Rath

                    ORISSA HIGH COURT, CUTTACK.
                                          ARBA No.2 of 2007

                                An appeal U/s.37(1)(b) of
                       the Arbitration and Conciliation Act, 1996 .
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Mahanadi Coal Fields Limited ... Appellant Versus M/s. Kishorilal Loomba and Sons ... Respondent For Appellant : Mr. Somadarsan Mohanty For Respondent : None

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PRESENT :

THE HONOURABLE MR. JUSTICE BISWANATH RATH

--------------------------------------------------------------------------------------------------- Date of hearing :19.04.2019 Date of Judgment : 13.05.2019

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Biswanath Rath, J. This Arbitration Appeal has been filed U/s.37(1)

(b) of the Arbitration and Conciliation Act, 1996 and involves a challenge to the judgment of the District Judge, Sambalpur in Arbitration Petition No.2 of 2004 dated 27.11.2006 where the District Judge while dismissing the Arbitration Petition confirmed the award passed by the learned Arbitrator involving Arbitration Case No.2 of 2001.

2. Advancing his argument Shri S. Mohanty, learned counsel for the appellant confined his submission involving challenge to the Arbitration petition No.2 of 2004, thereby mostly 2 restricted his submission to the extent that for the receipt of the payment on final bill without protest and having no claim any further involving the contract, whether the Arbitrator as well as the District Judge arrived in right conclusion involving the award and judgment therein? Of course in filing the written note of argument Sri Mohanty, extended his claim to interest part also.

For the limited nature of challenge involving both the award as well as the judgment involved herein, this Court need not go to all the factual aspects involved herein except the factual aspect which is relevant for determination of the question involved hereinabove.

3. Shri S. Mohanty, learned counsel for the appellant referring to the pleadings, the stand taken by the Company in their opposition before the Arbitrator, the evidence of the respective parties, findings therein involving the above dispute and further the judgment of the learned District Judge involved herein submitted that for the complete materials available therein establishing the receipt of final amount by the claimant the respondent herein without protest, the learned Arbitrator as well as the learned District Judge failed in appreciating the maintainability of the Arbitration proceeding. Shri S. Mohanty, learned counsel for the appellant taking this Court to a decision in the case of ONGC Mangalore Petrochemicals Ltd. versus ANS Constructions Ltd. and Ors. involving Civil Appeal No.1659 of 2018 (arising out of Special Leave petition (C) no.12939 of 2015) as reported in (2018)3SCC373 submitted that the case of the appellant has support through the above judgment. It is, in the circumstance, Shri S. Mohanty, learned counsel for the appellant prayed this Court for interfering in the judgment as well as the award involved herein and setting aside both.

4. Even though there is appearance of a set of counsel on behalf of the respondent but at the time of hearing, a mention was made on behalf of the counsel for the respondent to delete their name from the cause list and as a consequence the matter is heard and reserved only hearing on the counsel for the appellant

5. Considering the submission of Shri S. Mohanty, learned counsel for the appellant and going through the statement of claim more particularly on the issue of receipt of final bill under protest or without protest, this Court from the statement of claim at paragraph nos.27.2, 27.3 and 28 finds as follows:

"27.2) The claimant submits that claimant had no other option but to accept the final payment as wrongly paid by the respondent.

27.3) The claimant submits that the respondent while paying the final bill has also taken a letter from one of the partner of the firm Mr. K.K. Loomba that claimant has no claim what so ever against this contract. Claimant submits that respondent threatened claimant that if this type of letter is not given respondent will never pay the final bill of this contract. Claimant submits that all the delays and breach of contract committed by respondent has made financial position of claimant very miserable and very vry bad as such there are no option for claimant except to write such letter and except the whatever payment was being released by respondent.

28) The claimant submits that vide claimants letter dated 27.5.1999 (Annexure C27) claimant requested the respondent to register various claims and asked for their payment within 15 days.

But the respondent never replied the above mentioned letter."

6. Coming to the response of the objector therein the appellant herein, this Court finds, the appellant flatly denied and went on contesting the matter on the premises that the final amount was received having no protest. The claimant to establish 4 its case, apart from producing material evidence also gave oral evidence through affidavit justifying its claim that the final payment was received under protest but under compulsion and coercion by the Officer of the present appellant. For the circumstances, he was constrained to score out word "under protest". Similarly the appellant also giving evidence on affidavit attempted to justify that there was no coercion and the claimant received the final payment unhesitantly. Appellant thus claimed that the claimant was thus debarred from invoking the arbitration clause.

