Gujarat High Court
National Buildings Construction ... vs U P State Bridge Corporation Ltd on 27 February, 2026
Author: Sunita Agarwal
Bench: Sunita Agarwal
NEUTRAL CITATION
C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026
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Reserved On : 17/12/2025
Pronounced On : 27/02/2026
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 2359 of 2010
With
CIVIL APPLICATION (FOR ORDERS) NO. 1 of 2025
In R/FIRST APPEAL NO. 2359 of 2010
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA
AGARWAL
and
HONOURABLE MR.JUSTICE D.N.RAY
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Approved for Reporting Yes No
✔
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NATIONAL BUILDINGS CONSTRUCTION CORPORATION
LIMITED
Versus
U P STATE BRIDGE CORPORATION LTD
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Appearance:
MR.NITIN MEHTA WITH MR.RAHUL K. PRAJAPATI FOR MR
CHETAN K PANDYA(1973) for the Appellant(s) No. 1
MR. PARAS SUKHWANI FOR MR K. G. SUKHWANI(871) for the
Defendant(s) No. 1
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CORAM:HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE
SUNITA AGARWAL
and
HONOURABLE MR.JUSTICE D.N.RAY
CAV JUDGMENT
(PER : HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA AGARWAL) Page 1 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined
1. For the convenience of readers, the judgment is divided into parts as indicated in the table of contents, given hereinbelow :-
Table of contents Sr. Subject Page No. Nos.I. INTRODUCTION 2 II. FACTUAL MATRIX 3 III. APPELLANT'S CASE 11 IV. RESPONDENT'S CASE 22 V. ARBITRATOR'S AWARD 25 VI. AWARD MADE RULE OF COURT 32 VII. STATUTORY SCHEME 33 VIII. JUDICIAL PRONOUNCEMENTS 36
I. INTRODUCTION
2. This is an appeal under Section 39 (vii) of the old Arbitration Act' 1940 against the judgment and decree dated 22.04.2009 passed by the Second Additional Senior Civil Judge, Vadodara in Civil Misc. Application No.110 of 2005 and Civil Misc.Application No.111 of 2005.
3. By means of the judgment impugned, the trial court, while dismissing the objections filed by the appellant herein under Sections 30 and 33 of the Arbitration Act' 1940 seeking for setting aside of the arbitral award, has allowed the Page 2 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined application filed by the respondent herein under Section 17 of the Arbitration Act' 1940 and made the award rule of Court and directed that decree in terms of the award be drawn. The decree on the award dated 30.11.2000 had, thus, been prepared by the Civil Court on 25.05.2009.
4. To appreciate the arguments made by the learned counsel for the appellant challenging the order of the Civil Court, as also the correctness or validity of the arbitral award, certain facts of the case, in brief, are relevant to be noted at this stage.
5. The appellant herein was awarded the contract of Design and Construction of Bridges on the Ahmedabad - Vadodara Expressway (Contract - III) by the State of Gujarat vide agreement dated 18.11.1986, hereinafter referred to as the "main contract".
II. FACTUAL MATRIX:-
6. Some of the relevant clauses of the main contract are to be noted hereinunder:-
"Definition
1. (1). In the Contract, as hereinafter defined, the following words and expressions shall have the meanings hereby assigned to them, except where the context otherwise requires:-
(a) ***
(b)***
(c)***
(d)***
(e)***
(f). Contract" means the Conditions of Contract, Specification, Drawings, priced Bill of Quantities, Schedule of Rates and Prices, if any. Tender, Letter of Acceptance and the contract agreement, if completed.Page 3 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026
NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined AGREEMENT AND SUB-LETTING
3. The Contractor shall not assign the Contract or any part thereof, of any benefit or interest therein or thereunder, otherwise than by a charge in favour of the Contractor's bankers of any monies due or to become due under this Contract, without the prior written consent of the Employer.
4. The contractor shall not sub-let the whole of the works. Except where otherwise provided by the contract, the Contractor shall not sub-let any part of the Works without the prior written Consent of the Engineer, which shall not be unreasonably withheld, and such consent, if given, shall not relieve the Contractor from any liability or obligation under the Contract and he shall be responsible for the acts, defaults and neglects of any sub-contractor, his agents, servants or workmen as fully as if they were the acts, defaults or neglects of the Contractor, his agents, servants or workmen. Provided always that the provision of labour on a piecework basis shall not be deemed to be a sub-letting under this Clause.
10. If, for the due performance of the Contract, the Tender shall contain an undertaking by the Contractor to obtain, when required, a bond or guarantee of an insurance company or bank, or other approved sureties to be jointly and severally bound with the Contractor to the Employer. in a sum not exceeding that stated in the Letter of Acceptance for such bond or guarantee, the said insurance company or bank or sureties and the terms of the said bond or guarantee shall be such as shall be approved by the Employer. The obtaining of such bond or guarantee or the provision of such sureties and the cost of the bond or guarantee to be so entered into shall be at the expense in all respects of the Contractor, unless the Contract otherwise provides.
15. The contractor shall give or provide all necessary superintendence during the execution of the works and as long thereafter as the Engineer may consider necessary for the proper fulfilling of the Contractor's obligations under the Contract. The Contractor, or a competent and authorised agent or representative approved of in writing by the Engineer, which approval may at any time be withdrawn, is to be constantly on the Works and shall give his whole time to the superintendence of the same. If such approval shall be withdrawn by the Engineer, the Contractor shall, as soon as is practicable, having regard to the requirement of replacing him as hereinafter mentioned, after receiving written notice of such withdrawal, remove the agent from the Works and Page 4 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined shall not thereafter employ him again on the Works in any capacity and shall replace him by another agent approved by the Engineer. Such authorised agent or representative shall receive, on behalf of the Contractor, directions and instructions from the Engineer or, subject to the limitations of Clause 2 hereof, the Engineer's Representative.
NOMINATED SUB-CONTRACTORS
59. (1) "All specialists, merchants, tradesmen and others executing any work or supplying any goods, materials or services for which Provisional Sums are included in the Contract, who may have been or be nominated or whom by virtue of the provisions of the Contract the Contractor is required to sub-let any work shall, in the execution of such work or the supply of such goods, materials or services, be deemed to be sub-contractors employed by the Contractor and are referred to in this Contract as "nominated Sub- Contractors".
(2) The Contractor shall not be required by the Employer or the Engineer or be deemed to be under any obligation to employ any nominated Sub-Contractor against whom the Contractor may raise reasonable objection, or who shall decline to enter into a sub- contract with the Contractor containing provisions:-
(a) that in respect of the work, goods, materials or services the subject of the sub-contract, the nominated Sub-Contractor will undertake towards the Contractor the like obligations and liabilities as are imposed on the Contractor towards the Employer by the terms of the Contract and will save harmless and indemnify the Contractor from and against the same and from all claims, proceedings, damages, costs, charges and expenses whatsoever arising out of or in connection therewith, or arising out of or in connection with any failure to perform such obligations or to fulfil such liabilities, and
(b) that the nominated Sub-Contractor will save harmless and indemnify the Contractor from and against any negligence by the nominated Sub-Contractor, his agents, workmen and servants and from and against any misuse by him or them of any Constructional Plant or Temporary Works proposed by the Contractor for the purpose of the Contract and from all claims as aforesaid.
(3) If in connection with any Provisional Sum the services to be provided include any matter of design or specification of any part Page 5 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined of the Permanent Works or of any equipment of plant to be incorporated therein, such requirement shall be expressly stated in the Contract and shall be included in any nominated Sub-Contract.
The nominated Sub-Contract shall specify that the nominated Sub Contractor providing such services will save harmless and indemnify the Contractor from and against the same and from all claims, proceedings, damages, costs, charges and expenses whatsoever arising out of or in connection with any failure to perform such obligations to fulfil such liabilities.
(4) For all work executed or goods, materials, or services supplied by any nominated Sub-Contractor, there shall be included in the Contract Price:
(a) the actual price paid or due to be paid by the Contractor, on the direction of the Engineer, and in accordance with the Sub-
Contract;
(b) the sum, if any, entered in the Bill of Quantities for labour supplied by the Contractor in connection therewith, or if ordered by the Engineer pursuant to Clause 58 (2) (b) hereof, as may be determined in accordance with Clause 52 hereof,
(c) in respect of all other charges and profit, a sum being a percentage rate of the actual price paid or due to be paid calculated, where provision has been made in the Bill of Quantities for a rate to be set against the relevant Provisional Sum, at the rate inserted by the Contractor against that Item or, where no such provision has been made, at the rate inserted by the Contractor in the Appendix to the Tender and repeated where provision for such is made in a special item provided in the Bill of Quantities for such purpose.
(5) Before issuing, under Clause 60 hereof, any certificate, which includes any payment in respect of work done or goods, materials or services supplied by any nominated Sub-Contractor, the Engineer shall be entitled to demand from the Contractor reasonable proof that all payments, less retentions, included in previous certificates in respect of the work or goods, materials or services of such nominated Sub-Contractor have been paid or discharged by the Contractor, in default whereof unless the Contractor shall
(a) Inform the Engineer in writing that he has reasonable cause for withholding or refusing to make such payments and Page 6 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined
(b) produce to the Engineer reasonable proof that he has so informed such nominated Sub-Contractor in writing.
the Employer shall be entitled to pay to such nominated Sub- Contractor direct, upon the certificate of the Engineer, all payments, less retentions, provided for in the Sub-Contract, which the Contractor has failed to make to such nominated Sub- Contractor and to deduct by way of set-off the amount so paid by the Employer from any sums due or which may become due from the Employer to the Contractor.
Provided always that, where the Engineer has certified and the Employer has paid direct at aforesaid, the Engineer shall in issuing any further certificate in favour of the Contractor deduct from the amount thereof the amount so paid, direct as aforesaid, but shall not withhold or delay the issue of the certificate itself when due to be issued under the terms of the Contract.
(6) In the event of a nominated Sub-Contractor, as hereinbefore defined, having undertaken towards the Contractor in respect of the work executed, or the goods, materials or services supplied by such nominated Sub-Contractor, any continuing obligation extending for a period exceeding that of the Period of Maintenance under the Contract, the Contractor shall at any time, after the expiration of the Period of Maintenance, assign tot he Employer, at the Employer's request and cost, the benefit of such obligation for the unexpired duration thereof.
REMEDIES AND POWERS
63. (1) If the Contractor shall become bankrupt, or have a receiving order made against him, or shall present his petition in bankruptcy, or shall make an arrangement with or assignment in favour of his creditors, or shall agree to carry out the Contract under a committee of inspection of his creditors or, being a corporation, shall go into liquidation (other than a voluntary liquidation for the purposes of amalgamation or reconstruction), or if the Contractor shall assign the Contract, without the consent in writing of the Employer first obtained, or shall have an execution levied on his goods, or if the Engineer shall certify in writing to the Employer that in his opinion the Contractor:-
(a) has abandoned the Contract, or
(b) without reasonable excuse has failed in commence the Works or has suspended the progress of the Works for twenty-
eight days after receiving from the Engineer, written notice to proceed, or Page 7 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined
(c) has failed to remove materials from the Site or to pull down and replace work for twenty eight days after receiving from the Engineer written notice that the said materials or work had been condemned and rejected by the Engineer under these conditions, or
(d) despite previous warnings by the Engineer, in writing, is not executing the Works in accordance with the Contract, or is persistently or flagrantly neglecting to carry out his obligations under the Contract or
(e) has, to the detriment of good workmanship, of in defiance of the Engineer's instructions to the contrary, sub-let any part of the Contract then the Employer may, alter giving fourteen days' notice in writing to the Contractor, enter upon the Site and the Works and expel the Contractor therefrom without thereby voiding the Contract, or releasing the Contractor from any of his obligations or liabilities under the Contract, of affecting the rights and powers conferred on the Employer or the Engineer by the Contract, and may himself complete the Works or may employ any other contractor to complete the Works. The Employer or such other contractor may use for such completion so much of the Constructional Plans, Temporary Works and materials, which have been deemed to be reserved exclusively for the execution of the Works, under the provisions of the contractor, as he or they may think proper, and the Employer may, at any time, sell any of the said Constructional Plant, Temporary Works and unused materials and apply the proceeds of sale in or towards the satisfaction of any sums due or which may become due to him from the contractor under the Contract.
