Full Judgment
Oral Judgment:
1. By this petition filed under section 34 of the Arbitration and Conciliation Act, 1996, the petitioner seeks to challenge the award dated 21st April, 2011 passed by the arbitral tribunal allowing some of the claims made by the respondent.
2. Some of the relevant facts for the purpose of deciding this petition are as under:
(a) On 23rd November, 1992, the petitioner awarded contract to the respondent vide its acceptance letter at amount of Rs.16,23,524 with completion period of five months. The respondent could not complete the work within the originally stipulated period of time. An extension was granted by the petitioner to the respondents. The dispute arose between the parties. The respondent invoked arbitration clause vide letter dated 6th October, 1997. By award dated 21st April, 2011, the learned arbitrator allowed various claims made by the respondent and rejected the counter claim made by the petitioner.
3. Mr. Suresh Kumar, the learned counsel for the petitioner submits that claim no. 1 which was in respect of idling of establishment due to prolongation of the contract, the learned arbitrator has allowed the said claim in the sum of Rs.25,330/-. It is submitted that as per clause No. 17(3) of the general condition of contract, even if the work was delayed for any reasons whatsoever, the contractor was entitled to claim only extension of the completion date and claim for compensation was specifically prohibited under said clause. Clause 17.3 of the General Conditions of Contract is extracted as under:
â17(3) : In the event of any failure or delay by the Railway 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 Railway due to any other cause whatsoever, then such failure or delay shall in no way affect or vitiate the contract or alter the character thereof or entitle the Contractor to damages or compensation therefor but in any such case, the Railway may grant such extension or extensions of the completion date as may be considered reasonable.â
4. The learned counsel submits that though this issue was specifically raised by the petitioner in the written statement filed before the learned arbitrator, the learned arbitrator has not dealt with the said clause and has allowed the said claim in the teeth of the prohibition clause and has thus exceeded its jurisdiction by allowing the prohibited claim.
5. Mr. Bhandari, the learned counsel for the respondent on the other hand submits that the learned arbitrator has rendered finding that the petitioner was responsible for the delay due to various reasons and thus the said prohibition was not applicable to the claim made by the contractor.
6. Perusal of clause 17.3 makes it clear that irrespective of the causes of delay of whatsoever nature, the contractor's entitlement was only to extension of completion date and not damages or compensation. Though this issue was specifically raised by the petitioner in the written statement before the learned arbitrator, it has not considered. In my view, in view of the such prohibition clause, the learned arbitrator could not have awarded this claim. Arbitrator has to decide in accordance with the terms of the contract and not de hors it. In my view, this part of the award is thus in conflict with the public policy and deserves to be set aside.
7. In so far as claim No. 7, for payment of interest is concerned, the learned counsel appearing for the petitioner submits that even this claim was prohibited in terms of clause 16.3 of the General Conditions of Contract. The learned arbitrator by allowing this claim has decided contrary to the provisions of the contract. Mr. Bhandari the learned counsel for the respondent on the other hand submits that the prohibition of payment of interest, if any, was only in respect of the payment of earnest money and/or security deposit and the said clause does not apply to any other claim. Clause 16.3 of the General Condition of Contract reads as under:
â16(3) No interest will be payable upon the earnest money and the security deposit or amounts payable to the contractor under the Contract, but Government Securities deposited in terms of Sub Clause (1) of this clause will be repayable with interest accrued thereon. â
8. The Supreme Court in the case of SreeKamatchi Amman Constructions Versus Divisional Railway Manager (Works) Palghat and Ors. reported in (2010) 8 Supreme Court Cases 767 had considered clause 16.2 of the General Condition of Contract which is identical to clause 16.3 of the General Conditions of Contract in the present matter. Clause 16.2 of the General Conditions of Contract considered by the Supreme Court is extracted below:
â9. Clause 16(2) of the General Conditions of contract governing the contract between the parties bars payment of interest and the same is extracted below:
16(2). 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 deposit in terms of Sub-clause (1) of this Clause will be repayable (with) interest accrued thereon.
(emphasis supplied)â
9. The Supreme Court in Paragraph 19 of the said Judgment has held as under:
â19. Section 37(1) of the new Act by using the words "unless otherwise agreed by the parties" categorically clarifies that the arbitrator is bound by the terms of the contract insofar as the award of interest from the date of cause of action to date of award. Therefore where the parties had agreed that no interest shall be payable, arbitral tribunal cannot award interest between the date when the cause of action arose to date of award.â
10. Perusal of the award indicates that though this issue was raised by the petitioner in the written statement, the learned arbitrator did not consider the same and has allowed the claim for interest contrary to and in the teeth of clause 16.3 of the general conditions of contract. The claim for interest is specifically prohibited. This claim also deserves to be set aside. The Supreme Court in the case of State of Haryana and Ors. Vs. S.L. Arora and Company reported in AIR 2010 SC 1511 in paragraph 18.3 held thus:
â18.3) If the contract provides for compounding of interest, or provides for payment of interest upon interest, or provides for interest payable on the principal upto any specified stage/s being treated as part of principal for the purpose of charging of interest during any subsequent period, the arbitral tribunal will have to give effect to it. But when the award is challenged under Section 34 of the Act, if the court finds that the interest awarded is in conflict with, or violating the public policy of India, it may set aside that part of the award.â
11. On perusal of the award, I find that the learned arbitrator has awarded compounded interest. It is not the case of either party that there was any provision in the contract for payment of compound interest. That part of the award allowing compound rate of interest in favour of the contractor also deserves to be set aside. It is made clear that the contractor would be entitled to claim simple interest at the rate of 18% p.a. awarded by the learned arbitrator from the date of the award till payment on all claims except claim no. 1.
12. In so far as other claims allowed by the learned arbitrator in favour of the contractor are concerned, perusal of the award indicates that the learned arbitrator has rendered finding of fact in favour of the contractor while allowing claims for the work done. In my view, such findings rendered by the learned arbitrator are not perverse and does not warrant interference under section 34 of the Arbitration and Conciliation Act, 1996 and this part of the award is upheld.
13. Petition partly succeeds in the above terms. There shall be no order as to costs.