Perusing the L.C.R through the award of the sole Arbitrator appointed by the High Court of Orissa invoking the provision U/s.11 of the Act, 1996, this Court finds, the learned Arbitrator framed the particular issue, which reads as follows:

"Is the arbitration proceeding maintainable in view of the alleged final payment and the proceeding to decided on this taking into account the pleading of both the parties?"

7. Taking a decision on the above vital issue learned Arbitrator on assessment of materials involving the case record in paragraph nos.18 to 28 observed as follows:

"18. Issue No.1.

Is the suit maintainable?

It is contended on behalf of the respondent that the claimant having accepted payment under the final bill without any protest, the contract between the parties automatically terminated and no right or obligation under the contract survived thereafter and the arbitration clause which was a part of the contract was extinguished immediately.

19. The claimant's contentions on the other hand is that he lodged his protest in respect of the final bill, but on account of undue pressure compulsion and coercion on the part of the 5 respondent through its officer Mr.A. Ahemad(R.W.2), the superintending Engineer, the words 'under protest' mentioned by him on the final bill had to be scored through. It is alleged that the claimant was threatened that his final bill and security deposit would not be paid unless, the works 'under protest' were scored through and that since claimant was in dire need of money to clear up his outstanding dues of different parties he had to succumb to the threatening.

20. The evidence of the claimant c.w.1 shows that on 2.1.98 when he saw the final measurement and the final bill be found that his legitimate dues had been omitted for which he lodged protest and wrote the words 'under protest' on the final bill and the final measurement in presence of Mr.A. Ahemad (R.w.2) who had threatened him that unless the words 'under protest' were scored through no payment would be made for the final bill, for the security deposit and for his bills in respect of other works. On account of pressure, compulsion and coercion and being in urgent need of money for payment to other parties he scored through the words 'under protest' and being asked by Mr.A. Ahemad, he signed the cuttings but he never accepted the final bill and the final measurement. This evidence of C.W.1 gains corroboration from the evidence of C.w.2 and C.w.3.

21. R.W.2 Mr. A. Ahemand denied the allegations of C.W.1 and stated that when the final bill was placed before him no one from claimant's side was present there and that he found the words 'under protest' had been scored through, He asked the Executive Engineer (Civil) about the circumstances under which the words 'under protest' were written and subsequently scored through. But he did not say what answer he got to his querry from the Executive Engineer (Civil). In the same breath, he stated that he had asked his office to call the claimant for verification as to why he wrote and subsequently scored through the words 'under protest'. But subsequently, he went back upon his statement that he had asked his office to call the claimant for verification. According to him Mr. L.K. Pradhan, had prepared the final bill. R.W.1 Mr. Gohri on the other hand stated that the final bill was prepared by Mr.A. 6 Ahmad. Neither Mr. Pradhan, nor Mr. Ghosh who had signed and verified the ddefence statement stating therein that the claimant ahd accepted the final bill and final measurement without any protest and had denied the allegation about threatening were examined in this case. Mr. Ahemad stated that he does not know before whom the words 'under protest' were written and scored through. Thus it appears, that an attempt has been made to conceal the name of the officer before whom the words 'under protest' were written and scored through. In the absence, such information there is no escape from the conclusion that the words 'under protest' were mentioned and scored through as a result of threatening and coercion by Mr.A. Ahemad(R.W.2), as stated by the claimant. The contention of the claimant that everything was done before Mr. A. Ahemad stands corroborated, a careful scrutiny of the entire evidence on record I come to the unhesitating conclusion that Mr. A. Ahemad had resorted to compulsion and coercion, and as a result, the claimant had to score through the words 'under protest'. The inconsistent statements made by Mr. A. Ahemad would lead to the conclusion that he was not speaking truth an having admitted that the final bill was brought to him by the Executive Engineer (Civil), he has tried to save his skin by stating that the words 'on protest' had been scored through before the file was placed before him and that the claimant was not present when the file was placed before him.

22. The work was completed on 30.04.1993 but for a considerable length of time that is almost upto 1996, no steps were taken by respondent to prepare the final bill. It is only when the claimant sent his letter dated 4.4.96 (Ext.29) for sanction of final extension up to 30.4.93 showing various failures, defaults and breaches on the part of the respondent that a meeting was held with the claimant on 5.7.96 in regard to the final extension of time up to 30.4.93. From the Note sheets of the departmental file of the respondent, it appears that the extension of time had been made conditional subject to execution of 'no claim certificate' by the claimant. When the proposal for extension of time up to 30.4.93 was placed before Mr.Vergese, the Chief Financial Manger (P) on 16.10.96 he passed the following orders;

"In view of the above we may agree to the proposal for extension of time up to 30.4.93 with a token penalty of Rs.5,000/- and payment of labour escalation restricting the work done up to 15.3.93 and payment of material escalation restricting the work done up to 15.3.93 freezing index as on 31.7.92. Before issue of sanction order, the contractor should give an undertaking agreeing to these and also confirming that he shall not put any counter final claim for the delay vide Note Sheet Ext.R-3."

