Oral Judgment:
1. By this appeal petition filed under section 37 of the Arbitration and Conciliation Act, 1996 (for short âArbitration Actâ), the appellant seeks to challenge an order and judgment dated 12th August, 2004 passed by the learned Joint District Judge, Ratnagiri rejecting Civil Misc. Arbitration Application (7 of 2001) filed by the appellant under section 34 of the Arbitration Act, 1996 challenging the impugned award dated 15th December, 2000 allowing various claims made by the respondent. (The appellant is hereinafter referred to as the âownerâ and respondent is referred to as âContractorâ).
2. Some of the relevant facts for the purpose of deciding this appeal are as under:
(a) On 4th June, 1991, the owner invited tenders for the work of construction of major bridge on River Vashshiti at Chiplun. On 12th July, 1991, the contractor submitted a tender. The owner accepted the tender submitted by the contractor on 29th August, 1991 at the cost of Rs.1,59,94,060 with a stipulated date of completion as 28th October, 1992. Both the parties thereafter executed formal contract agreement. The stipulated date of completion was 28th October, 1992. The owner granted extension of contract till 30th June, 1993 in writing. The work was not completed by 30th June, 1993. The contractor continued the work and completed by 18th March, 1995. The dispute arose between the parties. The contractor submitted their claim to the owner on 29th January, 1996 by letter dated 15th March, 1996. The owner vide its letter dated 15th June, 1996 rejected the claims of the contractor. The contractor vide letter dated 17th June, 1996 invoked arbitration clause. The arbitral tribunal was constituted for adjudication fo the disputes. Pursuant to the direction given by the arbitral tribunal, both the parties filed their pleadings and documents. Neither party led any oral evidence before the arbitral tribunal. By award dated 15th December, 2000, the arbitral tribunal allowed some of the claims made by the contractor. The owner impugned the said award by filing arbitration application (7 of 2001) in the court of learned District Judge, Ratnagiri. By order and judgment dated 12th August, 2004, the learned Joint District Judge, Ratnagiri rejected the said arbitration application No. 7 of 2001 filed by the owner under section 34 of the Arbitration Act, 1996. The owner has impugned the said order and judgment dated 12th August, 2004 in this court by filing this appeal under section 37 of the Arbitration Act, 1996.
3. Ms. Kiran Bhagalia, the learned counsel for the owner submits that the claim for compensation for the work carried out beyond the original stipulated date of completion were contrary to and in the teeth of clause 16.3 of the contract which prohibits payment of any damages or compensation in favour of the contractor by the owner. The learned counsel submits that few claims in respect of extra items awarded by the arbitral tribunal are contrary to clause 37 of the contract and in any event without rendering any reasons by the arbitral tribunal. The learned counsel submits that the claim for interest awarded by the arbitral tribunal is also contrary to and in the teeth of clause 15.4 of the contract which prohibits payment of interest on the earnest money or security deposit or any other amount payable to the contractor by the owner. Clause 15.4, 16.3 and 37 of the contract are extracted as under:
â15.4 INTEREST OF AMOUNTS :No interest will be payable upon the earnest money or the security deposit or amounts payable to the Contractor under the contract but Government securities deposited in terms of sub clause 15.1 above will be repayable with interest accrued thereon as paid by the government.
16.3 EXTENSION OF TIME ON CORPORATION'S ACCOUNT : In the event of any failure or delay by the Corporation to hand over to the Contractor possession of the lands necessary for the execution of the Works or to give the necessary notice to commence the works or to provide the necessary drawings or instructions or any other delay caused by the Corporation due to any other cause whatsoever, then such failure or delay shall in no way affect or vitiate the contract or after the character thereof or entitle the Contractor to damages or compensation thereof but in any such case, the corporation may grant such extension or extensions of the completion date as may be considered reasonable, without increase in rates.