(2) The Engineer shall, as soon may be practicable after any such entry and expulsion by the Employer, fix and determine ex parte or by or after reference to the parties, or after such investigation or enquiries as he may think fit to make or institute, and shall certify what amount, if any. had at the time of such entry and expulsion been reasonably earned by or would reasonably accrue to the Contractor in respect of work then actually done by him under the Contract and the value of any of the said unused or partially used materials, any Constructional Plant and any Temporary Works.
(3) If the Employer shall enter and expel the Contractor under this Clause, he shall not be liable to pay to the Contractor any money on account of the Contract until the expiration of the Period of Maintenance and thereafter until the costs of execution and maintenance, damages for delay in completion, if any, and all other expenses incurred by the Employer have been ascertained and the amount thereof certified by the Engineer. The Contractor shall Page 8 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined then be entitled to receive only such sum or sums, if any, as the Engineer may certify would have been payable to him upon due completion by him after deducting the said amount. If such amount shall exceed the sum which would have been payable to the Contractor on due completion by him, then the Contractor shall, upon demand, pay to the Employer the amount of such excess and is shall be deemed a debt due by the Contractor to the Employer and shall be recoverable accordingly."
7. Vide another agreement dated 28.09.1989, (hereinafter referred to as the 'sub-contract') the appellant namely National Buildings Construction Corporation Ltd. (for short, "NBCC Ltd.") sub-contracted to entrust the responsibility of design and execution of the bridge across river Mahi on Ahmedabad - Vadodara Expressway, included in the main contract No.II, to the respondent herein, namely UP State Bridge Corporation (for short, "UPSBC). The relevant clauses of the sub-contract executed between the parties are to be noted hereinunder:-
"1. The work as awarded by the 'Contractor' to the 'Associate' shall be for Design & Construction of main Bridge portion only and shall have the same scope of work in respect of main bridge portion (except soil exploration) with same specifications, terms and conditions as contained in the main contract of the 'Contractor' with the Employer. The work of approaches, pitching of slopes, apron, any protective work and other allied works etc. shall not be included in the scope of work of Associate.
2. All the terms and conditions (except as described below in Para- 3 to 19) of the main contract as finally agreed to by the contractor with employer shall form part of this Agreement and shall be binding on the Associate.
3. The Contractor has already carried out soil investigation by drilling bore holes at about 4.78 mtrs. of intervals and prepared general arrangement drawing (C.A.D.) of bridge. The superstructure can be of pre-stressed concrete beams system also. The Associate shall be the designing the execution designs of foundations: sub-structure and superstructure of the bridge based Page 9 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined on soil report available with the Contractor/Employer. In case the 'Associate' desires to change the concept of design, the same shall be done with prior written approval of the Employer and Ministry of Surface Transport (..G.S.T). Any extra cost incurred on soil investigation and or otherwise as a result of such modifications carried out on the initiative of the Associate himself, the same shall be borne exclusively by the Associate.
The design on the basis of Ν.Ι.Ρ. parameters if required shall be done and got approved from the competent authority by contractor himself.
4. The Associate shall be exclusively responsible for design, drawings, supervision of the work, adherence of of work quality as per main contract and obtaining approval of the Employer's Engineer of the above. The Contractor shall only play console of a coordinator. The Associate shall be bound to comply with the instruction of the Employer's Engineer in this regard.
5. The period of completion of work shall be 36 months commencing from the day on which Mobilization Advance is received by Associate. Liquidated damages on account of delay if any incompletion of work due to fault on the part of Associate shall be payable by the Associate as per main contract with the Employer.
6. The escalation calculated on the basis of formula given in on the main contract with Employer would be payable to the 'Associate' with affect from 4.4.99 up to the completion period mentioned in clause-5 above or any extension thereof. The cost indices as on 4.4.99 shall be taken as the base of materiel such as cement, all types of steel and H.T.S. Strand/wire bitumen for the purpose of calculation of escalation on these items shall be the same as given in the agreement between the contractor and the Employer.
8. The work is awarded to Associate for Lump sum price of Rs.12.30 Crores (Rupees Twelve Crores & Thirty Lakhs) for a total quantity of 53,500 (Fifty Three Thousand Five Hundred) cubic meters of concrete on the specifications and provisions of the main contract. This excludes payment due this agreement) and change in specifications and other provisions of the main contract shall be payable to Associate.
11. The contractor shall authorize the associate to repair bills as per schedule given in the main contract and other claims and obtain cheques from Gujarat P.W.D. in favour of the contractor and deposit the same with the bankers of the contractor. The bankers Page 10 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined shall be authorized to release 95% of the payment received from Gujarat P.W.D. to Associate immediately after its credit in the account of the contractor. The difference between the amount already paid to the Associate and that payable as per the associate's bill shall be paid by the contractor within seven days from the date of aforesaid payment.
13. The Associate shall assist the Contractor in entall the entitlement quantities, if any.
14. The Associate shall be solely responsible for soundness of the design and quality of work as per main contract and also for obtaining approval/acceptance of the Employers, KOST.
15. The Associate shall deploy all construction equipment including Bathing Plant as and when required on the work at their own cost.
16. In case the main contractor with the Employer is terminated at any time due to any reason, then this agreement with the Associate shall automatically stand terminated and the Associate shall not be entitled to any compensation on this account whatsoever except as may be provided in the main contract.
17. The liquidated damages shall be as have been provided in the main contract only if levied due to the default of the Associate.
18. In case the Contractor or the Associate desires that any of the matter relating to the main contract should be referred to arbitration as per relevant clauses of the main contract, then the Associate will help the Contractor in preparing Documentation, presenting the case to the Employer without any extra cost.
20. The following documents shall be deemed to form and be read and construed as part of this agreement.
Main contract with clients in Volume - I, II, III, IV (other than details of the contractor's price and rates thereunder) including Addendum and Corrigendum - 2."
III. APPELLANT'S CASE:-
8. It is the case of the appellant that the sub-contract dated 28.09.1989, executed between the parties herein, subject matter of arbitration, was on back-to-back basis and hence, all the terms and conditions of the main contract were binding on the respondent.Page 11 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026
NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined
9. The State of Gujarat, however, in an illegal and arbitrary manner, terminated the main contract with the appellant on 06.09.1991. The dispute relating to the said contract between the parties thereto had been referred to arbitration. The sub- contract with the respondent herein being a contract on back- to-back basis was automatically terminated on 07.09.1991. The State of Gujarat encashed the bank guarantees of the appellant under the main contract. The respondent fearing that their bank guarantees would also be encashed, had moved to the Court in September' 1991 seeking restraint order against the appellant restraining them from encashing the bank guarantees. The matter travelled up to the Apex Court and only after the dismissal of the Special leave petition, the respondent had invoked the arbitration clause in December' 1995.
10. The Sole Arbitrator vide award dated 30.11.2000 awarded the sum of Rs.2,65,45,000/-in respected of claim No. '3' and Rs.1,42,45,000/- as pre-suit interest thereon @ 14.50% per annum. A further award of interest pendente lite to the tune of Rs.1,23,00,000/- from the date of the award, i.e. 30.11.2000 till the date of payment or the date of decree, whichever is earlier, has further been granted. The counter claims of the appellant has, however, been rejected.
11. On an application filed by the respondent under Section 17 of the Arbitration Act' 1940 before the Civil Court to make the award a rule of Court, the appellant filed objection under Sections 30 and 33 of the said Act which has been rejected vide judgment impugned, while making the award rule of Court.
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12. Amongst various contentions made by the learned counsel for the appellant to assail the judgment impugned, it was argued that the learned Arbitrator has failed to consider the terms of the sub-contract and that the said contract being the back-to-back contract, will automatically stand terminated with the termination of the main contract; the learned Arbitrator has disregarded the terms of the sub-contract, namely:-
i. Bills under sub-contract will be finalized by the main contractor;
ii. The funds were to be distributed by the main contractor;
iii. Clause 20 of the sub-contract (agreement in question) incorporated the main contract;
iv. Final settlement of the bill will take place after a particular period of time.
v. Deficit or surplus could not be worked out;
vi. Surplus was to be paid after crystallization of the contract.
13. Much emphasis has been laid on Clause '16' of the sub- contract to argue that as per the terms and conditions therein, the sub-contract automatically stood terminated with the termination of the main contract by the employer, namely the State of Gujarat and that the Associate, namely the respondent herein was not entitled to any compensation on account of termination of the sub-contract.
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14. The submission is that as a result of automatic termination of the sub-contract with the respondent, the appellant herein was entitled to encash the bank guarantees furnished by the respondent. The learned Arbitrator has committed jurisdictional error in holding that since the contract between the appellant and the respondent herein was not terminated because of any alleged defaults on the part of the claimant and only because of the termination of the appellant's contract with the Gujarat Public Works Department (State of Gujarat), the appellant cannot bind the respondent with the terms of the agreement between the appellant and the State of Gujarat, insofar as the encashment of bank guarantees is concerned.
15. The contention is that the sole reason for holding against the appellant and granting relief to the respondent - claimant is that no notice was issued to the respondent - claimant by the appellant informing and calling upon to show cause as to why its bank guarantee should not be encashed. The finding on issue No. '3' that the invocation of bank guarantee by the appellant is against the principles of natural justice cannot be sustained.
16. It was vehemently argued by the learned counsel for the appellant that the learned Arbitrator has implanted the condition of issuance of notice before invocation of the bank guarantee, which is not part of the contract nor it was even pleaded by the claimant before the learned Arbitrator. The learned Arbitrator has committed a jurisdictional error in Page 14 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined holding that there is no linkage between the main contract with the sub-contract and the consequence of the termination of the main contract will have no bearing on the fate of the termination of the sub-contract, warranting encashment of bank guarantee by the appellant.
17. Much emphasis has been laid on Clauses '11' and '20' of the sub-contract to assert that the main contract has been made part of the sub-contract under which the Associate / respondent - claimant has been authorized by the appellant - contractor to prepare the bill as per schedule given in the main contract and even obtained cheques from Gujarat P.W.D. in the name of the contractor - appellant herein. 95% of the payment received from the Gujarat P.W.D. (party to the main contract) was to be released to Associate immediately after its credit in the account of the contractor, whereas difference, if any, was to be paid by the contractor.
18. Clause '16' of the sub-contract has been read and re- read to vehemently contend that with the termination of the main contract, the sub-contract with the Associate / respondent herein was automatically terminated. The language in Clause '20' has been pressed to contend that the main contract with the details has been included as Addendum / Corrigendum - 2 in the sub-contract.
19. The contention, thus, is that the sub-contract cannot be treated to be as an independent agreement between the appellant and the Associate, namely the respondent - claimant herein and the learned Arbitrator has erred in holding that the Page 15 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined automatic termination of the sub-contract would have no bearing on the bank guarantees furnished by the respondent under the agreement-in-question and automatic encashment of the same by the appellant was not permissible.
20. Further, in order to justify the action of the appellant for encashment of bank guarantees furnished by the claimant respondent, referring to Clause '17' of the sub-contract, it was submitted that the bank guarantees was encashed towards the liquidated damages, leviable due to the default of the respondent - claimant / Associate. It was contended that Clause '17' of the sub-contract specifically provides that the liquidated damages as provided in the main contract may be levied due to the default of the Associate.
21. It was submitted that several communications were sent to the respondent in the year 1991 itself by the appellant, namely NBCC Ltd. pointing out the slow progress of the work by the respondent - claimant. Three of such letters, part of the paper-book, have been placed before us to submit that the default of the respondent - claimant in carrying out the work of construction of bridges over river Mahi, under the sub- contract, is evident from the record.