This order was approved by Mr.V.K. Saigal the Director who is the final authority in financial matters.

23. Pursuant to the above order, the Chief Engineer (Civil) issued the sanction order on 4.12.96 to the following effect;

"Director (Tech.) MCL, Sambalpur has been pleased to approve the final extention of time for the above noted subject work upto 30.4.93 with the following terms and conditions;

I. A lump sum penalty of Rs.5,000/- only is to be imposed;

II. Labour escalation would be paid for value of work done up to 15.3.93;

III. Material escalation will be paid for value of work done upto 15.3.93 freezing cost index valid as on 31.7.92;

IV. No other claim towards idle wages of men and machinaries, overhead charges and less of business is payable excepting the escalation allowed as per the agreement during the total period of the contact. All other terms and conditions of contract will remain the same vide Ext.-Q"

24. It is clear from the above order dated 16.10.96 that a no claim certificate was directed to be taken from the claimant before issue of sanction order. On that very day when the sanction order (Ext.Q) was passed an undertaking was taken from the claimant to the effect" We hereby give undertaking that we shall have no counter claim or demand in respect of the above contract/work as we have already agreed to the grant of extention of time upto 30.4.93 with the following terms and conditions;

I. Labour escalation will be paid restricting the value of work done upto 15.3.93.

2. Payment of material escalation will be done for value of works executed upto 15.3.93 freezing index as on 31.7.92.

3. Lump sum token penalty of Rs.5,000/- only is acceptable to us. We do not have any claim for idle wages, men, machinery overhead charges and loss of business excepting escavation as above."

It is apparent that the No-claim undertaking was taken as per direction given in the order dated 16.10.96 on the note sheet Ext.R-3.

25. Mr. A. Ahemad (R.W.2) has stated in his evidence that no claim certicate was to be furnished otherwise, final bill would not have been released. He further stated that;

"Practice prevailing in the M.C.L. is to obtain no claim certificate from the contractor before making payment of the final bill. If a contractor does not give no claim certificate no payment will be made to him for the final bill."

It is clear from the aforesaid facts that the respondent having got the work executed through the claimant unnecessarily delayed the payment of final bill and that sole object behind the same was to ensure that in future the claimant would not make any claim against the respondent as in course of the execution of the work, the respondent had committed breach of contract and caused undue harassment to the claimant. In the contract there is no provision for obtaining any such no claim undertaking from the contractor before payment of the final bill.

26. An important aspect of the case, which should not be lost sight of is that on the application (Ext.29) of the claimant for final extention of time up to 30.4.93 a meeting was held on 5.7.96 and on the day following, that is 6.7.96 a letter was taken from the claimant (Vide Ext.N) to the following effect;

"Dear Sir, With due respect we want to draw your kind attention towards the meeting held at your Honour's office at Sambalpur on 5.7.96.

Whereas in the meeting it was decided and agreed upon that;

Item No.1. Material escalation due to us will be paid for the work done upto 15.3.93 and the material escalation will be freezed on 15.3.93 for the work done from 15.3.93 to 30.4.93. Material escalation would be paid to us as per material escalation clause added in the contract;

Item No.2. Labour escalation will be paid on complete work i.e. work done up to 30.4.93. The item no.3. xxxx penalty of Rs.5,000/- with the xxxxx and finally it was decided and agreed upon that after receiving the payment of material escalation as per Item No.1, labour escalation as per Item no.2 along with final bill, refund of SD and deduction of token penalty of Rs.5,000/- we will not have any claim against MCL. Regarding above subjected work."