37. RATES FOR EXTRA ITEMS OF WORKS : Any item of work carried out by the contractor on the instructions of the Engineer which is not included in the accepted schedule of Rates shall be executed at the rates agreed upon between the Engineer and the Contractor before the execution of such items of work, and the Contractor shall be bound to notify the Engineer at lest seven days before the necessity arises for the execution of such items of work that the accepted Schedule of Rates does not include a rate or rates for the extra work involved. In the event of no such agreement being arrived at, the corporation shall be entitled to execute the extra works by other means and the Contractor shall have no claim for loss or damage that may result from such procedure. Provided always that if the Contractor commences work or incurs any expenditure in regard thereto before the rates shall be determined as lastly hereintofore mentioned, then and in such a case the Contractor shall only be entitled to be paid in respect of the work carried out or expenditure incurred by him prior to the date of determination of the rates as aforesaid, according to the rates as shall be fixed by the Engineer. However, if the Contractor is not satisfied with the decision of the Engineer in this respect he may appeal to the Chief Engineer, supported by an analysis of the rates claimed. The Chief Engineer's decision after hearing out the position shall be final and binding on the contractor and the corporation.â
4. The learned counsel for the owner, then submits that the entire award is based on no evidence and the claims are awarded mechanically by the arbitral tribunal and without application of mind. The learned counsel invited my attention to the award in respect of claim Nos. 5, 6, 7, 8, 9, 10, 11, 12, 14, 28, 33 and 34. The learned counsel submits that though the arbitral tribunal has rendered finding that both the parties were responsible for delay in respect of each claim of compensation, without apportioning the delay and without discussing separate cause of delay attributable to the parties in respect of each claim, the arbitral tribunal has allowed the claim for compensation at the flat rate of 60% of the claims made by the contractor. It is submitted that by allowing the claims for compensation which are prohibited under clause 16.3, the arbitral tribunal has exceeded its jurisdiction and has acted contrary to the terms of the contract. The learned counsel has pointed out that claims Nos. 5 to 12 were claims for compensation and the claim Nos. 14 and 28 were claims made for alleged extra items. Claim Nos. 33 and 34 awarded by the arbitral tribunal were in respect of interest. The learned arbitrator has awarded the arbitration cost in the sum of Rs.1,21,000/-.
5. In respect to claims for compensation, the learned counsel appearing for owners, referred to correspondence exchanged between the parties regarding extension of contract beyond 28th October, 1992. By letter dated 12th June, 1993, the contractor alleged that the work was prolonged entirely due to the owner because of various delays and hindrances caused to the work. By the said letter the contractor informed that all the balance work would be carried out by the contractor on the new rates and not the contractual rates. The contractor informed that the new rates would operate at 25% above the contract rate. The owner by its letter dated 6th October, 1993 denied that the delay was attributable on the part of the owner and granted extension of contract till 30th November, 1993 under clause 16.3 of general conditions of contract making it is clear that all other terms and conditions of the contract remained unchanged. By letter dated 28th October, 1993, the contractor denied the allegations made by the owner and requested for formal sanction of extension of time upto 31st January, 1994. The contractor stated that it was going ahead with the work on the basis that the owner had agreed to the extension of time upto 31st January, 1994 as applied for subject to the revised rates and revised terms demanded by the contractor in its letter dated 12th June, 1993. The owner by its letter dated 2nd November, 1993 replied to the said letter dated 28th July, 1993 addressed by the contractor and denied the allegations made therein. The owner once again clarified that the extension was granted strictly in accordance with the terms and conditions as stipulated in its letter dated 6th October, 1993 and once again made it clear that except extension to the period of completion, all other terms and conditions including rates shall be same as per the contract agreement already signed. The owner also clarified that any unilateral assumptions and presumptions of the contractor to the written acceptance by the owner would be entirely contractor's own and the owner would not accept responsibility or liability towards the same.