22. Besides that, the affidavit in evidence of the witness of the appellant, namely Mr. T. K. Sengupta, Resident Engineer (Civil) in NBCC Ltd. attached with the unit office at Vadodara (at page No. '472' of the paperbook), has been placed before us to submit that a categorical statement was made therein that under the main contract dated 23.02.1987 between the Page 16 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined appellant NBCC Ltd. and Gujarat PWD, the appellant NBCC Ltd., was required to deploy sophisticated machineries like batching plant, transit mixers, etc. on 12.02.1988, the NBCC Ltd. (appellant) had awarded the Mahi Bridge contract to UPSBC (respondent claimant) on 28.09.1983, wherein the issue of deployment of above stated machineries was included in the cost payable to UPSBC, and more particularly, the rates of concrete given to UPSBC were higher then NBCC Ltd.'s rates given in the main contract. The said witness had categorically deposed in the affidavit-in-evidence that UPSBC did not deploy the batching plant and transit mixers under the contract and hence, the contract price was to be paid to UPSBC at the reduced rates.
23. Placing paragraph No. '8' of the affidavit-in-evidence of the said witness, it was vehemently argued that specific stand of the appellant before the learned Arbitrator, as deposed by the said witness, was that UPSBC (claimant - respondent herein) had delayed the preparation and submission of design, drawings and the same was not submitted even uptil the termination of the contract. Inspite of reminders from the Government of Gujarat, the respondent UPSBC did not submit materials like cement, steels, aggregate, etc. for testing nor submitted the concrete mix design.
24. It was argued by the learned counsel for the appellant that the said witness, who had demonstrated default on the part of the claimant, had not been cross-examined on the affidavit in evidence filed before the learned Arbitrator.
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25. The learned Arbitrator has, thus, erred in ignoring the crucial evidence and, as such, the findings returned by it that no reason warranting encashment of bank guarantees by the appellant existed, is in ignorance of the evidence of the appellant. The award is, thus, to be held patently illegal having been rendered in ignorance of the cogent evidence brought on record.
26. Challenging the rejection of the counter claim of the appellant being barred by time, it was argued that the occasion for filing the counter claim arose only on the award being published by the Arbitral Tribunal in the dispute between the appellant and the employer / State of Gujarat under the main contract.
27. It was argued that the counter claim of the appellant was on account of sum overpaid to the claimant towards the work done by it to the tune of Rs.13,43,405.00. The appellant had filed their counter claim on 11.11.2000, based on the findings of the Arbitral Tribunal in the proceedings under the main contract. The contention is that only after the liability of the appellant was fixed by the Arbitral Tribunal under the main contract, the factum of overpayment having been made to the respondent came to the knowledge of the appellant and hence, the counter claim could not have been rejected by the learned Arbitrator simply on the ground of delay.
28. The learned Arbitrator has, thus, committed a grave error in denying the claim of the appellant against the respondent - claimant for the sum overpaid towards the work done.
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29. Reliance is placed on the decision of the Apex Court in the case of Rajasthan State Mines & Minerals Ltd. v. Eastern Engg. Enterprises1,; State of Rajasthan v. Ferro Concrete Construction (P) Ltd.2,; Associate Builders v. DDA3, to substantiate the above noted arguments that the award under challenge is to be held a non-speaking award, based on no evidence or ignorance of material evidence, thus, having suffered from patent illegality.
30. Reading the law laid down of the Apex Court in Associate Builders3, it was argued that if an Arbitrator passes an award in ignorance of material evidence and decides the matter not in accordance with the terms of the contract or construes the contract in unreasonable manner, the flaws will provide ground to the Court to set aside the Arbitral Award.
31. It was argued that under the Arbitration Act' 1940, it was incumbent upon the Court to examine as to whether the Arbitrator had acted in excess of his jurisdiction, by disregarding the terms of reference or the arbitration agreement or the terms of contract, which would indeed be a jurisdictional error in rendering the award.
32. A deliberate departure or conscious disregard of the contract would have resulted in not only manifesting the disregarding of his authority by the Arbitrator or misconduct on his part, but also tantamount to mala fide action. The 1 (1999) 9 SCC 283 2 (2009) 12 SCC 1 3 (2015) 3 SCC 49 Page 19 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined Arbitrator could not have acted arbitrarily, irrationally, independently or capriciously of the contract even under the old regime of Arbitration Act. In a case where the Arbitrator acted beyond his jurisdiction, interference by the Court in setting aside the award was permissible. [Emphasis was laid to paragraph No. '44' in Rajasthan State Mines & Minerals Ltd.1].
33. Mr.Nitin Mehta, the learned advocate appearing for the appellant also made extensive arguments to challenge the award on the ground of the award of interest while submitting that the learned Arbitrator has erred in awarding pre-suit interest (simple) @ 14.79% per annum till 31.03.2000 and 14.50% per annum thereafter, on the bank guarantee w.e.f. 01.04.2000, by relying on the Prime Lending Rates on a letter of the Central Bank of India filed by the claimant.
34. Placing the decision of the Apex Court in the case of Rajendra Construction Co. v. Maharashtra Housing & Area Development Authority 4, it was vehemently argued that though the learned Arbitrator had power to award interest under Sections 29 and 31 of the Arbitration Act'1940, however, the learned Arbitrator was required to apply his mind and ought to have recorded reasons to justify his opinion to award interest. It was submited that there are instances where on equity, the Apex Court, even while confirming the award rendered under the Arbitration Act' 1940 had reduced the interest awarded by the learned Arbitrator.
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35. The decisions in the following cases, have been placed before us to vehemently argue that the Apex Court and the High Courts have consistently interfered in the excessive award of interest and modified the awards, accordingly, in the challenges brought before them:-
i. Oriental Structural Engineers (P) Ltd. v. State of Kerala 5;
ii. Vedanta Ltd. v. Shenzhen Shandong Nuclear Power Construction Co. Ltd.6;
iii. Krishna Bhagya Jala Nigam Ltd. v. G. Harischandra Reddy7;
iv. Machines India v. Chief Engineer8;
v. Rajendra Construction Co. v. Maharashtra Housing & Area Development Authority4;
vi. State of Rajasthan v. Nav Bharat Construction Co.9;
vii. Swadeshi Construction Co. v. Executive Engineer, DTTDC Ltd.10;
viii. Eastern Trading Company v. Kalpana Lamps & Components Ltd.11;
ix. the decision of the Rajasthan High Court in the case of Union of India v. M/s Maheshwari Enterprises & Anr. 12 and;
5 (2021) 6 SCC 150 6 (2019) 11 SCC 465 7 (2007) 2 SCC 720 8 2015 SCC OnLine MP 7703 9 (2002) 1 SCC 659 10 2009 SCC OnLine Del 3325 11 2007 SCC OnLine Mad 963 12 S.B. Civil Appeal No.1270 / 2014 decided on 04.09.2015 Page 21 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined x. Chief Engineer (Construction), South Central Railway v.
M.V.V. Satyanarayana13.
36. Much reliance has been placed on the decision of the Apex Court in Oriental Structural Engineers (P) Ltd.5 to submit that the underlying principle guiding award of interest is that the interest payment is essentially compensatory in nature. When the agreement is silent on the point of rate of interest, the Tribunal's exercise of fixing of rate should have been guided by the principles laid down in paragraph No. '43(i)' of Irrigation Deptt., Govt. of Orissa v. G.C. Roy14.
37. It was submitted that in view of the law laid down by the Apex Court, interference in the arbitral award by modification of the rate of interest, which is highly excessive, is permissible.
IV. RESPONDENT'S CASE:-
38. The learned counsel for the respondent submitted that the award under challenge is not prone to interference on merits of the claims that the appellants could not have encashed the bank guarantee merely on the premise of automatic termination of the sub-contract when the said termination was not on account of any default on the part of the claimant / respondent herein. The appellant could not establish its case before the learned Arbitrator that the claimant did not proceed with the work with due diligence.
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39. The learned Arbitrator has categorically recorded that no show cause notice prior to encashment of the bank guarantee was given to the claimant. The opinion drawn by the learned Arbitrator on evaluation of the material on record cannot be interfered by substituting the same on reappreciation of the evidence on record within the limited scope of inquiry under Section 39 of the Arbitration Act' 1940.
40. The submission is that even under the old regime, the scope of appeal under Section 39 of the Arbitration Act' 1940 was limited to the inquiry into the correctness or validity of the award, which was bereft of any evidence on record or where the learned Arbitrator had acted mala fide in transacting beyond the contract. In the matter of interpretation of the contract, however, ultimate authority was the arbitrator. Mere error of fact or law, even if committed by the Arbitrator in reaching at his conclusion on the disputed questions submitted for his adjudication, the Court cannot interfere. Reliance is placed on the decision in Rajasthan State Mines and Minerals Ltd.1 placed by the learned counsel for the appellant in support of the said submission.
41. On the question of interest, the decision of the Apex Court in the case of Reliance Cellulose Products Ltd. v. ONGC Ltd.15, has been placed before us to submit that the Apex Court has held therein that under the 1940 Act, the Arbitrator was clothed with the power to award pre-reference interest even before the Interest Act' 1978 came into force 15 (2018) 9 SCC 266 Page 23 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined besides pendente lite and future interest. The only constraint on the power of the Arbitrator is in a case where the agreement between the parties contains an express bar to the award of pre-reference and / or pendente lite interest. Even in such cases, the test of strict construction of such clauses is to be applied and unless there is a clear and express bar to the payment of interest, the interest which is compensatory in nature and is parasitic upon a principal amount not having paid in time can be no denial.
42. It was held therein that the clauses of the contract, which did not refer to claims before the Arbitrators or disputes between the parties and only bar payment of interest cannot stand in the way of the Arbitrator awarding pre- reference or pendente lite interest. The clauses which merely stated that no interest will be payable upon the 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.
43. Further reference has been made to the decision of the Apex Court in the case of M/s Ferro Concrete Construction (India) Pvt. Ltd. V. State of Rajasthan 16 and ONGC Ltd. v. G & T Beckfield Drilling Services (P) Ltd. 17, to substantiate the said submissions.
16 [2025] 4 S.C.R. 529 17 2025 SCC OnLine SC 1888 Page 24 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined V. ARBITRATOR'S AWARD:-
44. Coming to the Arbitral Award, we may note the Issue No. '3' framed by the learned Arbitrator as under:-
"ISSUE NO. 3: Whether the claimant is entitled to any relief against its claim No. 1 on account of the encashment by the respondent of the bank guarantee in an amount of Rs. 123 lakhs furnished by the claimant to the respondent towards performance guarantee, and, if so, to what extent?"
45. The findings on Issue No. '3' in the award are as under:-
"04.06 I have carefully considered the rival contentions of the parties. Rs. 123 lakhs is a lot of money. The contract between the respondent and the claimant was not terminated because of any alleged defaults on the part of the claimant, but because of the termination of the respondent's contract with Gujarat PWD. The material on record does not indicate that any notice was issued to the claimant by the respondent informing the claimant that it was proposed to encash the bank guarantee furnished by the claimant and asking it to show cause as to why its bank guarantee should not be encashed. The action taken by the respondent to encash the claimant's bank guarantee without hearing the claimant was thus against the principles of natural justice and cannot be sustained. The respondent cannot also bind the claimant with the terms of the arrangement arrived at between the respondent and the state of Gujarat before the Supreme Court as the claimant had nothing to do with the evolution of the said arrangement.
04.07 In the hearing held on 11.11.2000, Mr. Dave, learned counsel for the respondent, stated that the respondent is still to receive from the state of Gujarat the amount of the performance guarantee lodged with the PWD by the respondent and that the claimant becomes entitled to the amount only when the Gujarat PWD releases the amount to the respondent. I do not agree. In this proceeding, I am required to adjudicate the disputes that have arisen in the Mahi bridge work covered by the agreement dated 28.09.1989 entered into between the parties. I am required to decide whether or not the bank guarantee towards performance guarantee lodged with the respondent by the claimant was encashed by the respondent for good and sufficient reasons. I am satisfied that no such reasons, Page 25 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined warranting the encashment of the bank guarantee by the respondent, existed. This matter cannot be linked with the encashment of the respondent's bank guarantees by the state of Gujarat.