27. It is evident that in the meeting held on 5.7.96 it was finally decided and agreed upon that after receiving the payment of materials escalation and labour escalation along with final bill, refund of SD and deduction of token penalty of Rs.5,000/- the claimant would not have any other claim against respondent. Thus according to the decision of the meeting, the claimant would not advance any other claim after payment of his final bill, refund of SD and deduction of token penalty of Rs.5,000/- but quite contrary to this decision final extention of time upto 30.4.93 was made conditional upon the claimant furnishing the no-claim undertaking in respect of his legitimate dues. Mr. A. Ghosh, Chief Engineer(Civil) who signed and verified the defence statement stated in para-27-3 that there was no threatening, rather Mr. K.L. Loomba issued such letter (Referring to Ext.P) from Raipur and that this was issued suo motu after accepting the various failures on his part that came out during the discussion in the meeting on 5.7.96. If actually the claimant had written the letter Ext.P Suo motu as alleged in the defence statement, he would not have lodged protest to the final bill when it was shown to him in Jan'1998. The contention that the letter (Ext.P) was issued form Raipur is not correct. According to the claimant, the meeting was held at Sambalpur on 5.7.96 and on the day following he issued letter Ext.P. in his letterhead.

28. No doubt the contract is terminated when the final bill is paid but in the instant case when the final payment was offered to claimant he came to know that some of his legitimate dues had not been reflected in the final bill and as such he objected by lodging his protest on the final bill itself. It is not worthy that even though the work was completed on 30.493 and the final bill was prepared in 1996 payment was offered to the claimant in January, 1998 and the claimant promptly objected to the same by lodging his protest. That the claimant had mentioned the words' under protest' in the final bill and those words were scored through is visible to the naked eye vide Ext. 'C'. in Measurement Book No.50. The contention that the claimant voluntarily furnished no claim certificate and scored through the words 'under protest' from the final bill is not acceptable. If he had voluntarily furnished no claim certificate he would not have lodged protest when the final bill was shown to him. Similarly if had voluntarily scored through the words 'under protest' he would not have issued the demand notice (Ext.30) on 27.5.99 claiming his dues in respect of which no-claim certificate had been given and the words 'under protest' had been mentioned in the final bill.

In view of my foregoing findings, I hold that the arbitral proceeding is maintainable and that the contention raised on behalf of the respondent is devoid of any merit."

8. This Court here finds, on threadbare discussions and on appreciation of the materials available on record, learned Arbitrator had categorically come to hold that there is protest involving receipt of final payment and therefore, answered the issues framed and indicated hereinabove in favour of the claimant. This question being agitated in the Section 34 proceeding, this Court finds, the District Judge, Sambalpur getting into this question recorded in paragraph no.3 that the appellant herein the petitioner therein challenged the validity of the award on the ground no.2, "the contractor having received his final bill on 24.1.1998, the contract came to an end and there was no 11 subsisting arbitrable dispute between the parties. Since the Contractor received final bill with full satisfaction, it was not open to him to reopen the matter." Deciding this question, again entering into threadbare discussion right from paragraph nos.6 to 12, the District Judge declined to accept the plea of the petitioner therein and as a consequence, considering the other aspect involved was pleased to dismiss the application U/s.34 of the Act, 1996.

9. Scanning through the plea of the parties, evidence available on record, discussion and finding of the learned Arbitrator as taken note hereinabove and the discussion and finding of the District Judge also taken note of hereinabove, this Court finds, there is sufficient material to establish that the amount involving the final payment was received by the respondent under protest and therefore, the contract was not concluded. For the concurrent finding of the fact that there remains a non-concluded contract and there was also no difficulty on the part of the respondent invoking the arbitration clause, this Court finds no scope for interfering on this aspect particularly exercising power U/s.37 of the Act, 1996.

10. It is here taking into account the law of land on this subject this Court in the case of Asian Techs Ltd. vrs. Union of India & others : (2009) 4 SCC (Civ) 203, in paragraphs-17 & 18, the Hon'ble apex Court held as follows :-

"17. It has been held by this Court in National Insurance Company Ltd vs. Boghara Polyfab Pvt. Ltd(2009) 1 SCC 267 that even in the case of issuance of full and final discharge/settlement voucher/no-dues certificate the arbitrator or Court can go into the question whether the liability has been satisfied or not. This decision has 12 followed the view taken in Chairman and Managing Director, NTPC Ltd. vs. Reshmi Constructions, Builders and Contractors (2004) 2 SCC 663 (vide paragraphs 27 and 28).

18.Apart from the above, it has been held by this Court in Board of Trustees, Port of Calcutta vs. Engineers- De-Space-Age (1996) 1 SCC 516, that a clause like clause

11 only prohibits the department from entertaining the claim, but it did not prohibit the arbitrator from entertaining it. This view has been followed by another Bench of this Court in Bharat Drilling & Treatment Pvt. Ltd. vs. State of Jharkhand & others in Civil Appeal No. 10216 of 2003 decided on 20th August, 2009."

