Supreme Court of India
Tehri Hydro Dev. Corpn Ltd. & Anr vs Jai Prakash Asso. Ltd on 25 September, 2012
Equivalent citations: AIR 2013 SUPREME COURT 920, 2012 (12) SCC 10, 2012 AIR SCW 5478, 2013 (1) ALL LJ 115, 2012 (2) WLC(SC)CVL 635, 2012 (4) ARBILR 88, 2012 (9) SCALE 433, (2012) 2 CLR 1043 (SC), 2013 (115) CAL LT 424, (2013) 1 JCR 216 (SC), AIR 2012 SC (CIVIL) 2810, (2012) 4 ARBILR 88, (2013) 1 RECCIVR 262, (2012) 4 ICC 567, (2012) 6 ALL WC 5441, (2013) 1 CAL HN 69
Author: Ranjan Gogoi
Bench: Ranjan Gogoi, Anil R. Dave, R.M.Lodha
|REPORTABLE |
IN THE SUPREME COURT OF INDIA
CIVIL APPELATE JURISDICTION
CIVIL APPEAL No. 3682 OF 2007
Tehri Hydro Dev. Corpn. Ltd.& Anr. … Appellants
Versus
Jai Prakash Asso. Ltd. … Respondent
J U D G M E N T
RANJAN GOGOI, J
This appeal is directed against the judgment and order dated 20th
July, 2006 passed by the High Court of Uttaranchal at Nainital whereby the
decree passed by the learned trial court under the Arbitration Act, 1940
(hereinafter referred to as ‘the Act’) has been modified. The terms of
award as passed by the learned Arbitrator and the decree passed by the
learned trial court as well as the modification thereof by the High Court
will now have to be noticed :
2. The appellants and the respondent herein had entered into a contract
for execution of certain works in connection with the Tehri Hydro Dam
Project. The agreement between the parties was executed on 29th March,
1978 and the works in question were completed on 31st December, 1985. The
completion certificate was issued by the competent authority of the
appellant-Corporation on 27th April, 1986. As the final bill of the
respondent-contractor had not been prepared and security money, furnished
by way of bank guarantee was not released, the parties went to arbitration
in accordance with the Arbitration clause under the contract/agreement. In
the course of the aforesaid Arbitration proceeding the appellant-
Corporation submitted a final bill which according to the respondent-
Contractor entitled it to receive a sum of Rs.10,17,461.09 on account of
work done besides a sum of Rs. 12..50 lakhs that was lying in deposit with
the Corporation. As the amounts due. according to the respondent-
contractor, had become crystallized, another arbitration proceeding between
the parties for the aforesaid specific claims commenced in accordance with
the arbitration clause of the agreement.
3. The award in the aforesaid arbitration proceeding was passed on 29th
January, 1996 holding the respondent – contractor to be entitled to the sum
of Rs. 10,17,461/- with the interest at the rate of 6% per annum from the
date of invocation of the claim till the date of the award and at the rate
of 12% per annum from the date of the award till payment or till the
award is made Rule of court, whichever is earlier. Insofar as the claim
of the respondent – contractor to the sum of Rs. 12.50 lakhs lying in
deposit with the Corporation, the Arbitrators held the said amount to be
beyond the scope of the dispute raised in the arbitration proceeding.
Accordingly, the respondent – contractor was left with the option of
settling the said claim in an amicable manner or by resorting to a civil
suit for recovery of the same.
4. Objections against the specific parts of the award by which the
respective parties felt aggrieved were filed before the learned District
Judge, Tehri, Garhwal. The learned District Judge by his order dated 15th
October, 1997 upheld the claim of the respondent – contractor to the sum of
Rs.10,17,461/- lakhs as awarded. In so far as the claim of Rs.12.50 lakhs
is concerned, the learned trial court, notwithstanding the fact that the
arbitrator did not decide the said claim, went into the issue and held the
respondent – contractor to be entitled to the said amount also.