04.08 The respondent's contention that the encashment of the bank guarantee had received the approval of the Supreme Court is also incorrect. Neither the Allahabad High Court, nor the Supreme Court, had gone into the merits of the controversy. In fact, the Supreme Court said in its order that "the entire controversy is kept at large".
04.09 I do not, therefore, see why the claimant should be made to wait till the conclusion of the arbitration proceeding between the respondent and the state of Gujarat for getting back the amount of its bank guarantee in the sum of Rs. 123 lakhs from the respondent.
04.10. For the foregoing reasons, my answer to Issue No. 3, namely, "whether the claimant is entitled to any relief against its claim No. 1, on account of the encashment by the respondent of the bank guarantee in an amount of Rs. 123 lakhs furnished by the claimant to the respondent towards performance guarantee, and, if so, to what extent?" is in the affirmative and in favour of the claimant. I hold that the claimant is entitled, immediately, to be paid by the respondent the sum of Rs. 123 lakhs realised by the respondent from the claimant by encashment of the bank guarantee for that amount lodged by the claimant with the respondent towards performance guarantee."
46. The learned Arbitrator, while arriving at the said findings, has noted the contention of the claimant that the appellant wrote a letter dated 12.09.1991 to the claimant - respondent herein stating that it had served a notice on Gujarat P.W.D. on 05.09.1991 for termination of its contract with the Gujarat P.W.D. and the claimant was free to remove its equipment and other materials on which, no secured advance had been claimed. The subsequent letter dated 14.09.1991 of the appellant however, stated that "Further to Page 26 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined our letter..... dated 12.09.1991 we may inform you that our contract with Gujarat PWD shall stand terminated on 21.09.1991 as per the notice served by us under clause 69(a) of General Terms and Conditions of the agreement with them. Accordingly our contract with you shall also stand terminated on the same date";
47. The only stand taken by the appellant before the learned Arbitrator was that the appellant was still to receive from the Gujarat P.W.D., the amount of performance bank guarantee lodged with it by the appellant under the main contract, and the claimant could be held entitled to the amount (encashed by the appellant) only when the Gujarat P.W.D. releases the bank guarantee to the appellant. The learned Arbitrator has refuted the same by observing that the dispute cannot be linked with the encashment of the appellant's bank guarantee by the State of Gujarat.
48. On the counter claim of the appellant, the findings on Issue No. '6' are as under:-
"07.01. In the written statement filed vide letter dated 12.09.1997, the respondent had merely stated that "The respondent submits that claimant is liable to pay large amounts towards counter-claims to be submitted by the respondent. However, the invocation being time-barred, the respondent submits that it will submit its counter- claims after the honourable arbitrator gives his decision on the preliminary objection to save avoidable time loss and expenses of the proceedings"
07.02 In its rejoinder, the claimant pointed out that even though the respondent had taken the plea that the claims of the claimant are time-barred, the respondent should have preferred its counter- claims and the respondent's contention that it reserved its right to submit its counter-claims after the arbitrator ruled on the issue of limitation was not tenable in law. The claimant went on to say that the respondent should not now be permitted to file counter-claims.
Page 27 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined 07.03 The respondent filed its counter-claim only on 11.11.2000. In this counter-claim, the respondent claimed a sum of Rs. 13,43,405.00 from the claimant, this amount representing the amount that had been allegedly overpaid by the respondent to the claimant towards work done. In the hearing held on 12.11.2000, the claimant, argued that the counter-claim had been filed very belatedly; that the subject work stood terminated on 21.09.1991; that there is no acknowledgment of any kind from the claimant in regard to the counter-claim; and that the counter-claim filed on 11.11.2000 was clearly barred by time.
07.04 The details of this counter-claim will be discussed while dealing with Issue No. 7 infra, but I feel that the claimant's argument that the counter-claim is time-barred is well founded. Even if one overlooks the fact that the counter-claim was filed only on 11.11.2000, and assumes that it had been filed on 12.09.1997 along with the respondent's written statement (where the respondent had reserved its right to file counter-claims later), the gap between the said date of 12.09.1997 and 21.09.1991, which is the date on which the contract between the respondent and the claimant stood terminated, is almost 6 years. The respondent's argument that its arbitration case with the state of Gujarat has not concluded and the picture of actual dues could not have been clearly known earlier has no weight, for that case is covered by a different agreement and is between different parties. This proceeding, which I am arbitrating, arose as a result of differences between the claimant and respondent in regard to the agreement entered into between them on 28.09.1989. As far as this reference is concerned, I have to decide the case on the basis of matters pleaded, and the material produced, before me. This award cannot obviously wait ad infinitum till the conclusion of another case between the respondent and another party, namely, the state of Gujarat.
07.05 For the foregoing reasons, the answer to Issue No. 6, namely, "Whether the respondent's counter-claim on account of the sum allegedly overpaid by the respondent to the claimant for work done is barred by time?" has to be in the affirmative. Accordingly, I hold that the respondent's counter-claim is barred by time."
49. The findings on the issue of interest, namely Issue No. '8' are also to be extracted hereinunder:-
"09.00. Issue No.8: whether the claimant is entitled to any relief on account of interest on any amounts found due to the claimant from the respondent, and, if so, to what extent? 09.01 The claimant has claimed presuit, pendente lite and future interest till the date of payment on all amounts due to it. The Page 28 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined respondent objected to award of any interest. I have held supra against Issue No. 3 that the encashment by the respondent of the bank guarantee in an amount of Rs. 123 lakhs from the bank guarantee furnished by the claimant to the respondent towards performance guarantee was unjustified and against the principles of natural justice. I am satisfied that the claimant was thus deprived of the use of this amount of Rs. 123 lakhs by the respondent without good and sufficient reasons. In view thereof, I overrule the objections of the respondent in regard to award of interest to the claimant. The claimant is clearly entitled to interest on this amount. The amount of Rs. 123 lakhs realized through encashment of the bank guarantee was debited to the account of the claimant by its bankers on 28.01.1993 and the claimant is entitled to interest from that date. As regards the rate of interest, the claimant has claimed interest at the rate of 21% per annum compounded quarterly. The claimant has produced a letter from its New Delhi bankers, Central Bank of India giving the prime lending rates (PLR) from 1994 onwards. The present PLR is stated to be 12.50% with 4% extra on clean advances. The maximum value of PLR shown in Exh. C-85 is 16.50%, exclusive of extras, in 1995. The PLR is thus varying from a low of 12.50% to a high of 16.50% exclusive of interest tax and load which is applicable as per category of advances. The mean of these two values comes to 14.50%. Though the bank guarantee was issued by UCO Bank and the encashed amount was debited to the claimant's account also by UCO Bank, I have taken into account the Central Bank of India's letter as a general guide for determining the rate of interest to be allowed. C-55 shows that the amount was debited to the current account of the claimant The claimant did not lead any evidence to show whether the bank guarantee was financed from borrowed funds and whether any extra "load" as referred to in Exh. C-85 became applicable. Therefore, I have decided to ignore this extra element of load. Taking an overall view of the circumstances of this case, I consider that award of simple interest at the mean PLR value of 14.50% plus 2% interest tax thereon, or 14.79% per annum will meet the ends of justice. I am given to understand that the interest tax stands abolished with effect from 01.04.2000. So, the interest rate applicable will be 14.50% per annum simple with effect from 01.04.2000.
09.02 Accordingly, the answer to Issue No. 8, namely, "whether the claimant is entitled to any relief on account of interest on any amounts found due to the claimant from the respondent, and, if so, to what extent?" has to be in the affirmative and the claimant is entitled to interest on the amounts found due to it. I have awarded Page 29 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined to the claimant a sum of Rs. 123 lakhs against Issue No. 3. against Issue No. 8, 1 award to the claimant simple interest of 14.79% per annum till 31.03.2000 and 14.50% per annum thereafter on the said sum of Rs. 123 lakhs awarded to it against Issue No. 3.
09.03. For the presuit period, the claimant has claimed a total amount of Rs. 2,83,76,288.00, inclusive of interest from 28.01.1993 till 27.02.1997, calculated at a rate of 21% per annum compounded quarterly Modifying the rate of interest to 14.79% per annum simple, presuit interest on Rs. 123 lakhs from the date the amount of Rs. 123 lakhs was debited to the claimant's account till the date I entered on the reference, namely, 28.01.1993 to 27.02.1997 or 1491 days comes to Rs.74,31,184 or say Rs.74,31,000 ignoring the '000s.
09.04 Interest pendente lite will be in two parts. Interest pendente lite on Rs.123 lakhs from the date I entered on the reference till 31.03.2000, till which date interest tax was applicable, or 27.02.1997 to 31.03.2000 or 1128 days @ 14.79% per annum simple comes to Rs. 56,21,982. Interest pendente lite on Rs.123 lakhs from the date interest tax was abolished till the date of award, namely, 31.03.2000 to 30.11.2000 or 244 days @ 14.50% per ammun simple comes to Rs.11,92,257 totalling to Rs. 68,14,239 or say Rs. 68,14,000 ignoring the '000s.
09.05 The total amount of interest on Rs.123 lakhs from 28.01.1993 till the date of award, namely, 30.11.2000 thus comes to Rs.1,42,45,423 or say Rs.1,42,45,000 ignoring the '000s in the amount worked out.
09.06 The claimant will also be entitled to future interest on Rs. 123 lakhs @ 14.50% per annum simple from the date of award, namely, 30.11.2000 till the date of payment or date of decree whichever date is earlier."
50. The details of sum awarded by the learned Arbitrator in paragraph No. '12.01' (in a table) and paragraph No. '12.02' are as under:-
"12.01 To sum up, the positions is as depicted in Table No.1 below and at page 22.Page 30 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026
NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined Table 1: Details of sums awarded against claims and counter-claims ISSUE NATURE OF THE ISSUE FINDING AWARD Reference to NO. paragraph and In favour Amount page of of (Rs.) Award
1. Are claimant's claim Nos.1 No. Para 02.11 at and 2 barred by time? page 11
2. Is claimant's claim No.3 Claim No.3 Para 03.01 at barred by time? withdrawn. page 11 Issue does not survive
3. Is claimant entitled to any Yes Claimant 1,23,00,000 Para 04.11 at relief against claim No.1? page 14
4. Is claimant entitled to any No. Para 05.04 at relief against claim No.2 page 16
5. Is claimant entitled to any Claim No.3 Para 06.01 at relief against claim No.3? withdrawn. page 16
6. Is respondent's counter claim Yes Para 07.05 at barred by time? page 18
7. Is respondent entitled to any No Para 08.02 at relief against it counter-claim? page 19
8. Is claimant entitled to interest? Yes Claimant Presuit: Paras 09.02, 74,31,000 09.05, 09.06 Pendente at pages 20 lite: and 21 68,14,000 Total:
1,42,45,000a
9. Is respondent entitled to No Para 10.01 at interest? page 21
10. Costs Parties to bear Para 11.01 at their own costs page 21 Total 2,65,45,000b a. The claimant will be entitled also to future simple interest @ 14.50% per annum on Rs.1,23,00,000 from 30.11.2000 till the date of payment or date of decree, whichever is earlier.
b. plus future interest as at footnote (a) above 12.02 In the result, the Claimant partly succeeds, and I do hereby award, in the Claimant's favour, a sum of Rs.2,65,45,000.00 (Rupees two crores sixty five laths forty five thousand only), inclusive of interest up to the date of award, namely, 30.11.2000;
Page 31 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined and direct that the said amount of Rs.2,65,45,000.00 be paid by the Respondent to the Claimant. The Claimant will also be entitled to future simple interest at the rate of 14.50% per annum on Rs.1,23,00,000.00 from the date of award, namely, 30.11.2000 to the date of payment or date of decree whichever date is earlier. The respondent falls in its counter-claim and is not entitled to any amount against the said counter-claim."
VI. AWARD MADE RULE OF COURT:-
51. We also find it profitable to note the findings in the impugned judgment dated 22.04.2009, whereby the award dated 30.11.2000 has been made rule of Court.