Similarly getting into the decision in the case of R.L.Kalathia & Company vrs. State of Gujarat : (2011) 2 SCC 400, this Court finds, the Hon'ble apex Court in paragraphs-12 & 13 discussed and held as follows :-

"12. In National Insurance Company Limited vs. Boghara Polyfab Private Ltd., (2009) 1 SCC 267, the question involved was whether a dispute raised by an insured, after giving a full and final discharge voucher to the insurer, can be referred to arbitration. The following conclusion in para 26 is relevant:-

"26. When we refer to a discharge of contract by an agreement signed by both the parties or by execution of a full and final discharge voucher/receipt by one of the parties, we refer to an agreement or discharge voucher which is validly and voluntarily executed. If the party which has executed the discharge agreement or discharge voucher, alleges that the execution of such discharge agreement or voucher was on account of fraud/coercion/undue influence practised by the other party and is able to establish the same, then obviously the discharge of the contract by such agreement/voucher is rendered void and cannot be acted upon. Consequently, any dispute raised by such party would be arbitrable."

13) From the above conclusions of this Court, the following principles emerge:

(i) Merely because the contractor has issued "No Due Certificate", if there is acceptable claim, the court cannot reject the same on the ground of issuance of "No Due Certificate".

(ii) Inasmuch as it is common that unless a discharge certificate is given in advance by the contractor, payment of bills are generally delayed, hence such a clause in the contract would not be an absolute bar to a contractor raising claims which are genuine at a later date even after submission of such "No-claim Certificate".

(iii) Even after execution of full and final discharge voucher/receipt by one of the parties, if the said party able to establish that he is entitled to further amount for which he is having adequate materials, is not barred from claiming such amount merely because of acceptance of the final bill by mentioning "without prejudice" or by issuing "No Due Certificate."

Besides above view of this Court that in the circumstance the appellant had the scope to involve Arbitration clause also gets support of the discussions vide (2009) 1 SCC 267, (2004) 2 SCC 663 and also a decision of this Court involving the Marwah Company versus National Thermal Power Corporation Ltd. in ARBA No.1 of 2011 decided on17.4.2019.

11. Now coming to the dispute of parties on payment of interest, this Court finds, Law of land deals as follows :

In the case of Sree Kamatchi Amman Constructions v. Divisional Railway Manager (Works) , Palghat and others, (2010) 8 SCC 767 in paragraph nos.13 to 19 therein the Hon'ble Apex Court observed as follows:

"13. The Legislature while enacting the Arbitration and Conciliation Act, 1996, incorporated a specific provision in regard to award of interest by Arbitrators. Sub-section (7) of Section 31 of the Act deals with the Arbitrator's power to award interest. Clause (a) relates to the period between the date on which the cause of action arose and the date on which the award is made. Clause 14

(b) relates to the period from the date of award to date of payment. The said Sub-section (7) is extracted below:

"31.7(a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment."

Having regard to sub-section (7) of Section 31 of the Act, the difference between pre-reference period and pendente lite period has disappeared in so far as award of interest by arbitrator. The said section recognises only two periods and makes the following provisions:

(a) In regard to the period between the date on which the cause of action arose and the date on which the award is made (pre-reference period plus pendente lite), the arbitral tribunal may award interest at such rate as it deems reasonable, for the whole or any part of the period, unless otherwise agreed by the parties.

(b) For the period from the date of award to the date of payment the interest shall be 18% per annum if no specific order is made in regard to interest. The arbitrator may however award interest at a different rate for the period between the date of award and date of payment.

14. The decisions of this Court with reference to the awards under the old Arbitration Act making a distinction between the pre-reference period and pendente lite period and the observation therein that arbitrator has the discretion to award interest during pendente lite period in spite of any bar against interest contained in the contract between the parties are not applicable to arbitrations governed by the Arbitration and Conciliation Act 1996."

14. We may also refer to the decision of this court in Union of India v. Saraswat Trading Agency [2009 (16) SCC 504] this court reiterated that if there is a bar against payment of interest in the contract, the arbitrator cannot award any interest for the pre-reference period or pendente lite. In view of the specific bar under Clause 16(2), we are of the view that the arbitral tribunal was justified in refusing interest from the date of cause of action to date of award.

15. We may at this juncture refer to the contention of the appellant that even if the appellant was not entitled to interest for the pre-reference period, that is date of cause of action to date of reference, the appellant will be entitled to interest pendente lite, that is for the period from the date of reference to date of award, having regard to the decisions of this court in Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age and Madnani Construction Corporation Pvt. Ltd. v. Union of India.