6. The contractor thereafter completed the work and raised the dispute. The learned counsel for owner submits that thus it is clear that extension was granted not because of any delay attributable on the part of the owner and in any event was granted under clause 16.3 making it clear that all other terms and conditions of the contract would remain same for the work carried out beyond original stipulated date of completion. It is submitted that claims 5 to 12 were granted by the arbitral tribunal contrary to clause 16.3 of the contract.
7. As far as claim No. 14 is concerned, the learned counsel for the owner submits that there was no payment separately payable in respect of the item 'empty boring for piling' and the rates in respect of the said item work included in the quoted and accepted rates for the piling work. It is submitted that the arbitral tribunal has not rendered any reasons as to why the rates as claimed by the contractor have been awarded and allowed the said claim without any evidence on record.
8. As far as claim No. 28 is concerned, the learned counsel for the owner submits that that said claim was in respect of excess consumption of special cement. The learned counsel submits that the arbitral tribunal has not rendered any reasons while allowing the claim on the issue of payability as well as rates.
9. As far as claim Nos. 33 and 34 are concerned, the learned counsel submits that both these claims pertains to interest awarded by the arbitral tribunal which are contrary to and in the teeth of clause 15.4 of general conditions of contract which prohibits payment of interest.
10. The learned counsel appearing for the petitioner places reliance on the judgment of the Supreme Court in the case of Oil and Natural Gas Corporation Vs. WIG Brothers Builders and Engineers Private Limited, (2010) 13, Supreme Court Cases 377 and more particularly paragraphs 6, 7, 10 and 11 in support of the plea that the arbitrator can not decide contrary to the terms of the contract and if the clauses prohibits from payment of claim the arbitrator cannot make any violation of the bar contained in the contract. The relevant paragraphs are as under:
â6. The arbitrator has observed that there is no provision in the contract by which the contractor can be estopped from raising a dispute in regard to the said claim. But Clause 5A of the contract pertains to extension of time for completion of work and specifically bars any claim for damages. The said clause is extracted below:
In the event of delay by the Engineer-in-Charge to hand over to the contractor possession of land/lands necessary for the execution of the work or to give the necessary notice to the contractor to commence work or to provide the necessary drawing or instructions or to do any act or thing which has the effect of delaying the execution of the work, then notwithstanding anything contained in the contract or alter the character thereof or entitle the contractor to any damages or compensation thereof but in all such cases the Engineer-in-Charge may grant such extension or extensions of the completion date as may be deemed fair and reasonable by the Engineer-in Charge and such decision shall be final and binding.
7. In view of the above, in the event of the work being delayed for whatsoever reason, that is even delay which is attributable to ONGC, the contractor will only be entitled to extension of time for completion of work but will not be entitled to any compensation or damages. The arbitrator exceeded his jurisdiction in ignoring the said express bar contained in the contract and in awarding the compensation of Rs. 9.5 lakhs. This aspect is covered by several decisions of this Court. We may refer to some of them.
10. In Ramnath International Construction (P) Ltd. v. Union of India MANU/SC/8802/2006 : 2007(2) SCC 453, a similar issue was considered. This Court held that Clause 11(C) of the General Conditions of Contract (similar to Clause 5A under consideration in this case) was a clear bar to any claim for compensation for delays, in respect of which extensions had been sought and obtained. This Court further held that such a clause amounts to a specific consent by the contractor to accept extension of time alone in satisfaction of claims for delay and not to claim any compensation; and that in view of such a bar contained in the contract in regard to award of damages on account of delay, if an arbitrator awards compensation, he would be exceeding his jurisdiction.
11. In view of the above, the award of the arbitrator in violation of the bar contained in the contract has to be held as one beyond his jurisdiction requiring interference. Consequently, this appeal is allowed in part, as follows:
(a) The judgment of the High Court and that of the civil court making the award the rule of the court is partly set aside in so far as it relates to the award of Rs. 9.5 lakhs under claim No. (1) and the award of interest thereon.