"11] Opponent relying upon above decisions of Hon'ble Supreme Court and submitted that the award passed by the arbitrator on 30- 11-2000 i.e. perverse, erroneous and illegal. There are errors apparently on face of the record and violates the terms of the agreement. The arbitrator has made incorrect and baseless assumption and carried out the conclusion which are biased and against the terms of agreement. So the court cannot take cognizance on such filing.
I gone through the original award passed by Mr. T.S. Ratnam, Sole Arbitrator. It appears that he has passed the said award after taking into consideration the statements of both the persons and the documentary evidence produced by both the parties and after hearing both the parties. Thus, looking to the said award, it does not appear that the sole Arbitrator has misconducted himself or committed an error of law or fact while passing the said award. So, the decisions of the Hon'ble Supreme Court relied upon by the opponent are not helpful to the opponent. Looking to the authorities cited by the applicant, mere is no misconduct on the part of arbitrator, hence the objection against the arbitration award filed by the respondent, it appears that mostly the respondent has contended that the arbitrator has committed an error of fact while passing the award but the respondent has not produced any documentary evidence for the allegations. So, the objections taken by the opponent against the award cannot be accepted. It is well established principle of law that the award can be set aside only if there is an error of law apparent on the face of record. If there is a mistake of fact, it cannot be corrected by the Court. So, looking to the facts, the opponent failed to prove that Page 32 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined the arbitrator committed an error of law apparent on the face of the record and therefore, all the citations cited by the opponent are not helpful to the opponent and the award passed by the arbitrator cannot be set aside u/S, 30 of the Arbitration Act.
[12] Thus, looking to the pleadings and submissions and arguments by the parties and the award passed by the arbitrator, it prima facie appears that the arbitrator has not committed any error of law fact while passing the award. It also appears that the arbitrator has passed an award after taking into consideration the agreement between the parties and the documentary evidence produced by both parties before the Arbitrator. Hence, the award of the sole Arbitrator is required to be made rule of the Court. I, therefore, pass the following Order.
ORDER Civil Miscellaneous Application No. 110/05 and Civil Miscellaneous Application No. 111/05 are hereby allowed.
The award passed by the Sole Arbitrator Mr. T.S. Ratnam is made rule of the Court. The applicant is also entitled to get interest @ 18% p.a. from the date of the decree till its realization. The opponent is directed to pay the cost of this application to the applicant and to bear its own cost.
Decree to be drawn in terms of award passed by the Sole Arbitrator."
52. At this stage, we may now refer to the statutory scheme of the Arbitration Act' 1940 and the judicial pronouncements on the scope of interference by a Court in an arbitral award while making it Rule of Court under the scheme of the Arbitration Act' 1940 VII. STATUTORY SCHEME:-
53. Sections 15, 16 and 17 conferring power on the Court to modify, correct, permit the award or pronouncement of decree on disposal of the objections to the arbitral award, are as under:-
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(a) where it appears that a part of the award is upon a matter not referred to arbitration and such, part can be separated from the other part and does not affect the decision on the matter referred;
or ( b ) where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision ; or
(c) where the award contains a clerical mistake or an error arising from an accidental slip or omission.
16. Power to remit award .-(1) The Court may from time to time remit the award or any matter referred to arbitration to the arbitrators or umpire for reconsideration upon such terms as it thinks fit-
(a) where the award has left undetermined any of the matters referred to arbitration, or where it determines any matter not referred to arbitration and such matter cannot be separated without affecting the determination of the matters referred; or
(b) where the award is so indefinite as to be incapable of execution; or
(c) where an objection to the legality of the award is apparent upon the face of it.
(2) Where an award is remitted under sub-section (1), the Court shall fix the time within which the arbitrator or umpire shall submit his decision to the Court:
Provided that any time so fixed may be extended by subsequent order of the Court.
(3) An award remitted under sub-section (1) shall become void on the failure of the arbitrator or umpire to reconsider it and submit his decision within the time fixed.
17. Judgment in terms of award .-Where the Court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration or to set aside the award, the Court shall, after the time for making an application to set aside the award has expired, or such application having been made, after refusing it, proceed to pronounce judgment according to the award, and upon the judgment so pronounced a decree shall follow and no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accordance with, the award."
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54. The ground for setting aside an arbitral award contained in paragraph No. '30' are as under:-
"30. Grounds for setting aside award .-An award shall not be set aside except on one or more of the following grounds, namely:-
(a)that an arbitrator or umpire has misconducted himself or the proceedings;
(b)that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35;
(c)that an award has been improperly procured or is otherwise invalid."
55. The remedy to a party to challenge the arbitral award was provided under Section 33 of the Arbitration Act' 1940, which reads as under:-
"33. Arbitration agreement or award to be contested by application. - Any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court and the Court shall decide the question on affidavits:
Provided that where the Court deems it just and expedient, it may set down the application for hearing on other evidence also, and it may pass such orders for discovery and particulars as it may do in a suit."
56. Section 39 providing for remedy of appeal against the order of the Civil Court under the Arbitration Act' 1940 states that:-
"39. Appealable orders .-
(1) An appeal shall lie from the following orders passed under this Act (and from no others) to the Court authorised by law to hear Page 35 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined appeals from original decrees of the Court passing the order:-
An order-
(i)superseding an arbitration;
(ii)on an award stated in the form of a special case;
(iii)modifying or correcting an award;
(iv)filing or refusing to file an arbitration agreement;
(v)staying or refusing to stay legal proceedings where there is an arbitration agreement;
(vi)setting aside or refusing to set aside an award:
Provided that the provisions of this section shall not apply to any order passed by a Small Cause Court.
(2)No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court."
VIII. JUDICIAL PRONOUNCEMENTS:-
57. In Rajasthan State Mines and Minerals Ltd. 1, the challenge before the Apex Court was to the order passed by the District Judge in accepting the interim as well as final award and passing the decree in terms thereof, on the premise that the Arbitrator therein had travelled beyond the scope of the contract in awarding compensation for certain claims and thus, had committed a jurisdictional error. The grounds for challenge to the arbitral award passed under the Arbitration Act' 1940 were that the Arbitrator failed to consider the relevant clauses of the contract and the regulatory enactment and further had failed to apply his mind to consider pleadings, documents and evidence. The award was bad as the learned Sole Arbitrator failed to apply his mind in deciding the dispute and thus, liable to be set aside being perverse. It was contended therein that the award was a non-
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58. By ignoring the terms of the contract, the Sole Arbitrator had travelled beyond his jurisdiction as his existence depends upon the agreement and his function is to act witin the limit of the said agreement. The deliberate departure from the contract amounts not only resulted to manifest disregard of the authority or misconduct on his part but it may tantamount to mala fide action. It was contended that, "It is settled law that the arbitrator is the creature of the contract between the parties and hence if he ignores the specific terms of the contract, it would be a question of jurisdictional error which could be corrected by the court and for that limited purpose agreement is required to be considered. For deciding whether the arbitrator has exceeded his jurisdiction reference to the terms of the contract is a must..."
59. The respondent therein had contended that, "...the award is a non-speaking one and the arbitration clause in this case empowers the arbitrator not only to decide all disputes arising out of the contract but also to decide all disputes in any way touching the contract whatsoever, hence the arbitrator is not required to confine himself only to the terms of the contract but can pass an appropriate award so as to do justice between the parties including awarding damages suffered by the contracting parties. Therefore, the award cannot be said to be without or beyond jurisdiction. He further submitted that the award passed by the arbitrator is on the basis of the interpretation of clauses 17 and 18 and, therefore, the award would be within his jurisdiction."
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60. The Apex Court had noticed the decisions relied by the learned counsels for the parties to buttress their submissions in paragraph Nos. '25 to 29' and '31 to 43' as under:-
"25....In Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji [AIR 1965 SC 214 : (1964) 5 SCR 480] the dispute arose between the partners of a firm on retirement of the partners which was referred to the arbitrator. The arbitrator had passed a non-speaking award....
26....After considering the decision in Champsey Bhara and Co. v. Jivraj Balloo Spg. and Wvg. Co. Ltd. [(1922-23) 50 IA 324 :
AIR 1923 PC 66] Shah. J, observed that:
(a) It is not open to the court to speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion.
(b) It is not open to the court to admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award.
(c) The primary duty of the arbitrator under the deed of a reference in which was incorporated the partnership agreement, was to value the net assets of the firm and to award to the retiring partners a share therein. In making the "valuation of the firm", his jurisdiction was restricted in a manner provided by para 13 of the partnership agreement. As the arbitrator has expressly stated in his award that in arriving at his valuation, he has included the depreciation and appreciation of the property, the arbitrator has travelled outside his jurisdiction and the award was on that account liable to be set aside. This was not a case in which the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his adjudication.
It is a case of assumption of jurisdiction not possessed by him, and that renders the award, to the extent to which it is beyond the arbitrator's jurisdiction, invalid. The award must fail in its entirety as it was not possible to sever from the valuation made by the arbitrator, the value of the depreciation and appreciation included.
27. In a concurring judgment, Hidayatullah, J., after considering the decision in Champsey Bhara and Co. case [(1922-23) 50 IA 324 :
AIR 1923 PC 66] observed that:
"The first point is therefore to decide what were the limits of the arbitrator's action as disclosed by the reference and the deed of partnership and then to see what the arbitrator has actually done and not what he may have stated loosely in his award. This is the Page 38 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined only way in which the excess of jurisdiction can be found. If the interpretation of the deed of partnership lies with the arbitrator, then there is no question of sitting in appeal over his interpretation, in view of the passage quoted above from Champsey case [(1922-23) 50 IA 324 : AIR 1923 PC 66] , but if the parties set limits to action by the arbitrator, then the arbitrator had to follow the limits set for him, and the Court can find that he has exceeded his jurisdiction on proof of such action."
(emphasis supplied)
28. The next decision on which reliance is placed is Continental Construction Co. Ltd. v. State of M.P. [(1988) 3 SCC 82 : (1988) 3 SCR 103] In the said case, it was contended by the contractor that the contract could not be completed within the stipulated time because of alleged gross delay on the part of the State in allotment of work and discharge of its obligation under the contract. He had, therefore, incurred unforeseen expenditure and claimed damages to the tune of Rs 5,29,812. The matter was referred to the retired Engineer-in-Chief, PWD, Bhopal, who partly allowed the contractor's claim. The award was set aside by the District Judge. Appeal was also dismissed by the High Court and in appeal before this Court, it was contended that the contractor was not entitled to extra cost for material and labour in terms of the contract. This Court held that the arbitrator misconducted himself in allowing the claim without deciding the objection of the State that in view of the specific clauses of the contract, the contractor was not legally entitled to claim extra cost. The Court observed: (SCC p. 88, para
5) "If no specific question of law is referred, the decision of the arbitrator on that question is not final however much it may be within his jurisdiction and indeed essential for him to decide the question incidentally. The arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks is just and reasonable. The arbitrator is a tribunal selected by the parties to decide their disputes according to law and so is bound to follow and apply the law, and if he does not he can be set right by the court provided his error appears on the face of the award. In this case, the contractor having contracted, he cannot go back to the agreement simply because it does not suit him to abide by it. The decision of this Court in Alopi Parshad and Sons Ltd. v. Union of India [AIR 1960 SC 588 : (1960) 2 SCR 793] may be examined. There it was observed that a contract is not frustrated merely because the circumstances in which the contract was made, altered. The Contract Act does not enable a party to a contract to ignore the express covenants thereof, and to claim payment of Page 39 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined consideration for performance of the contract at rates different from the stipulated rates, on some vague plea of equity. The parties to an executory contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate, a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. There is no general liberty reserved to the courts to absolve a party from liability to perform his part of the contract merely because on account of an uncontemplated turn of events, the performance of the contract may become onerous."