16. In Engineers-De-Space-Age (supra) this court held:

(SCC p.520, para 4) "4. We are not dealing with a case in regard to award of interest for the period prior to the reference. We are dealing with a 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 from 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, a person who has a legitimate claim is entitled to payment within a 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 give to his claim in that behalf. If that be so, we would be justified in placing a strict construction on the term of the contract on which reliance has been placed.

Strictly construed the terms of the contract merely prohibits the Commissioner from 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 from awarding interest pendente lite.

17. In Madnani (supra) the arbitrator had awarded interest pendente lite, that is from the date of 16 appointment of arbitrator to date of award. The High Court had interfered with the same on the ground that there was a specific prohibition in the contract regarding awarding of interest. This court following the decision in Engineers-De-Space-Age reversed the said rejection and held as follows :

"39. In the instant case also the relevant Clauses, which have been quoted above, namely, Clause 16(2) of GCC and Clause 30 of SCC do not contain any prohibition on the arbitrator to grant interest. Therefore, the High Court was not right in interfering with the arbitrator's award on the matter of interest on the basis of the aforesaid Clauses. We, therefore, on a strict construction of those Clauses and relying on the ratio in Engineers find that the said Clauses do not impose any bar on the arbitrator in granting interest."

18. At the outset it should be noticed that Engineers-

De-Space-Age and Madnani arose under the old Arbitration Act, 1940 which did not contain a provision similar to section 31(7) of the new Act. This court, in Sayeed Ahmed held that the decisions rendered under the old Act may not be of assistance to decide the validity of grant of interest under the new Act. The logic in Engineers-De-Space-Age was that while the contract governed the interest from the date of cause of action to date of reference, the arbitrator had the discretion to decide the rate of interest from the date of reference to date of award and he was not bound by any prohibition regarding interest contained in the contract, insofar as pendente lite period is concerned. This Court in Sayeed Ahmed (supra) held that the decision in Engineers-De- Space-Age would not apply to cases arising under the new Act. We extract below, the relevant portion from Sayeed Ahmed:

"23. The observation in Engineers-De-Space-Age (supra) that the term of the contract merely prohibits the department/employer from paying interest to the contractor for delayed payment but once the matter goes to arbitrator, the discretion of the arbitrator is not in any manner stifled by the terms of the contract and the arbitrator will be entitled to consider and grant the interest pendente lite, cannot be used to support an outlandish argument that bar on the Government or department paying interest is not a bar on the arbitrator awarding interest. Whether the provision in the contract bars the employer from entertaining any claim for interest or bars the contractor from making any claim for interest, 17 it amounts to a clear prohibition regarding interest. The provision need not contain another bar prohibiting Arbitrator from awarding interest. The observations made in the context of interest pendente lite cannot be used out of contract.

24. The learned Counsel for appellant next contended on the basis of the above observations in Engineers-De-

Space-Age, that even if Clause G- 1.09 is held to bar interest in the pre-reference period, it should be held not to apply to the pendente lite period that is from 14.3.1997 to 31.7.2001. He contended that the award of interest during the pendency of the reference was within the discretion of the arbitrator and therefore, the award of interest for that period could not have been interfered by the High Court. In view of the Constitution Bench decisions in G.C. Roy and N.C. Budharaj (supra) rendered before and after the decision in Engineers-De- Space-Age, it is doubtful whether the observation in Engineers-De- Space- Age in a case arising under Arbitration Act, 1940 that Arbitrator could award interest pendente lite, ignoring the express bar in the contract, is good law. But that need not be considered further as this is a case under the new Act where there is a specific provision regarding award of interest by Arbitrator."

The same reasoning applies to the decision in Madnani also as that also relates to a case of under the old Act and did not independently consider the issue but merely relied upon the decision in Engineers-De-Space-Age.

19. Section 37(1) of the new Act by using the words "unless otherwise agreed by the parties" categorically clarifies that the arbitrator is bound by the terms of the contract insofar as the award of interest from the date of cause of action to date of award. Therefore where the parties had agreed that no interest shall be payable, arbitral tribunal cannot award interest between the date when the cause of action arose to date of award."