(b) The judgment of the civil court as affirmed by the High Court in regard to other items of the award is not disturbed.â
11. The learned counsel also placed reliance upon the judgment of the Supreme Court in the case of Union of India Vs. Krafters Engineering and Leasing Private Limited, (2011) 7 Supreme Court Cases 279 and more particularly paragraphs 7, 15, 20 and 21 which reads thus:
â7. According to Mr. A.S. Chandhiok, learned ASG, in view of Clause 1.15 of the General Conditions of the Contract between the parties, the arbitrator does not have the power to award interest pendente lite. The said clause reads as under:
1.15 Interest on Amounts -No interest will be payable upon the Earnest Money or the Security Deposit or amounts payable to the Contractor under the Contract but Government Securities deposited in terms of Clause 1.14.4 will be repayable with interest accrued thereon.
According to the learned ASG, in view of the above-mentioned clause, no interest is payable on the amount payable to the Contractor under the contract.
15. Considering the specific prohibition in the agreement as discussed and interpreted by the Constitution Bench, we are in respectful agreement with the view expressed in SayeedAhmed and Company (supra) and we cannot possibly agree with the observation in Board of Trustees for the Port of Calcutta (supra) in a case arising under the Arbitration Act, 1940 that the arbitrator could award interest pendente lite ignoring the express bar in the contract.â
20. We are of the view that the decisions in Engineers-De-Space-Age and Madnani are inapplicable for yet another reason. In Engineers-De-Space-Age and Madnani the arbitrator had awarded interest for the pendente lite period. This Court upheld the award of such interest under the old Act on the ground that the arbitrator had the discretion to decide whether interest should be awarded or not during the pendente lite period and he was not bound by the contractual terms insofar as the interest for the pendente lite period. But in the instant case the Arbitral Tribunal has refused to award interest for the pendente lite period. Where the Arbitral Tribunal has exercised its discretion and refused award of interest for the period pendente lite, even if the principles in those two cases were applicable, the award of the arbitrator could not be interfered with. On this ground also the decisions in Engineers-De-Space-Age and Madnani are inapplicable....
21. In the light of the above principle and in view of the specific prohibition of contract contained in Clause 1.15, the arbitrator ceases to have the power to grant interest. We also clarify that the Arbitration Act, 1940 does not contain any specific provision relating to the power of arbitrator to award interest. However, in the Arbitration and Conciliation Act, 1996, there is a specific provision with regard to award of interest by the arbitrator. The bar under Clause 1.15 is absolute and interest cannot be awarded without rewriting the contract.â
12. This judgment was relied upon by the owner in support of the plea that the claim for interest was specifically prohibited under the terms of contract and thus the arbitrator could not have allowed the prohibited claim and by allowing such claims, the arbitral tribunal had exceeded its jurisdiction.
13. Mr. Singh, the learned counsel appearing for the contractor on the other hand submits that while seeking extension of contract, the contractor had pointed out delay and hindrances on the part of the owner and had claimed compensation making it clear that all subsequent work would be at the new rates and not at the stipulated rate provided under the contract. The owner had granted extension of the contract after such demand was made by the contractor and permitted the contractor to complete the work not only upto 30th June, 1993, i.e. the extended date but even thereafter till 18th March, 1995. It is submitted that the owner has accepted the work carried out by the contractor without any objection. The learned counsel submits that the demand raised for compensation during extended period would fall under section 55 of the Contract Act and in these circumstances, clause 16.3 of the general conditions of contract would not be applicable. The learned counsel placed reliance upon the judgment of the Supreme Court in the case of G. Ramchandra Reddy and Company Vs. Union of India and another (2009) 6 Supreme Court Cases 414 and more particularly paragraphs 7 to 10, 18, 35 and 36 which read thus:
â7. Disputes and differences having arisen between the parties, the arbitration agreement which formed part of the general condition of the contract as also special condition of contract was resorted to. Respondent No. 2 was appointed as the Arbitrator.