Thereafter, a decree was passed in respect of the two amounts alongwith
interest thereon at the rate of 12% pendente lite and 6% for the post
award period. Aggrieved by the aforesaid order passed by the learned
District Judge, Tehri Garhwal, the appellant moved the High Court of
Uttaranchal by filing an appeal under the provisions of the Act. The
High Court by its order dated 20th July, 2006 allowed the appeal in part.
While the claim of Rs.10,17,461/- awarded in favour of the respondent-
contractor was maintained in so far as the claim of Rs. 12.50 lakhs is
concerned, the High Court took the view that the aforesaid amount could not
have been awarded by the learned trial court as the said entitlement was
not gone into by the learned Arbitrators. Accordingly, the High Court
remanded the aforesaid claim to be settled by an Arbitrator appointed by
it. Insofar as the question of interest is concerned, the High Court did
not deal with the said aspect of the matter at all. Aggrieved, the
Corporation is before this court challenging the judgment and order dated
20th July, 2006 passed by the High Court of Uttaranchal.
5. We have heard Mr. Puneet Taneja, learned counsel for the appellants
and Mr. S.B. Upadhyay, learned senior counsel for the respondent.
6. Learned counsel for the appellants has contended that the claims of
the respondent - contractor for the unpaid amounts under the final bill as
well as for return/refund of security deposit, including amounts furnished
by way of bank guarantee, was the subject matter of an earlier arbitration
between the parties. In the course of the said arbitration the final bill
was placed before the arbitrators by the Corporation. On scrutiny of the
aforesaid final bill the respondent-contractor claimed the two specific
amounts in question and resorted to another process of arbitration without
seeking leave in the first arbitration proceeding to have recourse to a
second round of arbitration. The arbitration proceeding leading to the
award is, therefore, without any authority of law. Specifically, insofar as
the amount of Rs.12.50 lakhs is concerned, according to the learned counsel
for the appellants, the said amount was not adjudicated upon by the
Arbitrators and the same was to be recovered by an amicable process or by
resorting to a civil suit. In such a situation it was clearly beyond the
power of the learned trial court to hold the said claim in favour of the
respondent-contractor. Though the High Court was justified in setting
aside the said claim of Rs.12.50 lakhs for the aforesaid reason, it could
not have directed adjudication of the said issue by an Arbitrator
nominated by it as has been done by the impugned order of the High Court.
According to the learned counsel, the adjudication of the said claim of the
respondent – contractor, if at all, should have been directed by a process
contemplated by the specific provisions of the Arbitration agreement
between the parties.
Insofar as the grant of interest is concerned, learned counsel for
the appellants has relied on Clauses 1.2.14 and 1.2.15 of Part II of the
contract agreement between the parties to contend that under the aforesaid
clauses of the agreement governing the parties there was a specific bar to
grant of interest. Relying on several judgments of this court, details of
which will be noticed in the discussions that will follow, learned counsel
has contended that the award of interest in favour of the respondent-
contractor being clearly contrary to the terms of the agreement between
the parties is wholly untenable and therefore needs to be interfered with
by this court.
7. Controverting the submissions advanced on behalf of the appellants,
learned counsel for the respondent – contractor has contended that the
appellants had actively participated in the proceeding before the
Arbitrators and therefore, cannot, at this stage, question the jurisdiction
of the Arbitrators to make the award in question. It is contended that
the claim of the respondent to the amount of Rs.10,17,461/- having been
held in its favour all along, the same does not disclose any basis for
interference. In so far as the amount of Rs.12.50 lakhs is concerned the
only issue that will require deterimination is the manner in which the de
novo adjudication is required to be carried out. So far as the question
of interest is concerned, learned counsel has placed before the court the
UP Civil Laws (Reforms and Amendment) Act, 1976 by which certain provisions
of the Arbitration Act of 1940 have been amended in its application to the
State of UP. The attention of the court has been drawn to Paragraph 7A
which has been added after Para 7 of the First Schedule to the Act.