Similarly in the case of Jiprakash Associates Ltd. (Jal) through its Director v. Tehri Hydro Development Corporation India Ltd. (THDC) through its Director, 2019 SCC Online SC 143 involving Civil Appeal No(s). 1539 of 2019 decided on 7.2.2019, the Hon'ble Apex Court also in paragraphs 13, 15, 16 and 17 has observed as follows:

13) Insofar as power of the arbitral tribunal in granting pre-

reference and/or pendente lite interest is concerned, the principles which can be deduced from the various judgments are summed up below:

(a) A Constitution Bench judgment of this Court in the case of Secretary, Irrigation Department, Government of Orissa & Ors. v. G.C. Roy5 exhaustively dealt with this very issue, namely, power of the arbitral tribunal to grant pre-reference and pendente lite interest. The Constitution Bench, of course, construed the provisions of the 1940 Act which Act was in vogue at that time. At the same time, the Constitution Bench also considered the principle for grant of interest applying the common law principles. It held that under the general law, the arbitrator is empowered to award interest for the pre-

reference, pendente lite or post award period. This proposition was culled out with the following reasoning:

"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 5 (1992) 1 SCC 508 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 powers 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 19 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 [Seth Thawardas Pherumal v. Union of India, (1955) 2 SCR 48 : AIR 1955 SC 468] 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 case [(1988) 1 SCC 418 :

(1988) 1 SCR 253] 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."

It is clear from the above that the Court decided to fall back on general principle that a person who is deprived of the use of money to which he is legitimately entitled to, has a right to be compensated for the deprivation and, therefore, such compensation may be called interest compensation or damages.

(b) As a sequitur, the arbitrator would be within his jurisdiction to award pre-reference or pendente lite interest even if agreement between the parties was silent as to whether interest is to be awarded or not.

(c) Conversely, if the agreement between the parties specifically prohibits grant of interest, the arbitrator cannot award pendente lite interest in such cases. This proposition is predicated on the principle that an arbitrator is the creature of an agreement and he is supposed to act and make his award in accordance with the general law of the land and the agreement. This position was made amply clear in G.C. Roy case in the discussion that ensued thereafter:

"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 dispute 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."

(d) Insofar as 1940 Act is concerned, it was silent about the jurisdiction of the arbitrator in awarding pendente lite interest. However, there is a significant departure on this aspect insofar as 1996 Act is concerned. This distinction has been spelt out in Sayeed Ahmed case in the following manner:

"Re: Interest from the date of cause of action to date of award

7. The issue regarding interest as noticed above revolves around Clause G1.09 of the Technical Provisions forming part of the contract extracted below:

"G. 1.09. No claim for interest or damages will be entertained by the Government with respect to any money or balance which may be lying with the Government or any become due owing to any dispute, difference or misunderstanding between the Engineer-in-Charge on the one hand and the contractor on the other hand or with respect to any delay on the part of the Engineer-in-Charge in making periodical or final payment or any other respect whatsoever." xx xx xx

14. The decisions of this Court with reference to the awards under the old Arbitration Act making a distinction between the pre-reference period and pendente lite period and the observation therein that the arbitrator has the discretion to award interest during pendente lite period in spite of any bar against interest contained in the contract between the parties are not applicable to arbitrations governed by the Arbitration and Conciliation Act, 1996."

15) In a recent judgment in the case of Reliance Cellulose Products Limited v. Oil and Natural Gas Corporation Limited 9, the entire case law on the subject is revisited and legal position re- emphasised. That was also a case which arose under the 1940 Act. The Court held that under the 1940 Act, an arbitrator has power to grant pre-reference interest under the Interest Act as well as pendente lite and future interest, however, he is constricted only by the fact that an agreement between the parties may contain an express bar to the award of pre-reference and/or pendente lite interest. Further, the Court has evolved the test of strict construction of such clauses, and unless there is a clear and express bar to the payment of interest that can be awarded by an arbitrator, clauses which do not refer to claims before the arbitrators or disputes between parties and clearly bar payment of interest, cannot stand in the way of an arbitrator awarding pre-reference or pendente lite interest. Further, unless 9 (2018) 9 SCC 266 a contractor agrees that no claim for interest will either be entertained or payable by the other party owing to dispute, difference, or misunderstandings between the parties or in respect of delay on the part of the engineer or in any other respect whatsoever, leading the Court to find an express bar against payment of interest, a clause which merely states that no interest will be payable upon amounts payable to the contractor under the contract would not be sufficient to bar an arbitrator from awarding pendente lite interest. Further, the grant of pendente lite interest depends upon the phraseology used in the agreement, clauses conferring power relating to arbitration, the nature of claim and dispute referred to the arbitrator, and on what items the power to award interest has been taken away and for which period. Also, the position under Section 31(7) of the 1996 Act, is wholly different, inasmuch as Section 31(7)of the 1996 Act sanctifies agreements between the parties and states that the moment the agreement says otherwise, no interest becomes payable right from the date of the cause of action until the award is delivered.