Before the learned Arbitrator, appellant put forth eight claims, being:
(a) Dispute regarding additional payment of 2.25% over the quoted rates under item 1 of Schedule A with an overall effect of 4.5% over what has been paid to the plaintiff.
(b) Dispute regarding percentage of labour component in the work with reference to the escalation in labour rates and for consequential in labour rates and for consequential payments to the plaintiff.
(c) Dispute regarding escalation with reference to the extra payment of labour involved in construction of high rise building.
(d) Dispute regarding legality of the termination of the plaintiff's contract and for consequential damages.
(e) Dispute regarding release of the plaintiff's plant and equipment, together with damages for the use of the equipment by the defendant and in default payment of the market value of the plant and equipment as on the date of termination, together with the damages as aforesaid.
(f) Dispute regarding balance payment for the work done and material supplied by the plaintiff.
(g) Interest at 24% p.a. on all amounts due to plaintiff and awarded by the arbitrator from the date when the cause of action for the claim arose, till the date of payment to the plaintiff.
8. Respondent repudiated the said claims of the appellant. Respondent No. 2 made and published an award on 17.9.1996. While claims Nos. 1 and 5 were allowed in part, claims No. 2 and 4 were allowed in toto. Claim No. 3 was allowed for the amount to which the appellant itself had restricted its claim to. Counter claim of the first respondent was rejected.
9. First respondent filed an application under Section 30 of the Arbitration Act, 1940 (hereinafter called and referred to for the sake of brevity as `the Act').
A learned Single Judge of the High Court rejected the said objection, opining that the award did not warrant any interference. The learned Single Judge noticed that claim Nos. 5 and 6 had not been disputed by the first respondent and counter claim No. 4 was not pressed. It was, therefore, directed payment of a sum of Rs. 2,78,17,530.01 p. with further interest @ 6% per annum from the date of decree till the date of realization. The counter claim was also dismissed.
10. First respondent preferred an intra court appeal thereagainst in terms of Clause 15 of the Letters Patent of the High Court read with Section 39 of the Act. The Division Bench of the High Court allowed the said appeal in part in respect of three items of claim. The objection in relation to fourth item was also dismissed.
11. Both parties are here before us aggrieved by and dissatisfied with the said judgment.
18. The Division Bench, however, set aside in part the award in respect of the aforementioned claims stating as under:
However, we find some substance with regard to the claim No. 4, loss of profit, there was an admitted delay in handling over the site and supply of materials. We confirm both the award of the Arbitrator and the order of the learned Single Judge with regard to Claim No. 4, loss of profit.
35. The award of the Arbitrator in respect of claim No. 4 has been accepted by the Division Bench. Mr. B.B. Singh has drawn our attention to Clause 11(c) of the general conditions of contract to contend that in terms thereof, no damages were payable.
36. The question as to whether damages were payable for illegal termination of contract cannot be a subject matter of contract. The learned Arbitrator has categorically held that not only the termination of contract was illegal, the same was mala fide. Furthermore, the contention raised before us by Mr. Singh has not been raised before the High Court.â
14. The learned counsel submits that time was essence of contract. It is submitted that the owner being responsible for prolongation of contract, the contractor was not under any obligation to carry out balance work at the stipulated rate and thus the arbitral tribunal was right in allowing the claims for compensation. The learned counsel submits that the arbitral tribunal has rendered finding of fact after considering all the evidence produced by the contractor and no interference is warranted with such finding of fact. It is submitted that the arbitral tribunal has interpreted the terms of the contract and such interpretation is possible interpretation and this court shall not substitute the said interpretation by its own views.
15. The learned counsel for the contractor then submits that as the arbitral tribunal found that the delay was mainly attributable to the owner and some of the delay occurred for which none of the parties were responsible, the learned arbitrator did not allow the entire claim made by the contractor but allowed only 60% of the amount claimed. It is submitted that evidence considered by the arbitral tribunal cannot be reappreciated by this court.