According to the learned counsel, Paragraph 7A authorized and empowered
the arbitrator as well as the courts below to grant interest. Learned
counsel has also relied on the decisions of this court in Indian oil
Corporation Ltd. vs. Amritsar Gas service and others[1], State of Orissa
vs. B.N. Agarwalla[2] and Asian Techs Limited vs . Union of India and
others[3] 2009 10 SCC 354 (para 21) in support of the contentions
advanced.
8. Para 7A of the U.P. Civil Laws (Reforms and Amendment) Act, 1976
referred to above may now be reproduced :
“7A. Where and in so far as an award is for the payment of money, the
arbitrators of the umpire may, in the award, order interest at such
rate as the arbitrators or umpire may deem reasonable to be paid on
the principal sum awarded, from the date of the commencement of the
arbitration as defined in sub-section (3) of section 37, to the date
of award, in addition to any interest awarded on such principal sum
for any period prior to such commencement, with further interest at
such rate not exceeding six per cent per annum as the arbitrators or
umpire may deem reasonable on such principal sum from the date of the
award to the date of payment or to such earlier date as the
arbitrators or umpire may think fit, but in no case beyond the date of
the decree to be passed on the award.”
9. Insofar as the jurisdiction of the Arbitrator to adjudicate on the
two claims of Rs.10,17,461/- and Rs.12.50 lakhs are concerned, the
dispute is capable of resolution within a short compass. The entitlement
of the respondent – contractor to the aforesaid two amounts was not the
subject matter of the earlier proceeding before the Arbitrators which arose
out of the grievance of the respondent – contractor that though the
execution of the work had been completed, the final bill had not been
prepared and further that certain amounts lying in deposit as security had
not been refunded. Once the final bill was prepared and placed before the
Arbitrators the claim of the respondent-contractor got crystallized. It is
these specific claims, after quantification, that had been referred to the
Arbitrators in the proceeding in which the award has been passed. It will,
therefore, not be correct to say that the arbitration proceeding in
respect of the specific claims of the contractor stood barred in view of
the earlier arbitration proceeding between the parties. That apart, from
an order passed by the Arbitrators on 15th January, 1994, which is
available on record as an enclosure to the counter affidavit of the
respondent, it appears that the arbitrators in the aforesaid order dated
15th January, 1994 had clearly recorded that the “. . . .both the parties
agree that we should adjudicate both the disputes relating to refund of
deposit of Rs.12.5 lakhs and payment of final bill to the tune of Rs.10.00
lakhs and odd . . . .”
In these circumstances, the award insofar as the claim of
Rs.10,17,461/- made by the learned Arbitrator and affirmed by the learned
courts below will not require any further scrutiny by us.
10. Insofar as the claim in respect of the sum of Rs.12.50 lakhs is
concerned, it has already been noticed that the entitlement of the
respondent – contractor to the said amount had not been adjudicated upon by
the Arbitrators on the ground that the said issue was not an arbitrable
issue and the same ought be resolved either by an amicable process or by
way of a suit for recovery. If the aforesaid claim was not adjudicated
upon by the Arbitrators the learned trial court was patently wrong in
decreeing the said claim. Therefore, the High Court was perfectly
justified in reversing the said part of the decree. However, we do not
find any reasonable basis for the view taken by the High Court that the
entitlement of the respondent-contractor to the said amount should now be
determined by the Arbitrator nominated by it. Rather, according to us, the
aforesaid issue should have been left for determination in accordance with
the procedure agreed upon by the parties, if the parties are, at all,
inclined to go into a further round of adjudication at this stage. We,
therefore, interfere with the aforesaid part of the order of the High Court
and, subject to our observations above, we leave the parties to work out
their remedies as may be considered best and most appropriate in the facts
and circumstances of the case.