(emphasis supplied)
29. Thereafter, the Court distinguished the decision in Tarapore & Co. v. Cochin Shipyard Ltd. [(1984) 2 SCC 680] In the said case, there were no specific clauses which barred consideration of extra claims in events of price escalation. At this stage, we would mention that in Tarapore Co. case [(1984) 2 SCC 680] this Court after considering the various decisions has held that a specific question as to whether the claim of compensation made by the contractor demurred and disputed by the respondent would be covered within the scope, ambit and width of the arbitration clause was specifically referred by the parties for the decision of the arbitrator. In such cases, the award cannot be set aside on the ground that there is an error of law on the face of the award. Learned Senior Counsel, Mr Ashok H. Desai has heavily relied upon this decision in support of his contention that in the present case also, arbitration clause 74 is very widely worded. Dealing with the arbitration clause, the Court observed "arbitration clause so widely worded, as disputes arising out of the contract or in relation to the contract or execution of the works, would comprehend within its compass a claim for compensation relating to estimates and arising out of the contract. The test is whether it is necessary to have recourse to the contract to settle the dispute that has arisen".
Further, while interpreting such clause, the Court has held as under: (SCC p. 716, para 40) "40. We may now turn to some decisions to which our attention was drawn. The first case we would like to refer to is A.M. Mair & Co. v. Gordhandas Sagarmull [1950 SCC 741 : AIR 1951 SC 9 :
1950 SCR 792] . The Court was concerned with the arbitration clause drawn up as: 'all matters, questions, disputes, differences and/or claims, arising out of and/or concerning, and/or in connection and/or in consequence of, or relating to, the contract etc.' The question arose whether the due date under the contract was extended within the time, earlier reserved. The arbitrator held Page 40 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined that the due date of the contract has been extended by a mutual agreement and the respondents were held liable to pay a sum of Rs 4116 together with interest at the rates specified in the award. It was contended that the dispute is not covered by the arbitration clause. This Court while holding that the dispute is covered by the arbitration clause observed that looking to the rival contentions, such a dispute, the determination of which turns on the true construction of the contract, would also seem to be a dispute under or arising out of or concerning the contract. The test formulated was that if in settling a dispute, a reference to the contract is necessary, such a dispute would be covered by the arbitration clause."
31. In Sudarsan Trading Co. v. Govt. of Kerala [(1989) 2 SCC 38] this Court posed the following questions for its decision: (SCC p. 41, para 3) "How should the court examine an award to find out whether it was a speaking award or not; and if it be a non-speaking award, how and to what extent the court could go to determine whether there was any error apparent on the face of the award to be liable for interference by the court. The other question that arises in this case is, to what extent can the court examine the contract in question though not incorporated or referred to in the award."
32. In that case also, the arbitrator had passed non-speaking awards but with regard to each and every claim he had separated and passed the order either accepting or rejecting the claim or partly accepting the claim of the contractor.
33. After referring to the various decisions including Jivarajbhai Ujamshi Sheth case [AIR 1965 SC 214 : (1964) 5 SCR 480] the Court observed as under: (SCC p. 55, para 30) "This was reiterated by Justice Hidayatullah that if the parties set limits to action by the arbitrator, then the arbitrator had to follow the limits set for him and the court can find that he exceeded his jurisdiction on proof of such excess. In that case the arbitrator in working out net profits for four years took into account depreciation of immovable property. For this reason he must be held to have exceeded his jurisdiction and it is not a question of his having merely interpreted the partnership agreement for himself as to which the civil court could have had no say, unless there was an error of law on the face of the award. Therefore, it appears to us that there are two different and distinct grounds involved in many of the cases. One is the error apparent on the face of the award, and the other is that the arbitrator exceeded his jurisdiction. In the latter case, the courts can look into the arbitration agreement but Page 41 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined in the former, it cannot, unless the agreement was incorporated or recited in the award."
(emphasis supplied) This Court further observed: (SCC pp. 55-56, para 31) "31. An award may be remitted or set aside on the ground that the arbitrator in making it, had exceeded his jurisdiction and evidence of matters not appearing on the face of it, will be admitted in order to establish whether the jurisdiction had been exceeded or not, because the nature of the dispute is something which has to be determined outside the award -- whatever might be said about it in the award or by the arbitrator. ... It has to be reiterated that an arbitrator acting beyond his jurisdiction -- is a different ground from the error apparent on the face of the award."
34. Further, dealing with the non-speaking award and also for the claims on the ground of escalation of price, due to various reasons including payment of minimum rates of wages payable to various categories of workers, this Court in Associated Engg. Co. v. Govt. of A.P. [(1991) 4 SCC 93] referred to the contract clauses and set aside the award by holding: (SCC p. 102, para 21) "This conclusion is reached not by construction of the contract but by merely looking at the contract. The umpire travelled totally outside the permissible territory and thus exceeded his jurisdiction in making the award under those claims. This is an error going to the root of his jurisdiction: See Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji [AIR 1965 SC 214 : (1964) 5 SCR 480] ."
The Court further held as under: (SCC p. 103, para 25) "25. An arbitrator who acts in manifest disregard of the contract acts without jurisdiction. His authority is derived from the contract and is governed by the Arbitration Act which embodies principles derived from a specialised branch of the law of agency (see Mustill and Boyd's Commercial Arbitration, 2nd Edn., p. 641). He commits misconduct if by his award he decides matters excluded by the agreement (see Halsbury's Laws of England, Vol. II, 4th Edn., para
622). A deliberate departure from contract amounts to not only manifest disregard of his authority or a misconduct on his part, but it may tantamount to a mala fide action. A conscious disregard of the law or the provisions of the contract from which he has derived his authority vitiates the award."
35. Learned counsel for the respondent relied upon the case of Hindustan Construction Co. Ltd. v. State of J&K [(1992) 4 SCC 217] . In the said case, the Court has observed that the award was Page 42 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined a non-speaking one and contained no reasoning which could be declared to be faulty; the scope of the court's jurisdiction in interfering with the non-speaking award is extremely limited. While discussing the contention, the Court quoted the decision in the case of Sudarsan Trading Co. case [(1989) 2 SCC 38] (which we have earlier referred) and thereafter held that the High Court had not rested its decision on any question of the arbitrator having exceeded his jurisdiction or travelled beyond the contract; the Court had set aside the award on the ground of error apparent on the face of it. The Court further held that the clauses of the contract referred to by the High Court were not so clear or unambiguous as to warrant an inference that the interpretation placed on them by the arbitrators was totally unsustainable. In that view of the matter, the Court held that it was difficult to say that the arbitrator's interpretation was erroneous on the face of it. Hence, the aforesaid decision would have no bearing on the facts and the law involved in this matter.
36. Similarly, in Managing Director, J&K Handicrafts v. Good Luck Carpets [(1990) 4 SCC 740] dealing with the non-speaking award, the Court negatived the contention that the agreement containing the arbitration clause cannot be looked into even to find out as to what was the nature of the dispute contemplated by it with regard to which a reference to an arbitrator was contemplated, nor so, when the award was a non-speaking one, by observing thus: (SCC pp. 742-43, para 5) "Firstly, the award is not a totally non-speaking one inasmuch as it gives a resume of the incentive scheme and the agreement between the parties as also the items of the claim made by the respondent. Of course while fixing the amount found payable by the appellant, no reasons are recorded. Secondly, if there is any challenge to the award on the ground that the arbitrator had no jurisdiction to make the award with regard to a particular item inasmuch as it was beyond the scope of reference, the only way to test the correctness of such a challenge is to look into the agreement itself. In our opinion, looking into the agreement for this limited purpose is neither tantamount to going into the evidence produced by the parties nor into the reasons which weighed with the arbitrator in making the award."
37. In Tarapore & Co. v. State of M.P. [(1994) 3 SCC 521] this Court again considered whether the arbitrator had exceeded his jurisdiction in awarding extra payment to the contractor on account of payment of enhanced wages to labour by the contractor pursuant to statutory revision of minimum wages by the Page 43 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined Government or increase in rates of fair wages by the Wage Committee binding on the contractor under conditions of tender notice. In the said case, the Court considered the distinction between the latent and patent jurisdiction of the arbitrator in deciding the disputes and after referring to the arbitration clause, observed:
Any dispute relating to or arising out of or in any way connected with the contract has to be referred to arbitration. It cannot be said that there was patent lack of jurisdiction on the part of arbitrators in having gone into the question of reimbursement; at the best it could be said that arbitrators had no jurisdiction to entertain the claim and hence a case of latent lack of jurisdiction.
38. After considering the decisions in Continental Construction Co. [(1988) 3 SCC 82 : (1988) 3 SCR 103] and Tarapore and Co. [(1984) 2 SCC 680] this Court held that as there was an absence of the escalation clause, it was not a case where on the basis of the terms of the agreement entered between the parties, it can be held that the arbitrator had no jurisdiction to make the award. The Court observed that it cannot be held that the arbitrator has no jurisdiction to make the award because of lack of a specific provision permitting the claim at hand. The Court further observed: (SCC p. 532, para 25) "It has to be seen whether the term of the agreement permitted entertainment of the claim by necessary implication. It may be stated that we do not accept the broad contention of Shri Nariman that whatever is not excluded specifically by the contract can be subject-matter of claim by a contractor. Such a proposition will mock at the terms agreed upon. Parties cannot be allowed to depart from what they had agreed. Of course, if something flows as a necessary concomitant to what was agreed upon, courts can assume that too as a part of the contract between the parties."
39. After referring to the facts as found from the record, the Court held that the award cannot be said to be beyond the jurisdiction of the arbitrator insofar as increased payment on account of rise in rates of fair wages was concerned. In our view, the said finding is based on appreciation of evidence on record and the terms of the contract. However, the Court made it clear that part of the award which is relatable to increase in minimum wages cannot be regarded as one within jurisdiction and observed (at SCC p. 533, para 28) "needless to say that if an arbitrator acts beyond jurisdiction, the same would amount to misconduct".
40. In T.N. Electricity Board v. Bridge Tunnel Constructions [(1997) 4 SCC 121] the contractor had set up the claims raised at rates Page 44 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined higher than the contracted rates and twice the rate for the work done after the expiry of the contract period. For those claims, dispute was raised and the matter was referred to the arbitrator. The civil court made the award the rule of the court. The High Court confirmed the same. In appeal, this Court set aside the award and while discussing various contentions, observed as under: (SCC p. 134, para 25) "If the arbitrator decides a dispute which is beyond the scope of his reference or beyond the subject-matter of the reference or he makes the award disregarding the terms of reference or the arbitration agreement or terms of the contract, it would be a jurisdictional error beyond the scope of reference; he cannot clothe himself to decide conclusively that dispute as it is an error of jurisdiction which requires to be ultimately decided by the court."
41. In New India Civil Erectors (P) Ltd. v. Oil & Natural Gas Corpn. [(1997) 11 SCC 75] this Court again considered the contention wherein the arbitrator has passed an award contrary to the specific stipulation/condition contained in the agreement between the parties. The Court observed thus: (SCC p. 79, para 9) "It is axiomatic that the arbitrator being a creature of the agreement, must operate within the four corners of the agreement and cannot travel beyond it. More particularly, he cannot award any amount which is ruled out or prohibited by the terms of the agreement. In this case, the agreement between the parties clearly says that in measuring the built-up area, the balcony areas should be excluded. The arbitrators could not have acted contrary to the said stipulation and awarded any amount to the appellant on that account."
42. The aforesaid judgment was considered in H.P. SEB v. R.J. Shah and Co. [(1999) 4 SCC 214] and in para 26, the Court held as under: (SCC p. 225) "26. In order to determine whether the arbitrator has acted in excess of jurisdiction what has to be seen is whether the claimant could raise a particular dispute or claim before an arbitrator. If the answer is in the affirmative then it is clear that the arbitrator would have the jurisdiction to deal with such a claim. On the other hand if the arbitration clause or a specific term in the contract or the law does not permit or give the arbitrator the power to decide or to adjudicate on a dispute raised by the claimant or there is a specific bar to the raising of a particular dispute or claim then any decision given by the arbitrator in respect thereof would clearly be in excess of jurisdiction."