16. As far as claim for interest awarded by the learned arbitral tribunal is concerned, the learned counsel would submit that bar under clause 15.4 would not apply to the arbitral tribunal but would apply against the owner. In support of this plea, the learned counsel placed reliance upon the judgment of the Supreme Court in the case of the Board of Trustees for the Port of Calcutta Vs. Engineers-De-Space-Age, AIR 1996 Supreme Court 2853 and more particularly paragraphs 2 to 4 which read thus:
â2. The short question which arises for consideration in this case and which was canvassed before us by Mr. Salve the learned senior counsel for the appellant was that the Arbitrator had awarded interest pendente lite notwithstanding the prohibition contained in the contract against the payment of interest on delayed payments. Clause 13(g) of the contract was relied upon in this behalf and that clause reads as under:
No claim for interest will be entertained by the Commissioners with respect to any money or balance which may be in their hands owing to any dispute between themselves and the Contractor or with respect to any delay on the part of the Commissioners in making interim or final payment or otherwise. The contention urged by the learned Counsel for the appellant was that this clause contained an absolute prohibition against the payment of interest on account of any delay on the part of the Commissioner in making interim or final payment of otherwise. In support of this contention he also invited out attention to a decision of this Court rendered by two learned Judges in Associated Engineering Co. v. Government of Andhra Pradesh and Anr. MANU/SC/0054/1992 : [1991]2SCR924. His emphasis, placing reliance on this decision was that the Arbitrator has to function in terms of the contract and not de hors the contract and he has no power to travel beyond the contract and if he does so he would be acting without jurisdiction. He invited our attention to the observation in paragraphs 26 and 29 of that decision which we have noticed.
3. A Constitution Bench of this Court in Secretary, Irrigation Department, Govt. of Orissa v. G.C. Roy MANU/SC/0142/1992:[1991]3SCR417 was called upon to consider whether the decision of this Court in Executive Engineer (Irrigation), Balimela and Ors. v. AbhadutaJena and Ors. MANU/SC/0004/1987:[1988]1SCR253 correctly laid down the Rule in regard to Arbitrator's power to grant interest pendente lite. Dealing with this question the Constitution Bench summed up the legal position in regard to grant oixat and Test pendente lite in the following terms:
The question still remains whether arbitrator has the power to award interest pendente lite and if so, on what principle. We must. reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge:
(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the Arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Civil procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator. (ii) An arbitrator is an alternative form (sic forum) for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. If the arbitrator has no power to award interest pendent lite, the party claiming it would have to approach the court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings.
(iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to Section 41 and Section 3 of the Arbitration Act illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement.
(iv) Over the years, the English and Indian courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. The awards has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such" absolute or universal rule as they appear to, on first impression. Until Jena's case almost all the courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law.
(v) Interest pendente lite is not a matter of substantive law, like interest for the people anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred.
It will appear from what the Constitution Bench stated to be the legal position, that ordinarily a person who is deprived of his money to which he is legitimately entitled as of right is entitled to be compensated in deprivation thereof, call it by whatever name. This would be in terms of the principle laid down in Section 34 of the CPC. Their Lordships pointed out that there was no reason of principle to hold otherwise in the case of an arbitrator. Pointing out that arbitrator is an alternative forum for resolution of disputes arising between the parties, it said that he must have the power to decide all disputes and differences arising between the parties and if he were to be denied the power to award interest pendente lite, the party entitled thereto would be required to go to a Court which would result in multiplicity of proceedings, a situation which the Court should endeavour to avoid. Reliance was, however, placed on. the observation in sub-para (iii) wherein it is pointed out that an arbitrator is a creature of an agreement and if the agreement between the parties prohibits the payment of interest pendente lite the arbitrator must act in accordance therewith. In other words, according to their Lordships the arbitrator is expected to act and make his award in accordance with the general law of the land but subject to an agreement, provided, the agreement is valid and legal. Lastly, it was pointed out that interest pendente lite is not a matter of substantive law, interest for the period anterior to reference. Their Lordships concluded 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 for the simple reason that in such a case it is presumed that interest was an implied term of the agreement between the parties; it is then a matter of exercise of discretion by the arbitrator. The position in law has, therefore, been clearly stated in the aforesaid decision of the Constitution Bench.