11. This will lead the court to a consideration of what is the principal
bone of contention between the parties in the present case, namely, the
issue with regard to payment of interest. Clauses 1.2.14 and 1.2.15 on
which much arguments have been advanced by learned counsel for both sides
may now be extracted below :
“ PART – II
CONDITIONS OF CONTRACT
14. NO CLAIM FOR DELAYED PAYMENT DUE TO DISPUTE ETC.
The contractor agrees that no claim for interest of damages will
be entertained or payable by the Government in respect of any
money or balances which may be lying with Government owing to
any disputes, differences or misunderstandings between the
parties or in respect of any delay or omission on the part of
the Engineer-in-charge in making immediate or final payments or
in any other respect whatsoever.
15. INTEREST ON MONEY DUE TO THE CONTRACTOR :
No omission on the part of the Engineer-in-charge to pay the
amount due upon measurement or otherwise shall vitiate or make
void the contract, nor shall the contractor be entitled to
interest upon any guarantee or payments in arrears nor upon any
balance which may on the final settlement of his accounts be due
to him.”
12. A reading of the aforesaid two Clauses of the contract agreement
between the parties clearly reveal that despite some overlapping of the
circumstances contemplated by the two Clauses, no interest is payable to
the contractor for delay in payment, either, interim or final, for the
works done or on any amount lying in deposit by way of guarantee. The
aforesaid contemplated consequence would be applicable both to a situation
where withholding of payment is on account of some dispute or difference
between the parties or even otherwise.
13. Of the several decisions of this Court referred to by the learned
counsel for the appellant the judgments of the Constitution Bench of this
Court in Secretary, Irrigation Department, Government of Orissa and
others vs. G.C. Roy and anr.[4] and Executive Engineer, Dhenkalal Minor
Irrigation Division, Orissa and others vs. N.C. Budhraj (deceased) By lrs.
And others[5] will require specific notice. The true ratio laid down in
the aforesaid two judgments have been elaborately considered in a more
recent pronouncement of this court in the case of Union of India vs
Krafters Engineers and Leasing Private Limited[6]. In Krafters
Engineers’s case (supra) the ratio of the decision in G.C. Roy’s case
(supra) was identified to mean that if the agreement between the parties
does not prohibit grant of interest and the claim of a party to interest
is referred to the arbitrator, the arbitrator would have the power to award
the interest. This is on the basis that in such a case of silence (where
the agreement is silent) it must be presumed that interest was an implied
term of the agreement and, therefore, whether such a claim is tenable can
be examined by the arbitrator in the reference made to him. The aforesaid
view, specifically, is with regard to pendente lite interest. In the
subsequent decision of the Constitution Bench in N.C. Budhraj’s case
(supra) a similar view has been taken with regard to interest for the pre
reference period.
14. In Krafters Engineers’ case (supra) the somewhat discordant note
struck by the decisions of this court in Board of Trustees for the Port of
Calcutta vs. Engineers-De-Space-Age[7] and Madnani Construction Corporation
Private Limited vs. Union of India and others[8] were also taken note of.
Thereafter, it was also noticed that the decision in Engineers-De-Space-
Age’s case (supra) was considered in Sayeed Ahmed & Co. vs. State of
Uttar Pradesh & Ors. [9] and the decision in Madnani Construction case
(supra) was considered in Sree Kamatchi Amman Constructions vs.
Divisional, Railway manager (Works), Palghat and others[10]. In Sayeed
Ahmed’s case (supra) (para 24) it was held that in the light of the
decision of the Constitution bench in GC Roy’s case and NC Budhraj’s case
it is doubtful whether the observations in Engineers-de-Space-Age’s case
(supra) to the effect that the Arbitrator could award interest pendente
lite, ignoring the express bar in the contract, is good law. In Sree
Kamatchi Amman Constructions’s case(Supra) while considering Madnani’s
case (supra) this court noted that the decision in Madnani’s case follows
the decision in Engineers-de-Space-Age’s case (supra).