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43. Learned Senior Counsel, Mr Ashok H. Desai relied upon the case of P.V. Subba Naidu v. Govt. of A.P. [(1998) 9 SCC 407] In that case, a non-speaking award was rendered by the arbitrator. The Court held that the terms of the arbitration clause were very wide, therefore, all the disputes which arise as a result of the contract would be covered by the arbitration clause and that all claims were expressly referred to the arbitrator and were raised before the arbitrator. In that set of circumstances, by purporting to construe the contract the Court could not take upon itself the burden of saying that it was contrary to the contract and as such beyond jurisdiction. Thereafter, the Court referred to the decision in Ch. Ramalinga Reddy v. Superintending Engineer [(1999) 9 SCC 610 :
(1994) 5 Scale 67] and observed that in that case the arbitrator was required to decide the claims referred to him having regard to the contract. Hence, his jurisdiction was expressly limited to decide claims under the terms of the contract but in the case which was considered by the Court, there was no clause in the contract which prevented the arbitrator from examining the claims put up before the arbitrator. Considering the aforesaid aspect, in our view, this judgment also would have no bearing in the present case, as there are express prohibitions and stipulations in the contract for non-payment of extra amount on any ground whatsoever. In the present case, the rates were to remain firm, fixed and binding irrespective of fall or rise in the cost of mining operation of the work covered by the contract or for any other reason. The contract was for a composite rate and it stipulated that no other or further payment of any kind of item whatsoever was payable by the Company to the contractor."
61. The principles of making of an award rule of Court and dealing with the objections to the same, are culled out in paragraph No. '44' as under:-
"44. From the resume of the aforesaid decisions, it can be stated that:
(a) It is not open to the court to speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion.
(b) It is not open to the court to admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award.Page 46 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026
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(c) If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his adjudication then the court cannot interfere.
(d) If no specific question of law is referred, the decision of the arbitrator on that question is not final, however much it may be within his jurisdiction and indeed essential for him to decide the question incidentally. In a case where a specific question of law touching upon the jurisdiction of the arbitrator was referred for the decision of the arbitrator by the parties, then the finding of the arbitrator on the said question between the parties may be binding.
(e) In a case of a non-speaking award, the jurisdiction of the court is limited. The award can be set aside if the arbitrator acts beyond his jurisdiction.
(f) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. The arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award.
(g) In order to determine whether the arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit or give the arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction.
(h) The award made by the arbitrator disregarding the terms of the reference or the arbitration agreement or the terms of the contract would be a jurisdictional error which requires ultimately to be decided by the court. He cannot award an amount which is ruled out or prohibited by the terms of the agreement. Because of a specific bar stipulated by the parties in the agreement, that claim could not be raised. Even if it is raised and referred to arbitration because of a wider arbitration clause such claim amount cannot be awarded as the agreement is binding between the parties and the arbitrator has to adjudicate as per the agreement. This aspect is absolutely made clear in Continental Construction Co. Ltd. [(1988) 3 SCC 82 : (1988) 3 SCR 103] by relying upon the following passage from Alopi Parshad v. Union of India [AIR 1960 SC 588 :
(1960) 2 SCR 793] which is to the following effect: (SCC p. 88, para
5) Page 47 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined "There it was observed that a contract is not frustrated merely because the circumstances in which the contract was made, altered. The Contract Act does not enable a party to a contract to ignore the express covenants thereof, and to claim payment of consideration for performance of the contract at rates different from the stipulated rates, on some vague plea of equity. The parties to an executory contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate, a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. There is no general liberty reserved to the courts to absolve a party from liability to perform his part of the contract merely because on account of an uncontemplated turn of events, the performance of the contract may become onerous."
(i) The arbitrator could not act arbitrarily, irrationally, capriciously or independently of the contract. A deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part but it may tantamount to mala fide action.
(j) The arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks just and reasonable; the arbitrator is a tribunal selected by the parties to decide the disputes according to law."
62. Applying the aforesaid principles, in the facts of the said case, it was held therein that the award passed by the arbitrator was against the stipulations and prohibitions contained in the contract between the parties. There was no question of interpretation of clauses '17' and '18' of the Contract as the language of the said clauses was absolutely clear and unambiguous. Even the contractor had admitted in his letter demanding such claims that the contract was signed with the clear understanding that the rate under the contract was firm and final and no escalation in rates except in case of diesel would be granted. Hence, by ignoring the same, the arbitrator had travelled beyond his jurisdiction. It amounted to a deliberate departure from the contract. It was held Page 48 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined therein that the reference to the Arbitrator was solely based upon the agreement between the parties and the arbitrator has stated so in his interim award that he was appointed to adjudicate the disputes between the parties arising out of the agreement. No specific issue was referred to the arbitrator which would confer jurisdiction on the arbitrator to go beyond the terms of the contract. The award passed by the Arbitrator, hence, on the face of it, was held illegal being in excess of the jurisdiction of the Arbitrator.
63. The next decision placed before us is Ferro Concrete Construction (P) Ltd.2, pertaining to the regime of the Arbitration Act' 1940. The principles stated therein on the scope of Section 30 of the Act' 1940 are as under:-
"18. Section 30 of the Act inter alia provides that an award can be set aside on the ground that an arbitrator had misconducted himself or the proceedings, or that the award had been improperly procured or is otherwise invalid. An error apparent on the face of the award, is a ground for setting aside the award under Section 30 or for remitting the award to the arbitrator under Section 16(1)(c) of the Act.
19. In Champsey Bhara & Co. v. Jivraj Balloo Spg. & Wvg. Co. Ltd. [(1922-23) 50 IA 324 : AIR 1923 PC 66] the Privy Council explained the term "an error of law on the face of the award" thus:
(IA p. 331) "... An error in law on the face of the award means ... that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous."
20. It was well settled that under the Arbitration Act, 1940, an award was not open to challenge on the ground that the arbitrator has reached a wrong conclusion or failed to appreciate facts, as under
the law, the arbitrator is made the final arbiter of the dispute between the parties. While considering the challenge to an award, the court will not sit in appeal over the award nor reappreciate the Page 49 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined evidence for the purpose of finding whether on the facts and circumstances, the award in question could have been made. When there is no allegation of moral misconduct against the arbitrator with reference to the award, and where the arbitration has not been superseded, there were only two grounds of attack. First was that there was legal misconduct on the part of the arbitrator in making the award. Second was that there was an error apparent on the face of the award.
21. This Court explained the principles relating to interference with awards under the 1940 Act in State of Rajasthan v. Puri Construction Co. Ltd. [(1994) 6 SCC 485] thus: (SCC pp. 502-03, para 31) "31. ... Similarly, an award rendered by an arbitrator is open to challenge within the parameters of several provisions of the Arbitration Act. Since the arbitrator is a Judge by choice of the parties, and more often than not, a person with little or no legal background, the adjudication of disputes by an arbitration by way of an award can be challenged only within the limited scope of several provisions of the Arbitration Act and the legislature in its wisdom has limited the scope and ambit of challenge to an award in the Arbitration Act. Over the decades, judicial decisions have indicated the parameters of such challenge consistent with the provisions of the Arbitration Act. By and large the courts have disfavoured interference with arbitration award on account of error of law and fact on the score of misappreciation and misreading of the materials on record and have shown definite inclination to preserve the award as far as possible. As reference to arbitration of disputes in commercial and other transactions involving substantial amount has increased in recent times, the courts were impelled to have fresh look on the ambit of challenge to an award by the arbitrator so that the award does not get undesirable immunity. In recent times, error in law and fact in basing an award has not been given the wide immunity as enjoyed earlier, by expanding the import and implication of 'legal misconduct' of an arbitrator so that award by the arbitrator does not perpetrate gross miscarriage of justice and the same is not reduced to mockery of a fair decision of the lis between the parties to arbitration. Precisely for the aforesaid reasons, the erroneous application of law constituting the very basis of the award and improper and incorrect findings of fact, which without closer and intrinsic scrutiny, are demonstrable on the face of the materials on record, have been held, very rightly, as legal misconduct rendering the award as invalid. It is necessary, however, to put a note of caution that in the anxiety to render justice to the party to Page 50 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined arbitration, the court should not reappraise the evidence intrinsically with a close scrutiny for finding out that the conclusion drawn from some facts, by the arbitrator is, according to the understanding of the court, erroneous. Such exercise of power which can be exercised by an appellate court with power to reverse the finding of fact, is alien to the scope and ambit of challenge of an award under the Arbitration Act. Where the error of finding of facts having a bearing on the award is patent and is easily demonstrable without the necessity of carefully weighing the various possible viewpoints, the interference with award based on erroneous finding of fact is permissible. Similarly, if an award is based by applying a principle of law which is patently erroneous, and but for such erroneous application of legal principle, the award could not have been made, such award is liable to be set aside by holding that there has been a legal misconduct on the part of the arbitrator. In ultimate analysis, it is a question of delicate balancing between the permissible limit of error of law and fact and patently erroneous finding easily demonstrable from the materials on record and application of principle of law forming the basis of the award which is patently erroneous."
64. One more decision of the Apex Court pertaining to the issue of interference of the Court under Sections 30 and 33 of the old Arbitration Act' 1940 is in the case of Ispat Engineering & Foundry Works, B.S. City, Bokaro v. Steel Authority of India Ltd., B. S. City, Bokaro 18. In the said case, the challenge was to the award of the Umpire, which evidently was a non-speaking award and had been made a rule of Court by rejecting the objection under Sections 30 and 33 of the 1940 Act. The High Court, in appeal, had set aside the award holding it invalid in terms of Clause (a) of Section 30 of the Act' 1940.
65. The Apex Court has observed that Section 30 is restrictive in its operation, inasmuch as, the use of the expression "shall" in the· main body of the section made it 18 (2001) 6 SCC 347 Page 51 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined mandatory for the Court that the award of an Arbitrator shall not be set aside except for the reasons as mentioned therein in clauses (a) to (c) thereof. It was stated that these specific clauses can only be taken recourse to in the matter of setting aside of the award.
66. It was further held that the re-appraisal of evidence by the Court is not permissible and in the event of there being no reason in the award, the question of interference of the Court would not arise at all, unless of course, there exists a total perversity in the award or the judgment is based on a wrong proposition of law. In the event, two views are possible on the question of law, the Court would not be justified in interfering with the award of the Arbitrator if the view taken recourse to is a possible view.
67. The observations of Lord Dunedin in Champsey Bhara and Company v. Jivraj Balloo Spinning and Weaving Company Ltd.19, accepted and adopted by the Apex Court in Union of India V. Bungo Steel Furniture Pvt. Ltd. 20, has been noted therein, to the effect that under the scheme of the 1940 Act, the Court had no jursidiction to investigate into the merits of the case or to examine the documentary or oral evidence in the record for the purposes of finding out whether or not the Arbitrator has committed an error of law. The Court as a matter of fact, cannot substitute its own evaluation and come to the conclusion that the Arbitrator had acted contrary to the bargain between the parties.
19 AIR 1923 PC 66 20 AIR 1967 SC 1032 Page 52 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined
68. It was held that the award of the Arbitrator is ordinarily final and conclusive unless a contra intention is disclosed in the agreement itself and the civil courts cannot exercise apparent power over the decision of an arbitrator, right or wrong, except in the case of error of law on the face of it or in the event, the award itself or in a document actually incorporated in it which is the basis of the award is found to be on some legal proposition, which is erroneous.
69. In the facts of the said case, it was held that there was no evidence on record that the Umpire had overstepped his jurisdiction or had travelled beyond the agreement and, as such, the Court ought not to have entertained the objection and set aside the award.
70. On the aspect of award of interest, for pre-reference, pendente lite as well as future insterest, we may note two important five Judge Bench decisions of the Apex Court under the 1940 Act.
71. In the Irrigation Deptt., Govt. of Orissa 14, the Apex Court has held that where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute 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 Page 53 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined 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.