4. We are not dealing with a case in regard to award of interest for the period prior to the reference. We are dealing with a case in regard to award of interest by the Arbitrator post reference. The short question, therefore, is whether in view of Sub-clause (g) of Clause 13 of the contract extracted earlier the Arbitrator was prohibited from granting interest under the contract. Now the term in Sub-clause (g) merely prohibits the Commissioner from entertaining any claim for interest and does not prohibit the Arbitrator from awarding interest. The opening words 'no claim for interest will be entertained by the Commissioner' clearly establishes that the intention was to prohibit the Commissioner from granting interest on account of delayed payment to the contractor. Clause has to be strictly construed for the simple reason that as pointed out by the Constitution Bench, ordinarily, a person who has a legitimate claim is entitled to payment within a reasonable time and if the payment has been delayed beyond reasonable time he can legitimately claim to be compensated for that delay whatever nomenclature one may give to his claim in that behalf. If that be so, we would be justified in placing a strict construction on the term of the contract on which reliance has been placed. Strictly construed the term of the contract merely prohibits the Commissioner from paying interest to the contractor for delayed payment but once the matter goes to arbitration the discretion of the Arbitrator is not, in any manner, stifled by this term of the contract and the Arbitrator would be entitled to consider the question of grant of interest pendente lite and award interest if he finds the claim to be justified. We are, therefore, of the opinion that under the clause of the contract the Arbitrator was in no manner prohibited from awarding interest pendent lite.â
17. Perusal of the impugned award indicates that the arbitral tribunal has allowed the claims for compensation i.e. claim Nos. 5 to 12 made by the contractor. The arbitral tribunal has rendered finding that both the parties were responsible for the delay. It is however, recorded that the tribunal was convinced that the main reasons for the delay was due to non-supply of drawings, delay in decision regarding foundation, change in the column diameter and delay in supply of rails and sleepers required for the launching of PSC girders, delay in payments etc. It was observed that it could thus be concluded that the respondent/owner though not solely responsible for the delay was to large extent responsible. The arbitral tribunal after recording the said reasons, reduced the claim from 5% to 3% in respect of the claim for expenditure for overheads during the prolonged period. The learned arbitral tribunal has applied the same percentage of 60% in respect of other claims for compensation i.e. claim nos. 6 to 12 without any evidence and without apportioning the delay on the part of both the parties and without considering different reasons to different claims, attributing to delay on the part of either party. The arbitral tribunal has not even considered the prohibition under the contract or payment of any compensation by the owner to the contractor recorded under clause 16.3 of the general conditions of contract. In my view the arbitral tribunal was bound to decide in accordance with the provisions of the contract and could not have ignored the same. Inspite of such prohibition in the contract, the arbitral tribunal has allowed claims for compensation and thus has exceeded its jurisdiction by allowing such claims. The award being contrary to the contract is in conflict with public policy.