15. From the above discussions, it is crystal clear that insofar as
pendente lite interest is concerned, the observations contained in Para 43
and 44 of the judgment in GC Roy’s case (supra) will hold the field.
Though the gist of the said principle has been noticed earlier it would
still be appropriate to set out para 44 of the judgment in G.C. Roy’s
case (supra) which is in the following terms :
“ 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 pendent
elite. 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 pendent elite. 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.”
16. The provisions of the UP Civil (Reforms and Amendment) Act amending
the First Schedule to the Arbitration Act, 1940 does not assist the
respondent - contractor in any manner to sustain the claim of award of
interest pendente lite, inasmuch, as paragraph 7A to the First Schedule,
as amended, is only an enabling provision which will have no application to
a situation where there is an express bar to the entertainment or payment
of interest on the delayed payment either of an amount due for the work
done or of an amount lying in deposit as security. The decision in BN
Agarwalla’s case (supra) on which reliance has been placed by the learned
counsel for the respondent, once again, does not assist the claim of the
respondent to interest pendente lite inasmuch as in BN Agarwalla’s case
(supra) the views of the Constitution Bench in GC Roy’s case (supra) with
regard to interest pendente lite could not have been and, infact, were not
even remotely doubted. The observation of the bench in B.N. Agarwalla’s
case that in G.C.Roy’s case (supra) the decision in Executive Eningeer
(Irrigation), Balimela and others vs . Abhaduta Jena and others [11] was
not overruled was only in the context of the issue of award of interest
for the pre reference period. The decision in Asian Techs Limited case
(supra) also relied on by the respondent takes note of the decision in
Engineers-De-Space-Age case (supra) to come to the conclusion the
prohibition on payment of interest contained in clause 11 of the agreement
between the parties was qua the department and did not bar the Arbitrator
from entertaining the claim. It has already been noticed that the
correctness of the propositions laid down in Engineers-De-Space-Age case
(supra) have been doubted in the subsequent decisions of this court,
reference to which has already been made.
17. Clauses 1.2.14 and 1.2.15, already extracted and analysed, imposed a
clear bar on either entertainment or payment of interest in any situation
of non payment or delayed payment of either the amounts due for work done
or lying in security deposit. On the basis of the discussions that have
preceded we, therefore, take the view that the grant of pendente lite
interest on the claim of Rs.10,17,461/- is not justified. The award as
well as the orders of the courts below are accordingly modified to the
aforesaid extent.
18. However, the grant of interest for the post-award period would stand
on a somewhat different footing. This very issue has been elaborately
considered by this Court in B.N. Agarwalla (supra) in the light of the
provisions of Section 29 of the Arbitration Act, 1940. Eventually this
Court took the view that in a situation where the award passed by the
arbitrator granting interest from the date of the award till the date of
payment is not modified by the Court “.....the effect would be as if the
Court itself had granted interest from the date of the decree till the date
of payment...” In view of the above, the grant of interest on the amount of
Rs.10,17,461/-from the date of the award till the date of the decree or
date of payment, whichever is earlier, is upheld. In the facts of the case
we are of the view that the rate of interest should be 12% per annum as
determined in the arbitration proceeding between the parties.
19. In view of the foregoing discussions we allow this appeal in part
and modify the order of the High Court dated 20th July, 2006 as indicated
above.
...……………………J.
[R.M.LODHA]
............................J.
[ANIL R. DAVE]
………………………J.
[RANJAN GOGOI]
New Delhi,
September 25, 2012.
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[1] [(1991) 1 SCC 533 [2] [(1997) 2 SCC 469] [3] 2009 10 SCC 354 (para 21).
[4] (1992) 1 SCC 508 [5] (2001) 2 SCC 721 [6] (2011) 7 SCC 279 [7] (1996) 1 SCC 516 [8] (2010) 1 SCC 549 [9] (2009) 12 SCC 26 [10] (2010) 8 SCC 767. [11] (1988) 1 SCC 418
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