17) After discussing and analysing almost all the judgments on this subject, the legal position is summed up in the following manner:

"24. A conspectus of the decisions that have been referred to above would show that under the 1940 Act, an arbitrator has power to grant pre-reference interest under the Interest Act, 1978 as well as pendente lite and future interest. However, he is constricted only by the fact that an agreement between the parties may contain an express bar to the award of pre- reference and/or pendente lite interest. Since interest is 22 compensatory in nature and is parasitic upon a principal sum not having been paid in time, this Court has frowned upon clauses that bar the payment of interest. It has therefore evolved the test of strict construction of such clauses, and has gone on to state that unless there is a clear and express bar to the payment of interest that can be awarded by an arbitrator, clauses which do not refer to claims before the arbitrators or disputes between parties and clearly bar payment of interest, cannot stand in the way of an arbitrator awarding pre-reference or pendente lite interest. Thus, when one contrasts a clause such as the clause in Second Ambica Construction case [Ambica Construction v. Union of India, (2017) 14 SCC 323 : (2018) 1 SCC (Civ) 257] with the clause in Tehri Hydro Development Corpn. Ltd. [Tehri Hydro Development Corpn. Ltd. v. Jai Prakash Associates Ltd., (2012) 12 SCC 10 : (2013) 2 SCC (Civ) 122] , it becomes clear that unless a contractor agrees that no claim for interest will either be entertained or payable by the other party owing to dispute, difference, or misunderstandings between the parties or in respect of delay on the part of the engineer or in any other respect whatsoever, leading the Court to find an express bar against payment of interest, a clause which merely states that no interest will be payable upon amounts payable to the contractor under the contract would not be sufficient to bar an arbitrator from awarding pendente lite interest under the 1940 Act. As has been held in First Ambica Construction case [Union of India v. Ambica Construction, (2016) 6 SCC 36 : (2016) 3 SCC (Civ) 36] , the grant of pendente lite interest depends upon the phraseology used in the agreement, clauses conferring power relating to arbitration, the nature of claim and dispute referred to the arbitrator, and on what items the power to award interest has been taken away and for which period. We hasten to add that the position as has been explained in some of the judgments above under Section 31(7) of the 1996 Act, is wholly different, inasmuch as Section 31(7) of the 1996 Act sanctifies agreements between the parties and states that the moment the agreement says otherwise, no interest becomes payable right from the date of the cause of action until the award is delivered."

17) In this whole conspectus and keeping in mind, in particular, that present case is regulated by 1996 Act, we have to decide the issue at hand. At this stage itself, it may be mentioned that in case clauses 50 and 51 of GCC put a bar on the arbitral tribunal to award interest, the arbitral tribunal did not have any jurisdiction to do so. As pointed out above, right from the stage of arbitration proceedings till the High Court, these clauses are interpreted to hold that they put such a bar on the arbitral tribunal. Even the majority 23 award of the arbitral tribunal recognised this. Notwithstanding the same, it awarded the interest by relying upon Board of Trustees for the Port of Calcutta case. The High Court, both Single Bench as well as Division Bench, rightly noted that the aforesaid judgment was under the 1940 Act and the legal position in this behalf have taken a paradigm shift which position is clarified in Sayeed Ahmed and Company case. This rationale given by the High Court is in tune with the legal position which stands crystallised by catena of judgments as noted above.

In view of the above, law is fairly settled that unless and until there is an agreement, a party is not entitled to pre and pendente lite interest.

12. Now coming back to the case at hand, this Court from the award of the Arbitrator finds, on claim item no.5 the Arbitrator as against a claim of interest @30% per annum granted interest @5% per annum on item nos.1 to 4 from the date of demand i.e. 27.5.1999 till the date of award and at the end again directed, the total amount will carry interest @ 18% per annum from the date of award till the date of payment as per Section 31(7) (b) of the Act, 1996. The District Judge involving the Section 34 proceeding considering the aspect of interest, in answering the question no.6 raised therein, interfering in the grant of interest @ 18% from the date of award reduced the same to 9% per annum from the date of award till date of payment. For the interference of the District Judge in the entitlement of interest this Court finds, there is no further scope for interfering in the interest aspect also.

It is, at this stage of the matter, this Court taking into consideration a decision of the Hon'ble Apex Court through 2018(3)SCC373 finds, for the change in the facts and situation, further for the concurrent finding of fact, the decisions supports the case of the respondent. In the result, this Court finds, there is no merit involving the case at hand.

13. Under the circumstance, this Court finds, there is no substance in the Arbitration Appeal, which is dismissed accordingly. No cost.

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(Biswanath Rath, J.) Orissa High Court, Cuttack.

The 13th day of May, 2019/A. Jena, Sr. Steno.

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Orissa High Court