18. On perusal of the correspondence relied upon by both the sides in respect of extension, it is clear that extension was categorically granted under clause 16.3 of the general conditions of contract. The owner had also clarified that any assumption made by the contractor that he would carry out balance work at the higher rate and not the stipulated rate of contract would be assumption of the contractor. The work was carried out by the contractor. In my view the rights and obligations of the parties were governed by general condition of contract including the claim for compensation and thus section 55 of the contract Act in such situation would not apply. I am not inclined to accept the submission of the learned counsel appearing for the contractor that the work carried out during the extended period would attract section 55 of the Contract Act even though the contract agreement entered into between the parties, records prohibition of any payment of compensation. Once an agreement is entered into with specific clauses prohibiting payment of compensation, a party cannot resort to section 55 of the Contract Act. The Supreme Court in the case of Oil and Natural Gas Commission (supra) has considered similar clauses in para 6 of the said judgment prohibiting payment of compensation and interpreting such clause held that in the event of work being delayed for whatever reasons, even if the delay which was attributable to ONGC, the contractor would only be entitled to extension of time for completion of work but would not be entitled to any compensation or damages. In my view, the arbitral tribunal has exceeded its jurisdiction by awarding the compensation. After adverting to the judgments of the Supreme Court in several matters on the issue, the Supreme Court held that the award of arbitrator for violation of the bar contained in the contract has to be held as one beyond his jurisdiction requiring interference and allowed the appeal filed by the owner. In my view, arbitral tribunal can not overlook or ignore the terms of the contract.
19. As far as the judgment of the Supreme Court in the case of G. Ramchandra (supra) relied upon by the contractor is concerned, the dispute before the Hon'ble Supreme Court was regarding legality of the termination of the contract and for consequential damages. The arbitral tribunal had allowed the claim for loss of profit in view of the admitted delay in handing over the site and supply of material. In my view the facts in this case are tot ally different. In this case, neither the contract was terminated nor any claim for loss of profit was made. The Supreme Court also did not consider any clause prohibiting payment of any compensation in the said judgment. In my view, the said judgment relied upon by the learned counsel for the contractor is of no assistance to the contractor.
20. The impugned award indicates that though no evidence was led by the contractor in support of its claim for compensation, the arbitral tribunal has without apportioning the delay and without any evidence on record, has applied thumb rule by allowing the claim at the rate of 60% mechanically and without application of mind. In my view, a party alleging breach of contract on the part of other, has not only to prove the breach committed by the other but has also to prove the loss or damages suffered by such party alleging breach. In my view the entire award is based on no evidence and thus deserves to be set aside.
21. In so far as claim No. 14 is concerned, the arbitral tribunal has not recorded any reasons as to how the amount claimed by the contractor was payable and why at the rate claimed by the contractor. This part of the award is also thus liable to be set aside for the lack of reasons as required under section 31(3) of the Arbitration and Conciliation Act, 1996.
22. As far as claim No. 28 is concerned, the arbitral tribunal has allowed the said claims without considering the objections raised by the owner about the payabiilty of the said claim, though such objection was recorded in the impugned award. The arbitral tribunal has not indicated the basis on which the said claim was allowed as claimed by the contractor. This part of the award also deserves to be set aside.
23. In so far as claim for interest is concerned, the learned arbitrator has not dealt with clause 15.4 of the contract and has awarded interest contrary to and in the teeth of said clause which prohibits payment of interest. By allowing prohibited claim, the arbitral tribunal has exceeded its jurisdiction and has decided contrary to the terms of the contract and thus even that part of the award is also in conflict with the public policy and deserves to be set aside.
24. On perusal of the order passed by the learned District Judge, it is clear that the arbitration application filed by the owner has been rejected only by observing that each and every claim has been decided by the arbitral tribunal separately and on the basis of evidence adduced and submissions made and the tribunal had not exceeded its limit in any way. In my view, the order passed by the learned District Judge is also totally contrary to the provisions of the Contract and the law laid down by the Supreme Court holding that arbitral tribunal has to decide in accordance with the terms of the contract and not de hors it. In my view the order passed by the learned District Judge also thus deserves to be set aside.
25. I, therefore, pass the following order:
The impugned order dated 12th August, 2004 passed by the learned Jt. District Judge, Ratnagiri rejecting the arbitration Application ( 7 of 2001) is set aside. Arbitration Application No. 7 of 2001 is allowed. The impugned award dated 19th December, 2000 made by the arbitral tribunal is set aside.
The appeal succeeds. There shall be no order as to costs.