72. In another decision of five Judge Bench of Executive Engineer, Dhenkanal Minor Irrigation Division v. N.C. Budharaj21, by majority of three judges, it was held that as long as there is nothing in the arbitration agreement to exclude the jurisdiction of the arbitrator to entertain a claim for interest on the amounts due under the contract, or any prohibition to claim interest on the amounts due and become payable under the contract, the Arbitrator under the 1940 Act was clothed with the power to award interest in respect of all periods, subject only to Section 29 of the Act' 1940, whereunder the Court is empowered to award interest. The power to award interest for the pre-reference period when such interest becomes payable and has to be awarded as an accessory or incidental to the sum awarded as due and payable, taking into account the deprivation of the use of such sum to the person lawfully entitled to the same, was to be held as justified.
73. It was, thus, held that the Arbitrator appointed with or without the intervenetion of the Court, has jurisdiction to award interest, on the sums found due and payable, for the pre-reference period, in the absence of any specific stipulation or prohibition in the contract to claim or grant any such interest.
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74. In a recent decision in Reliance Cellulose Products Ltd.15, the Apex Court, after considering the long line of decisions beginning from the aforementioned five Judges Bench in 1992, uptil 2017 in Ambica Construction v. Union of India22, has held that:-
"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 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 22 (2017) 14 SCC 323 Page 55 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined 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.
75. In the Ferro Concrete Construction (P) Ltd. 2, the Apex Court considered the position regarding award of interest after the Interest Act' 1978 came into force and stated that:-
"65. The position regarding award of interest after the Interest Act, 1978 came into force, can be stated thus:
(a) Where a provision has been made in any contract, for interest on any debt or damages, interest shall be paid in accordance with such contract.
(b) Where payment of interest on any debt or damages is expressly barred by the contract, no interest shall be awarded.
(c) Where there is no express bar in the contract and where there is also no provision for payment of interest then the principles of Section 3 of the Interest Act will apply in regard to the pre-suit or pre-reference period and consequently interest will be payable:
(i) where the proceedings relate to a debt (ascertained sum) payable by virtue of a written instrument at a certain time, then from the date when the debt is payable to the date of institution of the proceedings;
(ii) where the proceedings is for recovery of damages or for recovery of a debt which is not payable at a certain time, then from the date mentioned in a written notice given by the person making a claim to the person liable for the claim that interest will be claimed, to date of institution of proceedings.
(d) Payment of interest pendente lite (date of institution of proceedings to date of decree) and future interest (from the date of decree to date of payment) shall not be governed by the provisions of the Interest Act, 1978 but by the provisions of Section 34 of the Code of Civil Procedure, 1908 or the provisions of the law governing arbitration as the case may be."Page 56 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026
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76. We are concerned in the present case only with the Arbitration Act' 1940. The submissions made by the learned counsel for the appellant in Associate Builders3 pertaining to the Arbitration Act' 1996 pre-2015 amendment regime therefore, need not to be deliberated.
77. From a conspectus of the above noted decisions, the position of law, on the scope of interference under Sections 30 and 33 of the Arbitration Act' 1940, can be culled out as under:-
i. A mere error of fact or law committed by the Arbitrator in reaching his conclusion on the disputed question submitted for his adjudication, cannnot be a ground for the Court to interfere.
ii. The award can be set aside if the Arbitrator acts beyond his jurisdiction, and to find out whether the Arbitrator has travelled beyond his jurisdiction it would be necessary to consider the agreement between the parties containing the arbitration clause.
iii. What is to be seen is whether the claimant could raise a particular claim before the Arbitrator, and if there is a specific term in the contract or the law, which does not permit or give the Arbitrator the power to decide the dispute raised by the claimant, or there is a specific bar in the contract to the raising of the particular claim.Page 57 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026
NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined iv. The award made by the Arbitrator disregarding the terms of the reference or arbitration agreement or the terms of the contract would be treated to suffer from jurisdictional error. The deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part but it may tantamount to be mala fide action.
v. A conscious disrgeard of the law or the provisions of the contract from which the Arbitrator denies his authority vitiates the award. It is axiomatic that the Arbitrator being a creature of the agreement, must operate within the four corners of the agreement and cannot travel beyond it.
vi. The Arbitrator is not a Conciliator and cannot ignore the law or misapply it in order to do what he thinks just and reasonable; the Arbitrator is a tribunal selected by the parties to decide the disputes according to law.
vii. The Arbitrator acting beyond his jurisdiction or travelled beyond the contract, is a ground different from the error apparent on the face of the award.
viii. Under the 1940 Act, an award was not open to challenge on the ground that the Arbitrator has reached a wrong conclusion or failed to appreciate the facts, as under the law the Arbitrator is "the final arbiter" of the disputes between the parties. While considering the challenge to the award, the Court cannot sit in appeal Page 58 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined over the award nor reappreciate the evidence for the purpose of finding whether on the facts and circumstances, the award in question could have been made.
ix. An award rendered by the Arbitrator was open to challenge within the parameters of Section 30 of the 1940 Act. The power which can be exercised by the appellate court to reverse the finding of fact in a civil appeal, was alien to the scope and ambit of the challenge to an arbitral award under Section 30 the 1940 Act.
x. Only where error of finding of fact having a bearing on the award is patent and is easily demonstrable without the necessity of carefully weighing the various possible view points, the interference with award based on erroneous finding of fact is permissible. Similarly, if an award is based by applying a principle of law which is patently erroneous, and but for such erroneous application of legal principle, the award could not have been made, such award is liable to be set aside by holding that there has been a legal misconduct on the part of the arbitrator.
xi. Explaining the principles of interference under the 1940 Act, in State of Rajasthan V. Puri Construction Co. Ltd.23, noticing the shift in the approach of the Courts, it was noted that in the recent times, error in law and fact in basing an award has not been given the wide immunity as enjoyed earlier, by expanding the import 23 (1994) 6 SCC 485 Page 59 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined and implication of 'legal misconduct' of an arbitrator with the idea that award by the arbitrator does not perpetrate gross miscarriage of justice and the same is not reduced to mockery of a fair decision of the lis between the parties to arbitration.
xii. It was held therein that precisely for the aforesaid reasons, the erroneous application of law constituting the very basis of the award and improper and incorrect findings of fact, which without closer and intrinsic scrutiny, are demonstrable on the face of the materials on record, have been held as legal misconduct rendering the award as invalid. However, while holding so, the Apex Court has put a note of caution that in the anxiety to render justice to the party to arbitration, the Court should not reappraise the evidence intrinsically with a close scrutiny for finding out that the conclusion drawn from some facts, by the arbitrator is, according to the understanding of the court, erroneous.
xiii. It was further observed that in ultimate analysis, it is a question of delicate balancing between the permissible limit of error of law and fact and patently erroneous finding easily demonstrable from the materials on record and application of principle of law forming the basis of the award which is patently erroneous.
78. Keeping in mind the above legal principles, reverting to the present case, when we look to the terms of the sub-
Page 60 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined contract, it clearly provided that the liquidated damages, as provided in the main contract shall be levied due to the default of the Associate namely, the claimant - respondent herein. The Associate in the sub-contract, namely the respondent herein has claimed the amount of Rs.123 Lakh towards performance guarantee furnished by it to the appellant, on account of the encashment of the same by the appellant. Though, it was sought to be contended before us by the learned counsel for the appellant that the respondent - claimant did not proceed with the work with due diligence and communications were sent by the appellant in the year 1991 reminding the claimant about the slow progress of the work, but the fact remains that there is no challenge to the finding of the learned Arbitrator that the appellant had not issued any show cause notice to the Claimant before encashment of the bank guarantee and that the sub-contract was not terminated because of any alleged defaults on the part of the respondent - claimant, but solely due to the termination of the main contract by the employer / Gujarat P.W.D.
79. In view of the specific clause '17' of the sub-contract, the submissions of the learned counsel for the appellant that the appellant was entitled to encash the bank guarantee without calling the respondent claimant and intimating the default on its part, cannot be accepted. The satisfaction recorded by the learned Arbitrator that no reasons, warranting the encashment of the bank guarantee by the respondent existed, cannot be said to be an error apparent on the face of the record warranting interference.
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80. The submission of the learned counsel for the appellant that the sub-contract being back to back agreement to the main contract, by mere automatic termination of the main contract, the appellant was entitled to invoke the bank guarantee furnished by the respondent claimant, as a result of the bank guarantee furnished by the appellant under the main contract having been encashed by the employer / Gujarat P.W.D., is wholly misconceived.
81. The learned Arbitrator has rightly held that the encashment of the bank guarantee of the appellant by the State of Gujarat Gujarat P.W.D. under the main contract cannot be linked with the encashment of the bank guarantee towards performance guarantee under the sub-contract lodged by the respondent - claimant with the appellant.
82. The impugned award cannot be said to suffer from any error of fact or law which may be held to be patent or amounts to legal misconduct on the part of the Arbitrator rendering the award as invalid on the face of it. No jurisdictional error of fact or law can be said to have been committed by the learned Arbitrator in rendering the award by travelling beyond the terms of the contract. The Arbitrator being the "final arbiter" of the dispute between the parties, it is not permissible for this Court to sit in appeal over the award by forming an alternative view for the purpose of finding out fault in the adjudication made by the Arbitrator.
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83. With the above, we do not find any good ground to sustain the challenge to the award on issue No.'3' agitated before us.
84. As regards the counter claim, considering the above noted principles, the findings returned by the learned Arbitrator in rejecting the counter claim being barred by time, cannot be interfered with.
85. Lastly, on the award of pre-suit and pendente lite interest, the learned Arbitrator has considered the Prime Lending Rate (PLR) produced by the claimant from a letter of its banker, namely Central Bank of India, New Delhi. It was noted that the PLR at that time was varying between 12.50% (minimum) to 16.50% (maximum), exclusive of interest tax and load which was applicable as per the category of advances.
86. Taking mean of those two values, which came to 14.50%, it was held by the learned Arbitrator that the award of simple interest at the mean PLR value of 14.50% + 2% interest tax thereon, or 14.79% per annum will meet the ends of justice. It was, then, noticed that the amount of Rs.123 lakhs (of bank guarantee) was debited to the claimant's account on 28.01.1993 and the pre-suit interest on the said amount @ 14.79% per annum simple, was to be awarded from 28.01.1993 to 27.02.1997, when the Arbitrator entered on the reference. (For a period of 1491 days) Page 63 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026 NEUTRAL CITATION C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026 undefined
87. The interest pendente lite was awarded in two parts. For the period from 27.02.1997 to 31.03.2000 (1128 days) at the rate of 14.79% per annum, whereas from 31.03.2000 to 30.11.2000, till the date of award for 244 days @ 14.50% per annum simple, noticing that the interest tax was abolished with effect from 01.04.2000.
88. Future interest on Rs.123 lakh @ 14.50% per annum simple from the date of award, namely, 30.11.2000 till the date of payment or the date of decree, whichever is earlier, had further been awarded.
89. By placing various decisions of the Apex Court, as noted hereinbefore, it was argued by the learned counsel for the appellant that the interest awarded by the learned Arbitrator was excessive and be reduced, accordingly.
90. We see no reason to interfere in the rate of interest, as the learned Arbitrator meticulously considered the current rate of interest and ensured that the interest rate shall not exceed the maximum Prime Lending Rate fixed by the Reserve Bank of India under the Banking Regulations Act, 1949.
91. The balancing act done by the learned Arbitrator in drawing the mean value of Prime Lending Rate for fixing interest for different periods, is not open to interference on the plea of being excessive or inequitable The scope of interference in the discretion exercised by the learned Arbitrator judiciously is also limited.
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92. With the above, no error can be found in the decision of the Court in rejecting the objections of the appellant under Sections 30 and 33 of the Arbitration Act' 1940 and making the award the rule of the Court under Section 17 of the Act.
93. The appeal deserves to be dismissed being devoid of merits and is dismissed, accordingly. No order as to costs. Pending civil application stands disposed of.
(SUNITA AGARWAL, CJ ) (D.N.RAY,J) SAHIL S. RANGER Page 65 of 65 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Fri Feb 27 2026 Downloaded on : Sat Mar 14 07:35:50 IST 2026